A profit warning from Imperial Leather owner PZ Cussons (PZC) has triggered a sell-off, leaving the shares 14.6% lower at 236.4p.
The personal goods manufacturer, behind brands such as Carex and St Tropez, says ‘significant cost inflation’ in Nigeria kept discretionary income under pressure. This subdued milk sales in the country, hitting prices and margins.
Profit for the year to 31 May 2018 is now expected to be between £80m and £85m, down from broker Investec’s forecast of £100m.
DIFFICULT CONDITIONS IN NIGERIA AND THE UK
In January, PZ Cussons warned its first half performance was likely to be impacted by difficult trading conditions in the UK and Nigeria, with full year results depending on an improvement in these markets.
The UK continues to underperform as the washing and bathing division struggled with lower sales due to consumer caution from high inflation.
‘Whilst new product launches have been well received, they have not had the desired uplift in sales to compensate for the wider volume and margin shortfall,’ says PZ Cussons.
In a bid to improve its performance, the company plans to look at product costs and undertake a review of the milk business in Nigeria to return it to profitability.
It also plans to assess the overall operating model to reduce its overhead base and focus on fewer, bigger projects that are less complex.
PROFIT AND EARNINGS DOWNGRADES
Investec analyst Nicola Mallard has cut pre-tax profit expectations by 20% for this year to £80m, resulting in an earnings per share (EPS) estimate of 13.8p.
Pre-tax profit in 2019 has been reduced from £108.9m to £90m, leaving EPS lower at 15.4p, down from 18.3p.
She flags PZ Cussons has reduced some of its losses for milk products, but more needs to be done to eradicate these losses. The analyst believes the dividend is protected thanks to the company’s strong balance sheet.
AJ Bell investment director Russ Mould says: 'A company like PZ Cussons lives or dies by the strength of its brands. To get the market back on side management will need to demonstrate the recent troubles are temporary rather than a reflection of the fading appeal of its products.'
