After almost two weeks on the road visiting Greencore's businesses in the UK and the US, chief executive Patrick Coveney faced the prospect of being stranded in London City Airport on March 3rd as the worst snow in decades left Dublin's runways closed.
However, a quick-thinking CityJet pilot managed to get clearance that morning to take off for Belfast – in the hope of getting diverted to Dublin en route. The plan worked.
“Great to be home at last!” Coveney, a prolific user of Twitter, informed his almost 2,500 followers on the social media service as the plane landed in Dublin.
A decade in the job as boss of the world’s biggest sandwich-maker this month, Coveney (47) will be a more frequent flyer after he committed this week to spending half his time in the US trying to turn around a business that many investors have all but given up on.
The market value of Greencore, which spent $747 million 15 months ago buying Illinois-based Peacock Foods in a bid to quadruple its US sales, slumped 30 per cent on Tuesday to £900 million (€1.02bn) as the company warned that problems in that market would result in lower-than-expected earnings this year.
It joins frozen baked-goods company Aryzta and cider maker C&C in becoming the third Irish-led, publicly-quoted food and drinks group to have seen its shares hit in the past 18 months as a result of stateside ambitions meeting harsh realities.
Greencore’s issues – mainly in the US business it had been built up in the nine years before the Peacock deal – prompted the group to forecast on Tuesday that its full-year adjusted earnings per share will come to 14.7p-15.7p. That’s down from the prevailing analysts’ estimates of 15.7p-16.6p before the surprise announcement.
Traction
“Management had previously billed financial year 2018 as a year of inflection,” said Damian McNeela, an analyst with Numis Securities in London. “The inflection story has lost virtually all its traction, and with it management’s credibility has been severely damaged.”
Another analyst, speaking on condition of anonymity, said that Coveney was likely to have saved his job by taking a direct role in seeking to sort out the US. “But he certainly can’t afford another slip.”
The company now plans to cease production this month at its loss-making Rhode Island facility. It has been running at about a quarter of its capacity in recent times, and accounts for about 4 per cent of its US manufacturing footprint.
Market concerns about Greencore's US business were aroused last August when it emerged that its legacy plant in Jacksonville, Florida, had lost a big Starbucks contract. However, the company said on Tuesday that this facility and another underperforming plant in Minneapolis had either inked or were expected to win several new contracts.
In addition, the group said it was working on a plan to secure "significant" new contracts from US food groups outsourcing production – a business line that ballooned with the purchase of Peacock and brought top-tier customers – including Tyson Foods, Kraft-Heinz and Dole – to the table.
Timing
The problem, however, is timing. Having been encouraged by Greencore to pencil a rosy US outlook into their estimates for Greencore’s current financial year to the end of September, analysts are now being advised that the new business may not contribute to sales and earnings until 2019.
“I think it’s a reasonable conclusion that we were too optimistic before,” Coveney said on a call with analysts on Tuesday. “I don’t think we are now. We have worked very hard together with our teams and, as needed, with our customers to have a very specific line of sight to what we have, when we’re going to do it, what contributions it’s going to make, and how that builds through this year and next year.”
A restructuring plan will see the group's US chief executive Chris Kirke leave the group to return to the UK as Coveney takes a more direct role in the division. Chuck Metzger, chief operating officer of Greencore US, who held a similar role in Peacock before the tie-up, has assumed day-to-day responsibility of the unit.
“Given the lack of delivering growth from new business wins in the US and the ongoing drag from legacy assets, some degree of management change is not surprising,” said McNeela at Numis, adding that Coveney’s new direct role in the business on the other side of the Atlantic “reflects acknowledgement within management that the performance of the US needs to improve”.
Share price
The fresh slump in the share price – bringing its decline over the past 12 months to 50 per cent – prompted group chairman Gary Kennedy and two fellow non-executive directors to rush into the market on Wednesday to buy almost £75,000 worth of company shares in an effort to shore up confidence.
However, the group’s fourth largest shareholder, Capital Group, one of the world’s largest investment firms, moved in the opposite direction, cutting its stake from 4 per cent to 3.2 per cent.
