Shareholders of Compass Group plc (LON: CPG) have seen their shares sink on Tuesday morning, after the firm gave shareholders a gloomy outlook amid speculative future business.
Compass Group plc is a British multinational contract food service which resides in Surrey. It is the largest contracted foodservice company in the world with operations in over 50 countries and employs over 550,000 people.
Shares of Compass Group sunk 5.77% after the announcement to 1,956p. 26/11/19 10:50BST.
Earlier this year, the FTSE 100 (INDEXFTSE: UKX) listed firm reported strong growth driven by North American operations and the performance seems to have continued through the next quarter.
Despite a relatively strong financial 2019, Compass have given shareholders a gloomy update alluding to tough market conditions and Brexit complications.
Compass reported a 5.7% increase in full year underlying revenues reaching £25.2 billion for the year ending 30 September. Operating profit rose 4.7% to £1.9 billion.
Operating margin was 7.4% while free cash flow grew 9.3% to £1.25 billion.
Group chief executive Dominic Blakemore said that despite the good performance, Compass was “not immune to the macro environment”.
“Deteriorating business and consumer confidence in Europe has impacted our business and industry volumes, new business activity and margin,” he said.
He added that the firm was taking “prompt action” in Europe and the rest of the world markets to adjust its cost base.
The cost saving action is expected to result in £300m of exceptional costs across this year and next.
Blakemore continued: “Our expectations for the group in 2020 are positive although we remain cautious on the macro environment in Europe. The pipeline of new contracts in North America is strong and Rest of World is growing well, although we are seeing some hesitation in decision making in Europe.
“Thanks to the group’s geographic and sectoral diversity, we are nevertheless confident of continued progress. As such we expect organic growth to be around the mid-point of our 4-6 per cent range whilst maintaining our strong margin1 as we mitigate the expected volume pressures through our cost actions.
“In the longer term, we remain excited about the significant structural growth opportunities globally, the potential for further revenue and profit growth, combined with further returns to shareholders.”
The food and drinks industry have seen mixed results and firms have had limited success.
Firms such as J D Wetherspoon (LON: JDW) and Greggs (LON: GRG) have given shareholders strong updates seeing their shares rally.
Other competitors such as the Restaurant Group (LON: RTN) have not been so successful, as they saw their shares dip yesterday despite success from their headline branch Wagamama.
