Tate & Lyle – sales slowdown

This was driven by softer consumer demand and order timing, combined with the group’s decision to pass on lower costs customers.

The renewal of customer contracts for the 2024 calendar year is expected to deliver a return to volume growth in the fourth-quarter.

Revenue guidance has been marginally lowered, now expected "slightly lower" than the prior year. There was no change to cash profit (EBITDA) expectations, for growth of 7-9%.

The shares were down 1% in early trading.

Our view

Third-quarter results were a slight disappointment for Tate & Lyle, who create ingredients like sweeteners and fibres to improve the nutritional value of food and drinks. The company’s continued to see reduced demand for some end products and persistent de-stocking by customers. That’s led them to forecast year end revenues to be slightly lower than last year. We’re continuing to monitor the potential impact from new weight loss drugs, though we remain sceptical about whether these will move the dial.

On a positive note, the Group's making good on its promise to streamline operations and focus on the most profitable parts of the business. The margin benefits are coming through, and an underlying cash profit (EBITDA) margin of 20.8% over the first half was a step up from last year, which itself saw an improvement.

The core business is in food & beverage solutions, with smaller units focusing on European sweeteners and the sugar alternative Sucralose. But it's in the core business, specifically solution-based partnerships, that we see as a key growth driver. This is where it partners with customers to create bespoke solutions to their dietary and nutritional needs. Deeper relationships and closer ties add an element of stickiness to the business, and enable Tate & Lyle to leverage its technical expertise.

Acquisitions and expansions are a key part of this plan, and we've seen a ramp-up in internal and external investment. Cash flows are also strong enough to support some well-timed debt repurchases, bringing down interest costs, which is helping to support the margin expansion. The balance sheet is strong enough without these actions, but it's refreshing to see some prudent capital allocation supporting longer-term goals.

The sale of Primary Products last year, now in the form of a joint venture called Primient, was part of the solutions led revamp. Retaining a large stake means Tate still has interests in North and Latina America, where it operates. Last year was tricky, with performance hurt by operational challenges and higher costs. But demand looks robust, and a successful round of price hikes means the outlook is promising. This'll be a key driver of cash flow as dividends from Primient get passed on to Tate.

The renewed focus on speciality ingredients and solutions, strong management team and a balance sheet with enough firepower to expand all give scope for optimism. The valuation, roughly 11 times expected earnings, isn't too demanding and has come down over the quarter. In the short term, volume challenges and the potential impacts from new weight loss drugs continue to loom heavy overhead. It'll take some knockout performances for sentiment to shift.