ZURICH, SWITZERLAND — Shares of Aryzta AG tumbled by more than 30% in over-the-counter trading Jan. 24 after the company announced a weak financial outlook, pressured by poor U.S. sales.
Shares of the Switzerland-based baked foods company traded during the day as low as $15.37, down 32% from the previous close of $22.75.
The company projected first half 2017 earnings per share would fall shy of expectations by 20% with a similar result for the full year.
According to Bloomberg News, Owen Killian, chief executive officer of Aryzta, said in a Jan. 24 call that the strength of Hostess Brands, Inc. has interfered with an Aryzta strategy to develop Otis Spunkmeyer’s branded retail presence.
Cloverhill Bakery was acquired by Aryzta in March 2014 with the strategic objective of helping develop Aryzta’s Otis Spunkmeyer business as a retail brand, and Aryzta said it is investing about €10 million ($10.7 million) per year in this effort.
“The performance in the current period is both unexpected and extremely disappointing,” Mr. Killian said. “Cloverhill was acquired with the objective of unlocking the Otis Spunkmeyer brand into retail. Aryzta’s brand investment strategy in Otis Spunkmeyer will in time replace the co-pack volumes and create a more predictable and higher margin business.”
While specific dollar figures of North American sales were not shared, Aryzta said underlying revenue growth in North America is tracking lower in the second quarter than in the first.
Additionally, the company said its decision to focus on branding has resulted in co-pack volume losses sooner than expected, resulting in “significant negative operating leverage” at the company’s Cloverhill facility in the Chicago area.
Further, higher-than expected labor costs in North America are squeezing baked foods margins there, Aryzta said. Price increases have been initiated to counter the higher costs, Mr. Killian said.
“Aryzta North America is well invested and structured to support a significantly larger business very effectively and efficiently,” he said “It has best-in-class processes and technology, and is capable of further initiatives to develop its potential.”
Mr. Killian said the company is investing in “upskilling, training and development to ensure Aryzta becomes an employer of choice” in what he called a highly competitive labor market.
“We know that it will take a recovery followed by a period of sustainable growth to reestablish investor confidence,” Mr. Killian said. “It will also require an alignment with our key shareholders in terms of our future strategy and capital allocation. A substantial element of this significant setback is timing related. The Aryzta board and management teams are committed to returning the business to solid performance and growth and dealing with the challenges presented.”Aryzta said the unanticipated North American challenges were compounding problems the company already knew it would be facing because of the commissioning of a bakery in Germany and because of the impact of Brexit.