Costa Group share price on watch after downgrading its profit guidance

Citrus May 30, 2019

As well as providing its shareholders with a breakdown on the company’s performance and achievements over the last 12 months, management provided an update on its recent trading performance.

According to the release, the trading environment through March and April was generally favourable with an improved outlook for a number of Costa’s categories including tomatoes, avocados, and berries. The prospects for the forthcoming citrus season are also good.

However, the mushroom category has had to contend with lower pricing levels due to extended summer temperatures affecting short term demand and the company has had issues in Morocco which have led to delayed fruit maturity and increasing competitive pressures on pricing.

Furthermore, earlier this month the Driscoll’s grower network started to see high waste in the major raspberry variety from a condition called ‘crumbly fruit’. As a result, Costa has seen low yields and harvest labour inefficiencies which are substantial.

And finally, last week a female fruit fly was found during a routine trapping at the Impi farm at Stuart’s Point.

Unfortunately for Costa, this means authorities are now implementing a 15-kilometre exclusion zone from the Riverland fruit fly free region.

The company is in discussion with the relevant state and national agencies but believes that approximately 17,000 tonnes of its citrus crop may not be packed in its Riverland sheds. If this proves to be the case, the fruit would need to be sent to third party packers in Sunraysia and also cold treated to meet export protocols.

In light of this, management has had to downgrade its calendar year 2019 guidance.

It now expects EBITDA-SL in the range of $140 million to $153 million and NPAT-SL in the range of $57 million to $66 million. This will be an increase of 12% to 22.4% and 0.7% to 16.6%, respectively, compared to the prior corresponding period.

As a comparison, in February management had forecast calendar year 2019 NPAT-SL growth of at least 30%.

Source: The Motley Fool

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