Shares in Carlisle-headquartered conglomerate Carr’s (CARR) cheapened 5.5% to 146.5p on Tuesday after the food producer cautioned full year performance in its core agriculture division is expected to be ‘moderately behind’ previous expectations.

In a trading statement covering the 18 weeks ended 4 January, innovative agriculture-to-engineering combine Carr’s left full year guidance unchanged.

However, management also frightened the horses by flagging ‘a greater weighting than normal to the second half’, stoking fears a full-blown profit warning could be on the way should performance fail to pick up.

AGRI ARM CHALLENGES

Trading in the agriculture division, which makes and supplies feed blocks and distributes farm machinery, has been behind the board’s expectations in the last three months, mainly due to mild weather which has hit spending on feed and animal supplements.

In the UK, farmers’ confidence has reduced amid ongoing Brexit uncertainty at the same time as incomes have been crimped by rising costs, lower cattle prices and downward milk price pressure.

Over in the vast US market, lower cattle prices and a delayed start to winter feeding has impacted demand for Carr’s products.

Encouragingly however, Carr’s has now started to see ‘an improvement in market conditions with cattle prices beginning to rise from a level that was below last year and the 10-year average’.

And Carr’s insisted that ‘following a period of sustained drought most USA states now have sufficient moisture to sustain grass growth’, a medium term positive for the group’s USA feed block business.

POSITIVE SURPRISE IN ENGINEERING

Within the engineering arm, contract phasing also led to a slow start to the year, yet performance is expected to improve during the rest of the year ‘with the benefit of a strong pipeline’.

In fact, the engineering arm’s full year performance is now expected to be ‘slightly ahead’ of management’s earlier expectations.

Carr’s most recent acquisition, NW Total, has been integrated into the division, is performing well and is providing the company with fresh opportunities in the nuclear defence market.

READ MORE ABOUT CARR’S HERE

Despite the tough start to the year in agriculture, chief executive Tim Davies insisted these near-term challenges ‘are expected to be offset by a stronger than expected performance in our engineering business, where the order books remain strong, in addition to lower central costs. Our investments in people, acquisitions and research, alongside our expanding international footprint, leave us well positioned for sustained growth.’

Sticking with its full year adjusted pre-tax profit estimate of £18.8m and its ‘hold’ rating on the stock, Shore Capital said ‘Carr’s is in good position, benefiting from the investment made in prior years and the ongoing investment today’.

Nevertheless, the broker sees the shares ‘struggling to rerate/appreciate in the short-term despite undemanding multiples and the flat earnings profile until the Brexit deal has provided some reassurance/clarity with regards to UK agriculture/policy and food in general.’

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Issue Date: 07 Jan 2020