Sodexo Falls Most in Five Years on Stagnant Catering Growth

Sodexo (SW) shares plunged the most in more than five years after the world’s second-biggest provider of catering services reported declining earnings and cut its forecast for the year.

The stock fell 9.6 percent to 64.03 euros at the close in Paris, the steepest decline since Nov. 15, 2007, erasing about 1.1 billion euros ($1.4 billion) in market value.

Sodexo and industry leader Compass Group Plc (CPG) are grappling with lackluster demand in Europe as a weaker economy prompts clients to trim spending on catering. Compass said in September it would expand cost-cutting and restructure operations in southern Europe. Sodexo began trimming costs in November and said today it plans to take advantage of demand for facilities management, which includes contracts to look after sites from oil rigs to hospitals, and step up cost cuts.

“Compass Group was earlier to restructure the business and Sodexo has been somewhat behind the curve,” Craig Fraser, an analyst at Baden Hill LLP in London said by phone today.

Sodexo, based in Issy-les-Moulineaux outside of Paris, said it expects “stable” earnings before interest and taxes this year, after saying in January it expected modest growth in profit. Operating profit fell 14 percent to 478 million euros in the first half, missing the average analyst estimate of 561.8 million euros.

“Overall, a disappointing release,” Vicki Lee, an analyst at Barclays Plc in London, wrote in a note to clients.

‘Tough’ Europe

The savings plan initiated in November was extended and will result in exceptional charges of 180 million to 200 million euros through February 2014, Chief Executive Officer Michel Landel said in a presentation. The full benefits will be felt in 2015, according to Chief Financial Officer Sian Herbert-Jones.

“In Europe the situation is tough, it’s one reason we have expanded our operational efficiency improvement and cost reduction program,” Landel said.

The company expects annual revenue on an organic basis to increase 1 percent to 2 percent and aims for a consolidated operating margin of 6.3 percent by the end of its 2015 fiscal year, it said.

Revenue rose 4.3 percent to 9.5 billion euros in the first half. On an organic basis, revenue increased 2.1 percent, missing a median estimate for 2.8 percent growth. The measure excludes effects of acquisitions, disposals and currency fluctuations. The profit forecast strips out currency fluctuations and exceptional items.

Compass Group fell 0.5 percent in London, paring the gain this year to 14 percent.

To contact the reporters on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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