As the February reporting season gets underway on the ASX, analysts and investors are sharpening their pencils to review results and adjust their forecasts.
One company which is bound to be closely watched when it reports is industrial and medical latex manufacturer Ansell Limited (ASX: ANN).
The reason its upcoming interim report will be closely followed is because of the market's reaction to Ansell's 2015 full year results release.
The day before Ansell released its financial year 2015 results back in August last year, the stock was changing hands for around $24.75, by the close of trading the following day the share price had slumped to under $21!
Since then the share price has continued to decline and currently it is trading around the $18.65 level – that's a total drop of approximately 25% in six months.
Although the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has slumped 14% over the same time frame, its obvious that investors were less than impressed with Ansell's full year results.
While many explanations could be given for the cause of the sharp selloff in Ansell's shares at least part of the reason probably lies in the earnings guidance provided by management for the current FY 2016.
That guidance stated that FY 2016 EPS were expected to be in the range of US$1.05 to US$1.20, "allowing for ongoing uncertainty in world economic conditions."
This guidance implies a decline on the reported EPS achieved in FY 2015 of US$1.225 and of course the market is never pleased by the prospect of earnings declining.
At the annual general meeting in October, the company reaffirmed this EPS guidance. Ansell also provided a trading update on the first quarter in which they stated:
- Global economic conditions remain challenging
- Sales were approximately 1% lower compared with the prior corresponding quarter on a constant currency basis
- Recent foreign exchange trends had been favourable
One to watch
Based on the current Australian dollar – US Dollar exchange rate, it would appear that the consensus estimate (source: Morningstar data) for the current financial year is expecting Ansell to report at the low end of guidance.
With Ansell scheduled to release its interim results this coming Monday February 8, shareholders will no doubt be holding their breath that Ansell's results and comments don't disappoint the market again.
