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Tate & Lyle shares fall to three-year lows

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Tate & Lyle made its name for sugar but has since diversified

Tate & Lyle made its name for sugar but has since diversified

Tate & Lyle made its name for sugar but has since diversified

Tate & Lyle shares tumbled to a three-year low after it cut its full-year profit forecast, blaming fierce competition for its Splenda sweetener and supply chain problems caused by a severe U.S. winter.

The British company, which sells ingredients to packaged food and drinks makers, has had to renegotiate supply contracts at lower prices to protect market share in the face of intense Chinese competition.

It said on Tuesday it expected prices of its Splenda sucralose to fall by 25 percent this year, rather than the 15 percent decline it forecast in February.

It also said the prolonged and harsh winter in the United States disrupted operations at its corn plants, causing global supply problems which ate into profits. The delays meant the firm had to deliver to some customers by air, rather than by shipping, and it said it was still working to catch up.

"If we had to air freight stuff, we air freighted. That cost us money," said Chief Executive Javed Ahmed.

Shares in Tate & Lyle were down 16.5 percent to 611 pence at 1342 GMT, more than wiping out the gains they had made since the February price warning.

"We are sufficiently concerned about the timeline to turn around sucralose pricing and the supply chain management issues to warrant a more negative stance on the shares," said Canaccord Genuity, which downgraded the stock to "sell" from "hold".

"The fact that Tate has issued such a significant profit warning within two months of the last guidance update points to a serious lack of visibility, not only within one of its end markets (sucralose) but also internally."

Canaccord said questions over management credibility should plague the stock moving forward, but that speculation that it could now be a takeover target might limit the downside.

Tate & Lyle said it now expects adjusted pre-tax profit for the year to end-March 2015 in the range of 230 to 245 million pounds ($377-$402 million).

That is well below analysts' expectations for 293 million pounds, according to a Reuters poll of 13 brokers - based on the company's forecast in July for profit slightly below that of fiscal 2014's 322 million pounds.

"Clearly our performance in the first half has been extremely disappointing," Ahmed said on a conference call. The company is due to report results for the first half on Nov. 6.

VOLATILE

Tate & Lyle generates most of its sales from bulk ingredients like corn syrup and industrial starches, where prices are volatile due to fluctuating commodity costs and intense competition.

The company has been moving more into higher-margin specialty ingredients like oat proteins and artificial sweeteners that are in higher demand by food companies looking to make their products healthier.

Explaining the roughly 50 million pound fall in the profit outlook, Ahmed said about 20 to 25 million was related to the worsening outlook for sucralose pricing. About 30 million was from what he called a "one-off" issue related to the supply-chain problems which incurred extra costs in the second quarter as it scrambled to service customers.

"The manufacturing and supply chain challenges we faced have highlighted the need for us to look in detail at our planning and supply chain processes and I've asked (new chief financial officer) Nick Hampton to take the lead on that," Ahmed said. Hampton joined three weeks ago from PepsiCo.

"Whilst these are non-recurring costs, the fact that disruption from last winter is still being resolved is surprising and disappointing," said Citi analysts in a note.

Online Editors