Convenience food maker Greencore has crossed a red line this morning with an inconvenient profits warning punishable by a 22% share price drop, extending a 2yr sell-off to Oct/Nov 2013 levels.

Firstly, management now expects 2018 adjusted EPS 6% below market expectations. This is pinned on a combination of negatives including weakness in both the UK (softer volumes after poor Q2 weather) and US (under-utilisation of scale since Peacock acquisition, approx. £3m restructuring required) as well as the timing of new business (US delays) and FX headwinds (strong GBP/USD denting US growth).

Secondly, it expects a considerable two thirds of this updated EPS to come in the second half of 2018. This implies issues with visibility for at least the next three months and investors will be concerned that it ultimately ends up being for even longer. In this new era of short-termism, a quarter or two’s wait can be viewed as too long to wait for a gamble on positive news from across the pond, especially for those already nursing 2yr losses of circa 50%.

Lastly, US issues are clearly deemed major enough to require a significant management shake-up, which itself carries risk. Regional CEO Kirke leaves the group, COO Metzger assumes day-to-day responsibility and a handful of senior hires have been made. More significant, however, is Group CEO Patrick Coveney now committing half of his time to the geography in an effort to fix things, fast.

The risk is that US woes prove tougher to fix, requiring even more of his time (and more than £3m restructuring), and that he takes his eye off the bigger, and more important, ball closer to home. The UK & Ireland may well be the company’s more established markets but shareholders won’t want him to jeopardise those 62% of FY17 revs and 76% of profits (adj. op profit).

Mike van Dulken, Head of Research, 13 Mar