The GrainCorp Limited (ASX: GNC) share price fell as much as 7% today as the company released FY19 earnings guidance that shows how tough the year has been.
About Graincorp
GrainCorp is the largest Eastern Australian grain storage and transport network. It has seven bulk grain ports, it’s among the top five global malt producers and it’s Australia’s largest integrated edible oils business. It exports its products to more than 30 countries. As of 2016, it has been operating for over 100 years, making it one of Australia’s oldest companies.
FY19 Earnings Guidance
GrainCorp shares have fallen this morning as the company announced it expects underlying EBITDA for FY19 to be between $65 million and $85 million and an underlying net loss after tax between $70 million and $90 million. The video below explains EBITDA.
This compares to an underlying EBITDA in the year ended 30th September 2018 of $269 million and underlying net profit after tax (NPAT) of $71 million.
Ongoing trade tensions and drought have combined to hurt GrainCorp’s performance in FY19. The company previously announced in April that the impact on EBITDA arising from the disruption of international grain trade flows and Australian wheat markets would be $40 million, but this figure has been revised up to between $60 million and $70 million.
GrainCorp also announced that independent crop forecasters are predicting another below-average production year in FY20, with the winter crop production expected to be 22% below the 10-year average.
Hopefully, the risk management contract that GrainCorp signed in June
will help to reduce the volatility in cash flow and earnings over the next few years.
GrainCorp CEO Mark Palmquist said, “this is an extremely difficult year for GrainCorp due to the significant disruptions we’ve seen in global grain markets, compounded by the drought in eastern Australia”.
Time To Sell GrainCorp Shares?
GrainCorp has been very unlucky with the drought and the US-China trade war coinciding to hurt trading conditions. Based on the earnings guidance given it doesn’t sound like the short-to-medium-term outlook is very positive for GrainCorp and it highlights the risks that this type of business faces.
Right now, I’d rather invest in one of the companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
