Disappointing figures hit Aryzta growth hopes

Irish-Swiss baked food giant Aryzta has reined in growth hopes for the current financial year after missing first-half targets.
Disappointing figures hit Aryzta growth hopes

The Zurich-headquartered group — which grew out of the 2008 merger between IAWS and Swiss firm Hiestand — yesterday reported decent earnings and revenue growth for the first half of its financial year, but failed to meet market expectations due to slower growth in its North American operations.

On a group-wide basis — which takes into account its majority stake in agri-business group Origin Enterprises — Aryzta generated revenues of nearly €2.4bn during the six months to the end of January, a 13.6% increase on the year-earlier period. Group earnings were ahead by 15.5%, year on year, to €229m.

Aryzta’s core food business includes the Cuisine de France and Delice de France brands. It grew revenues by over 17% to €1.86bn, while revenues in its European arm grew 5.4%, year on year, to over €805m. In North America, its food sales rose by 31.1% to €937.2m.

Earnings for the food business were up by almost 16%, at €224.8m, but were 6% behind some forecasts. Underlying group earnings per share (up by 5.9% at 161.4c) were nearly 1% behind estimates.

Underlying revenues were down by some 8% in North America, which dragged on overall performance.

“Optimising our bakery capacity through [stock-keeping unit] rationalisation continues to negatively impact underlying revenue growth in North America, reflecting the timing of replacement volume,” said Aryzta chief executive Owen Killian. “However, this process will reduce investment capital requirements and positively impact return on invested capital and net cash generation over the next three years.”

Management said its immediate focus is to generate “sustainable” underlying revenue growth, “while optimising our production for higher returns and increased free cashflow”.

Aryzta said weak underlying revenue growth combined with favourable currency translation suggests underlying fully diluted earnings per share growth at the lower end of its 7%-12% guidance, or about 3% lower than previously estimated.

“While having to reduce forecasts is disappointing, a good deal of the downgrade is self-inflicted via deliberate rationalisation of volumes,” said Cathal Kenny of Davy Stockbrokers. “The timing of volume and margin recovery in North America, will be key to share price performance.”

Aryzta’s shares were down by nearly 12% in Dublin yesterday, but the company said its first-half performance underscores its substantial recent expansion and that its European performance, in particular, remains “resilient” and well-positioned to benefit from the continued strong growth being seen in the in-store bakery channel.

“The company has indicated that growth in the first half was impacted by the discontinuing of some low margin lines to make way for new orders coming down the track,” said Liam Igoe of Goodbody. “These new orders from its bigger customers should start to flow from the third quarter, notably in the US operations.

“However, it would appear that the pace of rollout and replacement of rationalised volumes is slower than anticipated and there will still be a significant, if lower, drag into the second half, especially in North America.”

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