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Sodexo releases disappointing Q1 results

After the Rugby World Cup boom Sodexo was on a high but it has been unable to keep up momentum. Despite the company broadly hitting its organic growth targets it has been unable to generate the growth that many analysts were hoping for. Despite this the company is pushing for a strong 2020 and has put a number of efficiency measures in place to improve productivity.

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This picture show how SODEXO is used for the production of sports goods.

Despite a 7.1% increase in turnover and the confirmation of its annual objectives, analysts consider the first-quarter Sodexo results disappointing, believing that the Rugby World Cup is an obstacle. The world No. 2 in contract catering – behind the British Compass and ahead of another French group, Elior – dropped 5.1% at $113.02 (€101.75) which brings its valuation down.

After dominating the CAC 40 rankings in the previous day’s session (+2.5%), Sodexo is moving backward on Thursday, January 9, in a Parisian market that is gaining momentum (nearly 0.6% gain for the CAC at this stage), boosted by the easing of US-Iranian tensions.

The share price of the group, with more than 400,000 employees, ended 2019 with an honorable performance, although below that of the leading index (+18% against +28% for the CAC), therefore starts 2020 on a more negative note (-3.6% since January 1).

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Sluggish growth after the Rugby World Cup

Nevertheless, on Thursday, January 9, Sodexo reiterated its annual objectives, reporting a 7.1% increase in turnover for the first quarter of its postponed 2019-2020 financial year. The financial year ended at the end of November to which the Rugby World Cup contributed.

Over the period, Sodexo recorded revenues of $6.7 billion (€6.07 billion), with contract wins on one-off sporting events (Rugby World Cup and Olympic Games) offsetting the loss of contracts in North America (and the voluntary exit from a contract in the Health Care segment). This was stated by the group said in their press release.

“Revenue growth in the first quarter remains solid,” said the Managing Director Denis Machuel, who is confident with the future. He went on to add that “With the renewal of our management teams in North America, the strong outsourcing trend in developing economies, our steady growth in Europe and the rigorous implementation of our action plan to improve productivity and reinvest in sales, marketing, digital, and innovation. We are confident that we are on the right track,”.

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Organic growth in line with annual target

During the first three months of its lagged fiscal year, organic growth was 3.8%, compared to 2.6% for the same period a year earlier. This is in line with the target announced by Sodexo – “around 4%” – when the company published its annual results at the beginning of November.

Excluding currency effects and the impact of changes in accounting standards, Sodexo is also targeting a “stable” operating margin for its fiscal year 2019-2020. That reached 5.5% in the previous fiscal year, at the lower end of the range of 5.5% to 5.7% that the Group had set itself.

In retail, the on-site services division, which generates the bulk of the company’s business, saw its revenues increase by 7.2%, of which 3.8% was organic growth, to $6.51 billion (€5.87 billion). But excluding the Rugby World Cup, it would have been only 2.3%, which led Bernstein to say that apart from one-off sporting events, organic growth slows down. According to the broker, Sodexo must invest all identifiable cost savings in this growth, which, at less than 3%, remains below its long-term objective.

This services division includes the “business and government” (+11.2%, including 9% organic growth to $3.55 billion (€3.2 billion)), “health and seniors” (stable revenues, -5% organic growth to $1.40 billion (€1.27 billion euros)) and “education” (+5.7% including 1.3% organic growth to $1.55 billion (€1.4 billion)) segments.

Finally, the “benefits and rewards” segment (Gift Vouchers, Gift Pass Card, Vouchers and Restaurant Pass Card) increased by 4.5% (4.2% internally) to $227 million (€205 million).

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(Featured image by Jason Briscoe via Unsplash)

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First published in BFM Bourse, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Jeremy Whannell loves writing about the great outdoors, business ventures and tech giants, cryptocurrencies, marijuana stocks, and other investment topics. His proficiency in internet culture rivals his obsession with artificial intelligence and gaming developments. A biker and nature enthusiast, he prefers working and writing out in the wild over an afternoon in a coffee shop.

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