Compass lifts full-year outlook after strong first half

(Sharecast News) - Food and support service provider Compass Group raised its full-year guidance on Wednesday, after reporting an 11.2% increase in first-half revenue to $20.9bn, alongside an 18.7% surge in operating profit to $1.47bn. The FTSE 100 company said its operating margin grew in the six months ended 31 March, rising by 50 basis points to 7.1%.

Earnings per share climbed 7.3% to 59 cents, while operating cash flow reached $11.1bn, making for a 7.3% increase year-on-year.

Free cash flow expanded by a marginal 0.1% to $704m, as the board declared a 15.6% increase in the interim dividend per share, to 20.7 cents.

The firm said it experienced double-digit organic revenue growth across all regions, underpinning its strong performance.

In terms of strategic investments, Compass said it allocated $693m towards capital expenditures, representing 3.3% of underlying revenue, to foster growth and yield strong returns.

An additional $373m was dedicated to mergers and acquisitions, including the recent acquisition of Hofmanns and CH&CO, finalised in April.

The company said it streamlined its portfolio in the period by exiting four countries, and was poised to exit Brazil pending regulatory approval.

Compass also completed half of its $500m share buyback programme, announced in November last year.

Looking ahead, Compass Group said it was focussed on its core markets, leveraging significant structural growth opportunities.

The firm said it aimed to bolster future growth through strategic investments in capital expenditures and targeted merger and acquisition activities.

For the rest of 2024, Compass anticipated underlying operating profit growth towards 15%, accompanied by organic revenue growth trending towards 10%.

"The group has delivered a strong set of results, with balanced double-digit organic revenue growth and good underlying operating margin progression across all regions, leading to underlying operating profit growth of 19% on a constant-currency basis," said group chief executive officer Dominic Blakemore.

"Europe is building a strong track record of growth, having benefited from investment and best practice sharing.

"We have completed the acquisitions of Hofmanns in Germany and CH&CO in the UK and Ireland, increasing operational flexibility as well as further strengthening our unique sectorised approach to the market."

Blakemore said the firm's results were driving strong cash generation, in turn giving Compass the flexibility to invest capital back in the business through capex and strategic in-fill mergers and acquisitions, to support future growth through sectorisation and flexible operating models, both of which were generating "excellent" returns.

"We have continued to refine our portfolio and increase focus on our core markets where we see significant growth opportunities.

"The group has built strong competitive advantages over the past few decades which are being replicated across all our regions.

"As a result of our strong first-half performance and positive outlook, we are raising guidance for underlying operating profit growth to towards 15% for the full year."

Beyond 2024, Dominic Blakemore said Compass expected to sustain mid to high single-digit organic revenue growth, ongoing margin progression and profit growth ahead of revenue growth.

"We will continue to reinvest in the business to support future growth, with any surplus capital returned to shareholders, as we maintain our strong track record of delivering long-term, compounding shareholder returns."

Reporting by Josh White for Sharecast.com.