Sodexo shares saw a substantial decline of over 8% on Tuesday following the company’s lackluster first-quarter results for fiscal 2025. The firm reported organic growth of 4.6%, below analyst expectations set at 5.3%.

Q1 Performance: Growth Slower than Anticipated

Despite Sodexo retaining its full-year forecast aimed at organic growth of between 5.5% and 6.5%, the sluggish start to the year has led to increased investor concern. Analysts from Jefferies voiced their doubts regarding the company’s ability to hit its ambitious growth targets, particularly as indications of a soft Q2 loom. Jefferies’ analysts highlighted that a soft Q2 would necessitate an exceptional second half to meet overall projections, which some analysts now deem increasingly unlikely given current market conditions.

Investor Sentiments: The Cause for Alarm

Investor uncertainty about meeting growth targets, combined with soft Q2 expectations, creates skepticism within the market. RBC Capital Markets suggested that a Sum of the Parts (SotP) valuation approach—considering the lower multiples of foreign facilities management peers—may yield a more realistic assessment of Sodexo’s valuation.

Future Outlook: Q2 Challenges and Growth Prospects

Although Sodexo maintains guidance for FY25 organic growth between 5.5% and 6.5%, this underwhelming start raises concerns about achieving these goals. The second half of the company’s performance will need to accelerate significantly to meet these targets, a scenario which remains uncertain amid the current market landscape. Investors are adopting a cautious, wait-and-see stance as they watch Sodexo’s next moves.

In conclusion, while Sodexo aims for growth in FY25, the initial quarter’s performance and the soft outlook for Q2 leave many questioning its ability to deliver on those goals.