Aryzta shares slump amid latest warning on profitability

Group unable to provide outlook as business review continues

Baked goods company Aryzta warned that it is experiencing ongoing pressure to its profit margins. (Photograph: iStock)

Baked goods company Aryzta warned that it is experiencing ongoing pressure to its profit margins. (Photograph: iStock)

 

Shares in Aryzta slumped on Tuesday as the beleaguered Swiss-Irish baked goods maker warned that its profit margins remain under pressure amid declining sales and rising labour costs in North America, the impact of Brexit and complications linked to a new factory in Germany.

Speaking to analysts after the group published a trading update, head of investor relations Paul Meade also said it would be September at the earliest before Aryzta could chart its future direction, as it awaits the arrival of its new chief executive Kevin Toland. Mr Toland’s appointment may be delayed until November if his current employer, airport operator DAA, doesn’t agree to waive part of his six-month notice period.

Aryzta has previously signalled it plans to sell its 49 per cent stake in French frozen foods company Picard and review other joint ventures.

However, Mr Meade said the review will also look at areas that are core and non-core to the business, and at its North American strategy where its Otis Spunkmeyer unit has been pushing cookies and cakes on to retail shelves in direct competition with brands that had outsourced baking to the company. Many of these customers have pulled contracts as a result since late last year.

“In terms of timing of the [outcome of the review], I think the best that could be expected at this point is some directional views in September, whereas the actual significant detail of that would not emerge until the new team have sufficient time to put that together,” Mr Meade said.

Shares in Aryzta have fallen almost 29 per cent so far this year, making it the worst-performing stock on the Iseq 20 index. The group issued a profit warning in January and saw its long-standing chief executive Owen Killian and two other top executives depart in March. The company has issued a series of profit alerts and disappointing earnings in the past two years.

The shares fell as much as 8 per cent on Tuesday in Zurich.

While the company is no longer offering earnings guidance, a number of analysts signalled on Tuesday that they will be lowering their profit margin forecasts. Consensus currently lies at just over 9 per cent.

The trading update said that North American business volumes fell by 6.7 per cent year-on-year in the three months to the end of April, the group’s third fiscal quarter. European volumes rose 1.3 per cent, although complexities starting up a large new facility in Germany, involving seven interconnected bakeries and employing more than 2,000 staff, were weighing on margins in the region.

Group revenues edged 2.7 per cent higher during the period to €975.2 million.

Mr Meade also told analysts that UK clients, struggling with Brexit-fuelled inflation, have been asking Aryzta to switch to cheaper ingredients to avoid having to pass on price rises to customers. He also said that US labour costs are rising as the market nears full employment, while the availability of workers has been “driven by the fact that there’s increased enforcement around the whole area of work permits”.