Compass serves up softer first-half numbers due to mixed Europe

Contract caterer Compass Group’s North American business made up for falling profit in Europe, though sales and profits fell short of average analyst forecasts.

Underlying operating profit rose to £875m from £837m in the six months to the end of March as organic revenue rose 4.8% to £11.5bn. Statutory operating profit fell 2.7% to £853m due to currency movements and EBIT before exceptionals fell 2% to £864m, which was 2% below the average City forecast of £880m.

At the North American business, which makes up more than half of revenue, underlying operating profit rose 8.3% to £575m as Compass signed new contracts with companies such as Travelers and won more business from Johnson & Johnson.

The FTSE 100 company’s European business reported a 9.6% drop in underlying operating profit to £197m because of inflation and unspecified “change actions” in the UK, combined with extreme winter weather across the continent.

Organic growth in the second quarter of 3.7% was more soggy-bottomed than analysts had wanted to see, reflecting the effects of Easter timing, bad weather and the demobilisation of contracts in Europe and the US.

The group operating margin narrowed slightly to 7.5% from 7.6% due to rising costs caused by inflation. Compass said actions to deal with cost pressures in the UK would feed through to results in the second half.

Dominic Blakemore, Compass’s chief executive, said: “Compass had another strong half with good revenue growth. North America continues to make excellent progress with broad-based growth across sectors. Performance in Europe was mixed, with good growth in the UK offset by subdued trading in Continental Europe. “

Compass increased the interim dividend by 9.8% to 12.3p a share.

Shares in Compass fell 5% to 1,508p by the close.

Analysts at Berenberg noted softer second-quarter trends than expected, with 3.7% organic growth versus the 5% expected, though this is still well ahead of the 1.4% and 2.0% delivered by Sodexo and Aramark, respectively.

"However," said Berenberg, "guidance is unchanged and we view this as reassuring. We expect these results to be taken negatively on the back of the softer organic growth in Q2, and a run into the numbers, but it remains our top pick in the sector."