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Investing.com -- Sodexo (EPA:EXHO) on Thursday lowered its full-year revenue and profit margin guidance after slower-than-expected growth in North America, particularly in Education and Healthcare, sending shares down by over 13%.
The food service company now expects organic revenue growth of 3% to 4%, down from its initial forecast of 5.5% to 6.5%, citing weaker volumes and contract delays in key segments.
The revised guidance comes alongside an unscheduled profit warning, with Morgan Stanley (NYSE:MS) noting “this is halving of EBIT growth guidance from 13.5% to 6.5% at the midpoints,” signals a more significant slowdown than initially projected.
Second-quarter organic sales growth was particularly weak at 2.4%, well below market expectations of 4.5%. Long-term client retention also slipped to 93.9%, down from 94.2% in FY24 and below the company’s 95% target for the year.
Sodexo reported a 3.1% increase in consolidated revenue for the first half of fiscal 2025, reaching €12.5 billion.
Organic revenue growth stood at 3.5%, reflecting a slowdown compared to the 8.5% growth recorded in the same period last year.
The company cited weaker-than-expected performance in North America, particularly in Education and Healthcare, as a key factor influencing this trend.
Underlying operating profit for the period rose by 6.4% to €651 million, with an improvement of 10 basis points in the operating margin, which now stands at 5.2%.
However, overall operating profit declined by 9.7% to €580 million, attributed in part to a negative swing in other operating income and expenses.
The net profit from continuing operations fell by 12.5% to €434 million, while underlying net profit from continuing operations showed a 5.4% increase to €450 million.
Regional performance varied, with North America registering 3.5% organic growth, driven by Business & Administrations and Sodexo Live!, while Education and Healthcare struggled.
Europe saw a 2.1% organic revenue increase, buoyed by strong Healthcare & Seniors performance but weighed down by sluggish Facilities Management growth.
The Rest of the World region delivered a stronger organic growth rate of 6.6%, supported by solid results in Australia, India, and Brazil.
Client retention remained stable at 93.9%, with net development at 7.3%. The company noted operational challenges in Latin America that affected margin improvement in the Rest of the World segment.
North America, however, achieved a 20-basis-point increase in its underlying operating profit margin to 7.1%.
Sodexo has revised its full-year guidance in response to the slower-than-anticipated growth.
The company now expects organic revenue growth between 3% and 4%, down from the initial range of 5.5% to 6.5%.
The projection for underlying operating margin improvement has also been adjusted to 10-20 basis points, compared to the previously expected 30-40 basis points.
Sodexo Chairwoman and CEO Sophie Bellon acknowledged the challenges in North America, emphasizing the need to enhance execution in areas requiring improvement.
The company aims to strengthen commercial discipline and operational efficiency, particularly in its largest market, while maintaining its long-term growth strategy.