Shares in Greencore tumbled this week despite the sandwich maker reporting significant progress in its ongoing recovery.
The stock fell as much as 9% after the company published annual results on Tuesday and closed down 5.2% to 96.3p as investors focused on an erosion of margins as input cost inflation continued to take a toll.
Improved revenues and profits were no surprise to the markets following a well-received trading update in October when Greencore issued an earnings upgrade and sent shares soaring 25%.
Despite the backward slide this week, the stock remains up by almost 50% in the year to date as new boss Dalton Philips continued to impress and food-to-go demand remained resilient in the face of the cost-of-living crisis.
Revenues for the year to 29 September increased 10% to £1.9bn, with food-to-go sales – which make up the majority of the group’s business – jumping 7.9% to £1.3bn. Greencore benefitted from workers returning to the office in greater numbers and choosing lunch time meal deals over more expensive fast-food options, boosting sandwich volumes by a market-beating 3.5%.
Group adjusted EBITDA rose 4.6% to £132.8m, while adjusted operating profits increased 5.7% to £76.3m. Profit growth was driven by a strong second-half performance, which saw the group register a 17% year-on-year uplift in underlying profitability in H2.
Greencore said the results represented a completion of its objective to stabilise the business. It will now focus on further rebuilding profitability back to pre-pandemic levels.
“In a challenging market environment, we have stabilised the business, and made good strategic progress. The Group delivered above-market volume growth, despite exiting a number of low margin contracts,” Philips said.
“The group continues to focus on improving profitability and is investing in a number of initiatives focused on both optimising our network and our IT infrastructure, to give us the platform for future growth.”
It largely offset about £200m of inflation in the year and expected the rate to come down from low double digits to 2 or 3% for the new financial year, but an increase in the national living wage (NLW) has created further headaches (as Philips explained to The Grocer earlier this week).
Analysts at Goodbody called it “another encouraging update” from Greencore. “The business clearly has strong momentum heading into FY24 as it outperforms the market and annualises cost savings delivered in H2.”
Jefferies noted the business continued to deliver on its ‘Better Greencore’ cost savings programme and added that the endorsement of FY24 consensus implied a year of solid double-digit growth ahead.
House broker Shore Capital said an encouraging journey for Greencore had “well and truly commenced”.
“Much has been done, and more is to be done, but ongoing iterative progress should see Greencore deliver sequential earnings growth, with ongoing shareholder friendliness, and maybe notable rating expansion to follow,” the firm added.
“That is a tune we have not heard for a while and whilst Mr Philips may not be whistling with gay abandon just yet, Greencore’s equity may just be worthwhile taking a bit more interest in for the medium-to-long term investor.”
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