Aryzta - lowering earnings expectations

Aryzta - lowering earnings expectations

Swiss-Irish bakery business Aryzta has cut its earnings guidance for 2018 by 15%.

In a statement issued this morning (25 January), the company, which makes buns for McDonald's burgers, said its guidance issued in November suggesting FY2018 EBITDA would be broadly in line with the 2017 figure needed updating. 

"Management's current best estimate is that FY18 EBITDA, on a like-for-like basis excluding forex and disposals, is likely to be circa 15% below that of FY17 (20% on a reported basis)," it said,

In its November guidance, Aryzta spoke of "internal and external challenges," and it appears many of those remain in place.

CEO Kevin Toland said in this morning's statement: "While acknowledging the major challenges, revenue remains resilient. The newly strengthened management team is now in place and fully focused on addressing those challenges."

Aryzta reported today that, as Toland suggests, revenue, excluding US business Cloverhill, remains "relatively stable".

But the company said EBITDA weakened towards the end of its second quarter in both Europe and US, with this trend not expected to reverse for the remainder of its financial year.

Aryzta said its European "underperformance" is estimated to account for around 20% of the anticipated shortfall relative to expectations. 

"There has been good progress on butter price recovery and the improvements in capacity utilisation in Germany are on track," it said.

"However, this progress is not expected to be sufficient to offset the volume and associated margin lost to timing of in-sourcing and the impact of Brexit-related pressures on our UK business remains."

In the US, Cloverhill's woes continue to drag the company down.  

That is partly because of the costs associated with having to scramble to find replacements for the 800 employees it lost at its Cloverhill bakery in Chicago following a federal raid looking for illegal workers.

Aryzta said US business excluding Cloverhill is underperforming expectations. 

The company, whose brands include La Brea Bakery and Otis Spunkmeyer, has struggled to achieve growth in the market. 

Aryzta's first-quarter results released on 27 November showed North American revenues were down 11.5% on a year-on-year basis.

It has faced a number of other problems in the US too. These included the failed launch of Otis Spunkmeyer cookies in the retail channel, a move that has led to the loss of contracts to manufacture with companies that compete with the brand. Aryzta is also facing a lawsuit from Tennessee firm McKee Foods for alleged supply failure.

It has recently made changes at the top, as mentioned by Toland. Dave Johnson has been appointed the new chief executive of its North American business, while John Heffernan is to become group chief strategy officer.

Aryzta has also started a divestment programme. It sold its Irish foodservice business La Rousse in December and is looking to offload Cloverhill.

Toland said: "We are progressing the disposal of non-core assets and deleveraging programme which is a key component of our multi-year turnaround programme and delivery of the EUR1bn (US$1.24bn) cash generation target."