Greencore to benefit from convenience food but horsemeat shadows
Convenience foods revenues rose by 1.8% to £542.1M with operating profit growth 4.7% to £32.1M.
Panmure Gordon analyst Damian McNeela said the firm was “well placed to capitalise on the long-term trends towards convenience food”. Greencore’s shares had risen by 16% in the year to date, outperforming the UK market by 1%, he added.
Commenting on the firm’s interim results for the 26 weeks ended March 29, McNeela noted: “Greencore’s interim results are modestly ahead at the operating profit line, rising by 6.3% to £33.7M. That was aided by improved cake and desserts and ingredients profitability and comfortably ahead at the adjusted EPS [earnings per share] level, rising by 10.9% to 6.1p benefitting from lower interest costs.”
Group revenue was up by 0.9% to £572.9M.
Improvement in cakes and desserts
While the UK market remained challenging, McNeela predicted adjusted profit before tax growth of 10% in the financial year 2013 – generated by continued improvement in Cakes and Desserts – and further US expansion.
Nicola Mallard, analyst with Investec, said Greencore had delivered a solid set of results, which were a little ahead of expectation, in a challenging climate and against some tough comparatives.
As growth in UK grocery had slowed and horsemeat impacted ready meal consumption, the US was “stepping into the role of main profit growth generator. US acquisitions are integrated and the Starbucks business up and running,” she said.
Both Panmure Gordon and Investec repeated their ‘buy’ advice on Greencore stock.
Meanwhile, Greencore’s chief financial officer Alan Williams told FoodManufacture.co.uk that 2012 “was a year of transformation for us”.
In the UK, the firm had completed the integration of Uniq with the restructuring of the desserts business and the disposal of the Minsterley facility. Also, the integration of International Cuisine was said to be progressing well.
In the US, Williams said its MarketFare and Schau acquisitions had been integrated. Also, Greencore was supplying Starbucks from four of its six facilities since the end of April.
‘Strong growth’
He said that the firm was targeting a US food industry channel – convenience food – that was showing “strong growth”. Many petrol forecourt retailers were looking to offset falling tobacco sales by boosting sales of convenience foods, he added.
But Williams acknowledged that in the UK the horsemeat crisis had dented Greencore’s results. “Greencore makes predominantly beef-based ready meals – Italian chilled ready meals,” he said. “According to the latest Neilson data, at the height of the crisis, this segment was down 15–20% week-on-week.” But that drop could partly reflect promotions in the same period of last year, he added.
Nevertheless, while there had been some recovery in the ready meals segment, it was still about 3–4% down, said Williams.
Patrick Coveney, the firm’s ceo, acknowledged the challenging UK retail environment. “Although we expect market conditions to remain tough, we remain confident in our ability to deliver adjusted earnings per share growth for the financial year in line with expectations,” he said.
