PMP punished after fresh earnings downgrade

THE struggling printer, publisher and direct marketer PMP Ltd has delivered more bad news for shareholders, issuing its second downgrade to annual earnings in six months.

By InvestSMART · 25 Apr 2012

By InvestSMART ·
25 Apr 2012

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THE struggling printer, publisher and direct marketer PMP Ltd has delivered more bad news for shareholders, issuing its second downgrade to annual earnings in six months.

Shares in PMP fell in the wake of the latest downgrade, and were 5?, or 16.67 per cent, lower at 25? yesterday. PMP shares were at 66.5? one year ago.

PMP slashed its full-year earnings forecasts for the 2011-12 financial year and ramped up cost-cutting amid challenging trading conditions.

PMP now expects its full-year earnings before interest, tax (EBIT) and significant items to be between $30 million and $33 million.

PMP's net debt was likely to come in at $150 million to $155 million.

On February 2, PMP said it expected earnings before significant items for this year would be in the range of $43 million to $47 million at a time of weaker and volatile market conditions.

This represented a 20 per cent decrease on the earnings guidance provided at the company's annual meeting in November, when full-year earnings for 2012 were forecast to approximate 2011's earnings of $56.7 million.

In November and on February 2 PMP said net debt was expected to be slightly lower than 2011's figure of $141 million.

PMP said yesterday that since the company's last market guidance in February, market conditions had continued to deteriorate.

"Trading results for March were circa 20 per cent below forecast, and at the same time the fourth-quarter forecast now indicates lower-than-expected volumes due to further deterioration in demand from the retail and publishing markets," PMP said in a statement.

"It is evident this is a combination of structural issues, economic drivers and deferral of advertising spend into the first quarter of fiscal 2013."

PMP said it had also expanded the scope of its cost-cutting program, especially in its Australian print business, in a bid to get the group back on track.

PMP expects the changes to generate more than $40 million in annualised savings.

A non-executive director, Peter George, has resigned from PMP's board and been appointed chief operating officer to help transform the Australian print business.

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Frequently Asked Questions about this Article…

What did PMP announce in its latest earnings downgrade?

PMP announced a second downgrade to full-year earnings for the 2011–12 financial year, saying it now expects EBIT (earnings before interest, tax and significant items) of between $30 million and $33 million due to continued deterioration in market conditions.

How big was the change in PMP’s earnings guidance compared with earlier forecasts?

The revised guidance of $30–$33 million EBIT is a substantial reduction from the February guidance of $43–$47 million and from the November forecast that full-year earnings would approximate 2011’s $56.7 million.

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

PMP blamed weaker and volatile trading conditions, lower-than-expected volumes in the fourth quarter, a circa 20% shortfall in March trading versus forecast, structural issues, economic drivers and advertisers deferring spend into fiscal 2013.

How did the market react to PMP’s latest downgrade and what happened to PMP shares?

Shares fell in the wake of the downgrade, with the article noting a decline of 16.67% as investors reacted to the worsening outlook and reduced earnings guidance.

What did PMP say about its net debt position after the downgrade?

PMP said net debt was likely to be about $150 million to $155 million, compared with 2011’s net debt figure of $141 million and earlier expectations that net debt would be slightly lower than that 2011 level.

What cost-cutting measures is PMP implementing to respond to the weaker trading environment?

PMP expanded the scope of its cost-cutting program, particularly in its Australian print business, and expects the changes to generate more than $40 million in annualised savings.

Were there any leadership changes at PMP mentioned in the article?

Yes. Non-executive director Peter George resigned from the board and was appointed chief operating officer to help transform PMP’s Australian print business as part of the company’s turnaround efforts.

What short-term trading signals did PMP report that investors should note?

PMP reported that March trading results were circa 20% below forecast and that fourth-quarter volumes were lower than expected due to deteriorating demand from retail and publishing markets, signalling ongoing short-term pressure on revenue and earnings.