ii view: Greencore swallows £10 million Covid costs

Shares of this food producer are trailing rivals. Here’s why. 

Fourth-quarter & full-year trading update to 25 September

• Fourth-quarter revenue down 19%
• Full-year revenue down 14% to around £1.26 billion
• Full year adjusted profit of £85 million
• Net debt of around £345 million 

Chief executive Patrick Coveney said:

"The fourth quarter of our financial year has seen an ongoing improvement in demand for our products. Our agile business model, the depth of our customer relationships and the strength of our product range has enabled us to already capitalise on new business opportunities that will help underpin the build back in Group revenue. We are realistic but also confident in our plans for FY21 and remain excited by Greencore's longer term prospects."

ii round-up:

Greencore (LSE:GNC), the maker of sandwich, salads and other foods has outlined its expectations for falls in both sales and profits given the impact of coronavirus. 

The Dublin headquartered company, whose products include Marks & Spencer (LSE:MKS) sandwiches, expects full-year revenues to fall by 14% and adjusted profit of around £85 million, down more than a third year-over-year. One-off Covid costs of over £10 million had been suffered.

Greencore shares, which fell by more than 10% in UK trading, are down by over a quarter since late March when UK office workers were told to work from home where possible. Shares for meat packager Hilton Foods (LSE:HFG) have rallied by more than a third in the same time as consumers ordered more produce to cook from home under lockdown.

Greencore makes more than 700 million sandwiches and over 100 million salads per year. In August, it temporarily halted production at its Northampton site given an outbreak of Covid-19. Production was restored in mid-September.

An expected revenue fall of around a fifth in the fourth quarter is better than the one-third-plus fall suffered in the third quarter - helped by an easing of Covid-19 restrictions over the summer. 

Earlier in the year, Greencore cancelled its half-year dividend payment and announced that it does not plan to pay either a final 2020 or interim 2021 payment. 

Full-year results are scheduled for the 24 November. 

ii view:

Greencore was formed following the privatisation of Irish Sugar in 1991. It moved into convenience foods in 2001 and out of sugar in 2006. Today, its products include sandwiches, salads, sushi, chilled snacking, chilled ready meals, chilled soups and sauces, chilled quiche, ambient sauces and pickles, and frozen Yorkshire Puddings. It supplies supermarkets including Tesco (LSE:TSCO), Sainsbury (LSE:SBRY), Morrison's (LSE:MRW) and M&S. 

For investors, quarterly improvements in both revenues and adjusted profits (EBITDA) offer some reason for optimism. The once attractive dividend prior to the pandemic is also worth remembering. But, despite many precautions, the risk of a further Covid-19 outbreak at one of its plants cannot be ignored. The recent retightening of pandemic restrictions and government requests to stay working from home also dampens prospects. In all, despite the usual defensiveness of food – we all need to eat – Greencore’s exposure to food-on-the-go during a pandemic appears to leave no immediate rush for investors to add to any existing holdings.  

Positives: 

• Improving quarterly sales
• Total committed debt facilities of £ 578 million

Negatives:

• Clouded Covid outlook
• Suspended dividend payment

The average rating of stock market analysts:

Buy