Shares in international catering firm Compass (CPG) continued their stellar run, adding 3% to a new all-time high of £20.23 after it served up a strong third quarter trading update and lifted its full year top line and margin estimates.
While the North American market remained robust, growth in the rest of the world has improved enough that Compass now sees full year organic (like-for-like) revenue growth for the group at the top end of its 4% to 6% target range.
At the same time an improvement in profitability for the rest of the world geographic category means that group operating margins will be similar to last year’s 7.4%, better than previously guided.
This is the second increase in revenue growth and margin forecasts this year after the company raised guidance with its first-half results in May.
As we discussed here, Compass is a great example of how companies should communicate with the market. Instead of short-term earnings targets, it sets out two clear goals: organic revenue growth and operating margins.
READ MORE ABOUT COMPASS HERE
Revenue continued to be driven by the North American market which accounted for 60% of turnover. Organic growth was 8.5% in the third quarter, even higher than the 7.9% growth registered in the first half.
Compass continued to see ‘good levels of new business wins across all sectors’ in North America as well as ‘significant benefits from a favourable sports and leisure calendar.’ Margins were steady at 8.6%, the same as in the first half.
Revenue growth was less rosy in Europe, which accounted for just under a quarter of turnover, at just 1.9%. A more uncertain macro-economic outlook impacted spending in the UK, France and Germany.
The year-on-year comparison was tough as the third quarter last year saw new business come in from ‘significant UK defence contracts which mobilised in the second half of 2018’.
There was positive news from the rest of the world division, however, which made up the remaining 15% or so of turnover.
Organic revenue growth continued at 3.2% but operating margins showed ‘good progression’ as pricing and productivity initiatives started to feed through.
