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.

Do you own Blackmores shares? You can hedge your downside risk by trading CFDs now.

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.

Practise trading Australian stocks with an IG demo account now.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.