"Management credibility is clearly damaged, and we do not have confidence re the scale, timing and impact of new business wins to have a positive recommendation," Charles Hall, an analyst with Peel Hunt in the UK, said in a note to clients as he pulled his "buy" rating on the stock. "We are also throwing in the towel and moving to a 'hold' recommendation."
Greencore, which traces its roots back to the 1926 formation of Irish Sugar Manufacturing Company in Carlow, was rebranded and floated by the State on the Irish Stock Exchange in 1991. Fifteen years later it closed its last sugar factory in Mallow, Co Cork.
By the time Coveney took over, the 2001 acquisition of Hazlewood Foods had transformed the group from a commodity-based business focused on sugar and malt into a mainly convenience foods company with an emphasis on the UK market.
The UK and Ireland convenience foods business’s sales grew more than 14 per cent last year to £1.44 billion. Its market-leading UK food-to-go business line in sandwiches is augmented by salads and sushi, while its prepared meals business makes everything from soups to chilled Italian meals.
Stateside
But even after a disastrous venture into the US beet sugar market in the late 1990s though the €40 million purchase of a stake in Imperial Holly (which had to be written off four years later), Greencore still had its sights set stateside when Coveney took charge.
And so, weeks after the scion of one of Cork's "merchant prince" families took over the reins at Greencore, the company made an initial foray into the US convenience foods market in 2008, buying Home Made Brand Foods, a Boston-based maker of chilled prepared meals, salads and sandwiches in a $44 million deal.
It went on to spend over $150 million on US purchases over the next seven years, but struggled to develop a business of scale in the world’s largest economy. By the second half of 2016, the business was only generating $300 million of annual sales and had barely crept into profit.
Coveney had conceded in an interview in late 2013 that the US was “a difficult market to crack” in spite of all the analytical work it had done before entering the market. In the meantime, it had pivoted its US strategy from focusing mainly on ready meals to food-to-go.
“There can be a tendency, because it’s an English-speaking market, because there’s a lot of cultural overlap between Ireland, Britain and the US, to think it’s quite a straightforward and somewhat analogous market to the UK – and it isn’t,” he said at the time.
Double down
Still, the Oxford graduate and former management consultant with McKinsey, who regaled an audience at a conference in Dublin just over three years ago with the tale of how he had seen his initial applications to both institutions rejected, stuck to his determined form when he decided to double down in the US with the Peacock deal.
Investors piled on board a £439 million rights issue share sale to existing shareholders at a discounted price of £1.53 per share. With the stock having fallen to as low as £1.273 this week, most are now regretting parting with their money.
The share sell-off left Coveney and his chief financial officer Eoin Tonge, on the back foot as they tried to convince analysts the company was still on to a winning strategy in the US.
“We have a business, a set of customer relationships, and a set of capabilities that sit in a very, very attractive part of the US food market – with two very significant trends that play towards what we’re trying to do,” the chief executive said. These are are a “sustained desire” for more convenience food offerings, and a “US-specific trend” of major food groups looking to outsource more of their production.
“I know it may be difficult for people to engage on a day like today, but we see very, very significant potential for growth returns and economic delivery in the US,” Coveney said. “The proof of the success, or otherwise, of this strategy will be in the delivery over the course of the next number of years.”
Sandwich market
Still, Greencore's US woes have got some analysts starting to spot potential issues closer to home. Darren Shirley of Liverpool-based Shore Capital raised questions this week about whether the key UK sandwich market is beginning to slow down.
The group’s market share of sandwiches in the UK grocery channel now stands at 60 per cent, according to its latest annual report.
“We’re not seeing any repurposing of stores away from fresh convenience or food-to-go. Indeed, on the contrary, we think it’s being dialled up in terms of importance,” said Coveney. “And so, as we track customers, we’re not seeing any channel shifts or increased incidents in at-home food preparation.”
The older brother of Tánaiste and Minister for Foreign Affairs and Trade Simon Coveney has adopted a low profile since the profit-warning, declining to be interviewed by The Irish Times and staying away from his beloved Twitter account.
“Lots to do but team are ‘fully on it’,” was the last thing he tweeted on Tuesday, as he signed off on a post about the Greencore trading statement.
It was all a far cry from 65 hours earlier, when he shared a photo from a corporate box at the Aviva Stadium last Saturday ahead of Ireland’s winning Six Nations rugby match against Scotland.
