By Diana Mandia
(Reuters) -Elior posted a smaller-than-expected rise in first quarter sales on Thursday as the French catering group renegotiates prices with clients, sending its shares 13% lower.
After being hit by COVID-19 restrictions, caterers are now working to reset rates and supplier deals, reining in costs and cutting menu options to cope with high food and energy prices.
Europe's third biggest contract caterer reported revenue of 1.23 billion euros ($1.34 billion) for the quarter through December, up 11.7% from a year earlier but still 1% below consensus cited by Citi analysts.
Its 92.6% customer retention rate excluding contract renegotiations was better than post-2018 levels, but a step back from the last two quarters, Citi added.
Elior said 73% of its contracts had been successfully renegotiated by the end of 2022, representing 234 million euros in price increases over a rolling 12-month period.
This, however, was below the target Elior gave during its fourth-quarter earnings call in November, when it said it aimed to renegotiate 90% of old contracts by the end of the year, JP Morgan wrote in a note to clients.
Both Elior and its French rival Sodexo (EPA:EXHO) have said negotiations were complex with the public sector in France.
"Even if the French state clearly said that public contract prices could legally be adjusted beyond standard indexation clauses, we are not there", Elior Chief Financial Officer Esther Gaide said in a call with analysts.
She added renegotiation talks with public and local authorities in France were taking place very slowly and said the process was the most difficult part of the business.
While caterers benefit from post-COVID catch-up effects and higher prices, Bernstein analyst Richard Clarke warned there might be little scope left for rate hikes to drive growth in the second half of 2023.
"This means that there is potentially not much runway for further price increases," Clarke said.
Elior, which caters for sectors including business, education and healthcare, confirmed its full-year outlook and mid-term ambitions for 2024.
($1 = 0.9177 euros)