* Now eyes FY 18 sales revenue growth of 1-1.5 pct
* Sees FY 18 profit margin around 5.7 pct
* North America remained weak in Q2, to weigh on H2
* Shares slump, set for worst day since Sept 2002
* H1 results due April 12 (Recasts with CEO call, analysts, shares)
By Dominique Vidalon
PARIS, March 29 (Reuters) - Food services and facilities management group Sodexo on Thursday cut its full-year sales and profit margin outlook and warned of weakness at its North American business, sending its shares sharply lower.
Sodexo, the world’s second-biggest catering services company after Britain’s Compass Group, also gave an estimate of its first-half results, which came in below expectations.
Sodexo manages canteens and facilities for offices, the military, schools, hospitals and prisons, and also supplies vouchers for meals and gifts. Its clients range from the Royal Ascot Racecourse in England to the U.S. Marine Corps.
But its businesses in healthcare and education - such as schools and universities - in north America experienced a fall in first-half revenues, while cost savings to improve profits in that region had not yet kicked in.
Sodexo also said profits from several large contracts had had a slower ramp up.
New Chief Executive Denis Machuel, who took over in January, said: “It is very disappointing to start with having to reduce our guidance ... We have identified specific areas of underperformance and are acting quickly to implement a series of corrective measures,” Machuel said.
Sodexo said it would address underperforming contracts and carry out a full review of its costs.
Machuel said Sodexo would aim for a better balance between large contracts and medium or smaller-size contracts, and look to reinforce its focus on smaller, local food contracts.
“I am confident we will deliver strong growth over the medium term,” he added.
Sodexo shares were down 12.7 percent in mid-session trading, with the stock on track for its worst one-day percentage loss since September 2002. Sodexo’s troubles also hit the shares of rivals Compass and Elior.
“Given management guidance we see potential for consensus EBIT downgrades of over 10 percent and material share pressure near term,” UBS analysts wrote in a note.
Sodexo said it now expected to deliver organic revenue growth of between 1-1.5 percent for the 2018 fiscal year, and an underlying profit margin of around 5.7 percent.
In January, Sodexo had forecast revenue growth of between 2-4 percent and a flat operating margin at 6.5 percent of sales for the full year ending August 31, 2018, excluding the impact of acquisitions and currency movements.
For the first-half ended Feb. 28, organic revenue growth was 1.7 percent and underlying operating margin was 6.1 percent, with both coming below expectations, the company said.
Jefferies analysts said Sodexo was likely to be preoccupied with devising and implementing a reboot strategy over the next few quarters to recover lost market share.
Cost savings, which the group has yet to quantify, will be used to improve competitiveness, invest in digital, IT, marketing and sales to boost revenue, Sodexo said.
Sodexo, which continues to generate “substantial free cash flow” will also make targeted acquisitions, notably in the food sector, said Machuel, who took over CEO Michel Landel who retired at the annual shareholders meeting on January 23. Machuel was Sodexo’s digital boss and deputy CEO since September 2017.
The group has a medium-term objective of average annual revenue growth, excluding currency effects, of between 4 percent and 7 percent. Machuel said he was not revising it. (Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Jane Merriman)