November 8, 2018 / 6:19 AM / 11 days ago

French caterer Sodexo's shares jump on reassuring outlook

PARIS (Reuters) - Shares in Sodexo (EXHO.PA), the world’s second largest catering company, jumped on Thursday after the French firm met annual earnings expectations and vowed to improve revenue this year.

FILE PHOTO: The logo of French food services and facilities management group Sodexo is seen at the company headquarters in Issy-les-Moulineaux near Paris, France, March 18, 2016. REUTERS/Gonzalo Fuentes/File Photo

Sodexo had warned in March that its annual results would take a hit from weakness in its North American business, where cost savings have lagged and several large contracts have taken time to pay off.

Sodexo reported a 1.6 percent rise in like-for-like revenue of 20.407 billion euros ($23.33 billion), slower than the 1.9 percent growth it achieved the previous year but topping the 20.277 billion expected by analysts in a poll by Inquiry Financial for Reuters.

“We are confident over this year though we are not yet at satisfactory sales growth and profitability levels. Growth is coming back in the U.S. but is not yet at levels I want,” Chief Executive Denis Machuel said on a call with journalists.

“This has been a challenging year for Sodexo, but we know what went wrong, and we know what we need to do to fix it,” said Machuel, adding that the “turnaround is going to take some time”.

Sodexo shares were up 5.1 percent at 1012 GMT, with some analysts citing no further surprises to its outlook.

“Problematic U.S. units continue to show tentative signs of improvement and the FY 2019 guidance is not the margin reset that bears anticipated,” wrote analysts at brokerage Jefferies.

RETENTION RATE

The caterer, the second largest after Compass Group (CPG.L), plans a renewed focus on food contracts, improving its productivity and cutting its use of temporary workers to help contain costs.

There were signs of progress in some key performance indicators including client retention rate which rose 30 basis points to 93.8 percent helped by an improvement in education in North America.

Sodexo is aiming for a retention rate of 95 percent in three years.

Sodexo’s underlying operating profit margin for the year to Aug. 31 was 5.7 percent, excluding currency impacts, lower than the 6.4 percent achieved a year earlier but in line with the company’s revised guidance.

Revenue from on-site services fell 1.1 percent in North America but grew 4.5 percent in other regions.

For 2018/19, Sodexo said it was confident of delivering underlying revenue growth of 2-3 percent. It forecast an underlying operating profit margin of 5.5-5.7 percent at constant exchange rates.

In September, the group held a presentation where it told investors it planned to deliver revenue growth above 3 percent by fiscal 2019/20 and an underlying operating profit margin above 6 percent.

Sodexo reiterated those goals on Thursday.

($1 = 0.8748 euros)

Reporting by Dominique Vidalon; editing by Sudip Kar-Gupta and Jason Neely

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