Another earnings downgrade from Melbourne-based packager, Pact Group yesterday, sending the shares on another sharp slide, this time more than 14% at one stage.
The company warned that earnings could be up to $40 million lower than forecast (on earnings before interest, tax depreciation, and amortisation) than originally forecast for 2018-19
That saw the shares close at $3.25, down 9.7% and took the fall so far this year to more than 50% as weak profits, outlooks, downgrades and management changes have wrecked the share price in 2018.
Pact’s market value is more than $800 million down since mid-August. The shares were at $5.07 in early August (as the 2017-18 reporting season started) and $5.72 at the start of this year.
In an update to the ASX Pact said that first earnings will be down from the same half of 2017-18 because of delays in recovering higher than expected costs for resin and higher costs associated with contract manufacturing materials.
And directors warned that the company will find it hard, if not impossible to recover these higher costs.
”A change in the cost environment in the second half would impact on EBITDA expectations”. That means that if those input costs become recoverable, then EBITDA will be better than expected, but no change will see a lower figure.
Pact directors said in yesterday’s statement that “based on our projected run-rate for the first half EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) for FY19 would be around $245 million compared to $237 million in the previous corresponding period.”
“EBITDA would be skewed to the second half with higher benefits from efficiency programs and a full six-month contribution from TIC Retail Accessories (TIC).”
“The group had previously guided to EBITDA in the range of $270 million to $285 million, subject to global economic conditions and the completion of the acquisition of TIC on October 1. The (122 million) acquisition was completed one month later than initially anticipated. This guidance had assumed input prices generally in line with prices at the end of FY2018,” the director said.
Pact’s Executive Chairman, Raphael Geminder, said the change in the Group’s FY2019 Outlook reflected short-term headwinds. “We have robust pricing mechanisms in place, however in periods of sustained upward movements in input prices, we experience inherent lags in recovering these movements in the market.
“We will continue to maintain our pricing discipline and when the cost environment improves we would expect to recover the impact of lags,” he added.
