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Investing.com -- Compass Group on Tuesday posted fiscal 2025 results that topped expectations as revenue rose 9.7% to $46.1 billion and fourth-quarter organic sales accelerated to 9.2%.
The food-services provider’s performance exceeded the company-compiled consensus of $45.7 billion and $45.4 billion.
Organic sales growth for the year reached 8.7%, ahead of guidance of more than 8% and above the 8.4% expected by Morgan Stanley and the 8.3% compiled by consensus.
Compass Group recorded $3,335 million in underlying EBIT, which was 1% above both Morgan Stanley’s and consensus estimates.
Constant-currency EBIT growth of 11.7% surpassed guidance of “towards 11%.” Underlying EPS was 131.9c, in line with expectations, and the dividend increased 10.2% to 65.9c, representing a payout ratio of 50%. Exceptional costs totaled $436 million at the profit-before-tax level, including $370 million in acquisition-related charges.
Fourth-quarter results showed continued momentum. Organic sales growth of 9.2% improved from 8.6% in the third quarter and exceeded Morgan Stanley’s 8.1% estimate and implied consensus of 7.6%.
North America grew 9.6% in the quarter, matching its third-quarter rate, while International revenue rose 7.8%, up from 6.6% in the previous quarter.
For the full year, North America posted 9.1% organic growth and International climbed 7.7%. Pricing contributed about 3% to FY25 growth, net contract gains 4.5%, and like-for-like volume 1%.
The brokerage noted the company said volume growth was “unusually strong in US B&I, Education and Sports & Leisure in Q4.”
Margins remained steady, with a group underlying EBIT margin of 7.2%. North America delivered an 8.2% margin, and International reached 6.1%.
The group’s net new business sales increased 4.5%, within its 4% to 5% guidance range, while retention improved to 96.3%, up 30 basis points from a year earlier.
The value of annual recurring revenue from contract wins rose to $3.8 billion, an 11% year-over-year increase. Compass stated its addressable market is now $360 billion, compared with $320 billion previously.
Free cash flow reached $1.98 billion, an increase of 13.5%, with conversion improving to 88%. Compass spent $1.4 billion on acquisitions, including Dupont Restauration in France and 4Service in Norway.
Net debt rose to $6.4 billion, partly due to foreign-exchange effects and assumed acquisition-related debt. Capital expenditure totaled $1.5 billion, or 3.3% of sales, below guidance due to timing.
The group issued fiscal 2026 guidance for around 7% organic sales growth and approximately 10% constant-currency EBIT growth, including a 2-percentage-point contribution from M&A. Margin expansion of roughly 10 basis points is implied.
Morgan Stanley said the guidance was “a little better than we expected.” The firm also noted that the outlook suggests a roughly 2% upgrade to its and consensus forecasts, combining the 1% uplift from the stronger FY25 base and an additional 1% from guidance.
Compass forecast $350 million in net interest costs for FY26 and held its tax rate at 25.5%. Morgan Stanley reported the company trades at 22x P/E, 12x EV/EBITDA and a 4.2% free cash flow yield for calendar 2026.