Yes that is quite correct, remember I said that both currency and resin usually have a rise and fall built into the pricing. I would suggest that the massive increase in costs associated with international freight will also be adjustment with customers.
I suspect that some information is being held back, ie electricity prices have softened (circa 20%) and it will be dependent on when their contracts run out.
So a simple example of a price adjustment for say resin.
Sell Price $10.00 Resin Cost $4.00 Other costs $4.00 Total Cost $8.00 Gross Margin $2.00 GM % 20.0%
A 10% price increase for resin which is passed onto customer in a price adjustment
Sell price $10.40 Resin cost $4.40 Other Costs $4.00 Total Costs $8.40 Gross Margin $2.00 GM % 19.2%
Gross margin % has been hit down from 20% to 19.2%! wow sound the alarm bells.
But hey lets take a closer look, we are still making the same $2 in Gross margin????
After the fiasco a few years back with the slow movement on price, PACT's management have learnt a very tough lesson so I suspect they will not repeat that issue again, especially after the CEO was walked out the door after it.
The bigger issue is; 1. The fire that burnt down the NSW contract packing operations will impact on both revenue and profits, but just not sure how much 2. They will be lapping a massive uplift last year with the windfall from manufacturing & selling hand sanitiser, how big was this I have no idea.
I believe that the base business is still robust and will continue to show profitable improvement, however growth will be anemic.
PGH Price at posting:
$3.06 Sentiment: None Disclosure: Not Held
