September 6, 2018 / 6:41 AM / a year ago

UPDATE 2-Sodexo shares fall on concern over slow recovery

* Targets organic revenue growth above 3 pct by FY 2019/20

* Maintains full-year 2017/18 goals

* Shares down 4 pct, new targets disappoint investors (Adds stock reaction, analysts comments)

By Dominique Vidalon

PARIS, Sept 6 (Reuters) - French food services and facilities management group Sodexo vowed to accelerate its sales and profit growth under its new strategy plan but its shares fell on concerns the road to recovery would be long.

Shares in Sodexo, the world’s second-biggest catering company after Compass Group have come under strong pressure this year after warnings mostly related to weaknesses in the North American business where cost savings have lagged and several large contracts have taken time to pay off.

Sodexo said on Thursday it planned to deliver revenue growth above 3 percent by fiscal year 2019/20, and then return to an underlying operating profit margin above 6 percent.

The company, which is holding a Capital Markets Day in Paris on Thursday, reiterated its forecast for organic revenue growth of between 1 percent and 1.5 percent for the full 2018 fiscal year, and an underlying profit margin of around 5.7 percent.

“We have clear action plans and execution capabilities in place and are highly focused on implementing our strategy to return the group to sector-leading growth sustainably,” CEO Denis Machuel said.

Machuel, who became Sodexo’s boss in January, had reshuffled the executive committee to improve client focus and efficiency.

Its clients range from the Royal Ascot Racecourse in England to the U.S. Marine Corps.

The new strategy includes a renewed focus on food contracts, improving productivity through better planning and cutting the use of temporary workers to help contain costs. It also plans to simplify reporting to measure progress better across businesses and strengthen its purchasing procedures.


Nevevertheless Sodexo shares were down 4.4 percent by 0825 GMT as analysts fretted over what they saw as uninspiring goals.

“Financial targets out to 2020 are relatively muted and would suggest it will take time for any material improvements to be delivered,” RBC Capital Markets in a note.

“We believe the new CEO has a big job to turn things and we would continue to be cautious and prefer Compass,”

RBC rates Sodexo “underperform” and Compass “outperform”.

“Sodexo’s statement ahead of its CMD today confirms no radical strategic changes and a slow sales-led recovery ,”said Morgan Stanley in a note, keping an “underweight” rating.

Sodexo, like rivals Elior and Compass Group , also faces a tough environment in Europe, notably due to higher food and wages costs. Elior unveiled its own reboot plan in June.

Sodexo, which posted sales of 20.7 billion euros ($24.1 billion) in fiscal 2016/17, manages canteens and facilities for offices, the military, schools, hospitals and prisons, and also supplies vouchers for meals and gifts. ($1 = 0.8603 euros)

Reporting by Dominique Vidalon Editing by Sherry Jacob-Phillips/Keith Weir

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