UPDATE 2-Sugar prices to drag on profit growth for Primark owner AB Foods

* Group forecasts 2013-14 adjusted EPS ahead of 2012-13

* Sees 2013-14 sugar revenue and profit substantially lower

* Sees 2013-14 Primark sales up 17 pct at constant currency

* Shares fall up to 5 pct, up 59 pct over past year (Recasts with detail, FD and analyst comment, shares)

By James Davey

LONDON, Sept 8 (Reuters) - Falling sugar prices are set tohold back earnings growth at Associated British Foods inthe next two years, offsetting continued strong performance atthe group's Primark discount fashion chain.

On Monday AB Foods maintained its guidance for its financialyear to Sept. 13, forecasting adjusted earnings per share aheadof the 98.9 pence made in 2012-13.

It said the adverse effect of lower sugar prices and apreviously flagged hit of 50 million pounds ($80.9 million) onthe translation of overseas results arising from thestrengthening of sterling would be offset by strong operatingprofit from Primark and its grocery business, as well as animprovement at its ingredients operation.

Shares in AB Foods, 55 percent owned by the Weston family,have soared 59 percent over the past year, mainly on the back ofPrimark's success.

However, they fell up to 5 percent on Monday after the groupcautioned that the world sugar price continues to beunsustainably low at an average of 17 cents per pound, wellbelow the global average cost of production.

European sugar prices have also been driven down bycompetition among producers positioning for growth in newmarkets ahead of the removal of quotas in 2017.

"We saw a big decline in full-year 2013-14 (sugar revenueand profit); we're going to see a further decline in full-year2014-15," AB Foods Finance Director John Bason told Reuters.

The sugar division made adjusted operating profit of 435million pounds in 2012-13. Analysts at Jefferies forecast thefigure more than halving to about 200 million pounds for 2013-14and a decline to about 140 million pounds in 2014-15. They havea "hold" rating on the stock.

SALES BOOST

The group said that Primark's full-year sales are expectedto be 17 percent higher than the previous year at constantcurrency rates and 16 percent ahead at actual exchange rates.

That growth has been driven by a net increase in retailselling space of 1.2 million square feet, an estimated 4.5percent rise in sales at stores open at least a year and highersales densities in new stores. The full-year operating profitmargin is forecast to be slightly higher than the previous year.

By contrast, Marks & Spencer, Britain's biggestclothing retailer by annual sales, has posted 12 straightquarters of declining sales in its general merchandise division.

Primark now trades from 278 stores in nine Europeancountries and said it is on track with previously announcedplans to enter the United States market towards the end of 2015.

"The way things are going, M&S is soon going to be overtakenby Primark, with Primark set to make over 600 million poundsoperating profit on sales of 5 billion pounds in the year aboutto finish," independent retail analyst Nick Bubb said.

AB Foods forecast "good growth" in full-year operatingprofit at its grocery division, which includes Kingsmill breadand Twinings tea, and that revenue from the ingredients business would be ahead of last year on a constant-currency basis.

Shares in AB Foods were down 128 pence at 27.82 pounds at0906 GMT, valuing the business at about 22 billion pounds.($1 = 0.6183 British Pounds) (Editing by Kate Holton and David Goodman)