The Ansell Limited (ASX: ANN) share price is down 15% after the industrial glovemaker gave a disappointing update.
This ASX share is involved in the global production of protective gloves for industrial and healthcare uses.
FY23 update
Based on the initial work done on its 2023 full year result, it’s expecting to deliver statutory FY23 profit / earnings per share (EPS) of between US$1.17 to US$1.18.
After excluding the benefit of accounting provision adjustments associated with the Russia exit in FY23, underlying EPS is expected to be in the middle of the guidance range, but at the low end of its original FY23 guidance range.
Industrial sales were approximately $750 million, with organic growth achieved in the second half of the year, while organic growth was achieved in both mechanical and chemical segments.
Customers have been reducing their inventory after two years of strong demand.
For the exam and single use business, it saw the impact reduce over the course of the half, with encouraging volume improvement compared to the first half, with stabilised prices. However, for the surgical and life sciences businesses, the impact became “more pronounced, obscuring more favourable underlying end user demand.”
FY24 guidance
The company said it expects continued growth in its industrial division, though performance “will be influenced by broader macroeconomic developments.”
In healthcare it expects exam and single use volumes to continue to recover, with the full year impact of price reductions taken during FY23 partially offsetting this revenue benefit.
Underlying end user demand for surgical and life sciences products is “expected to grow” but distributors are anticipated to reduce their inventories, with orders “expected to increase towards the end” of the financial year. Revenue may disappointing, which could be one of the factors harming the Ansell share price.
Ansell revealed it’s going to invest in a series of productivity initiatives to drive EPS and improve returns on capital. It’s going to temporarily slow production to normalise its inventory holdings, which will “improve cashflow in FY24 but temporarily lower EBIT (EBIT explained) due to reduced manufacturing overhead absorption.”
The cash cost of the initiatives is expected to be between $40 million to $50 million, which could then save $45 million per year by FY26.
Initial program savings delivery in FY24 of between $15 million to $20 million will be offset within the year by the temporary unfavourable impact to manufacturing overhead absorption from the decrease in manufacturing output.
It’s also going to accelerate its digitisation strategy, with the cash costs of these IT investments expected to be in the range of $30 million to $35 million.
FY24 adjusted EPS is excluding the above investment program costs, is expected to be in the range of US$0.92 to US$1.12. Statutory EPS, including investment program costs, is expected to be in the range of US$0.57 to US$0.77.
Final thoughts on the Ansell share price
There are a lot of negatives/costs announced in this update, which isn’t great for shareholders, though hopefully the investments pay off in the long-term. This could be a good time to invest for the long-term at this lower price, though I’m not sure how much glove growth it can achieve, so it’s not on my own buy list.
