Greencore shares fall amid ‘lumpy’ US sales

Greencore shares fell on Tuesday as the convenience food group's sales momentum slowed in its fiscal third quarter and its United States business continued to turn in what company executives called a "lumpy" performance.

Chief executive Patrick Coveney said the group was confident the impact of Brexit on the business, which is dominated by UK sales, would be "very modest" in the near term, however. He said Greencore's full-year performance would be in line with market expectations.

Group sales rose 4 per cent to £360 million (€428 million) in the 13 weeks to June 24th on the same period last year. Stripping out the impact of currency movements, sales rose 3.1 per cent, marking a slowdown from 7.5 per cent growth reported for the first half of the year.

Shares in Dublin-based Greencore closed down 3.3 per cent in London at £3.11.

Sales in UK rose 5.7 per cent in the third quarter to outperform the wider market, driven by its food-to-go business comprising sandwiches, sushi and salads. However, it was less than half the growth rate seen in the first half.

Excluding the benefit of a stronger dollar when translating sales into sterling, revenue in the US, where Starbucks and convenience store 7-Eleven are its main customers, fell 1 per cent in the third quarter. This was mainly due to what Mr Coveney described on a call with analysts as “lumpy” customer orders for its frozen breakfast products and the closure during the year of a facility in Massachusetts.

“Overall revenue momentum slowed sequentially in the third quarter, led by a modest revenue decline in the US,” said Cathal Kenny, an analyst with Davy. “The development of the US revenue base is proving more volatile than anticipated owning to customer concentration.”

Mr Coveney was upbeat on the US business, however, saying it had become profitable since March, having posted a small loss in the first half of the year to the end of September. Chief financial officer Alan Williams predicted the unit’s mixed quarterly performance would moderate and begin to deliver “high single-digit” to “low double-digit” growth in time as it won new business.

Returning to the key UK division, the executives predicted Greencore would continue to outperform the wider convenience foods market with its market share set to “grow strongly” in the near term from about 15 per cent. It will be helped in the near term as two customers who currently rely on a number of convenience food suppliers will in future rely solely on Greencore.

Analysts at Peel Hunt in London described Greencore’s overall third-quarter performance as slightly soft, but said they expected a stronger fourth-quarter performance, with the group having recently opened a new facility in Seattle.

While the UK decision to quit the European Union is likely to have a very modest impact on Greencore in the short term, the company cautioned that the referendum had “resulted in greater uncertainty with regard to the UK economic outlook, and the longer-term implications remain unknown”.

The Greencore UK businesses import less than a quarter of their ingredients and packaging materials, with existing purchase arrangements cushioning the company from a depreciation in sterling in the current financial year.

However, if current exchange rates persist net debt at year end will be higher than expected at the half year, due to translation of US dollar-denominated borrowings, the company said.