Asaleo Wiped As Costs Surge Hits Earnings
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Shares in Asaleo Care took a hammering for the second time in eight months after surprising the market with the second profit downgrade in that time.
The shares slid nearly 35% after directors told the ASX that rising costs and fierce competition will slash its full-year earnings by 29%.
And there could be worse to come with directors warning yesterday that as a result of a company wide review it expects "material charges" for impairments and write-downs in its interim results on August 21.
Asaleo shares hit a record low of 82 cents shortly after the announcement yesterday, with the stock plunging 43 cents and ending on 85 cents.
Last December, the company cut its 2017 profit guidance, blaming a decline in sales of its feminine care products due to increasingly aggressive industry pricing.
Asaleo said yesterday its preliminary half-year underlying earnings would be 24% lower as a result of higher paper pulp and electricity costs, lower sales and price competition. Revenue would be down 9% to just over $267 million.
The company also slashed its full-year guidance to $80 million to $85 million, from $113 million to $119 million previously.
Asaleo, which has two manufacturing facilities in Melbourne, two in New Zealand and one in Fiji, said the drop in interim underlying earnings was due to "significantly" higher pulp and electricity costs of about $10 million.
The company blamed lower tissue and baby care sales and increased spending forced on it to support market share as a result of heavy discounting by rivals.
That has seen the company lift prices in an effort to recoup part of the cost increases, but this in turn had produced“protracted” negotiations with customers and cuts to product promotions and in some cases cancelled, resulting in a large drop in volume.
"These negotiations have now largely concluded with promotions resumed and price increases achieved in many cases," Asaleo said.
Asaleo is undertaking a strategic review (corporate speak for cost cuts) across all its operations, in a bid to improve its performance.
Asaleo also has 11 distribution centres across Australia, New Zealand Fiji with about 1,000 employees. That looks like an area for cost cuts.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.