Greencore's sales boosted by price increases

Revenues soared ahead of pre-pandemic levels at Greencore (GNC) as the convenience foods manufacturer put through double-digit price increases and enjoyed the benefits of new business wins. Investors will also be cheered by more share buybacks, with a new £15mn programme confirmed. But the shares were marked down by 8 per cent on results day, after the company revealed that volumes were still below 2019 postings and warned in its outlook statement that “the impact of [the cost of living crisis and the challenging macro environment] has not yet been fully absorbed by the consumer”.

Despite the robust top-line performance - food to go sales were up by 35 per cent and other convenience sales climbed by 19 per cent – profitability was down against pre-pandemic as a higher cost base took its toll, with second-half adjusted cash profits collapsing by a tenth. And the gross profit margin fell by 180 basis points to 30.1 per cent against last year. While encouraging action has been taken on cost mitigation, this is far from an easy process. The company’s note that “we continue to make decisions on customer contracts which are no longer economic” suggests that some clients aren’t budging on higher prices, which isn't good news as the cost inflation situation worsens. 

Peel Hunt analysts cut their 2023 profit forecast by 5 per cent on the back of the results and said that “we need to see the pressure on margins and extent of business being lost to be more optimistic on the shares”. While the valuation doesn’t look too demanding, with the shares trading at 8 times the broker’s financial year 2023 earnings forecast, the outlook is an increasingly challenging one despite sales progress. Sell.

Last IC View: Sell, 112p, 24 May 2022