Shares in private-label consumer goods maker McBride (MCB) collapsed more than 25% to 68p at the open after the firm unexpectedly cut its earnings forecast for the year due to a combination of slower sales growth and a ‘rapid, significant and sustained price escalation’ in many of its raw materials.
INPUT COSTS RISING
In its half-year results statement in February, McBride pointed to increasing input costs, in common with a number of manufacturing firms. However, in the last couple of weeks it has been hit with significant increases in the price of raw materials such as chemicals and plastics.
‘Our current view is that we will see further double-digit increases on average across these materials and packaging items by June 2021 - more than double the rates of increase expected in mid-March 2021’, the company said.
‘Additionally, we do not see these prices returning to more normalised levels in the near future. Whilst these increases are evident across a number of the divisions, it is most impactful in our Liquids division’, it added.
SALES GROWTH SLOWING
Compounding the problem, the firm said revenue volatility ‘continues to be a challenge in most of our markets’, with volumes in household cleaners dropping from their 2020 highs and continued lockdowns impacting sales of laundry and personal care lines.
‘We do not now expect certain category volumes to pick up in the balance of the financial year and therefore the Liquids and Aerosols businesses have reduced their demand outlook for the final quarter. As a result, the Group now expects second half constant currency revenues to be approximately 6% lower year on year’, it added.
CUT TO GUIDANCE
The combined effects of lower second-half sales and soaring input costs mean the final quarter of the financial year ending in June is likely to be ‘significantly weaker’ than the first nine months.
Despite swift action to recover some of the lost margin through price rises to its customers and cost-cutting initiatives, the firm now expects full year earnings before interest, taxes and amortization to be around 15% lower than the previous financial year.
Management stressed the impact from higher input prices wouldn’t derail it from its medium-term targets, but admitted it couldn’t offer any guidance on next year’s earnings until September at the earliest.
By 10am the shares had recovered to 75p, a drop of 20%, having traded around 20 times their recent average daily volume.
