Sodexo’s cautious guidance take shine off profitability beat

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The logo of French food services and facilities management group Sodexo is seen at the company headquarters in Issy-les-Moulineaux near Paris

By Juliette Portala and Piotr Lipinski

(Reuters) – French catering and food services group Sodexo reported on Thursday a large profit margin beat but cautious second-half forecasts, flagging short-term volatility in view of a resurgence in coronavirus infections.

The Paris-based firm posted an underlying operating profit margin of 3.1% for the six-month period through February, beating its own raised forecasts of at least 2.5%.

“We are slightly above analysts’ estimates, as the consensus was around 2.7%-2.8%,” Finance Chief Marc Rolland said on a call with reporters.

Lockdowns have hurt the big catering companies such as Sodexo and British rival Compass Group, with offices closed in parts of the world and large public events on hold.

Sodexo, whose clients range from England’s Royal Ascot Racecourse to the U.S. Marine Corps, cited the renegotiation of contracts and tight cost control as reasons behind the performance, as its restructuring programme moves forward.

In October, the group announced plans to cut more than 2,000 jobs as COVID-19 lockdowns ate into revenue. The plan should be implemented between now and the summer, Chief Executive Denis Machuel said on the call.

For the second half of its financial year through August, the company expects margins to be stable while it sees little improvement in quarter-on-quarter revenue volumes trends, given the new waves of the pandemic.

On Wednesday, French President Emmanuel Macron ordered the country into its third national lockdown.

Sodexo shares slipped 0.4% by 0905 GMT, paring earlier losses of as much as 1.6%, with analysts seeing the guidance as generally disappointing.

“Guidance and results combined imply a downgrade to consensus (full-year 2021) operating profit,” Berenberg’s analysts said in a note to clients.

Compass, which announced job cuts, furloughs, and reduced working hours last year, last month predicted better margins as it trimmed costs to soften the coronavirus blow.

(Reporting by Juliette Portala and Piotr Lipinski ; Editing by Sherry Jacob-Phillips and Keith Weir)

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