By Jenny Ruth
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Friday 9th October 2009 |
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The magnitude of Fisher & Paykel Appliances' profit downgrade was particularly disappointing since it came only a month after management last updated the market, says Craigs Investment Partners analyst Dennis Lee.
"Falling US sales volumes have not only savaged revenue but also lifted the cost structure of the new Mexican plant," Lee says. "The lack of operating leverage from lower volumes delayed overhead recovery and the roll-off of high cost inventories at the new plant."
Nevertheless, Lee hasn't changed his positive view of the company's outlook. The company "is a cyclical stock and the latest leading indicators continue to be supportive of cyclicals," he says.
The earnings downgrade "is a reminder that the earnings recovery will not be smooth sailing and will take longer to emerge. That said, we believe the worst is probably behind (it), especially with the support of the proposed US stimulus package and accompanying stock rebuild in the pipeline."
Fisher & Paykel's strategic alliance with 20% shareholder Haier has significantly enhanced the company's medium term outlook, Lee says.
He is forecasting Fisher & Paykel's normalised annual net profit will fall from $33.8 million in the year ended March to $20.1 million in 2010 before rising to $47 million in 2010.
BROKER CALL: Craigs Investment Partners rate Fisher & Paykel Appliances as buy.
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