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The FTSE 250 index of mid-cap stocks is struggling for traction right now. But one leading food producer on the index has taken off — Greencore‘s (LSE:GNC) shares were last 11% higher on Tuesday (22 July) after the company upgraded its full-year profit guidance.
In fact, at 267.5p per share, Greencore’s share price is now up 39% over the last year. And earlier in the session it struck its highest level since January 2020.
Can it keep hitting new heights though? Here’s why I think the answer could be ‘yes’.
Tasty results
Greencore manufactures a wide range of chilled, frozen and ambient foods. And today it raised its profit expectations after “favourable summer weather and new business wins” boosted third-quarter sales.
For the 13 weeks to 27 June, total sales came in at £511.1m. This represented annual growth of 9.9%, and pulled revenues growth for the first nine months of the year to 7.6%.
Volumes (excluding new business wins) rose 1.9%, ahead of the broader grocery market which increased 0.7%. Greencore said that “volume growth was encouraging across most categories, particularly in sandwiches, sushi and ready meals“.
Revenues also benefitted from price increases of 3.1%.
Thanks to “strong volume momentum and disciplined cost management“, the business said profit conversion exceeded expectations during the quarter. It now expects to generate adjusted operating profit of £118m-£121m for the 12 months to September. That’s up from £97.5m in fiscal 2024.
Three is the magic number
Tuesday’s upgrade marks the third time in recent months that Greencore’s upgraded its earnings projections. In May, it raised its profit forecasts to £114m-£117m, thanks to stellar first-half trading. That was up from April’s upwardly revised estimate of £112m-£115m.
Greencore’s thriving as changing consumer habits drive growth in the convenience foods market. Last quarter, it launched 168 new products to capitalise on this, including new poke bowls and strawberries and cream sandwiches.
I’m personally not taken by the idea of strawberries in sandwiches. But there’s no denying the appeal of Greencore’s pre-prepared quality foods with shoppers who lack the time, energy or knowhow to cook themselves.
But Greencore’s impressive profitability isn’t just about soaring sales. It also reflects improving margins as automation improves and cost-cutting rolls on. These measures helped operating margins rise 160 basis points in the first half of this year, to 4.9%.
Momentum share
All this isn’t to say the foodie doesn’t face notable dangers of course. Today, it flagged up “the uncertain UK economic environment” along with “continued inflationary pressures, particularly in protein and labour“.
But I’m confident Greencore’s operational excellence and vast market opportunity could still drive its share price skywards in 2025 and beyond. Analysts at Future Market Insights believe the convenience food market will grow at an annualised rate of 7.2% over the next decade.
Through its planned acquisition of Bakkavor — another FTSE 250 heavyweight in the fresh prepared food market — the firm’s scaling up to seize this huge growth opportunity too. I strongly believe Greencore shares are worth serious consideration today.
