The Blackmores Limited (ASX:BKL) share price was trading 17% lower today after the ASX’s open because the vitamin company emerged from a trading halt with a disappointing trading update.
For context, the broader Australian share market or S&P/ASX 200 (ASX: XJO) was trading at 7087, up 0.5%.
About Blackmores Limited
Blackmores describes itself as Australia’s leading natural health company. Maurice Blackmore founded the company in the 1930s.
Blackmores has a number of different brands, not just the well-recognised Blackmores brand. It operates BioCeuticals, the Blackmores Institute, Fusion Health & Oriental Botanicals, Impromy, IsoWhey and Pure Animal Wellbeing (PAW).
What is a trading halt?
The Rask video above explains trading halts, including why they happen and when. For more free videos, subscribe to Rask Australia’s YouTube channel by clicking here – did I mention it’s free?
What’s happened to Blackmores?
Today, Blackmores shares emerged from a trading halt only to be sold down 17% shortly after the ASX’s open (10 am Australian Eastern Standard Time).
Blackmores lodged a trading update with the stock market, delivering news of its half-year financial results and sharply downgrading its full-year profit expectations.
Half Year (HY) results subdued
In its first half of the 2020 financial year, Blackmores said its revenue came in at $303 million, with an underlying net profit result of $18 million. These results compare to the $319 million and $34 million, respectively, reported last year. Meaning, underlying revenue was down 5% and profit was 34% lower, subject to the formal results being released later this month.
“We’re focused on rejuvenating our Australian business and a key component of this is to improve gross margin via better product mix, pricing and promotional effectiveness,” Blackmores CEO Alastair Symington said.
“While still ensuring that we stay competitive, we have chosen to moderate the depth of our promotional activity, starting in the fourth quarter of FY20.”
For the half, impacts from the Coronavirus, pressure from a transition to manufacturing its own products and implementation of private label brands have and will continue to impact the company’s full-year results.
Given these issues, Blackmores said it will not pay a half-year dividend.
“We understand and acknowledge that shareholders will be bitterly disappointed with the financial performance of the business,” Chairman Brent Wallace said.
“I assure shareholders that the matters we have shared today are being fully and comprehensively addressed by the Board and new Executive Team.”
Full Year (FY20) outlook down
In October 2019, Blackmores took ownership of its Braeside manufacturing plant, where it creates 1,000 product lines, and it’s now apparent that the company will incur an additional $9.5 million of manufacturing costs in the second half.
“We are confident that the Braeside manufacturing plant will be a key competitive advantage for the Blackmores Group over time, with specific intellectual property and a highly skilled workforce as well as several manufacturing licences and product registrations linked to the site.” – Symington
Moreover, Blackmores expects at least two-to-three months of supply and sales challenges on account of the Coronavirus, which appear to have impacted demand and promotions.
With the introduction and increased associated costs for new designs on its private label products, Blackmores is forecasting an FY20 full-year profit result of between $17 million and $21 million, implying the first half profit could turn into a loss in the second half.
What Happens Next?
Despite the tough period, Blackmores’ management team appeared upbeat about the brand and opportunities ahead.
“Blackmores’ brand metrics are the strongest they have been for many years,” Symington said. Adding, “we have the number one market position in Australia and a number of Asian markets, and we are quickly building a much stronger team in China.”
The company is expected to report its formal results on February 25th, 2020. Until then, investors and shareholders will be left wondering how many ASX companies will be impacted by fears of the Coronavirus outbreak. Blackmores joins Webjet Ltd (ASX: WEB) in being the focal point of concerns for investors.
Blackmores shares were last seen trading at $75, giving the company a market capitalisation around $1.2 billion.
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