The Blackmores Limited (ASX: BKL) share price plunged today after the company revealed a weaker-than-expected first half to financial year 2017. Below is a summary of the results with comparisons to the prior corresponding half.
- Group sales of $322 million, down 6%
- Net profit of $28 million, down 42%
- Sales in Australia of $158 million, down 31%
- Sales in China hit $64 million, up 92%
- BioCeuticals and Global Therapeutics sales of $51 million, up 54%
- Basic earnings per share of $1.654
- Interim dividend of $1.30 per share, down 35%
- Net debt increased $65 million to $82.7 million
- Q2 FY17 sales up 16% and profit up 33% over Q1 FY17
The Blackmores share price plunged 9.7% to $105.55 as investors were probably disappointed with the lack of specific Q3 guidance and ballooning debt profile due to higher working capital levels and "record" income taxation.
In fact for the half-year period Blackmores posted an operating cash outflow of $22.1 million which was partly related to a $36 million income tax bill and the overhang of a weak first quarter that saw a build up in inventory resulting in weak cash generation.
The company also made a $2 million provision for baby formula inventory after its sales were also weaker-than-expected due to an oversupply issue in the market that has also affected its partner Bega Cheese Ltd (ASX: BGA) and rivals like Bellamy's Australia Ltd (ASX: BAL).
The large sales growth fall in Australia is disappointing, but the company is cycling off an extremely strong comparable half and the growth story in Asia remains intact, with real-deal potential in my opinion.
I still think Blackmores remains an excellent long-term growth stock and selling for $105 it trades on around 31x annualised earnings, although expectations are that it should deliver a stronger second half to the year.
Thanks to the lack of specific guidance and current valuation, I expect the share price may see some more selling pressure over the months ahead and I will be a buyer if the stock comes back to $92 due to its excellent track record, yield, and long-term potential.
