PARIS (Reuters) - Shares in Sodexo surged on Thursday 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 U.S. Marine Corps contract weighed on profit margins.
Chief Executive Denis Machuel said first-half results were “encouraging”, although he cautioned that recovery in the U.S. 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 percent from last year to 647 million euros (£557.2 million), giving an operating margin of 5.9 percent, down from 6.1 percent a year ago.
Revenues reached 11.045 billion euros, marking a 3.1 percent rise which beat analysts’ expectations for 2.7 percent growth in an Infront Data poll for Reuters.
Sodexo’s shares were up 6.2 percent by 0810 GMT, at a 15-month high and the top gainers on the pan-European STOXX600 index.
In the second quarter alone, revenue growth accelerated to 3.6 percent as business in north America improved. Europe remained solid while developing economies were also strong.
Sodexo kept its forecast for organic revenue growth of between 2-3 percent and an underlying operating profit margin of 5.5-5.7 percent for the full year ending Aug. 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 percent by 2019/20, and then improve margins to over 6 percent, and Sodexo stuck to those goals on Thursday.
Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Kirsten Donovan