Coveney crisis as Greencore shares suffer slump
GREENCORE boss Patrick Coveney faced a major test yesterday after a bruising profit downturn triggered investor concerns about his suitability for the top job.
The Irish Independent has established that at least two large shareholders are questioning management’s credibility following a shock trading update that sent the stock into a tailspin and stripped over £400m (€450m) off the food group’s market capitalisation in early Tuesday morning trading.
By the close, the shares had crashed by 30.31pc, the steepest decline in the company’s history. The valuation slide came in the wake of an unexpected earnings downgrade, prompted by another set of problems in its US business.
Investor sources warned this “is crunch time” for Mr Coveney.
One stakeholder claimed another major revision to the downside could render his position untenable. Others pointed out the increased scepticism at Mr Coveney’s ability to deliver on strategy could swiftly turn into a landslide.
Greencore revised its fullyear 2018 numbers to 14.7p to 15.7p, compared to current market expectations of 15.7p to 16.6p.
The revision again exposed the fault lines in the group’s US arm as it grapples with dwindling sales in its legacy portfolio and at the same time attempts to ramp up sales from Peacock Foods, the Illinois-based company that generates about €1bn in annual sales. Greencore snapped up Peacock in December 2016 for $747.5m (€606.8m). But even as Peacock turbo-charges revenues, the difficulties afflicting its legacy business continue to bite.
After losing about £70m of frozen business with Starbucks in 2017 from its Jacksonville site in Florida – news that was confirmed by Greencore after a volatile streak in the share price – the group has announced it will mothball its loss-making Rhode Island plant, which is operating at about a quarter of its utilisation capacity. That could result in a write-down of the facility’s net asset value of $40m. The group stressed it expects business to increase at its Jacksonville and Minneapolis legacy sites. But Greencore’s recent track-record dictated the tone of the market reaction.
In a note, Davy stockbrokers labelled the US division Greencore’s “Achilles’ heel”, as the challenge of “converting new business wins has become a recurring feature of the business model”.
Mr Coveney has pledged to spend half his time in the US. The management shake-up has also resulted in the exit of Chris Kirke, who led the US arm for three years. Chuck Metzger, Peacock’s chief operating officer – and now COO of Greencore US – will take the helm at the division.
The management overhaul and Mr Coveney’s insistence, on a conference call to analysts, that fresh growth will flow through “in the first half of FY 2019”, marking a delay to previous expectations, failed to placate the market.
After a long spell as a stock-market darling, analysts gradually began downgrading the stock. Up until yesterday, all 12 analysts covering the stock had rated it as ‘buy’ to clients.
Peel Hunt’s Charles Hall was the first to break cover and issue a ‘hold’ recommendation on the stock.
In a note headlined “Throwing in the towel”, Mr Hall said the revised forecasts had “clearly damaged” management credibility and claimed to have “lost confidence” in the “scale, timing and impact of new business wins”.
Mr Hall added first-half profits will be about 25pc lower, “which means that the fullyear outcome will be more H2-weighted than normal”.