Greencore won back investor confidence this week as the sandwich maker upgraded its annual profit guidance following better-than-expected trading inspired by the World Cup and recent heatwaves, as well as a lift from the newly integrated Bakkavor.
The prepared food giant now expects full-year operating profit in the range of £234m-£242m, which excludes the Bakkavor US division being held separately while Greencore explores a sale.
Its Q3 trading update on Wednesday showed a 3.2% jump in revenues to £1bn, split evenly between food-for-now and food-for-later categories, as the newly enlarged group following the completion of the Bakkavor merger in January broadened its offering.
Volumes rose 0.7% – against a wider grocery market decline of a 0.4% – as the group launched 376 new products in the quarter to coincide with the World Cup, including stuffed pizza crust ranges and doughball sharing buckets. Consumers also picked up other summer innovations for picnics during the sustained run of hot weather, including a limited edition M&S chocolate, strawberry and pistachio crème sandwich.
CEO Dalton Philips called the Q3 performance “strong” as volume grew ahead of the market despite a “robust” set of numbers to lap from a year ago.
“Greencore has never been stronger, and I’m really encouraged by what the enlarged business is starting to achieve,” he said.
Shares in Greencore shot up by more than 10% in reaction to the profits upgrade, before settling down around 7% higher by close of trading on Wednesday. The stock remains down by 2.7% in the year to date after a broad-based sell-off in May as the City dumped shares when Greencore reported first-half results showing losses as the group swallowed costs related to the Bakkavor combination.
Charles Hall, head of research at Peel Hunt, noted the Q3 update, alongside a positive start to Q4, should help ease the “misplaced anxiety” after H1.
Darren Shirley of house broker Shore Capital agreed that Greencore was “treated harshly” in the spring.
“Greencore was warmly appreciated by the market as the Bakkavor acquisition completed in January only to be very harshly marked down following its H1 update,” he said. “We saw no sound fundamental reason for the near structural sell-off. As such, it is important and pleasing to see this Q3 update with the volume growth, trading profit delivery, aided by slightly speedier synergies and emerging cash generation, with more still expected to come.”
Russ Mould of AJ Bell added the latest update was “a useful corrective” to the idea the company simply sold sandwiches.
“Quiches, chilled dips and sushi helped drive a strong performance, which has underpinned a significant upgrade to profit guidance,” he said.
“Greencore continues to innovate its product offering to keep on top of consumer trends. Resilient sales suggest this approach is paying off and that appetite for convenience snacks and food on-the-go is undiminished despite the tricky consumer backdrop.
“Greencore has also wasted no time in integrating recently acquired Bakkavor and is already seeing benefits from the deal as it gets a boost from strong summer demand. Greencore products have filled picnic baskets as people eat out in the hot and dry weather.
“The shares might have experienced some indigestion earlier this year as the market found the hefty costs associated with the merger and the impact on cashflow difficult to swallow. However, as the tie-up starts to prove its worth these issues look less of a concern, particularly as cash generation has begun to normalise.”
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