(Bloomberg) -- Aryzta AG’s earnings are on a pace to drop 20 percent this year as the Swiss processed food company struggles to introduce Otis Spunkmeyer snack cakes in the U.S., a market beset by rising labor costs.
Underlying earnings per share fell about 20 percent in the five months through December, and the company expects profit in the year that ends in July will show a similar impact, Aryzta said in a statement Tuesday.
“The performance in the current period is both unexpected and extremely disappointing,” Chief Executive Officer Owen Killian said in the statement. “We know that it will take a recovery followed by a period of sustainable growth to re-establish investor confidence.”
The Swiss company bought a factory in March 2014 to expand Otis Spunkmeyer in the U.S. But as Aryzta expanded the brand, it has been losing contracts to manufacture products for other companies that compete with Otis Spunkmeyer, Aryzta said on the call with analysts. Sales growth in that market worsened in the second quarter compared with the first, the company said.
About one third of Aryzta’s North American revenue comes from its own branded goods, and the food maker aims to increase that, since those products are more profitable than those it produces on behalf of other companies.
Higher wage costs will weigh on first-half margin, which will be about 6 percent to 7 percent, Aryzta said. The company said it expects improvement in margins in the second half.
Aryzta plans a strategic review of Picard, the French frozen-food retailer in which it owns about a 49 percent stake, executives said on the call. The company is seeking shareholders’ opinions on the matter and all options will be be considered, Aryzta said.
Aryzta shares have risen 1.1 percent this year to 45.36 Swiss francs, giving the company a market value of 4.2 billion francs ($4.2 billion).
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