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Skellerup 1H profit falls 10%, missing forecast, annual profit growth to stall

20 Feb 2015

Skellerup Holdings, the industrial rubber goods firm, said first-half profit fell 10 percent and annual earnings growth may stall after Australian mining customers delayed maintenance spending.

Profit fell to $9.7 million in the six months ended Dec. 31, from $10.8 million a year earlier, the Auckland-based company said in a statement. Sales fell 1 percent to about $96 million. The company will pay an unchanged interim dividend of 3.5 cents per share.

Last October, the company told shareholders it expected annual earnings growth of up to 18 percent, as it looks to cash in on growing demand for food safety and clean energy applications. Today it said full-year profit was expected to be in line with last year's $20.7 million, below its $21 million-to-$24.5 million guidance.

"Skellerup is focussed on improving its operations, capitalising on its broad product range and growth opportunities in the US market in particular," chairman Selwyn Cushing said. "Skellerup expects this strategy to significantly offset the timing effect on earnings of the current decline in key commodity prices, with the main variable the timing of expenditure by the Australian mining operators."

Across the Tasman a drop in the iron ore price, Australia's largest export, and a wind down in the mining sector has slowed that economy and investment in large-scale infrastructure activity is abating, hurting earnings at companies such as Skellerup.

"The group earnings were slightly below our expectation," Cushing said. "We were impacted by the large Australian mining operators deferring, rather than cancelling, planned maintenance and productivity related activities due to substantially lower iron ore prices. As planned, we have incurred additional cost building a stronger capability in the US market and this is already beginning to deliver increased earnings."

The first-half result showed Skellerup's industrial segment earnings before interest and tax dropped 25 percent to $6.8 million, as sales declined 3 percent to $58 million on fewer sales to Australian miners. Sales in US market were up with more pumps used for waste and the oil and gas sector.

Its agricultural division, which makes dairy rubberware, animal hygiene products and gumboots, lifted Ebit 9 percent to $9.7 million as sales rose 2 percent to $38 million. A rise in sales of rubber products into the US, European and Australian markets offset a fall in local sales, after the global price for dairy dropped some 40 percent last year.

Shares of Skellerup fell 2.9 percent to $1.35 and have dropped 2.1 percent this year. The stock is rated an average 'buy' according to the consensus of three analysts surveyed by Reuters, with a median price target of $1.70.

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