Greencore Sees U.S. Food Growth With Starbucks as U.K. Recovers
Greencore (GNC) Group Plc, the world’s largest sandwich maker, is boosting sales with Starbucks Corp. (SBUX) in the U.S. even as prospects have improved in the U.K., Chief Executive Officer Patrick Coveney said.
Both Starbucks and convenience store operator 7-Eleven Inc., Greencore’s largest clients in the U.S., consider fresh-food performance “a big, big priority,” Coveney said in an interview at the company’s Dublin headquarters.
Greencore increased supplies to Starbucks in the U.S. with sandwiches and lunch items from April under a multi-year contract, and expects its business in the country to be profitable this year. In the U.K., the company’s biggest market, there are signs of improving consumer sentiment and of growth “building a little” in convenience foods, Coveney said.
Greencore has “built a very good franchise now in the U.K. that delivers terrific returns on their capital base,” said Cathal Kenny, an analyst at Dublin-based Davy, which raised its recommendation on the stock to outperform in June after keeping it neutral for years. “They have a tremendous opportunity now to go and build something that is sustainable in the U.S.”
Revenue in the U.S. more than doubled in the first half ended March 29 on acquisitions, Greencore reported. The company has six manufacturing sites in the U.S. after purchasing Marketfare Foods LLC and H.C. Schau & Son Inc. last year for about $55 million.
Greencore shares rose 1.5 percent to 139 pence in London yesterday, taking the advance to 84 percent in 12 months and giving the company a market value of 557.5 million pounds ($846 million).
Greencore supplies about 1,360 Starbucks stores, or 12 percent of the coffee chain’s U.S. stores, with sandwiches and lunch items, according to a presentation in May. It supplies about 20 percent of 7-Eleven’s U.S. convenience stores, or about 2,000 outlets, with ready meals.
“It will be a very long time before we would seek to have genuine national coverage but we would like to have broader coverage,” Coveney said. The company’s network in the country has capacity to generate about $350 million in sales, and U.S. revenue will probably be “a bit more than $200 million” this financial year.
The company expects single-digit growth in comparable sales in the U.K. in the second half, according to Coveney, after a contraction of 1.3 percent in the first half.
The U.K. accounted for about 87 percent of Greencore’s 1.16 billion pounds of revenue in the last fiscal year.
Declines in ready meals week on week in the U.K. have “moderated pretty significantly” since the second quarter, when they dropped by as much as 20 percent on some beef-based products, Coveney said. Better weather since April and the waning effect of a European horsemeat scandal have helped sales.
Wal-Mart Stores Inc.’s Asda supermarket chain in February withdrew a beef Bolognese sauce supplied by Greencore in the U.K. after detecting traces of horse DNA. Testing by Greencore found no contamination in its supply chain, according to Coveney, who said the company is now resupplying Asda.
Greencore’s first-half sales rose 0.9 percent to 573 million pounds as adjusted earnings per share climbed 11 percent to 6.1 pence.
Full-year adjusted earnings per share will be 13.9 pence, according to the average estimate of nine analysts.
The sandwich maker acquired U.K. chilled-food group Uniq Plc in 2011, after Greencore’s planned merger with Northern Foods Plc collapsed following a rival bid from BH Acquisitions Ltd. Potential takeover talks for Greencore itself with an unidentified bidder concluded in 2011 without an acceptable offer, the company said in that year.
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