Ansell share price dips on lower first-half sales and dividend cut

The Ansell Ltd (ASX: ANN) share price dipped 4.73% to an intraday trough of $23.04 after the personal protection safety (PPE) supplier released its 1H FY24 results.

The Ansell share price is currently $23.44, down 2.86%.

Let’s take a look at the details.

Ansell share price down on news of 18% dividend cut

Here are the key financial metrics for the six months to 31 December 2023:

• Sales of US$784.9 million, down 7.6% on the prior corresponding period (pcp) on a constant currency basis and down 6% on a reported basis
• EBIT of US$78.2 million, down 6.4% on constant currency terms and 14.5% on reported terms
• EBIT margin of 10% compared to 11% pcp
• Adjusted earnings per share (EPS) of 41.4 cents, down from 50.6 cents pcp
• Unfranked interim dividend of US16.5 cents per share payable 14 March, down 18% pcp
• Dividend represents a 40% payout ratio in line with Ansell’s dividend policy

What else happened in 1H FY24?

Ansell highlighted sales growth and margin improvement in its industrial segment. It reported a 46.7% increase in EBIT on a constant currency basis and 36% on a reported basis for the division.

Ansell explained that industrial division earnings growth was driven by carryover pricing from H2 FY23, net cost favorability, and improved chemical plant performance.

Conversely, the healthcare division’s performance was dramatically weaker. There was a 46% EBIT decline on a constant currency basis and 51.2% on a reported basis.

Ansell blamed lower sales in the surgical and life sciences category and a deliberate production slowdown, which it said yielded an inventory improvement.

The company said a targeted working capital reduction led to strong operating cash flow for the half. Operating cash flow was US$57.9 million at the end of the half, up from just US$3.5 million pcp.

Ansell said its Accelerated Productivity Investment Program, which commenced in July 2023, was on track with the annualised FY26 pre-tax savings target increasing from $45 million to $50 million. But it also raised its expected cash costs from a range of $70 million to $85 million to $85 million to $90 million.

The multi-year program comprises a series of productivity initiatives designed to help the company adjust to post-pandemic operating conditions.

Ansell was among a number of ASX healthcare shares that skyrocketed during the COVID era. The Ansell share price went from about $31.50 in February 2020 to a peak of about $42.30 in April 2021.

One of the Program’s core objectives is to reduce the manufacturing headcount and improve productivity. To this end, Ansell reduced its manufacturing staff by approximately 1,200 in 1H FY24.

What did Ansell management say?

Managing director and CEO Neil Salmon said:

I was pleased with our cashflow delivery, the strong performance from our Industrial GBU and success in implementing the initial phases of our Accelerated Productivity Investment Program …

The sales and EBIT declines in our Healthcare GBU arose on sales and margin headwinds we had anticipated at the start of the year.

As we begin the second half of the year, we see clear signs that these headwinds are moderating and expect performance in this business to improve.

We expect Industrial performance to remain strong and we are targeting approximately $20m in second half cost savings from Accelerated Productivity Investment Program initiatives …

What’s next for Ansell?

Ansell said it expected industrial and healthcare sales to grow in 2H FY24.

It reported $7 million in savings via the Accelerated Productivity Investment Program and a second-half goal of $20 million.

Ansell has narrowed its guidance range for FY24 adjusted EPS to between US 94 cents and US 110 cents.

FY24 statutory EPS is now expected to be in the range of US 54 cents to US 70 cents.

Salmon said:

Overall, our goal in the second half is to show we are moving past this recent period of post-pandemic market disruption, that we are realising the benefits of the substantial work done to strengthen our business and that we are successfully executing on our growth and productivity strategy.

Ansell share price snapshot

The Ansell share price is down 13.11% over the past 12 months.

By comparison, the S&P/ASX 200 Index (ASX: XJO) is up 4.18%.

The post Ansell share price dips on lower first-half sales and dividend cut appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in Ansell. 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 Ansell. 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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