Earnings Update Sends Costa Group’s Share Price Plummeting 20%

Australian horticultural company Costa Group Holdings Ltd [ASX:GCG] has seen a further 21.43% shed from its share price this morning, plummeting $1.11 to trade at $4.07.

It has been a disappointing year for GCG having already had their share price slashed in January after a subdued demand forced a reduction in profit guidance.

Related: Discover the reveals the highest potential growth sectors for 2019 and beyond. 

Earnings guidance cut again

Less than five months after the last earnings guidance, Costa Group announced this morning it would be forced to again cut its forecast.

Over the last six months, the company has experienced unforeseen volatility across all their produce categories, which has negatively impacted earnings.

The fruit company downgraded its net profit after tax to $57–$66 million from an expected $73.6 million after a season of bad quality fruit, low prices and even fruit flies.

Costa projected a 30% increase in profits in February, hoping for an end to the tumultuous berry, avocado and tomato season which had earlier led the company to downgrade its profits in January, which wiped $900 million off its market value.

GCG missed its projections largely thanks to lower hauls form its berry and citrus crops.

Compounding issues further, an oversupply of tomatoes pushed forecast prices down, but according to CEO Harry Debney, market conditions have since returned to normal.

Key financial results for the six-month period included revenue of $478 million, down 2.4% on the previous corresponding period. EBITDA before SGARA was $35.3 million, down 42.0% on the prior period, while statutory net profit was $4.3 million and net debt stood at $244.6 million.

What’s next for Costa shares?

According to this morning’s release, trade improved through March and April with an improved outlook for categories including tomatoes, avocados, and berries. The prospects for the upcoming 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. The company also has had issues in Morocco which have led to delayed fruit maturity and increasing competitive pressures on pricing.

From early May, the Driscoll’s grower network started to see high waste in the major raspberry variety from a condition called ‘crumbly fruit’. Costa is seeing resulting low yields and harvest labour inefficiencies which are substantial.

A female fruit fly was also found during a routine trapping at the Impi farm at Stuart’s Point. This means authorities are now implementing a 15-kilometre exclusion zone from the Riverland fruit fly free region.

The company is in discussion with the relevant state and national agencies but believes that approximately 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.

Costa did outline a series of investments it is currently engaged in to upgrade protection for its produce to mitigate heighten risk experienced during periods of high volatility.

 

Regards,

Ryan Clarkson-Ledward,

For Money Morning

PS: If you’re feeling shaky about Costa Group, make sure your check out Sam Volkering’s new report where he reveals his three favourite investments for 2019 and beyond. Download the free guide to learn more.

 


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.

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