Coveney in Greencore crisis as shares slide 30%

Coveney in Greencore crisis as shares slide 30%

Geoff Percival and Eamon Quinn

Greencore shares suffered their worst ever fall and €340m was wiped from their value within minutes of the international firm reporting fresh troubles at its American food plants.

The profits warning has resulted in chief executive Patrick Coveney being parachuted in from his Dublin base to solve the deepening crisis in America, where the food firm generates about a third of its almost €2.6bn in annual sales.

The shares, which trade in London, closed 30% lower, valuing Greencore at £925m (€1bn) after the market was rattled by the news.

Darren Shirley at Shore Capital in Britain said that the company’s shares had suffered a death “by a 1,000 cuts” since it acquired businesses in the US, even though it had faced down other challenges in the UK.

The news of a restructuring was not a huge surprise but the sharp market reaction probably was sparked because the revelations of continuing US problems appeared to jar with a recent more positive outlook by the company, according to analysts.

The fact that Mr Coveney had to go over to the US and take a more “hands on” approach is welcome, Mr Shirley said, adding that it also means that “the issue may not go away too soon and it will take time to build confidence” with the market.

Another UK-based analyst, who did not want to be identified, said that investors “had lost patience”.

Local analysts who cover Greencore cut their profit forecasts for 2018.

“While Greencore’s restructuring of its US network is not surprising, the associated impact on profit development is unexpected,” said Davy.

Greencore’s legacy US business has been its Achilles heel. The challenge of converting new business wins has become a recurring feature of the business model, impacting the phasing and confidence of profit delivery,” the broker said, cutting its earnings per share forecast by 12% for Greencore’s 2018 financial year.

Investec said that Mr Coveney will help run the US business with chief operating officer Chuck Metzger.

“It is also highlighting plans addressing certain under-utilised assets —Rhode Island, Jacksonville, and Minneapolis,” the broker said.

The convenience food group said it is making progress on adding new business in the US. However, the cost of restructuring its US operations to improve production capacity is likely to be around £3m and an asset impairment charge could also be incurred, the company warned.

Greencore is now expecting adjusted earnings per share, for the 12 months to the end of September, to be around 14.7p-15.7p, compared to previous market estimates of a 15.7p-16.6p range.

Uncertainty around customer relationships in the US, currency fluctuations, short-selling of the Greencore stock by hedge funds and profit warnings from industry peers all played havoc with the group’s share price over the past 12 months.

At the group’s annual shareholders meeting, at the end of January, Mr Coveney admitted that more effort was needed in order to build investor confidence around growth potential in the US.

“We have work to do this year to build confidence amongst our shareholder base that the US will deliver as the board expects,” he said at the time.

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