The Incitec Pivot Ltd (ASX: IPL) share price is taking a beating today after management announced a profit downgrade.
The IPL share price crashed 8.6% during lunch time trade to $3.26 – making it the third worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index after Eclipx Group Ltd (ASX: ECX) and RESMED/IDR UNRESTR (ASX: RMD).
The fertilizer and explosives maker warned that unplanned outages at its Louisiana and Phosphate Hill plants will shave $45 million off its earnings before interest and tax (EBIT) for the financial year ending September 30, 2019.
The downgrade represents around 8% of Incitec's FY18 EBIT of $557 million.
Earnings leak
The Louisiana ammonia plant had been plagued by problems with its carbon dioxide removal system. The plant has to be shut for repairs, which will result in the loss of production for FY19 or around 80,000 tonnes.
The repair bill plus the production loss will see Incitec take a US$25 million hit to its EBIT.
Meanwhile, a leak in the phosphate acid plant at the company's Phosphate Hill facility is forecast to cut full year production by approximately 50,000 tonnes of ammonia phosphates.
This means FY19 production from this facility has been lowered to 950,000 tonnes and the impact on Incitec's EBIT is US$20 million.
Foolish takeaway
The good news is that Phostphate Hill is up and running again and the stock doesn't look expensive to me.
You can bet that brokers will be cutting their earnings forecasts on the back of the production update, but even then, the stock is probably trading at around 14 times price-earnings (P/E) by my estimates.
That's around the market average for the ASX 200 and is at the bottom of Incitec's historical P/E band.
More importantly, the production issues are unlikely to have much impact on FY20 numbers, although it could take a while for market confidence to return.
This has been a reasonably quiet confessions season. Companies usually issue downgrades around this time of the year as they tally up sales after Christmas.
Incitec has broken the peace although it isn't the only one to have caused earnings jitters among investors ahead of the February reporting season.
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