Shares in Aryzta down 25% as earnings disappoint

Shares in beleaguered food firm Aryzta plummeted 25 per cent after it said it would trim costs by €200 million over three years and that its earnings for the year would be below guidance.

The restructuring plan came as a quarterly update issued on Thursday said earnings margins for the third quarter were below management expectations.

The company also said fiscal year 2018 earnings would be up to 12 per cent lower than guidance.

Its shares are currently trading down 25 per cent to €13.

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Organic revenue for the 13 weeks to April 30th fell 1.2 per cent to €811.4 million,with European revenue down 2.6 per cent to €409 million, and America down 1.3 per cent €340.4 million. Volumes were down 5 per cent in Europe, with the disposal of La Rousse hitting the figures for 2.5 per cent. In America, the disposal of Cloverhill hit revenue for 16.1 per cent.

When the impact of currency and disposals was taken into account, overall revenue growth was almost 17 per cent lower.“Group organic revenue remained relatively stable year-on-year, despite the challenging trading environment of weaker market conditions and difficulties recovering inflationary costs,” the company said.

The company said its disposal programme was on track.

Aryzta has identified and is addressing the challenges facing the historical business model and the industry generally and will stay focused on its core, the frozen B2B bakery market," chief executive Kevin Toland said. "As part of the ongoing process, the Group has sold selected loss-making assets, rationalised headcount, and under the new management put in place a series of efficiency and cost reduction activities to accelerate performance improvement."

Aryzta lost its long-standing chief executive Owen Killian and two other senior executives just over a year ago following a series of profit warnings and disappointing financial results.

New chief executive Mr Toland joined the company in September from airport operator DAA, and the group has focused on paying down debt.

In a note, an analyst with Merrion Stockbrokers said hiigher input, distribution and labour costs “have resulted in tougher industry operating conditions and have weighed on group profit margin”.

“Higher butter prices in Germany and weak consumption in the UK are specifically highlighted,” he said.

“We would be concerned that restructuring may result in asset impairments which could weigh on book value. Our fair value drops to €17 from €21. Our recommendation is under review.”