Deliveroo Plc took strides toward hitting a profit and announced plans to issue a £250 million ($319 million) capital return to shareholders as the food delivery company emerged from a rough post-pandemic period.
(Bloomberg) — Deliveroo Plc took strides toward hitting a profit and announced plans to issue a £250 million ($319 million) capital return to shareholders as the food delivery company emerged from a rough post-pandemic period.
Adjusted earnings before interest, taxes, depreciation and amortization rose to £39 million for the first half of the year, the delivery firm said in a statement on Thursday. Analysts surveyed by Bloomberg had estimated £18.1 million. Deliveroo also raised its earnings guidance for the full-year to a range of £60-80 million, up from £20-50 million.
Chief Executive Officer Will Shu said in an interview that the company was consulting with investors to find the proper “mechanism” for the capital return. Shu also said the returns won’t change the company’s focus on keeping costs low. “It’s about discipline here,” he said.
Shares were up 2.4% at 9:05 am in London on Thursday.
Europe’s food delivery companies expanded rapidly during the pandemic, then were punished in the markets as lockdowns ended and takeout orders declined sharply. Since then, Deliveroo and its rivals have focused on cutting costs and limiting their markets.
The measures are beginning to pay off. Delivery Hero’s shares jumped as much as 6% on Wednesday after Asian markets returned to growth, prompting the company to raise revenue guidance for the full year. Just Eat swung to a profit in July this year as its first-half earnings beat analysts’ estimates after cost cutting and restructuring measures boosted profitability.
Analysts at Bernstein wrote in a note on Thursday that Deliveroo’s improved forecast was a “big positive for the stock and the sector.”
Deliveroo has taken several steps to inch toward profits. The company cut 9% of its workforce earlier this year, saying it needed to focus on profits in a “difficult consumer environment.” It also scaled back operations in some markets.
Still, consumers aren’t buying more. Deliveroo customers placed 145.2 million orders in the first half, a drop from the prior year as inflation weighs on household spending. Gross transaction value, a measure of customer orders, grew 1% at constant currency to £3.51 billion, compared to £3.41 billion a year earlier.
Despite the raised earnings guidance, Deliveroo narrowed its full-year gross merchandise value growth guidance for the year. Analysts at Barclays said this wasn’t “overly negative” but does suggest that material growth acceleration isn’t expected in the third quarter, reflecting tough trading conditions.
Shu said that inflation kept orders low, particularly in the UK and Ireland, its key markets. He said his company was investing more in its advertising business, with sponsored listings in the app, and adding more restaurant and grocery partners. “It’s just a very different environment than a few years ago,” he said.
–With assistance from Mark Bergen.
(Updates with comments from CEO, capital returns, share price and analyst commentary)
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