While the year 2017 saw its fair share of ups and downs for convenience foods group Greencore, 2018 looks to be starting off on the front foot.
Earlier today, Greencore announced a 7.2% increase in pro forma revenue in the first quarter of its financial year, with sales of £640.5 million for the period. Driving this growth was its UK & Ireland Convenience Foods business, which saw 8.7% growth, while its burgeoning US Convenience Foods operation posted 5.1% growth.
In what has been a busy week for chief executive Patrick Coveney and his team, the business also announced that it was exiting the cakes and desserts business, with the sale of its remaining operations to UK-based Bright Blue Foods, a disposal that is expected to have a 'neutral' impact on its group adjusted earnings.
Elsewhere, an ongoing restructuring process at its UK operation, which has seen the group launch the ‘Greencore Manufacturing Excellence’ initiative, in order to drive operational benefits across the division, will enable the business to double down on its core strengths.
Positive Response
Last week, investment and stockbroking firm AJ Bell put Greencore on its list of firms with the highest percentage of broker buy ratings in the FTSE 100 and FTSE 350 lists.
Following today's results, analysts have given the group a firm thumbs up, with Jason Mollins of Goodbody Stockbrokers describing its Q1 announcement as a a "reassuring update by the company", with "strong potential" evident in its UK Food to Go Business and US operations.
"We retain our positive view on the stock underpinned by: (i) solid growth dynamics across its two core regions; and (ii) improved cash flow generation," he said.
Elsewhere, Darren Shirley of Shore Capital said a "year of strong growth was expected" for the business.
"We believe Greencore’s valuation and a sub-200p share price represent an excellent entry point for, offering the potential for a healthy rating expansion as somewhat fragile market confidence towards the company [...] improves," he said.
New Year, New Focus
The results have also enabled Coveney and his team to put a full stop on what was a challenging 2017.
Last August, its share price took a major hit after the group announced it was phasing out a major contract with coffee chain Starbucks, which was a major recipient of stock from its Jacksonville, Florida facility.
This was memorably referred to in a Greencore statement as 'some level of churn in the legacy retail part of the US business'.
The company also had to deal with a listeria scare at its Rhode Island facility, which while minor, followed not long after the Starbucks announcement - complicating things as Greencore closed the year.
On the positive side, the previous full year period did see the group invest some €695 million to acquire convenience foods manufacturer Peacock Foods in the US.
Streamlined Business
After all, Greencore has, over the years proven itself to be one of the canniest M&A players in the business.
Formed out of the ashes of the Irish Sugar business in 1990, the company's list of acquisitions is enough to fill a phone book: Ministry of Cake, Sushi San, Home Made Brand Foods (an acquisition that enabled it to enter the US for the first time), Marketfare Foods, H.C. Schau & Son, International Cuisine, On A Roll Sales Inc and Uniq, the latter being arguably the biggest of them all, until the recent Peacock Foods move.
Under CEO Coveney, the company has also been unafraid to shed weaker aspects of the businesses, such as when it offloaded its Ministerley desserts facility to competitor Muller Dairies in 2013, as it sought to wind up its underperforming desserts operation.
The announcement this week that it has finally exited desserts and cakes will likely please shareholders, as it will enable the company to place all its focus on its key sales driver: convenience foods.
Following on from this disposal, could the group now also consider (finally) waving goodbye to its Ingredients & Property division, which currently account for less than 2% of revenue, and don't even warrant a mention in the group's quarterly results?
Suddenly, the travails of 2017 seem like a distant memory...
© 2017 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.
