Compass warns over coronavirus earnings hit of up to £225m

Catering giant Compass has warned over a coronavirus hit of up to £225 million on half-year earnings as schools close and events are cancelled worldwide due to the outbreak.

Shares in the firm – the world’s largest catering company – tumbled 16% as it said the “vast majority” of its sports and leisure and education catering services had been closed across continental Europe and North America.

Sales volumes across the business and industry division have also been severely affected, it added.

While Compass is launching “significant” cost savings initiatives, it warned that first-half operating profits would be £125 million to £225 million lower than expected.

The group supplies meals for office workers, school children and the armed forces.

Its alert comes after the firm had already cautioned in February over a potential currency impact of up to £745 million on full-year earnings.

But the group said at the time that cost-cutting was offsetting lower catering demand among business and industry clients in Europe.

Compass is axing up to 4,000 jobs over the next two years amid the worsening outlook in Europe and Brexit uncertainty.

Greg Johnson, analyst at Shore Capital, said: “Assuming these trends continue through the third quarter (to end June), we estimate revenues could be impacted by around £2 billion and operating profit by a further £550 million.”

He added: “We have to believe that the impact on its sports and leisure operations, along with education are temporary… meaning we would expect a significant recovery as and when containment measures are wound down.

“Longer term, a recessionary impact may be felt across its operations, whilst changes in working practices may adjust, further depressing growth, although the opportunities for new contact wins are likely to increase from the likely fallout.”