Shares in food group Goodman Fielder (GFF) and Sydney based women’s fashionwear retailer Noni B (NBL) were smashed lower yesterday after they both produced surprises on the downside.
Goodman Fielder provided the biggest shock as it issued a sharp profit downgrade-six weeks or so after producing a weak first half result, but promising a second half improvement.
As a result, the company will now cut an unknown number of jobs as it seeks to lower costs faster than previously expected.
As well, the company is now looking at reporting yet more write-downs and losses as a result.
The company blamed the downgrade on weakening trading conditions, high prices for milk, slow cost-cutting and the expected write-downs in the second half.
It is now close to being the most disappointing performer among major stocks in the ASX because of the continuing problems with cost-cuts, trading problems and earnings downgrades.
The shares tanked, losing 20% of their value straight away at the opening of trading, and they remained around that level over the rest of the session. They ended down 22% at 47.5c.
GFF 1Y – Earnings downgraded on a litany of woes
Goodman Fielder signalled out a lower selling price for baked goods, poor performances from its groceries division and higher farm gate milk prices, as reasons for the earnings downgrade.
It said these pressures were continuing into the fourth quarter and the company seems to be saying it sees no easing in the near future.
For Goodman Fielder the problems are the downside (for it and its shareholders) from the dairy boom in New Zealand, where the company has a large milk business. NZ milk prices jumped sharply in the first quarter (as the Fonterra result revealed last week, but it too saw earnings plunge, down 53%).
Overall, the string of bad news will see earnings before interest and tax fall by 10% to 15% from the February guidance of $185 million.
That could see earnings down $27 million for the full year.
And the write-downs and unknown cost of the job cuts and other cost reductions will add to the weakness of the bottom line.
In February the trans-Tasman food group revealed a first half loss $64.8 million, but stated it was confident that full-year earnings (before interest and tax) would be broadly in line with last financial year – $185.6 million.
The company said it would now be conducting detailed analysis of the carrying value of its businesses.
"While that analysis is to be completed, the company currently expects to record non-cash impairments, reflecting the deterioration in the trading outlook across the portfolio,” the company said.
In the past three years Goodman Fielder has written-off more than $250 million in restructuring costs, losses from sale of under-performing businesses and asset impairment.
February’s loss included $94.9 million in significant items after tax, including $15.5 million in restructuring costs and $97.3 million in asset impairments related to its biscuits, meats and pizza businesses, which have been sold.
It will receive $35 million in proceeds from the sale of those assets in the current half.
The company also said in February that it was looking for cost cuts of around $32 million by the end of tis financial year in its baking businesses in Australia and NZ.
But that is no longer the case, and around $10 to $15 million of a total of around $32 million of cost savings which were to have been achieved in 2013-14, have been delayed until 2014-15.
The company says that a further $25 million in cost cuts that were identified as being achievable by the "fiscal 2016" have now been "accelerated … primarily through headcount reduction in the fourth quarter of FY14, and now expects to achieve the additional $25 million in cost savings by FY15”.
"Cash restructuring costs related to redundancies are expected to be recorded as significant items in the FY14 account," the company said in yesterday’s statement.
Third-quarter earnings in the group’s grocery division were lower than expected due to increased competition impacting price and volume across the portfolio, with fourth-quarter earnings expected to be further impacted by difficult trading conditions and lower customer inventory levels.
In the baking business, Goodman Fielder noted that an increase in volumes in the third quarter was offset by a lower-than-expected net average selling price.
"Continuing reliability issues across the manufacturing and supply chain network have required the company to continue to invest to maintain customer service metrics which is impacting earnings in the short term," the group said.
Short-term earnings from Goodman Fielder’s New Zealand Dairy business are set to be impacted by a further increase in the farmgate milk price.
The group said it had notified customers of price increases, but said the impact would be delayed by the usual time lag between the increase in the raw milk price and cost recoveries.
The only bit of good news was that the company says earnings "expectations" in the Asia Pacific business "remain largely unchanged”.
