Aryzta shares slump 32% after latest profit warning

Share slide heaps further pressure on long-time chief executive Owen Killian

Aryzta chief executive Owen Killian said  the group’s performance was “both unexpected and extremely disappointing”. Photograph: Cyril Byrne

Aryzta chief executive Owen Killian said the group’s performance was “both unexpected and extremely disappointing”. Photograph: Cyril Byrne

 

Shares in Swiss-Irish food group Aryzta slumped nearly 32 per cent to €28 on Tuesday after the company issued another profit warning, heaping further pressure on chief executive Owen Killian.

The global bakery giant said its underlying earnings per share was tracking about 20 per cent behind last year in the five months of trading ending December 2016.

It said the group’s trading performance was “unexpected and extremely disappointing” as falling revenues and higher than expected labour costs hit the group’s north American business hard.

The company has been struggling to halt a slide in investor confidence over 18 months linked to the loss of contracts in the US.

It recently withheld Mr Killian’s performance-related bonus amid ongoing concern over the company’s underlying health.

At the end of last year the company appointed Gary McGann as its new chairman while moderately more positive news from its US business saw shares rise above €40 for the first time in more than a year.

However, the latest numbers and consequent slump is likely to renew pressure on Mr Killian, who has been charge since the company was formed through a merger between Irish food group IAWS and Swiss baker Hiestand.

“Having to lower full-year EPS guidance by circa 20 per cent two months after its previous trading update suggests a business model with material operational headwinds,” said Davy analyst Cathal Kenny.

The company blamed its latest profit warning on the performance of its US arm.

“The underperformance is due largely to north American weakness compounding the already anticipated weakness in Europe due to the ongoing German bakery commissioning and the impact of Brexit,” Aryzta said.

Volume losses

Reduced revenue and higher than expected labour inflation costs have hit the group’s north American business, while its Otis Spunkmeyer branded strategy has triggered co-pack volume losses earlier than anticipated, Arytza said, resulting in significant negative operating leverage at the Cloverhill facility.

Mr Killian said that the performance was “ both unexpected and extremely disappointing”.

“Aryzta north America is well invested and structured to support a significantly larger business very effectively and efficiently. It has best-in-class processes and technology,and is capable of further initiatives to develop its potential. We have initiated price increases to address United States labour inflation, which is significant across the business,” he said.

Mr Killian said the group recognises that it will take a recovery followed by a period of “sustainable growth” to re-establish investor confidence, as well as an alignment with its key shareholders in terms of future strategy and capital allocation.

“The Aryzta board and management teams are committed to returning the business to solid performance and growth and dealing with the challenges presented.”