PGG Wrightson warns annual operating earnings likely to fall amid weak commodity prices

Tuesday 18th October 2016

PGG Wrightson expects operating earnings to decline this year, snapping three years of growth, amid weakness in some of the key agricultural commodity markets it has exposure to.

Operating earnings before interest, tax, depreciation and amortisation are expected to be between $62 million and $68 million in the year to June 30, 2017, down from $70.2 million the year earlier, the Christchurch-based company said in a presentation prepared for its annual meeting today. Net profit after tax is expected to be broadly in line with the 2016 financial year of $39.6 million, it said.

Earnings at the rural services firm are closely aligned to the fortunes of the rural sector, where farmers rein in spending during periods of low commodity prices. Confidence in the dairy sector remains a headwind this year and dairy farmers receiving a higher milk payout are likely to prioritise debt reduction, wool trading volumes are down due to lower international prices and reduced Chinese demand, and international prices for red meat have weakened, the company said today. Meanwhile, its South American operations continue to be impacted by flooding in Uruguay earlier this year.

“While it remains early in the 2017 financial year, we have observed that the trading environment for agricultural inputs and services has become marginally more difficult in New Zealand," chief executive Mark Dewdney said. "Additionally, we note the full effect of the flooding experienced earlier this year in South America still remains to be seen. For these reasons, we believe that 2017 will be a tougher trading environment than 2016.

"On the other side of the ledger, confidence in the horticulture and viticulture markets remains high and we see the diversification of our business as a real strength.”

Dewdney said the company is currently tracking according to plan, but noted that the first quarter of the financial year is typically a quiet period.

PGG Wrightson shares fell 1.9 percent to 52 cents. The stock has gained 28 percent this year.

BusinessDesk.co.nz

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