Shares in Premier Foods fell almost 12 per cent on Tuesday after the maker of Hovis bread and Mr Kipling cakes reported that group sales in the first quarter fell by 5.1 per cent.

Non-branded sales were down 12.9 per cent as consumers switched to branded products that were on promotion rather than buying private label goods.

Adding to the company’s gloomy report was the news that sales of Premier’s core brands, such as Oxo and Bisto, had declined by 1.1 per cent.

“The consumer environment is not necessarily getting worse but it’s not getting better. We remain cautious,” said Jim Smart, finance director.

Premier also warned that an increasingly competitive environment could hurt its Hovis bread brand, which last year contributed 28 per cent of group revenues.

Premier Foods relaunched Hovis with a new recipe and TV advertising campaign in 2008, and it has gained market share since. But competitors Warburtons and Kingsmill have now started their own promotions in response.

Premier said that by raising its own promotional activity in the second half it will be able to return the brand to growth by the end of the financial year.

“When trading at Premier is as marginal as it is, any sort of reverse is going to disappoint the market,” said Martin Deboo, an analyst at Investec. “Hovis was the one star in its portfolio last year, so this is obviously not helpful.”

Robert Schofield, chief executive, said that the full year outlook remained unchanged and that net debt, which is currently £1.4bn, was expected to fall by £100m year-on-year in the first half. Analysts are forecasting 2010 pre-tax profits of £196m from revenue of £2.7bn.

Mr Schofield added that talks on a successor to the chairman, David Kappler, who announced in February that he would step down this year, were “well progressed”.

Shares closed down 3.55p on Tuesday at 26.6p.

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