Asaleo Care shares fell 12% at one stage yesterday after issuing a surprise profit warning for the year to December 31.
The company told the market it now expects to report full year underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of between $124 million and $125 million and profit after tax in a range of $59 million to $60 million.
Yesterday the bad news was laid out for investors to chew over, which they did quickly and sold. They ignored suggestions from the company that action it had taken to fix the problem had shown quick results last month.
In early trading the personal care company’s shares were down 12% to $1.40. They recovered somewhat to end down 5% at $1.51.
Asaleo Care said its Feminine Care category had underperformed expectations due to extensive competitive pricing. This had hit sales volumes and led to the full-year guidance downgrade.
According to the statement, the increasingly aggressive price activity from rivals had seen Asaleo Care’s Feminine Care range becoming uncompetitively priced as a result of being locked into fixed every day pricing in major retail accounts Coles and Woolies, plus Metcash).
As a result, 2018 underlying EBITDA is now expected to be between $124 million and $125 million. This will be a decline of between 4.3% and 5.1% on FY 2017’s $130.7 million and compares to previous guidance of “low single digit growth”.
That wil see the company’s full-year underlying net profit to fall to between $59 million and $60 million, down between 7.1% and 8.7% year-on-year. Once again, management had previously forecast for low single digit growth.
Finally, free cash flow is now forecast to be between $70 million and $75 million compared to previous guidance of $85 million and $95 million.
That is a genuine market shock and downgrade and it is no wonder the shares fell 10% to $1.49. But if you google the company’s name you find at least three separate times in the last 18 months that the shares have bene heavily sold down on disappointing results or guidance – as well as a big insider share sale earlier this year.
The company has of course reacted to this bad news by exiting the every day low price schemes of the retailers and will now be free to match pricing moves from rivals.
It says it now has more flexibility to price competitively and has already seen the benefits of the move in its November sales.
As a result the company is now confident that its Libra Feminine Care brand will return to growth.
