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Skellerup cuts annual earnings forecast as drought hits agri business

Thursday 2nd May 2013

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Skellerup, the industrial rubber goods maker, has cut its annual earnings guidance for a second time after the drought across the North Island sapped demand at its agri business as farmers put off buying until next season.

The Auckland-based company expects net profit of $17 million in the year ended June 30, down from trimmed down guidance of $20 million it gave in February, from a previous forecast range of between $22 million and $24 million. The manufacturer blamed the drought for weaker local demand, and also signalled its North American and European sales were tracking below forecasts.

"Sales of both dairy liners and rubber footwear have been below expectations," chief executive David Mair said in a statement. "Whilst the very recent rain is a welcome relief for our customers and Skellerup, we will not fully recover the deferred sales within the current financial year as farmers will delay some of their buying till the new season."

The Treasury predicts the drought across the North Island will cut gross domestic product by 0.7 percent in the current financial year. The arid weather has weighed on business confidence in the agriculture sector, though the reduction in supply has helped elevate prices for dairy farmers.

Skellerup's Mair said the company wasn't expecting more growth in Europe but anticipated some improvement in North America which hasn't emerged.

"In the US, farmers are still recovering from last year's drought and their spending on dairy liners and tubing has been more subdued than we expected," he said.

The shares were unchanged at $1.48 in trading yesterday, and have shed 6.9 percent this year. The stock is rated an average 'outperform' based on three analyst recommendations compiled by Reuters, with a median target price of $1.64.

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