July 5, 2018 / 5:29 AM / 3 months ago

UPDATE 2-Sodexo shares rise as Q3 sales beat expectations, keeps goals

* Q3 organic sales growth 1.4 pct vs estimate 0.7 pct

* Keeps full-year 2017/18 goals, shares up 7 pct

* Says action plan on track, cautious on mid-term goal (Adds shares, analyst and CEO comments)

By Dominique Vidalon

PARIS, July 5 (Reuters) - France’s Sodexo cheered investors on Thursday by beating third-quarter sales expectations and by offering plans to bolster earnings, sending shares in the world’s second-biggest caterer 7 percent higher.

The food services and facilities management company also kept its recently reduced targets for sales growth and margins for the 2017/18 full year.

This came as a relief after a string of warnings that have pushed the stock down 26 percent so far this year.

Sales growth in the third quarter slowed from the first half but this was less severe than analysts had feared as weakness in healthcare and in education services in North America was partly offset by a solid performance in Asia and Latin America.

“The key actions we identified to improve short-term performance and to drive growth in the longer term are being rolled out across the group,” CEO Denis Machuel said.

“While it is still early in the process, we remain confident in the benefits that they will deliver,” he added.

Sodexo said third-quarter organic sales growth slowed to 1.4 percent from 1.7 percent in the first-half, but this was still above average analysts expectations of 0.7 percent sales growth for the third-quarter.

Sodexo reiterated its forecast for organic revenue growth of between 1 and 1.5 percent for the full 2018 fiscal year, and an underlying profit margin of around 5.7 percent.

By 0748 GMT, Sodexo shares were up 6.9 percent, leading gainers on the CAC-40 index of French blue chips.

“Results were encouraging, there was the expected slowdown from the first half, but not as much as consensus expected,” said brokerage Bernstein, keeping an “outperform” rating.

“The bear thesis into results was that they would once again take down full-year expectations, so it is a positive sign they are maintaining full-year guidance,” Bernstein said.

Machuel, who became Sodexo’s boss in January, has reshuffled the executive committee to boost client focus and efficiency.

Sodexo had warned in March of weakness at its North American business as cost savings in that region had not yet kicked in. Profits from several large contracts also had a slower ramp up.

Machuel said on Thursday that Sodexo was making progress in cutting transport costs and improving productivity in North America. “We are encouraged by the first results,” he said.

Better scheduling of permanent staff allowed the group to cut the use of temporary workers and overtime, while the group was also looking at better ways to allocate spending on costs.

Sodexo, like rivals Elior and Compass Group , faces a tough environment in Europe, notably due to higher food and wages costs.

All three firms have recently appointed chief executives.

Elior unveiled its own reboot strategy last month and Sodexo will hold an investor day on Sept. 6 where Machuel said it was likely to discuss medium-term goals and the recovery plan.

Reporting by Dominique Vidalon Editing by Mathieu Rosemain and Edmund Blair

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