ii view: Hilton Food Group warns again

This FTSE 250 company has more than halved in value year-to-date. Buy, sell, or hold?

Autumn trading update

ii round-up:

Food processing and packing company Hilton Food Group (LSE:HFG) today warned of lower full-year profits given both challenges for its UK seafood business and the tough economic environment. 

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Despite progress, negotiations with its retail customers regarding unprecedented seafood inflationary costs had proved slower than expected, with the process now continuing into early 2023. 

Hilton Food shares fell by 15% in UK trading to leave them down by more than half year to date. Food producer and owner of Primark Associated British Foods (LSE:ABF) has fallen by just over a quarter during 2022, while meat supplier Cranswick (LSE:CWK) is down by just under a fifth, similar to the fall for the FTSE 250 index. 

Hilton operates across more than 20 food processing, packing and logistics facilities in markets including Europe, Australasia, and North America.

Volumes and revenues during the period remained in line with management expectations, with revenue growth year-over-year seen despite inflationary pressures providing a headwind.

At its European business and including UK seafoods, several cost savings initiatives had been introduced as it continued to invest in automation; the benefits of which are expected come 2023.  

Adjusted pre-tax profit for its last full financial year to 2 January rose 13% to £67 million. A full-year trading update is scheduled for 12 January. 

ii view:

Established in the UK to package meat, Hilton has subsequently grown by establishing plants overseas, entering joint ventures and expanding its product offering. Each of its packing plants is operated on a dedicated basis for its customers. Previous acquisitions include Fairfax Meadow, the UK’s biggest butcher to the hospitality industry, and Dalco, a Dutch vegetarian and vegan company. 

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For investors, the rising cost of food given such factors as higher energy bills in farming or fishing cannot be ignored, with suppliers and retailers arguing about who should reduce their profit margin to aid product prices, and consumer demand still playing out. The uncertain economic outlook including rising interest rates and a consumer cost-of-living crisis needs considering, as do currency moves, with food imported from overseas now dearer given the weaker pound.  

On the upside, food arguably provides some defensive characteristics as consumers must eat no matter what the economic backdrop. Diversity of both its product offering and geographical regions operated also warrants consideration, as does ongoing investment and cost saving initiatives.  

After issuing two profit warnings in quick succession, investors are right to be cautious. Hilton is a good business, but economic conditions are unhelpful right now. Its immediate future depends on how quickly it can make significant costs savings and when the economy begins to improve.  

Positives: 

• Geographical diversity
• Attractive dividend yield (not guaranteed)

Negatives:

• Rising costs
• Uncertain economic outlook

The average rating of stock market analysts:

Strong buy