Elders says profit could fall 30pc but downside risks remain

The agricultural services and products group’s shares have fallen sharply after cutting its profit forecast, while also warning there could be more pain in store.

Elders has downgraded its profit outlook for the full year.

Elders’ full year profit will plunge potentially as much as 30 per cent below last year’s levels, the company says, while warning there are several downside risks which could bring further pain.

The agricultural services and products company told the ASX on Monday that full year underlying earnings before interest and tax would likely land in the $120m-$140m range, following the company tallying up its half year results to the end of March.

This full year result, to the end of September, would be down from EBIT of $170.8m last year.

That was down from a bumper year in FY22, when EBIT came in at $232.1m.

Elders shares were 24.9 per cent lower at $7.37 in early trade on Monday.

The company told the ASX on Monday that January and February had been strong, however March was a different story.

“Trading recovered in January and February 2024 and exceeded the prior year comparison, largely as a result of improved client sentiment following the Bureau of Meteorology’s February 2024 announcement of a weakening El Nino and significant improvement in sheep and cattle prices,” Elders said in a statement.

“However, margins in key agricultural chemical products were impacted in March and have been reflected in the outlook.

“The outlook for the FY24 winter crop in most regions is improved with favourable soil moisture profiles across many winter cropping areas in the Eastern and Southern states. “Conditions remain dry and warm in some parts of Western Australia which will push sales to the second half of FY24 (April to September).”

The downside factors impacting the profit result include the declaration of an El Nino weather system last year, with that impact felt particularly strongly in the first quarter, lower crop protection prices than in the previous corresponding period, affecting revenue and margins, and “cattle and sheep prices significantly below the 10-year mean, particularly impacting the first quarter’’.

El Nino weather systems generally come with warmer and drier weather, which negatively affects growing conditions for large-scale farming.

There was also price pressure in some agricultural products and subdued trading in March “due to a later start to winter crop in Western Australia which is a key broadacre market”.

Elders also warned there were further risks to the downside,

“The guidance provided today continues to be subject to variables outside of Elders’ control which have the potential to materially influence Elders’ financial outcomes, or the timing of those financial outcomes,’’ it told the ASX.

“Examples include, but are not limited to, the outlook for Australian agriculture, unfavourable market price movements, supply chain disruption and geopolitical events.”

Elders said its leverage was forecast to be above its target of 1.5 to 2.0 times throughout FY24, because of the EBIT underperformance, “is forecast to return to within target in the first half of FY25’’.