LON:GNC | Greencore Group - Far Away Fields Are Greener?

13th Mar '18 by Dearg Doom

1 comment 2553 reads

Greencore (LON:GNC)

Share Price 127.20p (-30.3% today) Bid/Offer 127.15p/127.25p

Market Cap £832 million No. of Shares Issued 655 million

About the Company

A manufacturer of convenience foods, supplying a wide range of chilled, frozen and ambient foods to the UK and USA markets. Very successful for many years with its UK sandwhich making operations. Greencore made a major acquisition costing $747.5 million to buy Peacock Foods in the USA in late December 2016.

Greencore Corporate Video Link

Trading Update

The group since that Peacock foods acquisition has had major difficulties with parts of its USA businesses. Patrick Coveney, Group CEO, will have to divide his time with half now spent in the USA to solve the on-going difficulties. The aim will be to generate additional profitable business for under utilised assets. To also help are four new senior appointments. They have taken up positions in the USA since January in the key areas of Commercial, Finance, Strategy and Human Resources.

In the US, the core CPG business is doing well and the company expects further improvement in the second half of 2018 and into 2019.

The USA problems include:

Rhode Island: Current fresh production at the Rhode Island facility will cease, effective from 25 March 2018. May necessitate a writedown on $40 million assets representing 4% of group turnover.

Jacksonville: Needs to find new uses for the Jacksonville facility due to the loss of a key supply contract.

Minneapolis: Capacity utilisation and site economics continue to be weak despite an improving trend.

The profit warning is due to:

(i) under-utilised USA factories in the first half, hopefully, offset by some improvement from new business contracts in the 2nd half.

(ii) the weakness of the dollar/sterling rate hurt profits.

(iii) unfortunate weather pattern which affected volume growth in Q2.

(iv) an additional $3m management restructuring costs is necessary and

(v) a large writedown on underutilised assets.

Next Set of Results

Greencore Group's Interims for 2018 are due for release on 22nd May 2018. One-third of profits are likely to be made in H1 of 5p earnings per share. H2 will likely show 10p earnings per share.

Greencore Group has tended to…

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Dearg Doom

22nd May '18

Share Price 173.15p (up 10.5% at 9:38 a.m.)

Bid/Offer 173p/173.3p

Market Cap £1.13bn No. of Shares 654.7 million
Enterprise Value £1.65bn
Revenue £2.32bn

Interim Results link

The share price had been rising in recent weeks and this morning continued share price rise reflects further that optimism. Their past mistakes are clearly evident which this same ambitious management are attempting to put right. After this morning's conference call, we may see profit taking later unless an even rosier picture is painted.

Weather issues blamed for operating margin reduction.

Hard to ignore £53.1 million exceptional charges for previous mistakes or restructuring depending on your viewpoint.

Two UK disposals with Hull and Evercreech involved in cakes and desserts production.

Net debt slightly increased by £3 million over H2 17 but the company did detect better cash generation in the first half which should continue in the 2nd half.

Strategic capital expenditure has dropped with CAPEX closer to £80 million expected this year.

I would not be too surprised to see the company achieving their guidance of 14.7- 15.7p earnings per share given the hands-on approach of senior management to their USA operations. Key senior manager's reputations are on the line. Failure would mean heads roll.

Emphasis is on cash generation through every part of their business given current debt levels and an effort to improve return on investment. At least £15 million cost savings are expected which are evenly split between the first half of year and second half.

Greencore through its marketing research found there is a strong structural increase in US food outsourcing in the years ahead with an emphasis on food safety, wider capability, and geographic reach. Greencore believes it is well set up to take advantage of this trend as an outsourcing partner. Greencore anticipates building its own growth on top of its existing customers growth plans rather than acquiring new customers, but this is set against US data pointing to close to zero growth

Management is particularly nervous in my opinion with an over delivered marketing spin across their two geographic areas. The conference call sounding rather like the "Apprentice" tv programme when Alan Sugar asks why I should not fire you!

Regards

Greencore Group - Far Away Fields Are Greener?

Greencore (LON:GNC)

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Dearg Doom

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Greencore (LON:GNC)

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