Greencore share slump linked to loss of Starbucks contract in US

Irish food firm loses big contract to supply coffee chain with frozen sandwiches

Greencore had supplied Starbucks with frozen sandwiches through its plant in Jacksonville, Florida. Photograph: Tasneem Alsultan/Bloomberg

Greencore had supplied Starbucks with frozen sandwiches through its plant in Jacksonville, Florida. Photograph: Tasneem Alsultan/Bloomberg

 

The loss of a big contract with US coffee giant Starbucks appears to have triggered the recent slump in Greencore shares.

The sandwich-maker was forced into issuing a statement last week to quell investor unease after a near 14 per cent slide in the value of its shares over two days. While the company said it was unaware of any developments that would change its outlook for the business, it acknowledged there had been “some churn” in relation to retail contracts in the US.

The Irish Times understands that this refers to the loss of a contract with Starbucks’ North American arm.

Greencore had supplied the coffee behemoth with frozen sandwiches through its plant in Jacksonville, Florida. The Florida business had a turnover of close to $100 million (€84m), of which some $65 million is believed to have been tied to the Starbucks’ contract.

Greencore said it had decided to refocus its Florida plant on fresh products rather than the frozen goods, suggesting the impact on profitability would be minimal.

When contacted yesterday the company declined to comment.

Goodbody analyst Jason Molins said the loss of the contract may have triggered wider fears about the level of “contract risk” in the business. However, he believes the slide in share value last week was overdone given the low-margin nature of the contract.

“The full impact on the stand-alone from the loss of this contract should not have warranted that drop,” he said.“This part of the business [frozen] has always been more challenging, with a lower margin contribution compared to fresh.

Recent acquisition

“As a result our near-term forecasts are unlikely to change materially, albeit medium-term profit growth may be nudged down slightly, assuming no mitigation.”

Mr Molins also noted that in 2018 the company’s revenue was likely to jump to €2.8 billion when the full-year impact of its recent acquisition of Illinois-based Peacock Foods kicks in.

The 11 analysts listed as covering Greencore on Bloomberg all have a buy rating for the London-listed company, and a target share price of over £3.

In a bid to allay investors, Greencore announced on Friday that its two most senior executives, chief executive Patrick Coveney and chairman Gary Kennedy, had upped their personal stakes in the business.

In the UK, where most of its sales are generated, Greencore is now the largest sandwich-maker, boasting a client list that includes Marks & Spencer, Waitrose, Sainsbury’s and Tesco.

Since 2014, the company has been busy solidifying its footprint in the US on the back of lucrative contracts with Starbucks and 7-Eleven.

On the back of its US contract with Starbucks it unveiled plans for its first plant on the US west coast – in Seattle, Washington – where the coffee giant company is headquartered.