The Incitec Pivot Ltd (ASX: IPL) share price crashed under the weight of expectations as management reported a double-digit increase in underlying earnings and dividends.
But that wasn't enough for investors who sent Incitec's share price tumbling 5.1% to $4.02 in after lunch trade – making the explosives and chemical manufacturer the fourth-worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index.
Only the Elders Ltd (ASX: ELD) share price along with Westpac Banking Corp's (ASX: WBC) share price and Lendlease Group's (ASX: LLC) share price are faring worse at the time of writing.
Incitec posted a 10.6% increase in underlying earnings per share (EPS) to 20.9 cents and that's 3% below consensus earnings.
That doesn't sound like much of a miss but a lot of good news has been priced into Incitec with the shares surging over 20% in the past six months (before today's sell-off) to retest its seven-year high.
What's more, some brokers had been talking up the chance of an earnings beat at today's results from rising fertilizer prices and strong mining activity.
Management also declared a 6.2 cents per share final dividend, which is a big step up from the 4.9 cents it paid this time last year. This takes the total dividend paid for the year to 10.7 cents per share, or 13.8% more than FY17.
The results are by no means a disaster despite what today's share price movement may be suggesting. Demand for explosives from miners is strong and helped the group's Dyno Nobel Americas business post a solid 22% uplift in underlying earnings before interest and tax (EBIT). The business is also winning market share.
Its fertilizer business also recorded a 24.6% increase in underlying EBIT if you excluded the $20 million it made in property sales in FY17. Otherwise, the gain is a more modest 0.7% increase, although I think that's still a good outcome given the drought in New South Wales and parts of Queensland.
Fellow fertilizer company Nufarm Limited (ASX: NUF) wasn't so lucky as it issued a profit warning on the back of the dry spell.
Fellow explosives supplier Orica Ltd (ASX: ORI) also reported results recently and it received a warm reception as it beat market expectations.
The question is whether Incitec is looking cheap following its share price drop. The answer is probably "not quite" as I estimate that the stock is trading on an FY19 price-earnings of around 22 times once I factor in a probable consensus downgrade.
I am not saying the stock is expensive though. But if I were to buy shares in a company that's trading at around a 60% premium to the S&P/ASX 200, it needs to be a company with an unblemished track record and a bright outlook.
The thing is, Incitec seemed a little guarded in its outlook with the company saying it's entered FY19 with solid momentum but rising gas prices at Gibson Island will pose a challenge.
