Compass Earnings Top Forecasts

Compass Group, the world's biggest caterer, beat forecasts with a 29 percent rise in first-half profit on Wednesday and unveiled plans to buy back 400 million pounds ($779 million) of its shares over 18 months.

The British firm, which employs over 350,000 people to feed office workers, soldiers and schoolchildren, said it was confident about the rest of the year, and was coping with higher food costs by changing menus, cutting waste and raising prices.

"Compass continues to serve up good news, and this looks like it will continue, given the positive outlook statement, not only for the second half but into 2009 as well," said Panmure analyst Mike Murphy, keeping a "buy" rating on Compass shares.

Compass, which counts Chelsea soccer club, the Wimbledon tennis tournament and the Bank of England among its customers, said it made a profit before tax and one-off items of 289 million pounds ($563 million) in the six months to March 31.

Forecasts ranged from 270 to 282 million in a Reuters poll of seven analysts.

Revenues rose 7.9 percent to 5.59 billion pounds, with strong growth in continental Europe, Australia and Japan offsetting a rise of just 1 percent in the UK.

The firm also raised its interim dividend by 11 percent to 4 pence a share and said the share buyback -- in the middle of analysts' forecast range of 300 million to 500 million pounds -- would leave it room to make small acquisitions.

Compass shares climbed as much as 2.5 percent in early trade, but had pulled back to stand up 1.4 percent at 347 pence, valuing the business at about 6.3 billion pounds.

Seymour Pierce analyst Kevin Lapwood increased his rating on the stock to "hold" from "sell", but said the good news was already priced in.

Compass shares have outperformed the DJ Stoxx European travel and leisure index by about 25 percent over the last 12 months following a series of strong results and updates.

However, Cazenove analysts said there was still room for further gains, as the stock is trading at 17.1 times earnings forecasts for 2008, an 8 percent discount to its closest rival, France's Sodexho.

Compass said it continued to see food price inflation of 4-5 percent, but that its attempts to mitigate this were taking around 1 percentage point off that total.

Operating margins, a measure of profitability, rose 60 basis points in the first half.