Sodexo's Shares Shine As Sales Growth At French Group Accelerates
Shares in Sodexo surged after the French food services company delivered a stronger-than-expected rise in first-half revenue as growth accelerated in North America during the second quarter.
Sodexo, which is the world's second-largest catering company after Compass Group, stuck to its full year goals although investments and other costs associated with renewing a major US Marine Corps contract weighed on profit margins.
CEO Denis Machuel said first-half results were "encouraging", although he cautioned that recovery in the US would remain "challenging" in the second-half, and he did not rule out exiting some contracts to protect margins.
Sodexo's results during the last year have been pressured by weakness in north America, where cost savings have not been as high as expected and several large contracts have taken time to pay off.
Underlying operating profit rose 3.1% from last year to €647 million, giving an operating margin of 5.9%, down from 6.1% a year ago.
Revenues reached €11.045 billion, marking a 3.1% rise which beat analysts' expectations for 2.7% growth in an Infront Data poll for Reuters.
In the second quarter alone, revenue growth accelerated to 3.6% as business in North America improved. Europe remained solid while developing economies were also strong.
Sticking To Targets
Sodexo kept its forecast for organic revenue growth of between 2% and 3%, and an underlying operating profit margin of 5.5% to 5.7% for the full year ending August 31, but struck a slightly cautious tone for the second half of its financial year.
Machuel told a call with journalists that while full year revenue growth was likely to be at the high-end of the guided range, the profit margin would be at low-end.
Sodexo is banking on a renewed focus on food contracts, increased productivity and cutting down on its use of temporary workers, to contain costs and improve its overall results.
In September, the group told investors that it planned to deliver revenue growth of above 3% by 2019/20, and then improve margins to over 6%, and Sodexo is still sticking to those goals.