Last week's announcement that Patrick Coveney, the chief executive of Greencore, is to spend approximately half his time in the US suggests that there are "material challenges ahead" and "no quick fix" to the company's issues, a leading analyst has suggested.
Darren Shirley of Shore Capital Stockbrokers said that the agency is downgrading its recommendation on Greencore stock from buy to hold, suggesting that the "transformative" acquisition of Peacock Foods in late 2016 has presented more challenges than solutions.
The Straw That Broke The Camel’s Back
“Confidence has been tested by pockets of profit weakness in the UK and ongoing challenges in the legacy US estate,” Shirley said via a briefing note, “however, talk of delays in new business wins across the acquired estate is the straw that has broken our camel’s back.
“Confidence in forecasts is materially eroded, whilst the transfer of ‘strategic, organisational and commercial leadership of Greencore USA’ to the group CEO suggests material challenges ahead, no quick fix, and certainly not what was envisaged at the time of the acquisition,” he added.
In its announcement, Greencore said that it is closing its Rhode Island facility – “The fact that the facility was so chronically underutilised and has lost [approximately] £5 million in the six months prior to closure does not make for pleasant reading,” Shirley said – while also looking to bolster its Jacksonville and Minneapolis facilities.
“Across the former Peacock Foods estate, management continues to talk positively of ‘well-advanced’ plans that could secure ‘significant’ new business across several sites across the mid-western USA,” Shirley said. “However, it then concedes that delivery of this business is now not expected until H1 FY2019, so a delay on prior expectations of up to six to 12 months, which is expected to impact on FY2018 profitability by [approximately] £4 million.”
Chief Executive
On the company CEO’s decision to allocate half his time to the US operation, Shirley suggests that such a position would certainly not have been on the agenda at the time of the Peacock Foods acquisition in 2016.
“We cannot believe any such role would have been envisaged by Mr Coveney when acquiring Peacock Foods, and such a strategic change in role for the group’s CEO raises to us material concerns as to the strategy of the division over the past 12-15 months,” he said.
Downgrading the business to hold, Shirley added, “With our and market confidence severely dented on both financial expectations and strategy, we believe it will take a sustained period of stability before Greencore’s stock can begin to recover from the recent damage.”
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
