Prominent farm services business, Elders, has surprised the share market by suddenly slashing its earnings expectations as much as 30 per cent for the current financial year.
The bad news has primarily been blamed on "subdued client sentiment" after last September's official forecast of a droughty El Nino weather event.
The Bureau of Meteorology's expectations of a dry, hot, bushfire-prone summer added to the widespread pressure on already-depressed livestock market prices after many farming districts had endured a generally dry winter.
Although other weather factors meant summer eventually turned out to be significantly wetter than predicted in eastern and northern Australia, broadacre crop product demand has continued to be subdued by dry conditions stalling sowing preparations in Western Australia.
Meanwhile, declining global crop protection product prices in the past six months have also eroded Elders' grain sector sales revenue, compared to the prior year, creating notable margin pressure in some key chemical product categories.
An Elders trading update startled investors by tipping a 20pc to 30pc earnings downgrade for the year to September 30.
Underlying earnings before interest and tax were expected to drop to between $120m and $149m compared to about $171m reported in 2022-23.
Shares in the big agribusiness subsequently slumped almost $2.60 to lows around $7.20 each at the start of this week, before regaining some ground to around $7.45.
The plunge meant Elders was the poorest performing stock on the Australian Securities Exchange on Monday, with its sober earnings news also triggering nervousness about the performance of crop chemical producer Nufarm in the current low margin sales conditions.
Nufarm's share price fell 3.6pc to be the third worst ASX performer on the day.
Until now Elders' shares had been steadily climbing towards $10, after starting the year around $7.35 each, having previously sunk to $5.50 when the seasonal outlook was looking glum last October.
Although the company's trading performance did rebound in January and February 2024, actually exceeding prior year results as the farm sector mood improved with better seasonal conditions and markets, key farm chemical product margins have remained tight.
Sales of these products were now mostly expected in the second half of 2023-24, the company said.
Its trading update noted prospects for the coming winter crop in most regions improved significantly with favourable soil moisture profiles existing in many parts of the eastern and southern grainbelt.
However, conditions remained dry and warm in some parts of WA.
Although Elders was still tipping it would achieve its goal of a cash conversion of more than 90pc of of its underlying net profit after tax for the financial year, it flagged its debt was likely to exceed its target range of 1.5 to two times earnings before interest tax, depreciation and amortisation because of the poorer first half earnings.
However, its leverage was tipped to be back within the target range by the first half of 2024-25.
Elders noted how external variables such as market price fluctuations, supply chain disruptions, geopolitical events, and the outlook for Australian agriculture, may still significantly influence its financial outcomes or the timing of those financial outcomes as the year progresses.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
