Ansell shares plummet on lower profit warnings

Shares in the global maker of surgical and industrial gloves have tanked, wiping $500m from its market value.

Ansell has announced that it would spend $50m on a program to find savings.

Customers of Ansell’s surgical and industrial gloves are pulling back on new orders as they whittle down bloated supplies in their warehouses and storerooms, placing further earnings pressure on the manufacturer and forcing it to cut staff numbers and scale back production.

And this “destocking” – where customers use already purchased gloves rather than order new ones – is expected to linger for a few more months, the chief executive of Ansell, Neil Salmon said.

He did not expect a recovery until the second half.

For Ansell this would mean weaker earnings for 2023 as its profitability was hit by a range of costs flowing from efficiency programs and redundancies, IT investments and adverse foreign exchange movements.

The latest tale of woe from Ansell saw shares in the surgical and industrial gloves maker plummet as much as 16 per cent, wiping $500m from the value of the company, after it announced it would be forced to temporarily slow production to “normalise” inventory and cut manufacturing jobs as it faces disappointing sales across a number of key sectors.

Shares in Ansell fell 16 per cent on the new poorer outlook and later closed down $3.89, or 14 per cent, at $23.88.

During the peak of the pandemic crisis Ansell stock traded above $40 as investors pinned their hopes on the huge global demand for surgical and medical gloves driving an earnings bonanza for the manufacturer.

But Ansell has had a number of missteps since the Covid-19 pandemic including profit warnings and last year being accused of that it “knowingly profited” from forced labour that made its disposable gloves in Malaysia and once again has disappointed investors.

On Tuesday Ansell also announced that it would spend $50m on a program to find savings as macroeconomic headwinds loom, while at the same time it would book up to $35m in IT investments to accelerate its digital transformation.

The initiatives were outlined as the gloves giant expects full year statutory earnings per share to come in between US117c and US118c – lower than its fiscal 2022 result of $US125.2c. After excluding the benefit of provision adjustments associated with the Russia exit in 2023, underlying EPS will be in the middle of the guidance range provided at the half year results in February.

Its results will be released on August 14.

Ansell chief executive Neil Salmon.

Ansell said industrial global business unit sales for 2023 were approximately $US750m and healthcare sales of about $US900m, with headwinds impacting both key divisions although there were signs of recovery from previously more difficult trading conditions.

“The effects of channel partners and end customers reducing high levels of inventory accumulated over the past two years continued to be experienced in the second half,” Ansell said in an ASX statement.

Mr Salmon said in an earnings briefing that destocking would continue to be an issue for some time.

“We had also expected that sales of surgical and life science products would be affected by customer destocking and not reflected of underlying end user demand, and this also proved to be correct.

“Our best estimate for our surgical and life sciences businesses is that they are only part way through their destocking cycle.

“As we start fiscal year 2024 we are assuming that destocking still has some months to run for surgical and life sciences, with orders on Ansell only expected to recover to underlying end-user consumption levels at some point during the second half.”

Mr Salmon said the shift in demands from its customers, switching to ordering product to instead destocking, happened very quickly.

“This shift happened very quickly. From some months where there was still a real concern that ‘I am going to run out of product’, to then suddenly ‘I have got plenty of product, and now I can get it from several people’.

For fiscal 2024, the group anticipates “continued growth” in industrial, albeit performance will be influenced by broader macroeconomic developments.

The up to $50m cost cutting and efficiency program – to find annualised pre-tax savings of $45m by fiscal 2026 – will see lower earnings. Ansell will also spend $US30m to $US35m on further IT investments, a small amount of which will be spent in fiscal 2024 with the majority in 2025 and 2026.

The investment program will aim to simplify and streamline its organisational structure, achieving clearer organisational alignment to customer and market-oriented growth strategies and reducing cost with less duplication of leadership responsibility, Ansell said.

It will also seek to reduce manufacturing employee numbers in order to provide a partial offset to the unfavourable impact of slowing production while investing in improving longer term manufacturing productivity through increasing automation, leveraging new operating systems and making limited changes to our manufacturing configuration where optimisation opportunities exist.

Ansell said 2024 guidance is for adjusted EPS, excluding the above investment program costs, to be in the range of US92c to US112c. Statutory EPS, including investment program costs, is expected to be in the range of US57c to US77c.

Mr Salmon said he was “not satisfied” with the company’s earnings trajectory.