Greencore parachutes chief into US unit after stock slumps 30%

Food group’s US chief exits, analysts query company’s abilty to convert new contracts

Patrick Coveney, chief executive of Greencore: the company will  cease production at its loss-making Rhode Island facility. Photograph: Dara Mac Dónaill

Patrick Coveney, chief executive of Greencore: the company will cease production at its loss-making Rhode Island facility. Photograph: Dara Mac Dónaill

 

Greencore chief executive Patrick Coveney has promised to spend half his time in the US as he scrambles to sort out problems in its business there that prompted the convenience foods group to issue a profit warning on Tuesday and sent its stock tumbling 30 per cent.

In an unexpected trading update, the Dublin-based group said that it now sees its adjusted earnings per share for the year to September coming to 14.7-15.7p, compared to current market expectations of between 15.7p and 16.6p.

Greencore’s $747.5 million (€606.8 million) purchase in December 2016 of Illinois-based Peacock Foods, which generates about $1 billion in annual sales, more than quadrupled the group’s total US sales. However, the warning on Monday highlighted issues in the US operation that Greencore had built up over the past decade in that market.

Production

The company now plans to cease production at its loss-making Rhode Island facility, which makes up about 4 per cent of its US manufacturing footprint, from March 25th.

While the group plans to retain the plant for potential repurposing, chief financial officer Eoin Tonge told analysts on a conference call that it may have to write down the value of the $40 million asset, which would further dent earnings.

Last year, the company announced its plan to repurpose its legacy Jacksonville facility following the loss of a supply contract, reported by The Irish Times last August to be US coffee giant Starbucks. While capacity utilisation has been low during the first half of its financial year, the company now believes that new business wins will increase the utilisation of this site.

Greencore’s Minneapolis facility, which was running below capacity at the time of the Peacock acquisition, has picked up “several pieces of new business” over the past 12 months.

Mr Coveney told analysts that, while the new business will ultimately drive the US business, it will be the next financial year before the benefits will be seen.

“Greencore’s legacy US business has been its Achilles heel,” said Davy analyst Cathal Kenny, as he downgraded his view on the stock to “neutral” from “outperform”, which was the equivalent of a “buy” recommendation. “The challenge of converting new business wins has become a recurring feature of the business model, impacting the phasing – and confidence – of profit delivery.”

Unveiling a new US leadership team, Greencore said on Tuesday that Mr Coveney “will take a direct role in the strategic, organisational and commercial leadership of Greencore US, spending approximately half his time” in the market.

Chuck Metzger, chief operating officer of Greencore US, has assumed day-to-day responsibility of the US business will report directly to Mr Coveney. Chris Kirke, outgoing chief executive of Greencore US, is leaving the group to return to the UK.

Relationships

Mr Coveney said Greencore’s positive long-term view of its US business remains unchanged. “We have a business, a set of customer relationships, and a set of capacities that sit in a very, very attractive part of the US food market – with two very significant positive trends that play towards what we are trying to do,” the chief executive said.

The trends are growing demand for more convenience food offerings and a “US specific trend” of major food groups outsourcing more of their production, he said.

Shares in Greencore fell 30 per cent on Tuesday in London, to £1.278, marking their lowest level since late 2013 and valuing the company at £900 million (€1.02 billion).