The Nufarm Limited (ASX: NUF) share price is up more than 5% in morning trade to $5.17 per share, despite the company downgrading its earnings guidance ahead of its August full-year results release.
What did Nufarm announce to the market?
Nufarm advised that the Group's financial performance for FY2019 had been impacted by adverse seasonal weather conditions and supply related impacts.
The company expects to report underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of around $420 million for the 2019 financial year, subject to finalisation of the accounts and audit.
This EBITDA figure represents a downgrade on Nufarm's previous guidance range of $440 million to $470 million and consensus estimates of $436 million, which is likely to see the Nufarm share price slump in early trade.
Mr. Hunt said earnings had been impacted by unprecedented flooding in North America and continued dry conditions in Australia, which delayed and reduced applications of crop protection products.
According to the release, dry conditions toward the end of the year and a worsening in supply conditions for a range of products sourced from China also resulted in higher costs and lower than planned sales for Nufarm's European business.
Mr. Hunt said:
It's been a difficult year, with external headwinds impacting performance in three of our four major markets. While the contribution from the European portfolios we acquired last year and growth in our Seed Technologies business will see us deliver underlying EBITDA growth on the prior year, we are disappointed the work we have done to mitigate the external challenges has not been enough to achieve the targets we set for the financial year.
He also added, "We have significantly reduced our Australian inventory levels but this has been offset by higher than planned working capital balances in North America and Europe."
Nufarm said its focus remains on deleveraging its balance sheet and improving its working capital efficiency to improve its own balance sheet confidence and support organic growth over the short to medium-term.
Nufarm expects to report approximately $50 million of significant items (before tax) that will be excluded from underlying EBITDA in the 2019 financial year.
Approximately $20 million of this relates to unrecovered overheads as a result of production activity at the company's Laverton manufacturing plant in Victoria being materially below prior years and continued drought conditions ultimately resulting in the unprecedented temporary closure of all formulation lines at this plant.
The company also said additional costs of an estimated $30 million relate to business restructuring costs and legal costs for the action brought in the United States in relation to the Omega-3 canola patent estate.
What does this mean for the Nufarm share price?
Investors tend not to like earnings downgrades so despite the early gain I'll be watching Nufarm today, particularly as estimates are revised.
The company's one-off costs shouldn't weigh too heavily on the group's share price reaction, while Nufarm also announced a $97.5 million preference share placement to Sumitomo Chemical Company Ltd this morning to strengthen its balance sheet.
