May 16, 2018 / 6:19 AM / 3 months ago

UPDATE 2-Elior cuts FY guidance on tough competition, shares slump

(adds quotes from conference call)

May 16 (Reuters) - Elior, Europe’s third-largest catering group, cut full-year guidance after posting lower-than-expected preliminary first-half results due partly to tough competition in contract catering in France, sending its shares plunging by 14 percent.

The French caterer issued a previous profit warning six months ago, while rival Sodexo cut its full-year sales and profit margin outlook in March and Compass Group, the world’s biggest catering firm, missed first-half earnings expectations in May.

"Our second-quarter performance was disappointing. Profit margins for contract catering in France were impacted by a tough competitive environment combined with a period of managerial instability," Chief Executive Officer Philippe Guillemot said in a statement on Wednesday. bit.ly/2Kr6nbb

Elior forecast an adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) margin of 7.5-7.8 percent for 2017-18, compared with a previous forecast of stable margins. The group reported an EBITDA margin of 8.3 percent in 2016-17.

The company said it expected organic growth in 2017-18 of close to 3 percent, compared with previous guidance of at least 3 percent. It expects a decrease in adjusted earnings per share, compared with a previous guidance of a slight increase.

The company said its total growth of 3.9 percent for the first half of its 2017-2018 fiscal year and an adjusted EBITDA margin of 6.9 percent were “below expectations”.

“We are facing operational challenges and short-term headwinds that weighed and are still weighing on the group’s performance,” Guillemot said on a conference call on Wednesday.

Guillemot said the managerial instability was now behind the company, which is relying on a new French management team to implement efficiencies.

He said the company would draw up an “ambitious and credible business plan” for the medium and long-term that it will present on June 26.

Guillemot underlined constant pressure on margins due to increased rotation of its portfolio of contracts.

Transport strikes in France and poor weather in Italy, France, Britain and the United States had also dragged down revenue and profit, it said.

“Some of these factors... point towards a theme of increasing competition and a tougher environment in contract catering”, says Morgan Stanley, which kept its “underweight” rating for Elior.

Guillemot said the company was eyeing acquisitions in the United States, where the company is “a relatively small player”.

Sodexo shares were down 2 percent at 0930 GMT while Compass Group shares were down 1.9 percent.

bit.ly/2Kr6nbb

Reporting by Nolwenn Brossier in Gdynia; Editing by Subhranshu Sahu, Biju Dwarakanath and Adrian Croft

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