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Compass Group (LSE:CPG) released its full-year 2024 earnings report this morning (November 26), resulting in an initial drop of 2.5% before the price recovered 6%.
As the day comes to a close, it looks like the price will close up around 4%.
The company is an international provider of food and support services operating primarily in North America and Europe. Headquartered in the United Kingdom and listed on the London Stock Exchange, it began with modest roots as a catering company in the Midlands in 1941. Since then, it has grown to become the largest contract food service company in Europe, serving everything from schools to military installations. .
Full year results 2024
Today's results covered the 12 months to September 30, 2024, with revenue of $42.2 billion, a 10.6% improvement over 2023. Operating profit grew 16.4% to almost $3 million of dollars, driven by new business and renewed contracts.
Earnings per share (EPS) made a particularly impressive jump to 119.5 cents, up 14.6% from last year. The final dividend for the year was confirmed at 59.8 cents per share, up 13.7% from 2023.
Overall, it's an impressive set of results that shows the company's ability to perform well in a rapidly changing economic landscape.
Chief executive Dominic Blakemore hailed 2024 as a year of “Solid operational and financial performance.” He went on to highlight the departure of nine non-core countries from the group, including Argentina, Brazil and the United Arab Emirates.
This is intended to help you focus on areas with the greatest growth potential.
In particular, the company is enthusiastic about North America, where it has 20% of the market share. He considers the region to be very beneficial for mergers and acquisitions and describes it as “aDynamic market full of opportunities..”
Other notable acquisitions this year include HOFMANN in Germany and CH&CO in the UK, which serves Kew Gardens and the Royal Opera House.
Risk factors
In today's results, Compass Group highlighted the effects of foreign exchange rates on business sales, leading to a 10% drop in statutory (core) earnings per share (EPS). As a global company, its performance is particularly sensitive to macroeconomic conditions, regulatory changes and currency fluctuations.
In the UK, rising labor costs following the October budget could also squeeze margins, not to mention any rise in inflation. It operates in a fairly competitive industry, with autonomous operators and regional players competing for market share. To maintain your competitive advantage, you cannot afford to lose customers by passing these costs on to the consumer.
All of these factors can limit earnings and hurt the stock price.
Final thoughts
I recently bought shares of Compass Group after noticing its strong and consistent growth over the past four years. After falling 38% during Covid, it began a rapid recovery and has since risen 141%.
It doesn't have a particularly impressive yield (1.67%) and its price-to-earnings (P/E) ratio is quite high at 29.73. As such, I wouldn't say it qualifies as the type of low-cost revenue share that typically attracts me.
However, I think it adds a level of growth and defensiveness to my otherwise income-focused portfolio. I expect the stock to deliver consistent growth in the coming years.
If I had the extra capital, I would happily buy more shares, especially after today's impressive results.
