Enodis sees upturn as client confidence improves

Related tags North america United states dollar

Enodis, the world's largest manufacturer of commercial foodservice
equipment such as ovens and mixers, reported better profits but
slightly worse sales due to the weak dollar, increased steel prices
and difficult UK and continental European markets in the third
quarter. But the company saw recovery in its sales in North America
boosted by demand from restaurant operators, which allowed it to
increase its prices, writes Iordan Mateev.

Enodis announced a 2.8 per cent drop in third quarter revenues to £166.9 million, although operating profits increased by 5 per cent to £12.5 million, helped by a restructuring and cost-cutting programme underway since April 2003.

Sales of foodservice equipment in North America, the company's biggest market, increased in local currency but the positive growth was more than offset by currency exchange rate movements, with the US dollar weakening against Sterling. As a result, divisional sales decreased by 1.9 per cent to £101.1 million, although again the cost-cutting programme helped support operating profit growth of 8.5 per cent to £14.1 million.

Enodis' commercial foodservice equipment ranges from fryers, grills, steamers and ovens to ice makers and refrigeration equipment. Its business also includes manufacturing and distribution of food retail equipment. Around 75 per cent of sales come from North America, where its customers include fast food chains (McDonald's and Burger King), hotels, contract caterers, institutions and food retailers.

After bad results in 2003 (revenue decreased by 8 per cent) and a partial recovery in the first half of 2004, Enodis is now focused on the North American markets, where it expects good growth driven mainly by restaurants.

Enodis' chief executive Dave McCulloch said that the improving growth in North America came as a result of "a combination of factors: an improved economy; increased confidence of restaurant operators (particularly large chains); pent-up demand for replacement equipment; the benefits of Enodis' selective distribution programmes and penetration of several new products"​.

In an industry where the turnover of new products is by its very nature slow - companies do not replace bakery equipment every year or so, as it simply costs too much to do - Enodis and its competitors are reliant on adding new customers to their portfolio, and this in turn requires a certain level of confidence in the economy as a whole, since such large investments need to be recouped.

"It is clear that North American restaurant operators now have the confidence to increase investment levels in equipment. Furthermore, our family of accelerated cooking systems and food preparation stations is attracting significant interest from a number of major chains,"​McCulloch said, suggesting that the future may be decidedly more rosy for the company.

The Middleby Corporation, a US company which is one of Enodis' main competitors, is also optimistic about the market growth potential.

"After several years of underinvestment, our customers are beginning to accelerate their replacement cycle of older equipment, which is becoming more expensive to operate and maintain,"​ said chief executive officer Selim A. Bassoul, also reporting a strong performance in the half year.

But both companies have more to cope with than simply the confidence of their customers. As a result of significant commodity cost pressures, in particular steel surcharges, Enodis announced an additional price increase in May 2004, effective 1 July - although the signs are that the hike is unlikely to take the momentum out of its new-found sales growth.

"We are particularly optimistic about the potential for our accelerated cooking systems and food preparation stations, which are attracting significant interest from a number of major chains,"​ said McCulloch.

But if the US is improving, in Europe the situation still has some way to go. "In Europe, we expect the difficult market conditions to continue and therefore we have less ability than in the US to pass on price increases to mitigate materials inflation,"​ McCulloch said.

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