Brexit-related Pressures Hinder Aryzta’s Profits

Aryzta, one of the world’s largest bakery companies which makes hamburger buns for McDonald’s, blamed “Brexit-related pressures” as it warned that its profits will fall 15% in its financial year.

“European underperformance is estimated to account for c. 20% of the anticipated shortfall relative to expectations. There has been good progress on butter price recovery and the improvements in capacity utilization in Germany are on track. However, this progress is not expected to be sufficient to offset the volume and associated margin lost to timing of insourcing and the impact of Brexit-related pressures on our UK business remains,” according to Aryzta’s financial release.

The Swiss-listed company has previously guided that earnings for its 2018 financial year would be broadly in line with the previous year, but it said in a trading update on Thursday that weak performance in its second quarter is not expected to reverse for the remainder of 2018.

US revenue, excluding Cloverhill, is continuing to stabilize as previously indicated, and Canada continues to perform well. However, EBITDA performance of Aryzta’s US business excluding Cloverhill is underperforming compared with expectations. The factors contributing to the variance – double-digit inflation in distribution costs, higher than expected labor costs in a continuing tightening US labor market – are more significant than expected. In addition, a range of performance improvement actions are behind delivery plan, including price increases, reductions in SG&A cost and brand investment. The recently appointed CEO of North America together with a newly constituted group management team are focused on dealing with these challenges.

Aryzta has a July 31 year end. Last year it reported a 31% decline in earnings before interest tax depreciation and amortization to EUR420m. Sales fell 2% to EUR3.8bn.