BREAKINGVIEWS-Caterers’ US indigestion may only be for starters

By Aimee Donnellan

LONDON, March 20 (Reuters Breakingviews) - Sodexo’s EXHO.PA U.S. woes may be a mere appetiser for global caterers’ gloom. On Thursday, the $9 billion French group warned that its revenue and operating margin growth could be dinged by dwindling demand for its meal services in U.S. universities and hospitals. In normal times CEO Sophie Bellon could argue the pain is a one off, but President Donald Trump’s plans for tariffs and government efficiency savings could make it more of a main course.

Back in October, Bellon was in a sweet spot. She forecast sales growth of between 5.5% and 6.5% for 2025, having grown sales by nearly 8% for the year to the end of August. Yet as of March her U.S. market, which accounts for nearly half of group sales, is misfiring. Part of that is Sodexo losing a big contract, but enrolment in U.S. universities is also down, impacting demand for the meals it doles out to students. Meanwhile, healthcare clients are holding off on signing contracts. This uncertainty prompted Bellon to cut the group’s expected growth to between 3% and 4% for 2025.

As things stand, Bellon is not seeing any signs of U.S. corporates or the government pulling back on food contracts amid a shaky economic outlook. It may not stay that way. Trump's threatened trade tariffs could hit the profits of Sodexo’s clients and its supply chain. Meanwhile, the U.S. president is also in the midst of an aggressive efficiency drive, cutting various contracts with government suppliers to bring down spending. Sodexo’s business supplying food to schools could be vulnerable.

Sodexo had until this year outperformed other European stocks. That’s probably partly because multiyear food contracts for the public and private sectors give their revenues and those of rivals like $54 billion Compass CPG.L a degree of stability, and partly because of their access to U.S. growth. An 18% drop on Thursday means French food caterer’s shares trade on 10 times this year’s earnings, against a 10-year average around 12.5 times. Given the uncertainties, that may not represent a juicy enough discount for new investors to tuck in.

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CONTEXT NEWS

French food caterer Sodexo lowered its yearly outlook on March 20, bringing it below analysts' estimates, and said organic revenue growth in North America was slower than it had initially expected.

The group forecast organic revenue growth of between 3% and 4% in the fiscal 2024/2025, compared with a previously guided range of 5.5% to 6.5%. Analysts polled by LSEG had forecast 5.45% growth.

Sodexo also expects its underlying operating margin to rise by 10 to 20 basis points, down from the previously expected rise of 30 to 40 basis points.

Shares in Sodexo were down 17.9% by 1005 GMT on March 20. Meanwhile, shares in UK-listed rival Compass were down 2.7%.