Why the McMillan Shakespeare share price is crashing 13% lower

Here's why the McMillan Shakespeare Limited (ASX:MMS) share price is crashing lower on Monday…

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The McMillan Shakespeare Limited (ASX: MMS) share price has had a very disappointing start to the week.

In morning trade the salary packaging company's shares are down a sizeable 13% to $12.49.

Why is the McMillan Shakespeare share price crashing lower?

Investors have been hitting the sell button today after McMillan Shakespeare provided a trading update.

According to the update, the company is experiencing more challenging market conditions in Australia, New Zealand and the United Kingdom than expected.

Unfortunately, these challenging trading conditions aren't expected to improve any time soon.

As a result, management has warned that the negative impacts they are having on business and consumer confidence are likely to persist for at least the remainder of FY 2020.

It explained: "We continue to grow our customer base in Group Remuneration Services, in both salary packaging and novated leasing. Notwithstanding the further fall in new car sales, our novated sales are ahead of last year, however, are below our expectations."

Furthermore, management advised that regulatory changes impacting credit and insurance products have resulted in a reduction in its margins this year.

FY 2020 guidance.

In light of this, McMillan Shakespeare revealed that it expects its underlying net profit after tax for FY 2020 to be in the range of $83 million to $87 million.

This compares to underlying net profit after tax of $88.7 million in FY 2019. Which represents a year on year decline of 2% to 6.5%.

This news appears to have spooked the shareholders of some of its industry rivals. In early trade both the Eclipx Group Ltd (ASX: ECX) share price and the SG Fleet Group Ltd (ASX: SGF) share price are trading lower.

Eclipx shares are down over 3% to $1.63 and the SG Fleet share price is down almost 0.5% to $2.67 at the time of writing.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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