UPDATE: McBride Sees Rising FY 2011 Costs; Shares Down 20%

24th Jun 2010 11:52

(Adds share price, analyst comment, detail.) By Hannah Benjamin Of DOW JONES NEWSWIRES LONDON (Dow Jones)--McBride PLC (MCB.LN) Thursday said it expects raw materials costs to rise by up to 6% in fiscal 2011, but it won't be able to pass the rises on to customers straight away. The firm, which makes own-brand household and personal care products for companies including U.K. supermarket chain Asda, said prices for key raw materials are expected to rise 4% by the end of June compared with December. Its markets will likely remain volatile and there is "significant risk" material costs will rise another 4% to 6% in fiscal 2011, McBride said in a trading statement. "Our business model is designed to manage raw material increases effectively, although inevitably there will be a delay before recovery from customers," McBride said. At 1039 GMT McBride shares were trading 35.4 pence, or 20%, lower at 143.8 pence, underperforming a 0.9% drop in the FTSE 250 index. Altium Securities analyst Iain Staples told Dow Jones Newswires that the drop in the company's share price is most likely due to the lag in passing on increased costs to customers and the risk that price-conscious consumers will buy alternative products if the price of McBride's own-label goods climb. "They'll be having to renegotiate with supermarkets on most likely a three-month basis and their margins, which are already quite thin, are now coming under pressure too," Staples said. "The question is how much of the cost rises they can actually pass on. They'll probably only be able to pass on 1% to 2% but the difficulty lies in the amount of promotional activity coming through. People can now buy good brands for a third of the price rather than having to buy own-brand stuff, so if McBride puts prices up consumers will just buy elsewhere," he said. Staples said he provisionally expects to cut his fiscal 2011 pretax profit forecast for McBride by 2% to 3%. His target price falls to 230 pence from 270 pence, but as this still offers about 28% upside he keeps a "buy" rating on the stock. McBride also makes products like Tesco PLC (TSCO.LN) supermarket own-brand shaving gel and Asda dishwasher tablets. The company expects operating profit for its 2010 fiscal year, ending June 30, to be in line with expectations, although it didn't say what these were. It made a fiscal 2009 operating profit of GBP27.4 million. McBride has begun a further restructuring project in the U.K., which will save GBP4 million in annualized costs. The initiative will result in a fiscal 2010 exceptional charge of about GBP14 million. -By Hannah Benjamin, Dow Jones Newswires; 44-20-7842-9298; [email protected] (END) Dow Jones Newswires June 24, 2010 06:52 ET (10:52 GMT)