Pioneer Food Group shares sank by the most in seven years as a surge in the dividend payout by South Africa's second-largest food producer was outweighed by its warning that drought and currency weakness in the country would crimp its margins.
The maker of Weetbix cereal and Liqui Fruit fell as much as 10 per cent, the most since October 2008, and was down 8.9 per cent in Johannesburg.
Profits during the fiscal year contrasted with a downbeat outlook from the company, with earnings excluding one-time items up 16 per cent at 1.2 billion rand, or 6.65 rand a share.
The stock “was priced for perfection” before the earnings, Sumil Seeraj, an analyst at Standard Bank Group, said at a company investor presentation in Johannesburg.
Pioneer has boosted earnings even as South Africa’s worst drought since 1992 pushed up local prices for grains it uses as raw materials such as corn by more than 50 per cent this year. The drought has also dragged on already sluggish growth in the continent’s second-largest economy, which is expanding at its slowest pace since a recession in 2009.
“The low growth and competitive environment, exacerbated by cost push due to rand weakness and drought conditions, will place significant pressure on volumes and margins,” Paarl, Western Cape-based Pioneer said in its statement.
Pioneer also faces a fight for market share in the bakeries business from Tiger Brands, South Africa’s largest food producer, Standard Bank’s Seeraj said.
Volume growth for bread sales slowed to 10 per cent for the full year, from 13 per cent in the six months through March, according to a company presentation.
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