Investors lose their appetite with HelloFresh

Investors Sour on HelloFresh Amidst Profit Shrinkage

Wholesome kitchen box distributor HelloFresh has dashed investor expectations by cutting its profit forecasts. The company's troubles stem from issues within its US ready-meal division, which has been hit with waning demand, rising costs, and production setbacks at its plant. Not surprisingly, investors voiced their displeasure, resulting in HelloFresh recording its largest stock decline to date. At its lowest, the stock shed 23%, plunging to its lowest level in eight months. A shareholder who purchased HelloFresh stock two years ago has now endured a staggering 80% loss. However, the company's shares had initially flourished amidst the COVID-19 pandemic-induced surge.

According to HelloFresh, the US ready-meal division, a sector of significant potential for the MDAX group, is grappling with dwindling consumer demand and mounting production costs. Consequently, the revised adjusted consolidated operating profit this year is now projected to fall between €430 million and €470 million, instead of the previously anticipated €470 million to €540 million. Revenue growth is expected to surpass just 2% to 5%, instead of 2% to 8%.

The primary culprits behind this downturn are the sluggish acquisition pace of new clients and prolonged construction delays for a new manufacturing facility. The Arizona plant experienced temporary hurdles related to water supply and workforce logistics, whereas the Illinois production facility had capacity bottlenecks due to delayed maintenance that took longer than anticipated.

Losing investor confidence

HelloFresh's bleak earnings outlook has raised concern among numerous stock analysts. Philip Borchardt, a stockbroker, warned investors that HelloFresh's lowered forecasts paints a dismal picture and may adversely impact the company's overall financial performance. He highlights that just three weeks ago, HelloFresh had reconfirmed its targets during its financial report.

Nizla Naizer, a Deutsche Bank analyst, agrees with HelloFresh's assessments of the current challenges facing the US ready-meal division as transient issues. Nevertheless, she changed her stance on the company, downgrading it to "Hold" and setting a new price target of €26.

DZ Bank analysts shared similar sentiments, issuing a "Sell" rating, citing the US cooking box division's weak performance and growing uncertainties regarding long-term customer acquisition and growth prospects. The division's performance had already showed signs of underperformance in recent quarters.

Stock Price Volatility

HelloFresh's shares had already slid by half during the previous two months. Market observers pointed out that the stock had fallen to its March low. "If it drops below this 'last support', that's going to be very negative," said a trader. However, there is a high likelihood of stabilization on the horizon.

Despite HelloFresh's promising outlook for its US ready-meal division, several challenges have arisen, necessitating revised profits forecasts for MDAX companies. These challenges have culminated in unfavorable share price repercussions, with HelloFresh experiencing its most significant stock decline ever.

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While HelloFresh and other MDAX companies in the US ready-meal division are grappling with revenue challenges and share price drops, some underlying factors contribute to these issues:

1. Revenue Challenges:
2. HelloFresh struggles with revenue in the first half of 2025 due to customer account activity and headwinds from the previous 12-month period. [Source: 1]
3. Interpublic Group has similar revenue phasing issues in the first half of 2025 but expects to recover in the second half of the year. [Source: 1, 5]
4. Operational Issues:
5. HelloFresh faces internal challenges, such as poor working conditions, restrictive bathroom break policies, and questionable termination procedures. These issues led to employee dissatisfaction and unionization efforts. [Source: 4]
6. Interpublic Group faces operational challenges, including significant account losses in the healthcare vertical, which will weigh on their growth by 4.5 to 5 percentage points in 2025. [Source: 1]
7. Market Competition:
8. HelloFresh deals with stiff market competition due to the new Factor ready-to-eat brand expansion in Europe and the Netherlands. [Source: 4]
9. Interpublic Group's growth might be enhanced by the merger with Omnicom, but integrating the two companies will present short-term operational challenges. [Source: 1]
10. Regulatory Issues:
11. HelloFresh faces regulatory scrutiny and fines from organizations like the UK's Information Commissioner's Office for committing marketing violations. [Source: 4]
12. Interpublic Group faces regulatory restrictions on share repurchases due to merger proceedings. [Source: 5]
13. Investigations and Allegations:
14. HelloFresh faces allegations of exploiting migrant child labor at its facilities, leading to potential legal issues and damage to its reputation. [Source: 4]

These factors collectively contribute to the revenue and share price challenges faced by HelloFresh and other MDAX companies in the US ready-meal division.

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