Meet the ASX 200 company that just posted a 90% surge in profit

The Elders Ltd (ASX: ELD) share price surged to a 10-year high this morning after the group posted a big rise in profits.

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The Elders Ltd (ASX: ELD) share price surged to a 10-year high this morning after the group posted a big rise in profits.

The rural products and services group jumped 5.1% to $9.89 in morning trade when the S&P/ASX 200 Index (Index:^AXJO) lifted 1.2%.

Favourable weather and soft commodity prices pushed the group's first half statutory net profit up 90% to $52 million, while the underlying number improved by 68% to $47.6 million.

It's raining profits

Underlying earnings is the figure more investors watch as it's a better reflection of operating performance. The positive result was credited to a solid performance from Rural Products with gross margin boosted by recent winter crop confidence.

High prices for both cattle and sheep and steady earnings in Real Estate and Financial Services also helped.

The good earnings news comes even as the group was hit by the COVID-19 pandemic and devastating bushfires over the Christmas and New Year break.

Rain drowns COVID-19 fears

But these headwinds weren't enough to dampen the impact of much needed rain. While we can't say the drought that gripped many parts of the country is breaking, there are early signs that the worst is over.

"Successive rainfall events across major cropping areas on the East Coast have had a positive impact on operational performance within the last period, lifting farmer confidence and driving strong demand for crop inputs," said Elders' chief executive Mark Allison.

"This has contributed to a significant uplift in Rural Products, given the 66% decline in summer cropping.

"The growth in Rural Products margin has been lifted with the addition of AIRR to our Wholesale Network."

The turn in the weather is also giving other agri-related stocks a boost. This includes the Graincorp Ltd (ASX: GNC) share price, Nufarm Limited (ASX: NUF) share price and Costa Group Holdings Ltd (ASX: CGC) share price.

Clearer skies ahead?

The outlook provided by Elders gives investors another reason to celebrate. While it admitted that it couldn't reasonably estimate the financial impact from the coronavirus fallout, it believes it can deliver a full year result that's in line with consensus estimates.

Management is tipping earnings before interest and tax (EBIT) to range between $96.5 million and $112.9 million. Net profit is expected to be $85.8million to $102.9 million.

Chinese wildcard

However, escalating tension between China and Australia could pour cold water on the group even though it isn't yet a feature on group results.

In fact, management said wool export to China "is operationally sound" while demand from Europe and the US have been impacted by the looming recession.

But if China extends tariffs and other trade restrictions on our exports to punish Australia for calling for an independent investigation on the coronavirus origins, things can turn sour for the sector.

Motley Fool contributor Brendon Lau owns shares of Nufarm Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia has recommended Elders Limited. 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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