Elders' (ASX:ELD) shares experienced a decline on Monday following an unexpected earnings downgrade for the 2022-23 financial year. The company's announcement caught investors off guard.
The company attributed the earnings reduction, amounting to $15 million for the year ending on September 30, to weak cattle and sheep prices, along with general costs in the rural sector. By the close of Monday, the shares had dropped by 10%, marking a decrease of over 14% at one point.
This downturn caused the company's valuation to fall below $1 billion for the first time in several months. Elders now anticipates underlying earnings to be in the range of $165 million to $175 million, a decrease from the previous guidance of $180 million to $200 million.
This new projection is significantly lower than the underlying EBIT of $232 million reported for the 2021-22 financial year. Elders also revealed that a review of August trading indicated lower-than-expected sales of Rural Products in recent weeks. Consequently, there is higher-than-expected pressure on gross margins for these products, particularly in crop protection.
Elders attributed these challenges to cautious customer sentiment stemming from uncertain seasonal conditions in certain farming regions. The company pointed out that this uncertainty aligns with the Bureau of Meteorology's long-range forecast for September to November, which predicts an increased likelihood of warmer and drier conditions in Eastern and Western parts of Australia. There is also a risk of an El Niño declaration, according to the company.
