Greencore falls 5% as update fails to impress

By Geoff Percival

Greencore shares fell by over 5% as a better-than-expected trading update and talk of a recovery in its US operations failed to impress investors.

The Dublin-based convenience food group’s share price has suffered a torrid 12 months on the back of problems in its US division. Chief executive Patrick Coveney’s admission — at the group’s AGM in January — that more effort was needed to build investor confidence around Greencore’s US growth potential was followed, two months later, by a profit warning which sent its shares tumbling 30%, wiping €340m off the group’s market value in the process.

The profit warning was based on the need for a restructuring of Greencore’s US network of facilities following its 2016 takeover of American company Peacock Foods and resulted in Mr Coveney spending more time there to help solve the problem.

Production at a loss-making plant in Rhode Island was ceased only three years after it opened, while sites in Minneapolis and Jacksonville are set to be incorporated into the existing Peacock facilities network.

Greencore is targeting the branded food partner channel with its US strategy. In its latest trading update —covering the third quarter of its financial year; the 13 weeks to the end of June — the group said new business development “continues to progress well” in the US. Quarterly revenues, there, fell by 0.8% year-on-year to £263.7m (€296m). On a pro-forma basis, US third quarter revenues rose 8.6%, driven by the former Peacock Foods business. In the first nine months of the year, Greencore’s US revenues are up nearly 30%, to £767.2m.

“New business development continues to progress well. In the third quarter, several new product launches were successfully executed. In addition, future growth opportunities with key branded food partner customers are progressing to plan,” the group said of the US.

It also announced Anton Vincent as the new chief executive of its US operations.

Overall, Greencore said group revenues rose by 0.5% — on a reported basis — in its third quarter, to £639.6m, with a 14% rise for the year to date noted to just short of £1.9bn. The group’s core UK and Ireland convenience food division reported revenue growth of 1.4% to £375.9m for the third quarter, driven by growth in the ‘food-to-go’ business. The group also maintained its full-year outlook for adjusted earnings per share of 14.7p-15.7p and said cash generation should improve in the remainder of the year.

The group is also restructuring its UK operations by consolidating ready meal manufacturing facilities and appointing its former UK chief operating officer Peter Haden as chief executive of Greencore UK.

At the time of its March profit warning, one UK-based analyst suggested investors had “lost patience” in Greencore. Yesterday’s 5.2% share price drop, despite the upbeat outlook on the US, seemed to suggest they are still in need of convincing.

But, Irish analysts were more upbeat, yesterday. Goodbody hailed the US recruitment of Mr Vincent as “a strong appointment”. Darren McKinley, at Merrion, said the “better than expected” trading update should support upside in Greencore’s share price and maintained his target price of £2.35.

It currently trades at around £1.77.

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