By James Davey
LONDON (Reuters) - Associated British Foods (L:ABF) cautioned on Tuesday that sugar profits would fall this year, hurt by lower European Union prices, taking the shine off a 20 percent jump in the group's 2016-17 earnings.
Shares in AB Foods, which also owns the Primark fashion chain and major grocery, agriculture and ingredients businesses, fell as much as 4.5 percent as the outlook for sugar outweighed what was otherwise a strong set of results.
"We expect the profits of sugar to come down in the current year," Chief Executive George Weston told Reuters.
He said although the sugar business would benefit from higher volumes and lower costs in 2017-18, that would not be enough to offset the effect of much lower EU prices.
Some analysts also said sentiment was dented by Primark's move to reduce the size of three stores in its key growth market, the United States.
The group as a whole expects earnings progress in the 2017-18 year.
AB Foods reported adjusted operating profit for sugar of 223 million pounds in 2016-17, a more than five fold increase on the previous year.
That outcome and strong growth at Primark drove group adjusted earnings per share (EPS) for the year to Sept. 16 of 127.1 pence - ahead of analysts' average forecast of 125.7 pence, according to Reuters data, and 106.2 pence made in 2015-16.
Group revenue rose 15 percent to 15.4 billion pounds, while adjusted operating profit was 1.36 billion pounds, up 22 percent, with Primark contributing 735 million pounds. The group's dividend rose 12 percent to 41 pence and it ended the year with net cash of 673 million pounds.
Prior to Tuesday's update shares in AB Foods, majority owned by Weston's family, had increased 35 percent over the last year.
"In our view valuation is catching up with events," said Investec analyst Alistair Davies, who put his "buy" stance under review.
Weston said Primark's like-for-like sales were positive in the first seven weeks of the new financial year, bucking the trend of the wider market.
"I don't know how many other retailers bought their prices down last year rather than pushed them up...I think the ranges have never been better," said Weston.
An industry survey published on Tuesday showed UK retail spending fell last month at the fastest pace for any October since 2008 as consumers curbed purchases of non-food goods in the face of rising inflation.
Department store chain John Lewis (JLP.UL) has posted six straight weeks of sales declines, while clothing retailer Next (L:NXT) missed analysts' quarterly forecasts.
Weston sees potential benefits to AB Foods from post-Brexit changes in legislation, trade agreements and UK agricultural policy. But he said the group shared the concern of other businesses about the risk of abrupt changes to the UK's customs procedures.
He said he would welcome a lengthy transition period beyond March 2019.