July 8, 2019 / 7:36 AM / 13 days ago

UPDATE 1-Sodexo shares slump as it warns of slower sales growth

* Q3 organic sales growth 4.2%, ahead of 3% consensus

* Eyes FY 2018/19 organic sales growth around 3%

* Sodexo profit margins sharply lag those of Compass (Recasts with comments from CEO call, shares, analyst)

By Dominique Vidalon

PARIS, July 8 (Reuters) - Shares in Sodexo slumped on Monday after the French food services group warned the loss of several contracts in healhcare and sports and leisure in North America would weigh on fourth-quarter sales and also impact the start of next year.

Chief Executive Denis Machuel nevertheless struck a confident tone over prospects for next year as the world’s largest catering services group after Britain’s Compass beat market expectations for third quarter sales growth.

“The fourth quarter will be less dynamic than the first nine months and we will start next year, even though we are relatively confident, with an impact from the contract losses,” Machuel told a conference call with journalists.

By 0712 GMT Sodexo shares were down 3.2% at 101 euros.

“Even though Q3 performance is above expectations, the message of the management is cautious on Q4 growth and EBITA margin for the year,” said Invest Securities analysts.

Sodexo rattled investors’ nerves last year after warnings related to weakness in North America, where cost savings have not been as high as expected and several large contracts have taken time to pay off.

Sodexo, whose profit margins sharply lag those of Compass, is banking on a renewed focus on food contracts, increased productivity and cutting down on its use of temporary workers, to contain costs and improve its overall results.

The first nine months of the current year ending Aug.31 have however reflected an improvement in the business in North America. For the third quarter alone, organic sales growth accelerated to 4.2% from 3.6% in the second quarter, beating market expectations for 3%, driven by acceleration in North America and in all business segments.

For the full year ending Aug. 31, Sodexo confirmed indications it gave in April for organic revenue growth of around 3%, at the high end of a guided range of 2-3% and an underlying operating profit margin of 5.5%, at the low end of a guided range of 5.5-5.7%.

In September 2018, the group told investors that it planned to deliver revenue growth of above 3% by 2019/20, and then improve margins to over 6%, and Sodexo reiterated these goals on Monday. (Reporting by Dominique Vidalon Editing by GV De Clercq)

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