Elders shares tank on profit downgrade, uncertain seasonal outlook

Elders shares are down sharply after the rural services firm lowered its full-year earnings forecast amid a slowing of sales and weaker cattle and sheep prices.

Elders managing director Mark Allison. Picture: Daniel Purvis.

Elders shares slumped on Monday after the rural services firm lowered its full-year earnings forecast amid a slowing of rural products sales and further weakness in cattle and sheep prices.

In an update to the market, the company also warned of uncertain seasonal conditions in some farming regions, with long-term forecasts predicting a warmer and drier than average spring season in eastern and western parts of Australia.

Underlying EBIT is now expected to land in the $165m to $175m range, down from previous guidance of between $180m and $200m set at the company’s interim results in May.

The announcement sent the company’s shares tumbling. They were trading 11.1 per cent lower in early morning trade at $6.33.

“Elders is experiencing cautious customer sentiment in light of uncertain seasonal conditions in some farming regions, compared to forecast assumptions,” the company said in a statement to the ASX.

“This uncertainty is now supported by the Bureau of Meteorology’s long-range forecast for September to November which predicts a heightened probability of warmer and drier than average conditions in eastern and western parts of Australia and risk of an El Nino declaration.”

Elders said the earnings update followed a recent review that indicated lower than forecast rural products sales in recent weeks; greater than forecast pressure on rural product gross margin especially in crop protection products; and further weakness in the prices of cattle and sheep with a lower than forecast offset from volumes traded.

Cash conversion of greater than 90 per cent of underlying NPAT is still expected to be achieved for the full-year.

In a note to clients Citi analyst William Park said the downgrade reflected industry caution amid the uncertain seasonal outlook.

“ELD’s earnings downgrade reflects our cautious view with respect to elevated risk of drier conditions ahead with commentary consistent with industry feedback,” he said.

“Factors outside of ELD’s control continue to weigh on its operations. Persistent negative rural sentiment has adversely impacted rural products, and livestock prices have moderated further with offset from higher volumes falling short of ELD’s previous expectations.”

The mid-point of Elders’ revised earnings forecast ($170m) is 8.1 per cent lower than consensus expectations of $185m.

“While the market is not likely to be surprised by the downgrade, given the extent of the downgrade, we expect this to weigh on the shares today,” Mr Park said in his note.

Originally published as Elders shares tank on profit downgrade, uncertain seasonal outlook