Shares in fruit and vegetable growing and supply group, Costa Group were sold off sharply for a second time in 2019 after a surprise downgrade statement to the ASX.
The company’s annual meeting was told yesterday that Costa is now looking at 2019 net profit after tax of $57 million – $66 million.
That’s down from an expected $73.6 million after a season of bad quality fruit, low prices and even a fruit fly in the company’s citrus orchards in the Riverina area of NSW.
Instead of a rise of around 30%, earnings for the year will be up between 0.7% at worst and 16% at best.
Costa had projected that 30% jump in profits in February, hoping for an end to the volatile growing season for berries, avocados, and tomatoes which had earlier seen the company to downgrade its profits on January 10 (the company is changing its financial year to match a calendar year and the local growing seasons).
That downgrade saw the shares plunge sharply from $7.30 to $4.51.
The confidence in the upgrade in the February interim earnings statement saw the shares recover but yesterday’s downgrade saw them plunge another 27% to $3.75, a two year low.
The reason – lower yields and higher costs from its mushrooms, blueberry, raspberry crops, and citrus crops.
As well an oversupply of tomatoes dropped the forecast price for that crop, but chief executive officer Mr. Harry Debney said in a speech on Thursday to the annual meeting that “market conditions are now back to normal.”
“At the end of April, full-year forecasts aligned with the previous financial guidance provided in February,” Mr. Debeny told the meeting.
“As we have worked through May we are facing a deteriorating operating environment on a number of fronts which taken collectively are likely to impact the (calendar) full year results,” he told shareholders
The trading environment through March and April was generally favourable with an improved outlook for a number of Costa’s categories including tomatoes, avocados, and berries. The prospects for the forthcoming citrus season are also good.
However, the mushroom category has had to contend with lower pricing levels due to extended summer temperatures affecting short term demand and the company still has had issues in Morocco which have led to delayed fruit maturity and increasing competitive pressures on pricing.
The company says its growers are reporting high waste in the major raspberry variety from a condition called ‘crumbly fruit’. As a result, yields have fallen as the condition makes harvesting difficult and increases costs.
And last week a female fruit fly was found during routine trapping at the Impi farm at Stuart’s Point in the Riverina. That has seen authorities implementing a 15-kilometre exclusion zone from the Riverland fruit fly free region which will restrict the flow of fruit in coming months.
In fact, Costa says it is in discussions with state and national agencies on the problems but believes that around 17,000 tonnes of its citrus crop may not be packed in its Riverland sheds.
If this proves to be the case, the fruit would need to be sent to third party packers in Sunraysia and cold treated for export, which will mean lower returns.
“The combined impact of these recently emerging factors suggest that the full calendar year results will be above prior year but below our earlier expectations,“ he added.
