The largest detractor from the Fund’s performance for the past quarter was gategroup (GATE
), the world’s largest independent provider of catering services to the airline industry. gategroup released preliminary 2012 results in February that were in line with its recently lowered guidance, but its 2013 outlook was below market forecasts, which led to a decline in share price. The lower profitability at gategroup is coming from weak performance at its European operations, where EBITDA margins have declined from 9% to 5.75% over the past two years. gategroup is adjusting its footprint in Europe to respond to changes in customer demand, but we believe it will take until 2014 for these actions to begin to improve its profitability there. The downturn in European profitability has been larger than we forecast when we initially invested in gategroup. However, we believe management is taking the appropriate actions to restructure the business and that current valuations do not reflect these actions or the company’s continued growth in North America and the emerging markets, where it continues to perform well. Although gategroup has been a disappointing investment over the past 18 months, we continue to see value in the stock and thus remain shareholders.
From David Herro
's Oakmark International Small Cap Fund First Quarter 2013 Commentary.