Results wrap: Tariffs overshadow Ansell profit, as Primary returns to health
A tripling of profits at Ansell was shaded by US tariff-linked cost uncertainties, while Primary Healthcare posted a positive $8.9m result after fiscal 2017's impairments.
Ansell (ASX: ANN) net profit surged to $US484.3 million ($662.4 million) from $US147.7 million a year earlier, bolstered by a US$345 million gain on the sale of its condoms business, Sexual Wellness.
Sexual Wellness – which also makes lubricants, devices and fragrances – contributed $US57.7 million of sales and a profit after tax of $US0.7 million prior to being sold for $US600 million to a Chinese consortium last September.
Underlying earnings before interest and tax rose nine per cent to $US193.1 million for the year ended June 30 from, missing consensus of $US200 million, according to Citi, which had forecast $US201 million.
However, the company's share price yesterday slid more than 9 per cent to $25.13 by midday yesterday, in response to uncertainties around costs and US import tariffs – overshadowing a tripling of net profit for the year to June 30.
Having guided toward a fall in earnings ahead of its fiscal 2018 result yesterday, the manufacturer of protective gloves and clothing says its adjusted earnings per share could fall as much as 6 cents a share.
It forecasts costs of between US$ 1 and US$ 1.12 for 2018-2019 if raw material expenses continue to increase, and tariffs introduced on US imports are implemented at the higher levels proposed.
Market consensus for full-year adjusted EPS was $US1.12 ahead of last Tuesday's outlook update, according to investment bank Citi.
Plans are being drawn up in a bid to "substantially offset" the external headwinds by the end of June, but some short-term negative impact is possible, according to Ansell management. It also suggested acquisitions or share buybacks may cap the downside in adjusted EPS in 2018-2019.
Morningstar equities analyst Chris Kallos was unsurprised by the profit warning. In June, he wrote that despite the improving US economic outlook, President Trump's planned 25 per cent tariff on steel and aluminium imports from the European Union, Canada, and Mexico will hamper both the manufacturing and construction sectors.
He warned this could substantially reduce demand for Ansell safety-related products targeting a variety of industries in North America, including automotive, machinery and equipment, metal fabrication, and chemical industries.
Kallos also predicted US President Trump's proposed 10 per cent tariff could considerably dent Chinese demand for Ansell products.
However, he expects some of the impact to be offset by a stable but positive outlook issued by the World Bank on Russia and a more muted but stable long-term growth outlook on Brazil – also key emerging markets for Ansell.
Collectively, emerging markets represented about 21 per cent of group sales in the first half of fiscal 2018.
Total sales fell 0.8 per cent to $US1.55 billion, on account of the sale of its Sexual Wellness business.
Kallos described the full year results as messy but broadly in line with expectations. "Ansell is going through a major restructure as the company divests from a major division (sexual wellness) and pivots away from retail to focus on business-to-business clients.
"But when you look at the underlying numbers, they were broadly in line with what we expected," he says.
Kallos is disappointed at the slow pace of Ansell's transformational strategy, and with expenses stemming from sales, general and administrative operations – key areas of the streamlining efforts.
While raw material prices remain a source of uncertainty, Kallos believe Ansell's increasing use of its own synthetics could reduce reliance on natural materials.
"We think the mix shift towards more synthetic alternatives will support average gross margins of around 40 per cent over the next five years," Kallos says.
The group will pay a final dividend of 25 US cents a share, up from 23.75 US cents a year earlier.
Primary Health revenue up but clinics need care
Medical centre and pathology clinic operator Primary Health (ASX: PRY) reported $8.9 million full-year profit for fiscal 2018, after its impairment-hit $517 million loss a year ago.
Primary's revenue for the year to June 30 is up 4.9 per cent to $1.74 billion, and the group declared a final dividend of 5.5 cents, fully franked.
Shares in Primary were in a trading halt on Monday, as the company completes a $250 million capital raising to fund new recruitment of doctors and medical centre modernisation activities.
The medical centres division suffered a 1.4 per cent drop in revenue to $313.4 million for the year, while revenues in its pathology and imaging divisions increased 5 per cent and 10.5 per cent to $1.09 billion and $368.4 million, respectively.
Underlying group net profit was steady on 2016/17 at $92.3 million.
Primary shares last traded on Friday at $3.20 a share, and remain close to a 10-month low.
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Emma Rapaport is a reporter for Morningstar Australia
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