Wrightson cuts profit forecast for second time

Wednesday 24th June 2009

PGG Wrightson, New Zealand’s biggest rural services company, cut its full-year profit forecast for a second time, reflecting a downturn in dairy activity and a reluctance of sheep and beef farmers to spend more as trading improves.

Net operating earnings may be $30 million to $32 million in the year ending June 30, down from a previous forecast of $36 million to $42 million, the company said in a statement. Trading profit will fall from last year’s $39.2 million.

Shares of Wrightson fell 4.2% to $1.15 and are down about 12% in the past week.

Fonterra Cooperative Group, the world’s largest dairy exporter, last month forecast a 13% drop in milk payments for the 2010 season, reflecting a stronger New Zealand dollar and the reintroduction of U.S. dairy subsidies.

The price of milk powder fell 12% in Fonterra’s online auction on June 3, the second monthly decline. In New Zealand dollar terms, prices tumbled 19%.

“While the international agricultural sector outlook overall remains robust, the ongoing global recession and Fonterra’s recent announcement regarding its reduced payout are dampening farmer confidence, restricting spending in the autumn season,” Wrightson said.

“Sheep and beef farm incomes have improved to their best levels in recent years, however this has not yet been reflected in expenditure which has been kept to a minimum given the past poor returns,” the company said.

Net income this year will include non-trading items such as a further writedown of the value of Wrightson’s 11% holding in NZ Farming Systems Uruguay and further costs associated with the settlement with Silver Fern Farms.

In February, the company posted a first-half net loss on the Silver Fern costs and writedown of NZ Farming Systems, whose shares have dropped 23% this year.

The company won support from its banks in February, with agreement to refinance about $475 million in loan facilities, giving it more time to reduce debt levels.

Profit may pick up in 2010, with operating earnings forecasts to be $33 million to $39 million, the company said.

Businesswire.co.nz

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