The big shock on Monday was the surprise earnings downgrade from protective wear maker, Ansell.
The shares slumped 24% at one stage, such was the shock at the news of the downgrade from a company that had been one of the winners of the Covid pandemic and efforts to control its spread by protecting populations against infection – at home, in hospitals and other public and private areas.
The reason for the downgrade was the real shock – nothing to do with weak demand or higher costs, but production challenges including COVID cases at its production facilities in Malaysia and a major supplier being banned from importing into the US.
Ansell’s shock news came a fortnight before its first half earnings were to be released.
The shares ended down 14.3% at $26.76, well under the most recent high of $40.68 in early August, 2021.
The company cut its 2022 earnings a share forecasts from its previous guide of 175-195 cents to a range of 125-145 cents.
Ansell had seen lower margins during the December half year due to increased freight and operating costs and a drop in the wholesale prices of medical exam gloves, which have been elevated throughout the pandemic.
That has been well signalled to the market. The big shock was the sharp cut to earnings forecasts made in part because of two major disruptions to suppliers last week.
One was a rise in coronavirus cases at one of Ansell’s Malaysian production facilities lead to local authorities ordering the company to stop production for a week in an effort to control the virus. This has been a continuing problem for a while now.
Then, late on Friday US Customs and Border Control issued a ‘withhold release order’ for Ansell supplier YTY Group, which stops the business from importing its product into the US.
The order was made over concerns about forced labour practices within YTY – an allegation that YTY strenuously denies.
In its statement on Monday, Ansell said “YTY has publicly stated that it is surprised by the order, is seeking engagement with the CBP and will demonstrate that its manufacturing operations are free of any forced labour practices.”
“Ansell’s most recent third-party audit for YTY in April 2021 indicated that it was compliant with local labour laws with one exception, which YTY publicly stated was remediated by June 2021,” Ansell added.
Ansell CEO Neil Salmon told analysts on a call on Monday the company had suspended orders from YTY Group into North America and was currently considering alternative suppliers.
“They are one of our top five suppliers within the single use outsource portfolio. We have assumed at this stage limited ability to replace YTY lost demand with alternative sources,” he said.
