Another profit downgrade for Wellard

Investors have punished local agribusiness Wellard for announcing another downgrade to its profit outlook, which could be nearly half of its original estimate.

Wellard said today it was on target to ship a record 450,000 cattle in FY16, but that earnings for the year would be lowered by a number of factors, including ship scheduling changes and unexpected high cattle prices in Australia.

Wellard, which floated on the ASX in December after completing an almost $300 million initial public offering, said net profit after tax would now be in the range of between $23.5 million and $30 million for the 2016 financial year.

Based on the higher end of the range, that’s a 29.4 per cent drop from an estimate provided by the company in February, which was a revised outlook from what was flagged in Wellard’s prospectus in December.

All up, the new outlook is 35.3 per cent lower than the $46.4 million net profit Wellard hoped to achieve this financial year.

However, if Wellard achieves just the lower end of its revised range, that would be 49 per cent below its original target.

Shares in Wellard were down on the news, by 12.6 per cent (or 7.5 cents) to 52 cents a share at 10:50am.

“The forecast is lower than anticipated and certainly lower than we would have liked,” Wellard chief executive Mauro Balzarini said.

“Heavy out of season rain in northern Australia has meant the price we have paid for cattle has consistently been 80 cents to $1.00 per kilogram higher than the prior corresponding period.

“There has been strong customer resistance to those high prices and trading margins have been impacted as a result.”

Wellard originally planned to make two shipments to South America with its newly launched M/V Ocean Shearer, however with additional sailing time and turnaround time in port, the vessel will only make one trip during FY16.

As a result, the second voyage will now take place next financial year.

“The margin pressure we encountered trading and shipping cattle from Australia to South-East Asia supports our decision to increase our focus in countries like Brazil, which has a cattle population of more than 220 million head and strong trading margins,” Mr Balzarini said.

Looking ahead, Wellard anticipates shipping and trading margin pressure to continue in the short-to-medium term.

“Wellard remains profitable despite this margin pressure and our outlook remains positive,” Mr Balzarini said.

“We have strong and consistent management and liquidity, and a global customer base demonstrated by our volumes of cattle.

“We are continuing to execute our growth strategy, with the successful commissioning of the M/V Ocean Shearer, which increases the company’s shipping capacity by 50 per cent, a growth in cattle shipment numbers, diversification of supply markets, and downstream development in China and Turkey.

“We expect this to bring significant future benefit to Wellard.”