Costa Group Holdings shares sold off on Monday after the company revealed it continues to feel the negative impact of the rolling 2022 La Niñas and their big wet on its operations in Queensland, NSW and northern Victoria.
The shares fell more than 17% at one stage and ended the day down 13% at $2.01, as investors took the understandable view that the update was negative for the company and shareholders from the damage done to its citrus businesses.
The company is the country’s biggest fresh fruit and vegetable grower and supplier to supermarkets large and small and yesterday’s update made it clear the company can’t shake free of the negative impact of the big wet in Eastern Australia.
Costa failed to provide any numbers in its update, leaving investors and analysts to do the figuring for themselves.
Earnings (unquantified in the release), while just ahead of 2021’s level, will be lower than expected and the current very wet weather in Victoria and parts of NSW could have a further impact, though Costa said there had been nothing so far.
The company told the ASX on Monday in a guidance update promised at the time of the release of the interim results in August that returns from its citrus crops will again be a drag on returns heading towards the end of the financial year.
Lower quality and yields in the June quarter restrained the company’s first half performance thanks to heavy rain and the second La Nina in southeastern Queensland. Now Costa is seeing a repeat in NSW and northern Victoria.
Costa said that the balance of its portfolio “continues to perform in line with expected levels in Berries, Tomatoes and Mushrooms as well as a strong CY22 result from the International business unit. The Avocado category in the second half is benefiting from improved pricing which should deliver a modest gain from previous levels.”
That was the ‘good’ news in the update, then came the ‘bad’.
“In the Citrus category, the Queensland crop has now been harvested and packed. The southern crops in the Riverland and Sunraysia are almost 80% through the harvest with late navels and mandarins still to be packed and sold.
“Adverse weather conditions, including both higher rainfall and cooler temperatures, have persisted. Despite harvest volumes being in line with budget, the previously reported lower quality levels across all citrus regions have continued which has resulted in considerably lower packouts as well as reduced volumes of first grade fruit for export.
“The market demand and pricing in our export destinations remain very strong which augers well for the 2023 season,” the company said optimistically in its update.
“The effort to produce the crop in challenging conditions has also caused an increase in labour expenditure as well as higher spraying costs in relation to pest and disease control.
“The net outcome to date plus the forecast for the balance of the citrus season is expected to translate into full year EBITDA-S for the Citrus category that is considerably lower than previously forecast.
“We currently expect full year EBITDA-S for the Group to be marginally ahead of last year’s results. While we do not expect any additional material impact from recent heavy rainfalls experienced across the country, further downside risk is possible if extreme adverse weather continues.
“Notwithstanding the EBITDA-S being lower than previously forecast, debt levels and related ratios remain comfortably manageable for the Group.”
