Elders Reports Worst Result in a Decade Amid BOM Forecast Error

Highlights:

• Significant Profit Drop: Elders experienced a 76% decline in profits to $11.6 million for the six months ending March 31, marking its worst financial result in a decade, primarily due to incorrect Bureau of Meteorology forecasts.
• Market Reaction and Recovery: Following the profit downgrade announcement on April 8, Elders' shares fell by 24% but later recovered by 3.5% to $8.50, with an anticipated improvement in trading conditions noted in April.
• Strategic Focus and Performance: Despite the challenges, Elders aims to achieve its revised full-year EBIT forecast of $120 million to $140 million, with its real estate division showing strong performance with a 22.5% increase in earnings.

Plunging Profits

Elders Limited (ASX: ELD), an agribusiness giant, experienced its worst financial result in a decade after farmers rushed to sell cattle due to incorrect Bureau of Meteorology (BOM) forecasts predicting extended hot and dry conditions. The company's CEO, Mark Allison, announced on Monday that profits plummeted 76% to $11.6 million for the six months ending March 31. However, he noted an uptick in trading in April and blamed the erroneous El Niño forecast for the poor performance.

Farmer Reactions and Financial Impact

Allison highlighted that many critical decisions were made based on the BOM forecasts, which led farmers to offload livestock and reduce farm supply orders. This reaction significantly impacted Elders' business. "People sold off stock, they didn’t order farm supplies," he stated, adding that he personally stopped relying on BOM forecasts 30 years ago.

The company's revenue dropped 19% to $1.34 billion, prompting a 22% cut in the first-half dividend to 18¢ per share from 23¢ the previous year.

Market Reactions and Analyst Insights

Evan Karatzas, an analyst at UBS, indicated that the earnings weakness seemed isolated to the December quarter, before livestock markets began to recover. Following a significant profit downgrade on April 8, Elders' shares fell by 24% but later rose 3.5% to $8.50 by noon on Monday.

Allison revealed that Elders did not detail specific quarterly profit figures, but earnings were nearly zero in the December quarter as farmers in NSW and Victoria sold off livestock in anticipation of El Niño. This action led to a notable decline in cattle prices.

Strategic Outlook and Future Plans

Despite the setbacks, Elders aims to achieve its revised full-year EBIT forecast of AU$120 million to AU$140 million. Allison, who remained CEO after a failed succession plan, emphasized the company's focus on controlling what they can and improving returns above their 15% target.

Additionally, Elders' real estate division performed well, with earnings increasing by 22.5%. The company plans to pursue more bolt-on acquisitions while being patient with its 12.2% stake in New Zealand’s rural services group, PGG Wrightson.

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