Nufarm shares to take hit as profit forecast is halved

FARM chemicals group Nufarm has slashed its full-year earnings guidance in half, blaming adverse weather for a final-quarter result expected to fall well short of expectations.

By InvestSMART · 15 Jul 2010

By InvestSMART ·
15 Jul 2010

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FARM chemicals group Nufarm has slashed its full-year earnings guidance in half, blaming adverse weather for a final-quarter result expected to fall well short of expectations.

In what is the company's fifth profit downgrade in a row, Nufarm said it expected full-year net operating profit, excluding material items, to be between $55 million and $65 million, compared with between $110 million and $130 million as forecast at the company's half-year results in March.

Nufarm said unfavourable weather worldwide contributed to poor demand for its crop protection products, which in turn led to increased competition and price pressure.

Managing director Doug Rathbone denied he could have informed shareholders sooner, given he received the company's crucial June figures yesterday.

"It's quite normal for the company to be generating a very high proportion of annual profit in those final three months of the financial year," he said. "The fact is that until we started to see the results that became apparent yesterday, we still believed we had every opportunity of achieving guidance."

Mr Rathbone said the extent to which guidance was missed was "cause for real concern", and that the company will take "a very close look" at its forecast and information systems.

Shares in Nufarm, which last traded at $5.24, are expected to plummet when it is lifted from its trading halt this morning.

Nufarm was forced to respond to queries from the Australian Securities Exchange in March after delivering a shock profit downgrade, following a similar request last September after announcing it would miss guidance by up to 15 per cent.

Yesterday's announcement follows Tuesday's sudden resignation of long-standing chairman Kerry Hoggard, who cited poor health. He has been replaced by former Telstra chief executive Donald McGauchie, who said he will review the strategic direction of the company.

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Frequently Asked Questions about this Article…

What exactly did Nufarm change in its full-year profit guidance?

Nufarm halved its full-year net operating profit guidance (excluding material items) to a range of $55 million–$65 million, down from the $110 million–$130 million it forecast at the half-year results in March. The company said this is its fifth profit downgrade in a row.

Why did Nufarm cut its earnings forecast — what caused the downgrade?

Nufarm blamed unfavourable weather worldwide for weak demand for its crop protection products. Lower demand led to increased competition and price pressure, which the company says pushed the final-quarter result well short of expectations.

How might Nufarm’s share price be affected by the profit downgrade?

According to the company announcement, Nufarm shares, which last traded at $5.24, were expected to plummet when the stock was lifted from its trading halt. The downgrade and trading halt were cited directly in the company’s report.

Did Nufarm management say they could have warned shareholders earlier?

Managing director Doug Rathbone denied they could have informed shareholders sooner. He said he only received the crucial June figures yesterday and noted it is common for Nufarm to generate a high proportion of annual profit in the final three months, so the results only became apparent very recently.

What actions did Nufarm say it will take after missing guidance by so much?

Nufarm said the extent of the guidance miss is 'cause for real concern' and that it will take 'a very close look' at its forecast and information systems. The new chairman also said he will review the strategic direction of the company.

Has Nufarm faced profit downgrades or ASX queries before?

Yes. The company has been forced to respond to Australian Securities Exchange queries previously — including after a shock profit downgrade in March and a similar request last September when it announced it would miss guidance by up to 15%.

Were there any recent leadership changes at Nufarm mentioned in the announcement?

Yes. Long-standing chairman Kerry Hoggard suddenly resigned citing poor health. He has been replaced by former Telstra chief executive Donald McGauchie, who said he will review the company's strategic direction.

What should everyday investors watch next after Nufarm’s earnings downgrade?

Investors should watch Nufarm’s ASX announcements for updates, the lifting of the trading halt, any revised forecasts or guidance, the company’s review of its forecasting and information systems, and comments or strategic direction from new chairman Donald McGauchie — all items highlighted in the company’s statement.