Elders shares slashed as first-half earnings hit by a failed El Niño and lower farm prices

Elders shares slashed as first-half earnings hit by a failed El Niño and lower farm prices

Photo: Christopher Burns via Unsplash

A Bureau of Meteorology forecast for a weakening El Niño has combined with lower crop and livestock prices to hit the earnings performance of rural services group Elders (ASX: ELD) in the first half of FY24.

An announcement by the company that the first-half result is “significantly below expectations” knocked more than $445 million off Elders’ market value in early trading as its shares tumbled almost 29 per cent to a low of $7 each.

However, the company notes that conditions have begun to improve thanks to a better outlook for winter crops led by “favourable soil moisture profiles” across many winter cropping areas in the eastern and southern states.

Elders has forecast underlying EBIT of between $120 million and $140 million for FY24 full year, which is down from $170.8 million in FY23.

The guidance comes on the heels of the company receiving its unaudited March financial results.

Elders has revealed that its business suffered “subdued client sentiment”, especially in the first quarter, following an El Niño declaration by the Bureau of Meteorology last year.

The declaration has been the source of extensive criticism of the bureau by rural producers, many of whom reduced herd sizes and delayed planting crops in anticipation of a looming El Niño drought. However, the eastern states have since endured some of the heaviest rainfall in years from the beginning of this year.

The rush by rural producers to sell livestock has benefitted consumers due to lower beef and lamb prices, but the impact has flowed onto Elders’ earnings performance.

The company says its lower profit performance has been led by lower crop protection prices for the first half compared to the prior corresponding period impacting sales revenue and margins.

Cattle and sheep prices were also “significantly below the 10-year mean” while subdued trading in March was due to a later start to the winter crop in Western Australia, the country’s key broadacre market.

The company notes that conditions remain dry and warm in some parts of Western Australia which will push sales to the second half of FY24, which lands between April and September.

Elders also reveals that interim earnings have been impacted by margin pressure in some of its key agricultural chemical products.

“Trading recovered in January and February 2024 and exceeded the prior year comparison, largely as a result of improved client sentiment following the Bureau of Meteorology’s February 2024 announcement of a weakening El Niño and significant improvement in sheep and cattle prices,” says the company.

Elders’ shares recovered some ground by the lunch-time session and were trading at $7.47, down 24 per cent, at 1.30pm (AEST).

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