Greencore shares surge on US growth outlook

Greencore has upped the medium-term revenue capacity of its US operations by more than $1bn on the back of its biggest acquisition in a decade.

The Dublin-headquartered convenience food group’s $747.5m (€697.4m) purchase of US company Peacock Foods will significantly enhance Greencore’s US business and boost its American revenue capacity in the next five years from around $700m to $2bn.

As is, Peacock ups Greencore’s US revenues from around $325m to $1.3bn.

The announcement of the deal boosted Greencore’s shares by nearly 13% in London yesterday.

The Irish group’s biggest acquisition since the €125m takeover of British sandwich maker Uniq in 2011, Peacock will take Greencore into the general grocery sector. Currently Greencore’s US focus is manufacturing food sold in Starbucks and 7-Eleven.

Peacock, which generated revenues of around $1bn and earnings of over $72m last year, makes a range of food-to-go and home-use convenience food products for leading US grocery brands.

Greencore plans to complete the takeover by the end of next month, funding the transaction by way of new debt and a rights issue, which will cover nearly three-quarters of the money.

The Peacock deal is also set to boost US contribution to group revenue from 15% to 42% and has been described as a “transformational” deal, marking a major step in Greencore’s US expansion.

Greencore has highlighted “at least” $15m in cost synergies, by its 2019 fiscal year, through combining Peacock with existing Greencore operations.

“The acquisition of Peacock will transform our US business, strengthen our position in high growth categories, broaden our channel and customer exposure and add significant scale to our operations,” said Greencore chief Patrick Coveney.

“The deal would quadruple Greencore’s US revenue base,” said Jack Gorman and Declan Morrissey at Davy Stockbrokers.

“The combined US business would derive 30% of its sales from frozen breakfast sandwiches, 13% from kids’ chilled meal kits, 13% from salad kits and 13% from fresh food-to-go. It would hold the number one position in the first three of these categories.”

Down around 16% from where it started the year, Greencore’s shares jumped by around 12.6%, in London, on yesterday’s news.

The group also published a strong set of annual results yesterday, with group revenue, for the 12 months to the end of September, up by 10.6% to nearly £1.5bn and operating profit (before tax and exceptional items) ahead by over 11% at £102m. Revenues at Greencore’s main convenience foods division grew by 6.6%.

In the key UK food-to-go division, revenue was up by 12.3% and like-for-like revenue was ahead by 5.2% in the US operations.

Management has expressed confidence in the group being able to make “further progress” next year and beyond but also noted that economic uncertainty posed by Brexit will keep the British grocery market challenging, along with inflationary pressures and other geopolitical uncertainties.

“The UK is benefitting from contract wins with strong underlying growth and the US is primed for further growth post the acquisition of Peacock and other deals that were done previously,” said Dylan Simmonds at Merrion Stockbrokers.