What A Mouthful

Compass Group announces strong earnings, but its shares fall

Image source: Nerthuz, Tanya_mtv, Hong Vo, Fiona M. Donnelly - Shutterstock

What's going on?

Compass Group, the world’s largest food caterer, chowed down on some tasty results on Tuesday, but investors were worried it may have bitten off more than it can chew…

What does this mean?

The British multinational, which serves over five billion meals a year worldwide, saw its annual profit climb 5% from the year before. That’s largely down to a strong performance in North America – as well as among its defense, sports, and leisure customers back home, which helped push sales growth over the company’s target.

But Compass might be feeling a little queasy about the future. Deteriorating confidence among European businesses and consumers made for fewer new customers – and with manufacturers, carmakers, and financial services companies continuing to reduce headcount, the caterer isn’t expecting a turnaround any time soon. Monkey see, monkey do: Compass is now laying off workers and reducing costs in its European business to help keep its own profits stable.

Why should I care?

For you personally: Time to buy UK stocks?
Despite strong results, investors were none too pleased with Compass’s outlook, sending its stock down over 7% on Tuesday. That’s in keeping with other big UK stocks this year, which have underperformed their European peers as Brexit-related uncertainty plays on investors’ minds. But UK shares are now trading at a significant discount to global stocks, and with a potential end to the Brexit turmoil in sight – plus an expected economy-boosting increase in government spending – some analysts think British stocks could yet rally in 2020.

The bigger picture: A tale of two continents.
Data released on Tuesday that showed a greater-than-expected improvement in German consumer confidence did little to lift Europe’s confidence as a whole – especially given that Germany only narrowly avoided a recession last quarter. But while confidence is weak in Europe, it’s hovering near a two-decade high in the US, which might explain why Compass saw healthy sales growth in the region.

Originally posted as part of the Finimize daily email.

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