Blackmores Drops 32% despite Solid Profit

Supplement producer and supplier Blackmores Limited [ASX:BKL] has taken a big hit this morning with its share price shedding 32.02%. The nosedive wiped off $39.56 per share.

It’s since managed to retrace a bit and is currently trading at $94.79 — a 23.28% drop.

The health product producer, which operates in Australia, New Zealand, and Asia released its first half results this morning, recording revenue up 11% on the prior corresponding period.

What’s caused the drop in the Blackmores share price?

Today’s first half results are reminiscent of Blackmores’ glory days of 2015 and 2016 when profits soared on the back of huge demand for high quality vitamins from Australia.

Sadly, those days might be over.

Despite generating an 11.1% rise in revenue to $319 million, with sales from Australasia up by 19% to $144 million, net profit was flat — a change of only 0.4% from the previous corresponding period.

A significant part of Blackmores’ sales come from the Asia region, mostly China. Today’s results might be indicating the slowing Chinese economy is weighing down on Blackmores’ bottom line.

China segment sales were down 11% in the half compared to the prior corresponding period. Although when China-influenced sales through Australian retailers are considered, the company estimates growth in sales to Chinese consumers to be around 8%.

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Blackmores recorded strong levels of sales growth in several other key Asian markets. Korea increased 67%, Taiwan 150% and Hong Kong was up 39% on the prior corresponding period.

The company’s CEO, Richard Henfrey, said ‘China sales in the third quarter are being impacted by continuing changes to the way consumers purchase our products as well as higher inventory in the trade and a general softening of consumer sentiment’.

As a result, Blackmores does not expect the second half profit to be ahead of the first half result.

The company will keep its interim dividend steady at $1.50 per share, to be paid on March 20.

What’s next for Blackmores?

As a response to the disappointing results in China, Mr Henfrey said the company would be targeting $60 million in savings over the next three years as part of its Business Improvement Program.

The savings will then be redirected into the business to try and improve margins.

Blackmores’ current share price of $94.79 is a long way from the lofty highs of over $200 it achieved back in 2015/16 when it began increasing direct sales to China.

Investors have given Blackmores the benefit of the doubt for the past few years, but today seems like that might have come to an end.

The company has been slow to respond to increasing pressure in a volatile Chinese market where we’ve seen increasing daigou traders (Chinese cross-border personal shoppers), who have expanded their influence from trading imported Australian vitamins.

Blackmores say their outlook is ‘modest full-year revenue growth’. Given how important the Chinese market has become to the company, you could take this outlook with a grain of salt.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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