What was the market expecting from Blackmores?
At its annual general meeting in October Blackmores warned that its first half performance was not expected to be ahead of the prior year due to disruptions caused by channel shift and China regulatory changes.
In addition to this, increased ingredient and raw material costs, along with short-term phasing of transition costs associated with the Catalent transaction, were expected to weigh on its gross margins during the half.
In light of this, management guided to a first half profit result that would be at a similar level to the second half of FY 2019.
Given that in FY 2019 Blackmores posted a first half profit after tax of $34 million and a full year profit of $55 million, this would imply a first half profit after tax of ~$21 million in FY 2020. This equates to a decline of ~38% on the prior corresponding period.
But given today’s trading halt, it could be a sign that it will be even lower now.
Incidentally, last week analysts at Goldman Sachs named Blackmores as one of six companies that it believed could surprise to the downside during earnings season.
Goldman explained: “… we see potential for further weakness with the challenging conditions in China persisting for longer than expected. Based on our Tmall/Taobao tracker, BKL has lagged the broader Vitamin and Health Supplements category, with BKL growing at +3% YoY over the last 6 months vs +22% for the broader category. Whilst we lack a comparison for 1H20, our FY20E NPAT forecast of A$45.2mn is -8% below Bloomberg consensus.”
