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By Lilly Vitorovich
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- )--U.K. caterer Compass Group PLC (CPG.LN) said Tuesday it is performing well in its fiscal fourth quarter with margins up, and it flagged a GBP120 million gain in annual operating profit due to currency movements.
Compass, the world's biggest catering company by revenue, expects margin growth of around 70 basis points in the fourth quarter, and approximately 60 basis points for the year ending Sept. 30 due to cost savings and efficiencies.
In a trading update ahead of its annual results Nov. 25, Compass said, on a constant currency basis, underlying earnings per share are expected to be up around 14%. It also said its "cash-flow conversion remains strong."
Compass, which supplies food services to schools, hospitals, offices and leisure centers in 55 countries, said annual revenue growth on a constant currency basis is expected to be around 1% from a year earlier, in line with the group's guidance in July.
Organic revenue growth, which strips out acquisitions and disposals, is expected to be broadly flat from a year earlier, also in line with guidance. That compares with a 0.8% rise in the first nine months of the year, and 2.6% in the first six months.
The trading update is "pretty much bang in line with expectations," said Shore Capital analyst Karl Burns.
Compass's divisions across the various geographies also look good, said Burns, who has a buy recommendation on the stock.
Compass, which has recovered from a string of profit warnings by selling many overseas operations and refocusing on contract catering, generated GBP50 million in operational and cost efficiencies in the first half, pushing underlying operating margin up 60 basis points to 6.5%. Catering groups such as Compass and rival Sodexo SA (SW.FR) have benefited from an increase in demand for outsourced catering as businesses look to cut costs.
The company's shares have risen 6.4% since January as slowing revenue growth from event catering and corporate hospitality has been offset by positive trends on outsourcing and in the education, health care and defense units and the offshore and remote site divisions.
At 0704 GMT, Compass shares traded up 6 pence, or 1.6%, at 365 pence, valuing the group at GBP6.76 billion, in a broadly weaker London market.
Company Web site: www.compass.co.uk
-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com