Elior's ELIOR.PA shares slumped 11% after the French caterer reinstated a lowered outlook for the fiscal year and its half-year margins took a double hit from the pandemic and rising inflation.
The catering sector, which is still recovering from the COVID-19 crisis, now faces soaring energy and food prices triggered by the invasion of Ukraine by Russia, both major wheat suppliers.
The group recovered somewhat in the first half, thanks to strong sales momentum, and its rate of customer retention was stable at 91.3%, having previously sagged. But rising inflation put pressure on operating margins already affected by the pandemic.
Elior said it was deploying a "bold" margin recovery plan that included renegotiating price tariffs, reviewing its contract portfolio, tighter cost controls and new offerings with shorter menu options and seasonal products.
"Courgette is cheaper in summer, so it should be used in that season, and strawberries in winter are a bad idea," Elior's interim chief executive, Bernard Gault, told reporters.
French rival Sodexo EXHO.PA in April said it was negotiating and changing suppliers to deal with rising food prices.
"Unfortunately, we have a significant number of contracts that are in loss, particularly public service contracts," Gault said, adding the group had already started terminating some of those that were heavily unprofitable.
"This might help the EBIT margin but is going to mean retention is still (going to be) down and organic revenue hurt," Bernstein analyst Richard Clarke said about the plan, referring to earnings before interest and tax.
The firm, which supplies businesses, schools, prisons, hospitals and care homes, forecast organic sales growth of at least 16% for the 12 months to 30 September. In November it targeted at least 18%, but it suspended guidance in January.
On Wednesday 18 May it predicted full-year earnings before interest, taxes and amortisation (EBITA) near breakeven. In its suspended guidance it had seen an EBITA margin of 2% to 2.5%.
EBITA Margin Target And Divident Payments Resumption
The group also cut its 2024 EBITA margin target to approximately 4% from a previous forecast of 4.6%, and delayed the resumption of dividend payments by a year to fiscal 2023-2024.