Shares in global consumer products play PZ Cussons (PZC) cheapened 3p to 209.5p after it flagged ongoing trading challenges and guided towards flat full year profits.
Maintaining annual profitability still hinges on conditions in its key UK and Nigerian markets at least holding up, although management also highlighted early signs of turnaround progress limiting this morning’s share price decline.
HEADWINDS PERSIST
In a mixed first quarter update, the Imperial Leather soap, St Tropez self-tan and Rafferty’s Garden baby-food maker said: ‘We expect the full year results to be in line with prior year’ - pre-tax profits declined 12.9% to £69.8m in the year ended May 2019 - ‘adjusted for the impact of disposals, but dependent on no further worsening in our key markets, specifically the UK and Nigeria.’
Management warned market conditions will remain challenging across key geographies for the rest of the first half year. The Nigerian economy remains depressed, there is a fog of political and economic uncertainty hanging over the UK, where personal wash-brand sales were impacted by a promotional market and muted consumer confidence, while Australia is seeing some ‘highly competitive markets’.
Encouragingly however, PZ Cussons expects to see an improvement in second half trading ‘as planned marketing activities behind our focus brands and overhead reduction programmes take effect. The strategic refocusing and simplification of our activities will continue.’
GREEN SHOOTS
Furthermore, PZ Cussons flagged early progress on the implementation of its new strategy to ‘Focus, Scale and Accelerate’, having recently sold its Greek food business Minerva and local Polish personal care brand Luksja for over £50m.
Investors also found some succour in PZ Cussons’ strong balance sheet and cash generation in line with expectations.
In Africa, the pace of revenue decline moderated year-on-year in the first quarter. Over in the US, PZ Cussons’ beauty lines continued to sell well, while in the Asia Pacific region continued good growth in Indonesia was offset by a promotional Australian market.
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Shore Capital scribe Darren Shirley commented: ‘We expect to leave (our) profit forecast unchanged, noting guidance for flat profits before the impact of disposal activity and assuming no further deterioration in sales.’
Shirley is looking for full year pre-tax profit of £68.1m and earnings per share of 12.8p, ‘which is post the impact from the Greek and Polish disposals announced in late August.’
The analyst reiterated his ‘hold’ recommendation on PZ Cussons, ‘noting the requirement for improved trading momentum across almost all activities as the second half approaches.’
