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Sodexo cuts sales growth forecast due to contract delays

07/09/2014 | 07:29am EDT
Michel Landel, Chief Executive of Sodexo, the world's second-biggest catering services company, poses before an interview with Reuters in Issy-les-Moulineaux near Paris

PARIS (Reuters) - Sodexo (>> SODEXO), the world's second-biggest catering services company, cut it full-year sales growth forecast on Wednesday, warning its fourth quarter would be weaker than expected due to the delayed start-up of some large contracts.

PARIS (Reuters) - Sodexo (>> SODEXO), the world's second-biggest catering services company, cut it full-year sales growth forecast on Wednesday, warning its fourth quarter would be weaker than expected due to the delayed start-up of some large contracts.

However the French firm said recently signed deals with Johnson & Johnson (>> Johnson & Johnson) in Germany and Procter & Gamble (>> The Procter & Gamble Company) in France should have a positive impact next year and stuck to its profitability targets for this year and next.

Sodexo manages canteens and facilities for office workers, the armed forces, schools, hospitals and prisons, and sells vouchers for meals and gifts. Its clients range from Britain's Royal Ascot Racecourse to the U.S. Marine Corps.

The company, which operates in 80 countries and has a market value of 12.4 billion euros (9.86 billion pounds), said it now expects 2013/14 like-for-like sales to rise by between 2.2 percent and 2.5 percent - compared with a previous forecast of 2.5-3.0 percent growth.

It said this was notably due to delays in the launch of major healthcare contracts won in 2013 with clients such as HCR Manorcare. The delays could range from six to nine months.

By way of explanation Sodexo - whose fiscal year ends on Aug. 31 - said large contracts were complex to implement as they often involved employee transfers. It did not tie the delays to weak economic conditions.

Sodexo, the world's No.2 catering services company by revenue after Britain's Compass Group (>> Compass Group plc), cuts its full-year forecast after reporting like-for-like sales growth of 2.3 percent to 13.822 billion euros in the nine months to May 31.

This was a slight slowdown from 2.4 percent growth in the first half as clients continued to postpone investments in new mining projects in Latin America, Australia and Africa.

Societe Generale analysts, who had expected nine-month like-for-like sales growth of 3 percent, said they may review their estimates but were keeping a "buy" rating.

"Short-term guidance (was) reduced, but we maintain our positive long-term view," they wrote in a note to clients.


Nine-month revenue from on-site services, which make up the bulk of Sodexo's business, rose 1.7 percent like-for-like, while the vouchers business grew 14 percent, driven by strong demand in Latin America and a robust performance in Europe and Asia.

On-site services revenue rose 3.7 percent in North America - a region which accounted for almost 40 percent of Sodexo's overall sales - driven by strong demand from corporate customers and the start of facilities management contracts with clients such as Unilever (>> Unilever plc) and Walt Disney World Resorts (>> The Walt Disney Company).

On-site revenue rose only 0.3 percent in Europe, where clients continued to reduce demand for catering services to cut costs, and eased 0.7 percent in the rest of the world.

This was due to a sharp slowdown in demand for remote-site services in the mining sector in Latin America, Australia and Africa, Sodexo said. Recently agreed contracts in oil, gas and construction should however allow its remote-site business in the rest of the world to return to positive growth in the first quarter of its fiscal year 2014/2015, it said.

At 0930 GMT (10.30 a.m. BST) Sodexo shares were down 2.74 percent, underperforming the CAC-40 French blue-chip index <.FCHI> which was slightly down, as investors reacted to the guidance cut.

Sodexo kept its forecast for 2013/14 operating profit growth of 11 percent at constant exchange rates, and for cost savings to lift its operating margin to 5.6 percent from 5.2 percent last year. It also reiterated its target to improve operating margin to 6 percent in 2014/15.

"I remain extremely confident that we will deliver an improvement in operating margin this year and next year and that this will continue to improve in further years," Chief Executive Michel Landel told a conference call with analysts.

Sodexo trades at 19.55 times estimated earnings against 19.64 times for Compass.

(Reporting by Dominique Vidalon; Editing by Andrew Callus and Pravin Char)

By Dominique Vidalon

ę Reuters 2014
Stocks mentioned in the article
ChangeLast1st jan.
DOW JONES AFRICA TITANS 50 INDEX 0.32% 523.67 Delayed Quote.-3.19%
JOHNSON & JOHNSON -0.28% 172.18 Delayed Quote.9.40%
PROCTER & GAMBLE COMPANY -1.48% 138.76 Delayed Quote.-0.27%
RISE, INC. 8.00% 27 End-of-day quote.12.50%
S&P AFRICA 40 INDEX 0.95% 169.44 Delayed Quote.-4.15%
SODEXO -0.19% 72.34 Real-time Quote.4.71%
UNILEVER PLC 0.51% 4070.5 Delayed Quote.-7.80%
WALT DISNEY COMPANY (THE) -0.22% 179.1 Delayed Quote.-1.15%
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