The Blackmores Limited (ASX: BKL) share price was among the best performers on the S&P/ASX 200 Index (ASX: XJO) last month with a strong gain.
The health supplements company’s shares jumped 11.6% over the period.
Why did the Blackmores share price jump higher in October?
Investors were scrambling to buy the company’s shares last month following the release of an update at its annual general meeting.
That update revealed that Blackmores continues to expect to report a rebound in its profits in FY 2021 following a very disappointing time in the previous financial year.
In FY 2020, Blackmores posted a 3% decline in revenue to $568 million and a 66% reduction in net profit after tax to $18.7 million.
And while there was some impact from COVID-19, it is worth noting that its performance was already faltering pre-pandemic. For example, its first half profit was down 47% on the prior corresponding period in FY 2020.
According to its recent update, management is anticipating full year profit growth in FY 2021. This is despite additional cost variances arising from Braeside manufacturing ownership in the first half of the year.
Though, it is worth noting that the company is expecting this growth to come predominantly in the second half of the year.
What else got investors excited?
In addition to this improving outlook, investors appear to have been pleased with management’s confidence in its renewed strategy. It expects this strategy to put the company back on a path to sustainable, profitable growth and in a position to restore future dividends.
Another positive that caught the eye of the market was its cost cutting.
Blackmores advised that it has completed its restructuring, which is set to deliver $15 million of gross annualised savings from the second half. It has also initiated a Leading Value Position (LVP) savings program, which will contribute to cost of goods sold savings of $10 million in FY 2021.
Combined with its decision to offload its Global Therapeutics business to McPherson’s Ltd (ASX: MCP) for $27 million, investors appear to be finally warming up to this beaten down former market darling.
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Returns as of 6th October 2020
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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