Incitec Pivot share price drops lower on disappointing half year result

The Incitec Pivot Ltd (ASX:IPL) share price has tumbled lower this morning following the release of a disappointing half year result…

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In morning trade the Incitec Pivot Ltd (ASX: IPL) share price has dropped 1.5% lower after the manufacturer and distributor of industrial explosives, industrial chemicals, and fertilisers released its half year result.

How did Incitec Pivot perform in the first half?

In the first half of FY 2019 the company posted a statutory net profit after tax of $42 million. This compares to $8 million in the prior corresponding period, though that half included individually material items (IMIs) of $139 million.

Earnings before interest and tax (EBIT) excluding IMIs came in at $119 million, after $141 million of non-recurring events. During the same period last year the company posted EBIT of $240 million. This appears to have fallen short of the market's expectations. For example, a recent note out of Goldman Sachs reveals that it was expecting EBIT of $134 million in the first half.

Non-recurring events that impacted its performance included $60 million associated with the third-party Queensland rail outage impacting production at Phosphate Hill, $16 million from a third-party gas pipeline rupture in US impacting gas costs and production rates at St Helens, and $65 million from unplanned outages at Waggaman and Phosphate Hill.

This ultimately led to the company posting first half earnings per share of 2.6 cents, down from 8.8 cents per share in the prior corresponding period.

Unsurprisingly, this sharp drop in profits meant the Incitec Pivot board was forced to slash its interim dividend by 71% from 4.5 cents per share to 1.3 cents per share. This dividend will be unfranked.

One positive, though, is that management believes the second half will be much stronger and has provided full year EBIT guidance in the range of $370 million and $415 million. This includes a $209 million impact from non-recurring events.

The company's managing director and chief executive officer, Jeanne Johns, appeared disappointed with the first half but optimistic on the future.

Johns said: "While the first half result was impacted by some significant non-recurring events, we are making good progress with our strategic agenda. The underlying market fundamentals remain strong and we have an improved outlook for the second half and beyond."

This latest decline means the Incitec Pivot share price has fallen 13.5% over the last six months. Whilst this isn't as bad as industry peer Nufarm Limited (ASX: NUF) which is down 22% over the same period, it has been thoroughly outperformed by rival Orica Ltd (ASX: ORI) which has gained 17%.

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