Greencore surprises investors by sticking to earnings guidance in ‘challenging’ UK market

Shares in Greencore rose in London on Tuesday as the sandwich maker surprised some investors by sticking to its full-year earnings guidance, even as it said that the consumer spending backdrop in the UK, its main market, remains “challenging”.

The company, led by chief executive Dalton Philips, said it expects to report figures for its financial year to the end of September “in line with current market expectations”. The consensus view among analysts is that its full-year operating profit will come to £70.6 million (€81.6 million), albeit down from £72.2 million last year.

Greencore shares had fallen by almost 12 per cent in the four weeks heading into Greencore’s reporting of interim results on Tuesday.

“We believe the market was expecting a further revision to numbers, and therefore today’s reiteration of guidance should provide comfort,” said Goodbody analyst Jason Molins.

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Greencore had previously guided analysts’ full-year forecasts lower in January. Shares in the Dublin-based group advanced 3.3 per cent in early trading in London.

The group said that its revenue increased by 20.1 per cent in the first half of its financial year, to £925.8 million, driven by price increases as it recovered most of its own cost inflation. Manufactured volumes grew by 5 per cent on the year.

Food-to-go revenue, spanning sandwiches to salads and sushi, rose by 15.6 per cent, while revenue across other convenience categories, including chilled Thai curries and pasta dishes, soups, sauces and quiches, grew by 28.5 per cent.

However, operating profit declined to £11.8 million from £17.2 million for the same period last year. This was largely down to the company not fully recovering the inflation it experienced on costs as well as “commissioning challenges” in a new ready meals manufacturing unit that it had highlighted late last year.

“We are pleased to have delivered strong revenue growth in the seasonally quieter first half of the year, and it is a clear demonstration of Greencore’s ongoing resilience in what is a difficult consumer spending environment,” Mr Philips said.

[ New Greencore boss says sandwich business more recession-proof than most ]

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“While much of the top-line momentum has been driven by recovery of inflation, it is encouraging to have achieved good manufactured volume growth, which speaks to the enduring structural demand for the categories in which we operate.”

Mr Philips said that the group remains “confident in the long-term potential for the business and our immediate priority is to rebuild profitability and returns in order to create a platform on which to build for future growth”.

“Critical to this rebuild strategy will be a combination of rigorous management of our customer, product and asset portfolio, and a reset approach to operational excellence, supported by continuing our unwavering approach to inflation recovery and cost management.”

In the first half of last year, the group launched a transformation programme, called Better Greencore, aimed at delivering “£30 million of annualised benefits” from next year.

“Following the decision to exit a low-margin customer contract in [the current financial year], the capital expenditure component of the Better Greencore programme has been halted and the group has accelerated a headcount reduction programme which resulted in the reduction of approximately 250 salaried roles across the group at the end of March 2023,” it said.

Greencore had an average of almost 13,900 employees last year.

The company has bought back £25 million of its own shares since last May and has now commenced a programme to repurchase a further £10 million of stock.