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Cost surge wipes Asaleo Care earnings

AAP  |  17 Jul 2018Text size  Decrease  Increase  |  
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The maker of Sorbent tissues and Libra personal care products has warned rising costs and fierce competition will slash its full-year earnings by 30 per cent.

Asaleo Care (ASX: AHY) said on Tuesday that its preliminary half-year underlying earnings would be 24 per cent lower as a result of higher paper pulp and electricity costs, lower sales and price competition.

The company also slashed its full-year guidance by about 30 per cent to $80 million to $85 million, from $113 million to $119 million previously, in its second profit warning in eight months.

In a note last month, Morningstar analyst Daniel Ragonese had forecast a dim outlook for the company’s earnings, saying it was clouded by cost pressures and an intensely competitive environment.

Prior to today’s fall, shares in no-moat Asaleo Care were overvalued relative to Morningstar’s unchanged $1.20 per share fair value estimate.

Asaleo, which has two manufacturing facilities in Melbourne, two in New Zealand and one in Fiji, said the drop in interim underlying earnings was due to "significantly" higher pulp and electricity costs of about $10 million.

The company also cited lower tissue and baby care sales and increased spending to support market share as a result of heavy discounting by competitors.

Asaleo tissues

Asaleo has slashed its full-year guidance by about 30 per cent

In a bid to recoup part of the cost increases, Asaleo said it had increased its prices, triggering what it called "protracted" negotiations with customers and causing product promotions to be reduced and in some cases cancelled, resulting in a big drop in volume.

"These negotiations have now largely concluded with promotions resumed and price increases achieved in many cases," Asaleo said.

Asaleo is undertaking a strategic review across all its operations, in a bid to improve its performance.

The group is reviewing the value of its assets and expects "material charges" for impairments and write-downs in its interim results on August 21.

Asaleo also has 11 distribution centres across Australia, New Zealand Fiji with about 1000 employees.

Asaleo shares hit a record low of 82 cents shortly after the announcement, with the stock down 43 cents, or 33 per cent, at 87.5 cents in a lower Australian share market at 1226 AEST.

In December, the company cut its 2017 profit guidance, blaming a decline in sales of its feminine care products due to increasingly aggressive industry pricing.

 Lex Hall is a Morningstar content editor, based in Sydney. 

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