Compass Group (LSE: CPG) posted its full-year earnings report for 2024 this morning (26 November), resulting in an initial 2.5% dip before the price recovered 6%.
As the day comes to an end, it looks like the price will close up by around 4%.
The company is an international food and support services supplier that operates largely in North America and Europe. Headquartered in the UK and listed on the London Stock Exchange, it started with modest roots as a catering firm in the Midlands in 1941. Since then, it’s grown to become the largest contract food service company in Europe, serving everything from schools to military facilities.
Full-year 2024 results
Today’s results covered the 12 months to 30 September 2024, with revenue coming in at $42.2bn — a 10.6% improvement on 2023. Operating profit grew by 16.4% to almost $3m, driven by new business and renewed contracts.
Earnings per share (EPS) made a particularly impressive jump to 119.5c, up 14.6% from last year. The final dividend for the year has been confirmed at 59.8c per share, up 13.7% from 2023.
Overall, it’s an impressive set of results that displays the company’s ability to perform well within a rapidly shifting economic landscape.
Chief Executive Dominic Blakemore hailed 2024 as a year of “strong operational and financial performance”. He went on to highlight the group’s exit from nine non-core countries, including Argentina, Brazil, and the UAE.
This is aimed at helping it focus on areas with the highest growth potential.
In particular, the company is enthusiastic about North America where it holds 20% of the market share. It views the region as highly beneficial for mergers and acquisitions, describing it as a “dynamic market ripe with opportunities.”
Other notable acquisitions this year include HOFMANN in Germany and CH&CO in the UK, which services Kew Gardens and the Royal Opera House.
Risk factors
In today’s results, Compass Group noted the effects of foreign exchange rates on the sale of businesses, which led to a 10% drop in statutory (basic) EPS. As a global company, its performance is particularly sensitive to macroeconomic conditions, regulatory changes, and currency fluctuations.
In the UK, rising labour costs following the October Budget could also squeeze margins, not to mention any increase in inflation. It operates in a fairly competitive industry, with self-operators and regional players vying for market share. To retain its competitive edge, it can’t afford to risk losing clients by passing on these costs to the consumer.
All these factors can limit profits and hurt the share price.
Final thoughts
I recently bought Compass Group shares after noting its strong and consistent growth over the past four years. After falling 38% during Covid, it began a rapid recovery and is up 141% since.
It doesn’t have a particularly impressive yield (1.67%) and its price-to-earnings (P/E) ratio is quite high, at 29.73. As such, I wouldn’t say it qualifies as the type of low-cost income share I’m typically attracted to.
However, I believe it adds a level of growth and defensiveness to my otherwise income-focused portfolio. I expect the shares to deliver steady growth over the coming years.
If I had the spare capital, I’d happily buy more shares — especially after today’s impressive results.
