In morning trade the Blackmores Limited (ASX: BKL) share price has crashed lower following the release of its half year results.
At the time of writing the health supplements company's shares are down 34.5% to $80.91.
What happened in the first half?
For the six months ended December 31, Blackmores achieved record half year revenue of $319 million and a net profit after tax of $34 million. Revenue was up 11% on the prior corresponding period, whereas net profit was flat.
The company's CEO, Richard Henfrey, blamed the lack of profit growth on its investment in advertising and promotion and softening growth in China.
He said: "Achieving record sales is a very significant result for our business and highlights the benefits of our continued investment in advertising and promotion in recent months. However, due to this planned investment in the period and a softening of growth in China, there has been a short-term impact on profit growth."
Revenue in Australia and New Zealand came in at $144 million during the half, which was up $23 million or 19% on the prior corresponding period. This was driven by both domestic growth and continued increased levels of sales through Australian retailers focused on servicing China export channels.
Excluding Australian retailers selling overseas, domestic sales growth is estimated to have been around 6% for the half year.
The company's China segment posted an 11% decline in half year sales. However, when China-influenced sales through Australian retailers are taken into account, the company estimates growth in sales to Chinese consumers to be around 8%.
Across the rest of Asia the company recorded strong levels of sales growth in a number of markets. In Korea sales increased 67%, in Taiwan they rose 150%, and in Hong Kong they were up 39% on the prior corresponding period.
Finally, supporting this growth was the company's BioCeuticals business which grew sales by 7% during the half.
However, due to the increased investments and softer China sales, this ultimately led to flat earnings per share of 198.9 cents and an interim dividend of $1.50 per share. The latter was in line with the prior period.
Outlook.
Management's outlook for the second half and full year was reasonably underwhelming. It expects modest full year revenue growth after warning that Chinese sales in the third quarter have been impacted by changing ways that consumers purchase its products, higher inventory levels, and softening consumer sentiment.
In light of this, it does "not expect the second half profit performance to be ahead of the first half result."
One small positive is that a Business Improvement Program has been established and is targeting $60 million of savings over the next three years.
Should you invest?
I thought the company's performance in the first half of FY 2019 was bitterly disappointing. Blackmores has been given the benefit of the doubt from many investors over the last two to three years, but I suspect this result could be the straw that breaks the camel's back.
I intend to stay clear of its shares until its performance both improves and becomes more consistent. Until then, I'll be looking at fellow export-focused companies A2 Milk Company Ltd (ASX: A2M) and Treasury Wine Estates Ltd (ASX: TWE) instead.
