WeightWatchers deal fails to lift Greencore shares

FOOD GROUP Greencore has signed a 10-year licence agreement with WeightWatchers, which will see it produce a range of low-calorie chilled foods for the US market.

Greencore will pay WeightWatchers a royalty fee.

This will allow it to manufacture and market WeightWatchers-branded chilled products exclusively through Home Made Brand Foods, the US company it bought in April.

In an interim management statement to the stock market yesterday, the Iseq-quoted company said its convenience food sales had remained "solid" in the four months to the end of July, despite a sharp deterioration in consumer sentiment in the UK, the main market for its food, and the impact of a weak sterling on its earnings.

Although the company's trading update did not contain any nasty surprises for investors, it was poorly received by the market, with the company's share price plunging 8.7 per cent.

The stock closed at €2.10, down 20 cents.

Market dealers said some of the losses could be attributed to general negative sentiment among investors on what was, all-round, a poor day for the Irish stock market.

However, investors also reacted badly to Greencore's statement on currency translation.

After contributing to a 14 per cent drop in pre-tax profits in the half year to the end of March, further unfavourable currency movements soured its performance in the period to the end of July.

The sandwich and cake-maker's British sales were 7.2 per cent ahead compared to the same period in 2007 on a constant currency basis, with volumes rising 3 per cent and prices up 4.2 per cent.

However if the sterling/euro exchange rate movements are factored in, there was a 7.5 per cent decrease in turnover to €284 million.

In its outlook statement, Greencore said consumer sentiment in the UK had "deteriorated markedly since June" and that poor weather had also dampened demand.

The group's ingredients and related property division, which mostly comprises its malt business and the sites of its former sugar factories, is trading well, although analysts noted that a difficult barley harvest this summer could hurt the group's ingredients business next year.

Overall, Greencore said it was on track to deliver earnings per share (eps) of between 22.8 cents and 25 cents, in line with market expectations.

Greencore also announced that it would record an exceptional charge of €10 million by switching production of ready meals and frozen desserts from two British plants to larger facilities.

Davy analyst John O'Reilly said the potential of the US initiative should outweigh concerns about the retail environment in Britain.

The US WeightWatchers licence was a significant one for Greencore, he said.

Mr O'Reilly said Greencore has identified the underdeveloped US convenience food market as its main target for expansion. It will begin market-testing WeightWatchers chilled meals at selected US retailers in early 2009.

The food group already holds a licence for WeightWatchers chilled foods in the UK.

Under the WeightWatchers points system, dieters are set personalised targets for the number of "points" they can consume in a day.

This encourages its members to buy its branded products, which have an assigned points value on the label.