Nufarm Limited stock under pressure on earnings downgrade

Earnings downgrade: Nufarm Limited’s (ASX: NUF) stock plunged 11.058% on July 23, 2018 after the company downgraded its full year guidance and now expects the FY18 EBIT contribution from the ANZ business to be in the range of $5 million-$10 million (down significantly from last year’s $51.6 million). This is due to the current extended dry weather conditions in Australia, which led to an extremely poor winter crop season, and as a result the Australian crop protection market is down substantially. Further, the weather has led to increased competition and high inventory levels in the channel, resulting in significant margin pressure. These seasonal conditions have also impacted the mix of products sold, and the growers purchasing lower margin foundational products over higher margin differentiated products. Moreover, for FY19, Australian Bureau of Meteorology (BOM) is currently forecasting a dry spring and has issued an El Nino watch alert. The expected low levels of demand, coupled with the current over-supply, is expected to constrain sales and margin into FY19. NUF stock is trading at a P/E of 22.44x.


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