“Lower Earnings In All Regions”: Nufarm Earnings Dry Up

Shares in agricultural chemicals supplier Nufarm sold off heavily on Monday as another earnings downgrade from the company confirmed that the big Australian drought has its hooks into the company’s profit and loss account.
 

But it’s not only Australia where the company is having problems – the US remains a concern where the fallout from Trump’s trade war with China, low prices and the problems of a wet summer and autumn (planting and growing seasons) are causing concerns with sales to hard-hit growers in the midwest.
 

That saw Nufarm shares ended the day more than 17% at $5.08 (and a low of $4.95) after directors warned that its first-half profits are likely to be significantly lower than for the first half of 2018-19.
 

And the earnings downgrade (and other comments in the release) makes it almost impossible to believe the company will resume paying dividends for the current first half of 2019-20, and perhaps for all of the year (unless there is a huge second-half turnaround).
 

Nufarm said that “trading conditions have been difficult for FY20 to date and this has resulted in lower earnings in all regions for the first quarter compared to the prior year”.
 

“High channel inventories and substantially lower demand in North America has resulted in first-quarter earnings before interest, tax, depreciation and amortisation of approximately $A20 million below the corresponding period for this region and it is considered unlikely this will be mitigated in the second quarter,” the company said in an update to the ASX.
 

On top of this, there’s an extra $9 million adjustment to current first-half problems from accounting errors for 2018-19 in Germany.
 

“Reconciling accounts with German customers for the 2019 calendar year it has identified additional sales rebate claims from customers that relate to Nufarm’s 2019 financial year.
 

“This matter was immediately investigated with our external auditors. While the investigation is ongoing it is not expected to result in a restatement of FY19 financial statements but will result in an adjustment to FY20 half-year earnings.
 

“Pending completion of the investigation and negotiation with customers it is estimated the impact on earnings before interest, tax, depreciation and amortisation will be approximately AUD$9 million,” the company warned.
 

The company said that despite it becoming “increasingly difficult to forecast the half-year results with reasonable confidence”, it expects first-half earnings before interest, tax, depreciation and amortisation (EBITDA) to be “significantly lower than the prior-year”.

Nufarm earned an underlying EBITDA of $120 million for 2018-19, so it is possibly looking at a minuscule figure for the six months to January 31, 2020.
 

And with the company suspending dividend for the 2018-19 financial year, the chances of a resumption in payouts looks extremely remote (Nufarm paid a 5 cents a share interim for 2017-18).