The cost of bacon butties and sausage rolls could be on the rise as pig prices hit record highs and show no sign of falling back.
Pork specialist Cranswick saw its shares drop after it warned profits would be hit by the higher prices, as well as the costs of setting up a gourmet pastry business in Yorkshire.
The company has fallen 51p to £10.95, a decline of more than 4%, after it said pig prices reached a new peak in July and remained at this level through the second quarter.
It hoped to regain some of the costs by efficiency improvements, and increased volumes but added:
The extent of and time lag in recovering these higher input costs, together with the pastry start-up costs, are expected to result in operating profits for the first half of the year being broadly similar to those of the corresponding period last year.
With pig prices likely to remain high for the whole of the current year, it also expected full year operating profits to be flat.
The news sent analysts scurrying to cut their profit forecasts. Damian McNeela at Panmure Gordon said:
Cranswick delivered an acceleration in second quarter sales growth with overall sales for the first half around 15% higher. However the continued high price of pig prices during the period has weighed on margins resulting in around 6% downgrades to our operating profit forecasts to £50m for the full year. We would expect the company to make good progress in recovering the inflation during the second half and further operational efficiency from its strong revenue performance to result in an improved margin performance in 2015. We maintain our hold recommendation but reduce our target price from 1200p to 1140p.
Charles Hall at Peel Hunt also had a hold recommendation, saying:
The pig price has been rising all year, because of the change in EU regulations and the growing focus on buying British. With all of the retailers emphasising this theme, there is a clear mismatch between supply and demand as the UK is only around 50% self-sufficient. The pig price is now 170p per kg, versus 155p per kg at end of March, and is not expected to drop back.
As part of the solution to this squeeze, Cranswick has altered tack and is becoming more vertically integrated. Further recent purchases of pig breeding farms will take the company's production up to 7,000 pigs per week; this equates to around 15% of total throughput. The company will also be looking to push through price increases to recover the increased input cost.
