Associated British Foods Earnings Call: Growth Amid Strain

Associated British Foods Plc ((ASBFY)) has held its Q2 earnings call. Read on for the main highlights of the call.

Associated British Foods’ latest earnings call painted a picture of strategic progress overshadowed by softer near‑term performance. Management highlighted solid advances at Primark, improving cash generation and continued shareholder returns, yet group adjusted operating profit fell 18% and EPS declined 15%, with sugar, Grocery and some Ingredients and Agriculture units under pressure.

Shareholder rewards continue despite earnings pressure

ABF kept its interim dividend unchanged at 20.7p, underlining confidence in cash generation despite weaker profits. The group also pushed ahead with buybacks, having repurchased £187m of shares so far this year and reiterating its plan to complete the £250m programme by year‑end.

Robust balance sheet underpins investment firepower

The group stressed its strong financial position, with leverage at 1.2x and net debt including leases around £3.0bn at the half‑year. Total liquidity of £2.2bn and a £1.7bn pension surplus give ABF significant resilience and room to invest through a volatile macro backdrop.

Primark gains share as UK shoppers return

Primark’s UK business was a clear bright spot, with sales up 3% and like‑for‑like growth of 1.3% in a difficult clothing market. Management reported market share gains, crediting better product ranges, sharper price perception and improved digital engagement for attracting value‑conscious customers.

Primark scale grows while margin guidance holds

Group‑wide, Primark delivered first‑half sales of £4.7bn, up 2% year on year, confirming the banner’s scale and growth potential. The adjusted operating margin came in at 10.1%, and management reiterated guidance for around a 10% Primark margin for the full year despite current markdown pressures.

Digital push strengthens Primark’s customer flywheel

Primark’s digital strategy is gaining traction, with website traffic jumping 37% in the first half and its CRM base rising by over 1m customers to more than 5m. The expansion of Click & Collect across Great Britain and the launch of a new app are designed to deepen engagement and drive store visits.

Store rollout and franchise model extend global reach

The company opened 11 owned Primark stores in the half, including five in the U.S. and four in Europe, taking the U.S. estate to 38 locations. A new Middle East franchise model is off to a strong start, with initial stores in Kuwait and Dubai trading ahead of expectations and a Manhattan flagship set to open in May.

Cash generation improves alongside disciplined capex

Free cash flow improved to £71m in the first half from £27m a year earlier, despite hefty investment. ABF deployed £534m of capital expenditure, around 40% into Primark, and still expects roughly £1.2bn of capex for the full year as it balances growth projects with financial discipline.

Selective strength in Food brands and niches

The Food division showed a mixed picture, with standout performances from international and speciality brands. Twinings, Ovaltine and World Foods delivered volume‑led growth, while Sports Nutrition surged 30% and Anthony’s Goods and Mazzetti each posted strong double‑digit advances.

Productivity and transformation underpin long‑term margins

ABF showcased a series of productivity initiatives, notably rolling out self‑checkout to about half of Primark’s estate, which is cutting store labour needs by around 10%. New automation projects and depots, including a nearly completed facility in Northern Italy, aim to lift supply‑chain efficiency and support future margin recovery.

Group profit and EPS slide amid operational headwinds

Group adjusted operating profit fell to £691m, an 18% drop at constant currency, while revenue of £9.5bn was flat on a reported basis and down 2% at constant rates. Adjusted EPS declined 15%, only partly cushioned by share buybacks, underscoring the impact of margin pressure and weaker divisions.

Primark like‑for‑like softness and markdown pain

Despite strategic progress, Primark’s overall like‑for‑like sales fell 2.7%, with continental Europe particularly weak at minus 5.6%. Gross margins were hit by heavier markdowns as the group cleared excess stock, leading to year‑on‑year margin compression even as it continued to invest in the business.

Grocery profits dented by U.S. oils slowdown

The Grocery arm suffered a 20% decline in adjusted operating profit at constant currency, driven mainly by U.S. oils. Brands such as Mazola and the Stratas joint venture saw demand from key Hispanic consumers weaken sharply, highlighting sensitivity to spending cutbacks in core segments.

Sugar swings to loss with darker full‑year outlook

Sugar was a major drag, with sales down 9% and an adjusted operating loss of £27m in the first half. Prolonged low European selling prices have forced management to reset expectations, and they now anticipate the Sugar unit will post an adjusted operating loss for the full year.

Agriculture and Ingredients feel the pinch

Agriculture profit more than halved to £6m after the loss of a large compound‑feed customer and weaker performance from the Frontier joint venture. In Ingredients, AB Mauri’s yeast and bakery unit was hit by softer U.S. demand and weaker specialty yeast, adding to the group’s profit pressures.

Rising costs and geopolitical risks cloud outlook

Management flagged the cost impact of conflict‑linked disruptions, including higher energy, freight, fabric, packaging and agrichemical expenses. While hedging should make the 2026 cost impact manageable, they warned that sustained input inflation and fragile consumer demand remain key medium‑term risks.

Inventory mis‑steps drive markdowns and process changes

Executives acknowledged overbuying and mis‑judged allocation, particularly around winter and weather‑sensitive ranges, which inflated markdown activity. The company plans to reengineer its buying and allocation processes to better match stock to demand and reduce future margin leakage.

Working capital and net debt reflect seasonal strain

Net debt including leases climbed to about £3.0bn at the half, with leverage rising but still within the group’s capital policy. Management pointed to the seasonal working capital peak at H1 as a structural constraint, though they underlined that liquidity remains robust.

Trading volatility and consumer slowdown in Europe

The recent trading backdrop has turned more volatile, with a clear slowdown in European consumer demand weighing on Primark sales. Management noted calendar effects such as Easter timing but cautioned that any further deterioration in consumer sentiment would represent a material risk for the second half.

Guidance: H2‑weighted recovery but below‑par year

ABF kept overall guidance largely intact, still expecting group adjusted operating profit and EPS to finish below last year, with a heavier contribution from the second half. Primark is guided to maintain around a 10% full‑year margin and modest growth, Grocery profit should land moderately below last year, Ingredients guidance stays unchanged, while Sugar is now expected to post a full‑year loss, all underpinned by continued investment and a solid balance sheet.

ABF’s earnings call offered a blend of resilience and caution, with Primark’s strategic progress and the strong balance sheet offset by profit declines and a weak Sugar and Grocery backdrop. For investors, the story hinges on whether H2 delivery, cost control and productivity gains can outrun consumer softness and lingering inflation to stabilise earnings into next year.