French food services group Sodexo has posted stronger-than-expected first quarter sales and kept its goals for the year, although it cautioned that investment costs would weigh slightly on margins in the short term.
Sodexo, which owns the Paris cabaret Le Lido, the Yachts de Paris luxury river cruising business and has the catering contract for a restaurant in the Eiffel Tower, said anti-government protests had affected its tourism business in France last month but described the impact as manageable.
"We are more worried about the impact of the protests on the spring-summer tourism season," said CEO Denis Machuel.
The world's second largest catering services company after Compass Group, Sodexo said underlying revenues grew 2.6% in the first quarter of its 2018/19 fiscal year, reflecting stable growth in Europe and an improvement in North America.
Revenue reached €5.671 billion in the three months to November 30. On a like-for-like basis, revenues were up 2.6%, slightly above analysts' expectations for 2% growth in an Infront Data poll for Reuters.
Sodexo's results for the past fiscal year have suffered from weakness in its North American business, where cost savings have lagged and several large contracts have taken time to pay off.
Reshaping Business
Sodexo is banking on a renewed focus on food contracts, increased productivity and cutting down on its use of temporary workers to help contain costs and boost its overall performance.
Machuel said Sodexo was taking a cautious approach regarding its north American recovery, even though it was winning contracts in areas such as healthcare.
"We are vigorously implementing our action plans. As we generate productivity we are reinvesting in sales, marketing, digital and innovation," Machuel added in a statement.
Sodexo cautioned that differences between these productivity gains and money spent on investments would weigh slightly on its first half underlying operating profit.
"While on the face of it this makes sense, given Sodexo’s poor track record on margin delivery this will partly offset the solid organic growth beat," said Berenberg analysts in a note.
Sodexo kept its forecast for underlying revenue growth of between 2%-3% and an underlying operating margin at 5.5%-5.7% of sales for the full year ending August 31, 2019.
In September, the group told investors that it planned to deliver revenue growth of above 3% by 2019/20, and then improve margins to over 6%.
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