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The Associated British Foods (LSE: ABF) share price fell 8% in morning trading Tuesday (29 April) on the back of mixed first-half results.
The company’s sugar business is the culprit. It’s suffering from weak European sugar prices, and losses made by the company’s Vivergo bioethanol business. Other than sugar, CEO George Weston spoke of “a robust performance in four of our five divisions.”
The results missed market expectations, with adjusted operating profit falling 12% and earnings per share down 19%.
Fingers in pies
This is always a risk when a company operates so many different divisions. On the one hand, it can provide some much-needed diversification, which is an essential for long-term investing.
But against that, weakness in one business can dominate the headlines and lead to a negative market overreaction. Hmm, maybe that’s actually another benefit, as it might offer cheap buying opportunities for the more rational investors among us.
The usual star of the show, Primark, might also have been seen as a bit mixed. The CEO said: “Primark delivered good growth in Europe and the US, with continued consumer caution in the UK. Primark’s profit and margin delivery was strong and our low-cost operating model is working well.“
That’s great, apart from the UK thing. I expect that might figure disproportionately high in the judgement of UK investors.
Outlook
Apart from the sugar business, ABF says its outlook for the year is unchanged. And it “reflects the absorption of a US tariff impact in H2 2025, based on what we know today.”
The board expects Primark to show “low-single-digit sales growth for the full year.” The company expects the UK business to remain tough, but adds that it’s seeing some signs of improvement. In the current economic climate, that seems upbeat enough for me.
The rest should just carry on unchanged, except for “an adjusted operating loss of up to £40m” expected in the sugar business. For a company with annual operating profit of around £2bn, that seems like relatively small change to me. I’d say it’s exactly the kind of short-term blip that diversification is made to handle.
I almost forgot. Associated British Foods will pay an interim dividend of 20.7p per share, the same as last year. The forecast yield stands at 2.8%.
What next?
The ABF share price fall on the day might be disappointing. But it comes after a ramp-up in the weeks leading to the results release. Rather than any great collapse, it’s only back to where it was on 14 April.
This is a company that investors often tend to assume will exceed expectations. And when the opposite happens, we can see a result like this one on the day. It’s a company in which parts can go though short-term ups and downs without really harming the overall long-term outlook.
I do think economics and politics could weigh on the share price for the next year or two. But for investors who’d been considering buying before this update, I don’t think anything is significantly different now and it’s worth a closer look.
