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Nufarm share price sinks 15% lower on first half guidance update

James Mickleboro
Stock market chart or graph in red falling downward bear market.

In morning trade the Nufarm Limited (ASX: NUF) share price is sinking lower following the release of an update on its first half expectations.

At the time of writing the agricultural chemicals company’s shares are down 15% to $5.15.

What is expected in the first half?

In November Nufarm announced that its earnings for the first half ending January 31 would be significantly lower than the prior corresponding period.

With the end of the half now in sight, Nufarm believes it is able to provide a more accurate estimate for its earnings before interest, tax, depreciation and amortisation (EBITDA).

According to the release, management expects its first half EBITDA to be in the range of $55 million to $65 million. This compares to its underlying EBITDA of $120.9 million a year earlier.

How are its businesses performing?

Nufarm has advised that its sales growth in South America has continued, particularly in Brazil. However, margins have continued to be impacted by strong competition. EBITDA is expected to be slightly lower than the prior corresponding period.

The North America business has been struggling due to industry-wide weak demand for crop protection products. This impacted earnings in the first quarter by approximately $20 million and has not been mitigated in the second quarter.

Over in Europe its sales have increased. However, higher raw material costs and strong market competition during the Autumn sales period impacted margins. Increased sales, marketing and logistics costs have also been incurred. As a result, the segment is expected to post negative EBITDA in the first half.

The Australia and New Zealand business continues to be impacted by a continuation of extreme climatic conditions in Australia. Whilst this has been partially offset by its performance improvement program, the segment is expected to also post negative EBITDA in the first half.

In Asia the company expects both sales and EBITDA to be lower year on year due to difficult climatic conditions and high inventory levels at the customer level constraining demand.

Finally, earnings in the Seed Technologies segment are expected to be slightly lower than the prior corresponding period as well. This is primarily due to a ramp up in omega-3 commercialisation activities and additional costs to support its new carinata business.

The post Nufarm share price sinks 15% lower on first half guidance update appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020