Why the Elders Ltd (ASX:ELD) share price plunged 15% today

Elders Ltd (ASX:ELD) is just one of the many agricultural stocks ending the week in the red. Here's why…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Agribusiness Elders Ltd (ASX: ELD) was one of the worst performers on the local market on Friday, with its shares down 15% to $7.13, on a generally negative day of trade for agricultural stocks.

The company released a seasonal update, addressing market commentary on current adverse weather conditions. Elders admitted that the exceptionally dry season in many parts of Australia is reducing the demand for chemical input, reflecting negatively on retail earnings. Furthermore, the company is facing a decline in cattle prices.

These headwinds will have an impact on FY18 performance. Underlying EBIT is expected to be in the range of $70 million to $74 million, compared to $71 million in FY17.

Underlying NPAT should be between $59m and $63m, marginally up from the $58 million of last year. CEO Mark Allison confirmed the 5% to 10% EBIT growth target through the agricultural cycle to 2020.

Investors were disappointed with the update. Elders' diversified offer of services to the rural economy seemed to grant enough resilience to climate conditions, and the company had managed to grow its underlying profit by 13% in the first half of the year, while industry peers Nufarm Limited (ASX: NUF) and Graincorp Ltd (ASX: GNC), which specialise respectively in agrichemicals and bulk grain handling, slashed earnings.

Elders' update must have had an impact also on nut producers Select Harvests Limited (ASX: SHV) and Webster Limited Fully Paid Ord. Shrs (ASX: WBA), down 5% and 3% respectively. It's not surprising that dry weather would hurt nut producers, as nut orchards, particularly almonds, require huge volumes of water.

Foolish takeaway

A bad day of trade or a bad season don't mean you should avoid agricultural stocks altogether. Some agricultural businesses have solid fundamentals and can be rewarding long-term investments. Elders itself had an outstanding share price run in the last five years, thanks to a well-planned combination of organic growth, acquisitions and cost control.

However, this should serve as a reminder of the volatility that characterises an industry that is so heavily affected by weather conditions.

Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Elders Limited. 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.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »