Spilled milk: Maggie Beer Holdings slides on profit downgrade

An underperforming dairy business and local supply chain issues have seen food business Maggie Beer Holdings (ASX: MBH) downgrade its anticipated full year earnings today.

Shares in the company have fallen by more than 13 per cent to $0.40 per share in response - the lowest MBH has traded this calendar year.

MBH reports disruption to global supply chains and customer orders, as well as underperformance at St David Dairy and Paris Creek Farms, will lead to an earnings reduction of $4.2 million.

As such, MBH expects EBITDA in the range of $9.25 million to $10.5 million for FY22.

This is much higher than the $3.1 million reported in the previous financial year, although in contrast MBH now has its acquisition Hampers & Gifts Australia (HGA) in the pantry, which in FY21 alone generated unaudited trading EBITDA of $9.4 million.

“Since the H1 results announcement the group has been impacted by further unforeseen costs and supply chain issues including increased sea freight charges, increased fuel costs, further disruption to retail orders and customer deliveries caused by the floods in Central Australia, Northern NSW and QLD, the war in Ukraine and the sustained COVID-19 lockdown in China,” MBH said.

“We have been working hard to implement price increases across all go-to-market channels to fully offset these cost pressures, but with major grocery retailers using their full 13-week window to approve price increases, there is a lag effect, however the price increases submitted to retail grocery have now been approved and will come into effect late May 22.

“Our dairy assets have underperformed, and with Mother’s Day e-commerce sales not generating sufficient incremental revenue growth, we are required to restate our full year trading EBITDA range to between $9.25-$10.5 million, to reflect this.”

Of the $4.2 million EBITDA decrease, MBH says dairy asset underperformance accounts for $2.8 million.

MBH said Saint David Dairy was impacted by skills and labour shortages. To offset this, the company has asked chairman Reg Weine to step in for the short term and take over leadership of the segment.

“Paris Creek Farms and St David Dairy (Dairy Assets) have been significantly impacted by the flow on effects of COVID-19 and other events, with skill shortages, staff churn, increased training costs for new staff, and increased milk haulage and distribution costs being experienced,” MBH said.

“We expect to see customers return, costs to decrease and sales and profitability to increase towards the end of H2 FY22.”

In addition, MBH said the shortage of milk in the dairy industry and high global commodity prices are pushing up farm gate milk prices, forcing the company to implement price increases to offset higher costs.

Following a review of the dairy assets, MBH says it now considers the two business units to be ‘non-core’, and is exploring options in relation to the future of both companies.

It wasn’t all sour for MBH today though, with the company announcing Maggie Beer Products (MBP) e-commerce sales were up by 165.6 per cent in the period from 30 June 2021 to 30 April 2021 on the prior corresponding period (pcp).

HGA, which MBH acquired for $40 million last year, saw sales rise by 25.6 per cent, and MBP’s were up by 19.3 per cent. Group net sales increased by 13.2 per cent for FY22 in the year-to-date in April compared.

“The group and in particular MBP and HGA have continued to perform well, with its diversified revenue stream, whilst absorbing the higher costs and delivering industry leading gross margins,” MBH CEO and managing director Chantale Millard said.

“With price increases being implemented across the Group we expect to see our earnings growth return to expected levels in FY23.

“With our strong cash position, we are fortunate to be able to bring our working capital requirements forward, for the all-important Christmas trading period, to make sure we can continue to achieve strong growth in FY23 and ensure we can declare MBH’s first distribution or dividend with our Full Year Results.”

MBH has $15.2 million in cash at the end of April 2022 and no debt.

Shares in MBH are down 13.04 per cent to $0.40 per share at 11.45am AEST.