Greencore has raised its forecast for a closely-watched profit metric after reporting volume growth the manufacturer said was ahead of the wider grocery market.
In a trading update issued today (22 July) for the 13 weeks ended 26 June, the UK-listed convenience-food manufacturer said it now expects its annual adjusted operating profit for continuing operations to come in “above current market expectations” in a range of £234m ($312.8m) to £242m.
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The update prompted a strong market reaction. Greencore shares were up 11.6% in morning trading at 247.6p, having touched 250.8p, versus a previous close of 221.8p.
The update marks the first full trading commentary since Greencore completed its takeover of Bakkavor in January.
Group revenue in Greencore’s fiscal third quarter was £1.02bn on a pro-forma basis, up 3.2% year on year. Revenue for the first nine months rose 3.2%.
Sales of “food-for-now” products grew 4.7% in the quarter, while “food-for-later” saw sales rise 1.8%. Greencore said volume and mix contributed 2.3 percentage points of its growth during the quarter, with price and “inflation recovery” adding 0.9 points.
CEO Dalton Philips added: “The Greencore team has delivered another strong performance in Q3, with volume growing ahead of the market and excellent underlying profit growth, even against a robust Q3 last year.”
The company said the “underlying profit momentum” at the legacy Greencore and Bakkavor businesses was “ahead of expectations”, supported by growing volumes growth, improved margins and cost control.
The acquisition of Bakkavor created a combined private-label food business with roughly £4bn in revenue.
Like Bakkavor, Greencore operates in private-label food-to-go and convenience products supplied to major supermarkets such as Tesco, Sainsbury’s, Asda, Waitrose and Marks & Spencer.
Philips said the enlarged group’s integration was “fully on track” and that customers wanted “to grow their business with us”.
Analysts at RBC said the update should help calm concerns around Bakkavor’s underlying performance and working capital.
RBC analyst Ross Broadfoot described the news as “an impressive update”, noting the new adjusted operating profit range implied about a 6% upgrade at the midpoint versus prior consensus expectations.
Greencore said fourth-quarter trading had started “positively”, with continued volume momentum and early cross-selling progress.
