Blackmores share price: where next following profit downgrade?
We examine the details behind the latest Blackmores (ASX: BKL) Trading Update.
When the Aussie markets opened this morning, the Blackmores (ASX: BKL) share price fell as much as 22.85%. Though those losses moderated by the afternoon, the stock was still down by ~13% when the market closed.
Blackmores share price: what drove this sell-off?
Investor paranoia likely reached new peaks on Monday, when the stock was put into a trading ‘pending the release of an announcement.’ No further specifics were given at the time, but investors, in the lead-up to this release, were broadly speculating whether the coronavirus would have a positive or negative impact on the stock.
Today that trading halt came to an end, and with it a nasty update.
First, Blackmores revealed that it expected first-half revenues to come in at $303 million, against earnings (NPAT) of $18 million. Not the worst revelation; the company had after all already announced that challenging conditions were 'expected to continue during the first-half of FY20,' during the FY19 report.
Those results remain subject to an auditor review, it should be noted.
The real problem with today's Trading Update was the revelation that full-year FY20 earnings (NPAT) were expected to come in significantly lower overall: now projected to come in between $17 million to $21 million. H2 revenues are also expected to be stagnant.
These revised figures, which point towards a significantly weaker second-half, were attributed to cost increases, operational difficulties and the Coronavirus.
Commenting on these revised figures, Blackmores' Chairman, Mr Brent Wallace said:
'We understand and acknowledge that shareholders will be bitterly disappointed with the financial performance of the business.'
Stressing that progress is being made though, Mr Wallace continued by saying:
'Our new management team is progressing plan to turn around the business, which involves getting better control and visibility on our fixed costs, improving gross margins and significantly improving quality of our earnings in a more sustainable way.'
Other issues in focus
One of the key issues leading to this downgrade arose from the company’s recent Braeside production facility purchase, which Blackmores took ownership of in late-2019. As it currently stands, 'the forecast product mix, volumes and material costs will have an estimated combined adverse impact of $9.5 million on the cost of goods sold,' in the second-half, the company warned.
The issues did not end there however, with the company also noting that regulatory changes – as they relate to the labelling Blackmores uses in its product line-up – is also expected to have a $7 million earnings (EBIT) impact.
Finally, the company also flagged its plans to rectify eroding margins, noting that from Q4 onwards, Blackmores would ‘moderate’ its promotional activity. Though such strategies are expected to yield volume and price alignment benefits in the years ahead, they are also expected to have negative short-term consequences, contributing to a weaker H2 FY20 earnings outlook.
Blackmores further announced that it would not be paying an interim dividend.
The Coronavirus paradox
The impact of the Coronavirus also got a brief mention today, with it being pointed out that though the emergence of this virus has led to greater demand for Blackmores’ products, it has also stifled some of the company’s key supply chains.
The Blackmores (ASX: BKL) share price currently trades at the $77.87 mark.
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
Act on share opportunities today
Go long or short on thousands of international stocks with CFDs.
- Get full exposure for a comparatively small deposit
- Trade on spreads from just 0.1%
- Get greater order book visibility with direct market access
See opportunity on a stock?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Try a risk-free trade
- See whether your hunch pays off
See opportunity on a stock?
Don’t miss your chance – upgrade to a live account to take advantage.
- Trade a huge range of popular stocks
- Analyse and deal seamlessly on fast, intuitive charts
- See and react to breaking news in-platform
See opportunity on a stock?
Don’t miss your chance. Log in to take advantage while conditions prevail.
Live prices on most popular markets