UPDATED: Skellerup shares decline after annual profit misses expectations

Skellerup Holdings chief executive David Mair
Milford Asset Management Executive Director Brian Gaynor
Skellerup Holdings 12-month price history (NZX.com)

UPDATED: Shares in Skellerup Holdings [NZX: SKL] declined after the industrial rubber goods maker missed analyst estimates for annual profit.

The Auckland-based company said profit excluding Canterbury earthquake insurance payments rose 9 percent to $20.7 million in the year ended June 30, as revenue increased 4 percent to $196.6 million. That lagged expectations for profit of $23.4 million on revenue of $200.8 million, according to the mean estimate of analysts compiled by Reuters. The company's shares slid 2.4 percent to $1.63.

Skellerup said earnings before interest and tax at its Agri unit rose 9.8 percent to $21.7 million on an 11 percent gain in revenue to $80.2 million as it benefited from increased sales of dairy rubberware to farmers. Skellerup had previously signalled it expected a pickup in its industrial unit, however it said today that returns from that part of the business were slower than forecast, with Ebit of $13.6 million on sales of $116.2 million, both flat on the year earlier.

"We were quite happy with it but this is what happens if it comes in at the lower end of what people were expecting,"said Brian Gaynor, who holds the stock among the $700 million in New Zealand equities he helps manage at Milford Asset Management. "Everything is in relation to what people are expecting and obviously some people out there were expecting Skellerup to be slightly better - it wasn't and so the share price has come off a bit."

Skellerup said total annual profit rose to $41.1 million, from $19 million the year earlier. Profit in the latest year includes a $20.4 million gain from the Canterbury insurance claim, some of which will be used to fund a future relocation, and a $1.6 million charge to settle a claim for faulty seals.

In the Agri unit, "we have benefited from a buoyant New Zealand dairy sector leading to increased sales of liners and tubing, increased sales from an expanded footwear range plus a contribution from the acquisition of two small businesses to augment our animal hygiene product offering," chief executive David Mair said in a statement. The Agri unit expects to benefit from regulatory change in Europe which will see larger, more efficient dairy operations replace smaller ones, and from a move to strengthen food safety standards in China.

"These trends will help offset the impact of any drop in farm returns in New Zealand, which if sustained will inevitably lower demand for dairy shed consumables," Mair said.

The industrial business, which manufactures and distributes technical polymer products for construction, infrastructure, automotive, mining and other industrial customers,  is investing in the US on optimism about future sales growth.

"Good progress was made in our industrial division albeit with improvements in returns accruing at a pace slower than what we would like," Mair said. "We are confident by investing now, earnings growth will follow, also aided by our competitive manufacturing bases in Vietnam and China."

Skellerup said an increase in the New Zealand dollar against the Australian dollar over the past year had crimped earnings as more than a quarter of sales are earned in Australia. The kiwi has appreciated about 9.6 percent against the Aussie over the financial year.

The company will pay a final dividend of 5 cents a share on Oct. 16, taking the annual payout to 8.5 cents, from 8 cents a year earlier.

Skellerup stock is rated an average 'hold', according to analyst recommendations compiled by Reuters.

(BusinessDesk)

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