AB Foods fails to win friends with this news

Our head of markets explains this unspectacular update which has unwound gains made earlier this month.

There are further signs of progress at Associated British Foods (LSE:ABF), where the benefits of diversification have resulted in the stronger parts of the business picking up the slack from the more poorly performing units.

AB Sugar, for example, will suffer a lower adjusted operating profit figure for the 52 weeks to 14 September, following lower sugar prices in the EU and exacerbated by a poor crop in China. 

Meanwhile, the strength of the US dollar will mean that the cost of goods is higher and hit margins at Primark next year, although on the flip side this dollar strength has resulted in an overall translation gain for the group as profits are converted back to sterling. 

The retail business in the form of budget clothes chain Primark will, of course, remain subject to difficult economic conditions, especially in the UK, while the vagaries of fashion are a perennial threat. In addition, the dividend yield of just 1.9% provides little incentive to income-seeking investors.

Nonetheless, the overall performance has been bolstered by an anticipated strong showing from Agriculture, Ingredients and, in particular, Grocery where profit growth is described as "excellent". 

Net cash has risen sharply in the period, due in part to the previous completion of a number of projects. 

Source: TradingView Past performance is not a guide to future performance 

In terms of potential future growth, it is Primark which tends to grab the headlines, and within that part of the business, the attempted foray into the notoriously challenging US market. Primark will open its tenth store in the autumn, with further openings planned. The growth of the US business is also described as strong, which should significantly reduce the operating loss as the business begins to gain traction. 

In the meantime, Primark as a whole is underpinned by a reasonable UK performance, with sales adding 4% accompanied by an improved fourth quarter and a 5% improvement in eurozone sales, where the only blot on the landscape is in the economically troubled area of Germany.

However, sales on a like-for-like basis were unimpressive, down by 1% in Primark's UK business and by 2% across the division.

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In all, the company continues to be able to shift its focus between units dependent on prevailing economic conditions and trading performance, while the potential for Primark in the US is an intriguing prospect, with the initial signs remaining positive. 

The shares have hardly had a blockbusting run of late, having added just 2.4% over the last year as compared to a FTSE 100 index which is flat over the period. But the stock remains well regarded by the market for both historic and prospective reasons, with the general view of the shares remaining at a 'buy'.