Why is this ASX 200 share crashing 17% today?

The Elders Ltd (ASX: ELD) share price is having a day to forget.

In morning trade, the agribusiness company’s shares are down 17% to $11.02.

This makes the Elders share price the worst performer on the ASX 200 index by some distance.

Why is the Elders share price crashing?

Investors have been hitting the sell button today following the release of the company’s full year results.

Although Elders delivered strong top and bottom line growth in FY 2022, management’s outlook commentary and the announcement of the retirement of its CEO appear to have undone this and put significant pressure on its shares.

For the 12 months ended 30 September, Elders reported a 35% increase in sales revenue to $3,445.3 million and a 42% jump in underlying profit before tax to $223.5 million.

And while Elders’ operating cash flow was down 28.5% to $113.7 million, that didn’t stop the company growing its dividend. The Elders board declared total dividends of 56 cents per share for FY 2022, up 33% from 42 cents per share in FY 2021.

What drove Elders’ growth?

Elders revealed that the Rural Products business outperformed expectations, with gross profit growing 35% to $383.1 million. This was driven by the continued focus on the backward integration strategy, whilst capturing the benefits of strong seasonal conditions. Growth through strategic acquisitions continued in FY 2022, adding value and presence across the network.

The Agency services profit contribution grew due to strong livestock prices despite reduced volumes from limited domestic supply. It reported a gross profit of $147.0 million, up 4% on FY 2021.

Finally, Elders’ Real Estate Services gross profit was $61.6 million, up 21% on FY 2021. This reflects ongoing network expansion and very high demand for both residential and farmland assets despite a fourth quarter market easing.

Outlook

FY 2023 looks set to be a tough year for the company, which explains some of the weakness in the Elders share price on Monday. Management commented:

High demand for agricultural commodities is expected to create favourable trading conditions in the first half of FY23, however recent extreme rainfall events across the eastern states have created some uncertainty in affected cropping regions and concern about reaching full harvest potential for both summer and winter crops.

The Rural Products outlook remains positive, with high demand particularly for agricultural chemicals, fertiliser and seed. However, the agricultural industry will await assessment of the full impact of the extreme wet conditions and flood events to realign expectations for the FY23 season.

Cattle and sheep prices are expected to soften in the medium term, driven by falls in domestic re-stocker demand, with volumes also balancing out in the short term. The wool market is expected to remain strong, driven by increased demand in China and Europe, pending production conditions improving following recent wet conditions and flood events in Eastern Australia.

CEO retirement

Also putting pressure on the Elders share price is news that its CEO, Mark Allison, is retiring next year after 10 years with the company.

He will leave the company on or before 14 November 2023, following the completion of the third of three successful Eight Point Plans.

Mr Allison said: “The timing is right, and will allow for a smooth transition and leadership refresh for Elders’ next phase of growth.”

The post Why is this ASX 200 share crashing 17% today? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Elders Limited. 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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