Shares in UK catering giant Compass crashed by more than 20 per cent this morning after low profits on school food contracts caused it to downgrade its profits forecast.
The world's largest catering firm told the City that "for 2004 and onward" operating profit will drop by £30 million ($53m).
The majority of the blame has been placed on poor profitability of school food contracts, in the wake of swingeing budget cuts by Local Education Authorities.
But Compass also pinpointed higher distribution costs and start-up costs for new contracts as contributing factors.
The firm also cited its switch from an un-named UK distributor with financial problems to a more expensive alternative as another reason for the fall in profits.
The Chertsey-based catering company has annual revenues of more than £11 billion and employs 415,000 people in more than 90 countries around the world.
Earlier this year, it offloaded its Travelodge budget hotels chain and Little Chef roadside restaurants in order to concentrate on serving meals for institutions such as schools.
The company still forecasts seven per cent like-for-like turnover growth in 2004.
A company statement said: "The outlook for the business remains encouraging. The fundamentals of the business are strong and the focus continues to be very clearly on driving organic growth.”
Analysts are less optimistic. "This statement more or less amounts to a profit warning and the outlook isn't good," said Sebastien Petit of Barclays Private Clients.
And a broker at Charles Stanley, which downgraded the stock, told BBC on-line: "We feel the trading statement raises a number of issues and further clarification of the outlook for cash flows and return on capital is needed."
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