This morning vitamins business Blackmores Limited (ASX: BKL) posted a full year net profit of $58 million on sales of $692.7 million for the full year ending June 30, 2017. The net profit was down 42% on the prior year, with full year sales down just 3%.
The group blamed the steep profit falls on rising costs and falling margins as competitive pressures in its core Australia and New Zealand market took their toll. Blackmores also invested heavily over the year in a new distribution centre in Western Sydney and on technology required to help expand its distribution networks across Asia.
In Australia and New Zealand total sales were down 23% as entrepreneurial Chinese shoppers reportedly quit buying vitamins in Australia to on-sell into China for a handy markup. This is evidenced by the fact that some of the Chinese demand is now being met by the company directly with direct sales into China up 71% to $132 million. Excluding the mysteries of fast-changing demand from Chinese shoppers in Australia, the group reported that its ANZ sales were roughly flat on the prior year.
In total Asia sales were up 36% to $216 million with the company establishing new markets in Indonesia and Vietnam over the financial year. It remains that Asian markets possess a fast-rising consumer-class and offer plenty of long-term growth potential for Blackmores.
Blackmores' natural health and alternative medicines group Bioceuticals is also performing well, with sales up 15% to $80 million and up an impressive 11% on a like-for-like basis.
The group will pay a final dividend of $1.40 per share to take total dividends for the year to $2.70 per share on earnings per share of $3.42. The trailing yield is around 2.8% plus full franking credits.
Outlook
This result was a tale of two halves for the group with a strong finish to the year that bodes well for the 12 months ahead with management forecasting a return to profit growth in FY 2018.
Blackmores' top line also held up relatively well over FY 2017 and it retains an impressive long-term track record of growth backed up by a robust global outlook.
If the business can get its profit margins higher it could deliver a year of big profit growth in FY 2018 with analysts' estimates for earnings per share of $4.59 in the year ahead looking reasonable.
As such the market is valuing it around 20x estimated forward earnings at a price of $96 this morning. That looks about right to me, although the stock could be volatile in the year ahead given the operating leverage in the business which provides potential for significant upside (or downside) to the share price.
Other China-facing consumer stocks like the a2 Milk Company (Ltd) (ASX: A2M) and Bellamy's Australia Ltd (ASX: BAL) have also reported some robust growth recently on the back of Asian demand.
