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Greencore fails to break US

The food-to-go maker is planning to restructure its stateside business following weak demand
March 14, 2018

Greencore (GNC) has learned the perils of over-reaching the hard way. The food-to-go maker bought fellow convenience food business Peacock in December 2016 to beef up its US presence. However, demand has not matched up to the 2.5m square feet of American manufacturing space acquired, forcing management to restructure the US business. That means full-year earnings are also expected to slip.

IC TIP: Hold at 130p

The group will keep its facility in Rhode Island, but will stop production of fresh food from the end of March, since operating losses at the site have continued into 2018. This site accounted for about 4 per cent of Greencore’s US manufacturing capability and 2 per cent of sales. Since August 2017 management has been meaning to find a new purpose for its Jacksonville site after the loss of a contract there rendered it underused. It's now hopeful that new deals will put it to better use by the fourth quarter. Finally, the Minneapolis site utilisation has started to improve with some pieces of new business.

Greencore’s US prospects hang on whether new contracts will indeed materialise. Analysts at Peel Hunt are “throwing in the towel” on their buy recommendation for Greencore, calling management credibility “clearly damaged” after failing to deliver on winning business. Chris Kirke, chief executive of Greencore’s US business, will step down and group chief executive Patrick Coveney plans to spend more time in the US to oversee the restructure. So far, all of this is expected to cost about $3m, but further non-cash charges could be on the way.