Shares of Sodexo plunged sharply after the French catering and facilities management group reported weaker-than-expected first-half earnings and cut its full-year guidance.
The stock fell 13% to 38.42 euros in European morning trade, extending its decline to more than 12% since the start of the year.
Profit and margins disappoint
Sodexo reported an underlying operating profit of 442 million euros ($517.1 million) for the six months through Feb. 28, down 32% from a year earlier and 19% below market expectations.
Revenue for the period declined 3.7% year-on-year to 12.02 billion euros.
The sharpest concern for investors was the contraction in margins.
The underlying operating profit margin fell 140 basis points to 3.7%, highlighting pressure on profitability amid weaker commercial performance.
Analysts at Jefferies said the results point to a deterioration in the company’s commercial execution, underscoring broader operational challenges.
Guidance could trigger earnings downgrades
Reflecting the weaker performance, Sodexo lowered its outlook for fiscal 2026.
The company now expects organic revenue growth of between 0.5% and 1%, down from its earlier forecast of 1.5% to 2.5%.
It also projected an underlying operating margin in the range of 3.2% to 3.4%, significantly below the 4.7% achieved in fiscal 2025.
Analysts said the revised guidance could trigger earnings downgrades of around 30% at the adjusted earnings per share level, further weighing on investor sentiment.
CEO acknowledges underperformance
Sodexo’s shares have lost about 40% of their value over the past two years, significantly underperforming rivals such as Compass and Aramark.
Chief executive Thierry Delaporte acknowledged the gap, saying the company has “undeniably underperformed the market and our main competitors.”
Delaporte, who took over leadership in November, pointed to several structural issues, including underinvestment in key capabilities, inconsistent execution and a complex decision-making framework.
“The root causes have been building over time and relate primarily to under-investment and execution: intensity, decision-making and prioritisation, and consistency in delivery,” he said.
Turnaround plan in focus
The company has begun implementing changes aimed at restoring growth, though management cautioned that improvements will take time.
“While we know this will not be an overnight fix, we are moving with a strong sense of urgency on our action plan to restore growth,” Delaporte said.
Analysts expect the turnaround to involve higher capital expenditure to align with competitors, alongside potential adjustments to shareholder returns such as lower dividend payouts.
Bernstein analysts noted that early steps under the new management are already adding to costs, which may weigh on margins in the near term.
For now, investors appear cautious, with the sharp share price reaction reflecting concerns over execution risks and the timeline for a sustained recovery.
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