Why is this ASX 200 share plunging 29% after a trading update?

The Elders Ltd (ASX: ELD) share price is having a very tough start to the week.

In morning trade, the ASX 200 share crashed as much as 29% to $7.00.

The agribusiness company’s shares have recovered slightly since then buy remain down 25% at the time of writing.

Why is this ASX 200 share crashing?

Investors have been hitting the sell button in a panic on Monday in response of a trading update.

According to the release, first half trading in FY 2024 has been significantly below expectations due to a number of drivers.

The first is subdued client sentiment following an El Niño declaration by the Bureau of Meteorology. This has had a particularly negative impact during the first quarter of 2024.

Also weighing on its performance has been lower crop protection prices compared to the prior corresponding period. This is impacting sales revenue and margins.

But it doesn’t end there. Elders also highlights that cattle and sheep prices are significantly below the 10-year mean, which also impacted the first quarter.

Furthermore, subdued trading in March due to a later start to winter crop in Western Australia, which is a key broadacre market, and margin pressure in some key agricultural chemical products has weighed on its performance.

It isn’t all doom and gloom, though. Looking ahead, management advised that the outlook for the FY 2024 winter crop in most regions is improved. It notes that there are favourable soil moisture profiles across many winter cropping areas in the Eastern and Southern states.

Conditions remain dry and warm in some parts of Western Australia, which is expected to push sales to the second half of FY 2024 (April to September).

Earnings estimates

In light of the above, the ASX 200 share advised that underlying earnings before interest and tax (EBIT) is expected to be between $120 million and $140 million for FY 2024.

This represents a decline of 18% and 30% year on year from $170.8 million in FY 2023. Interestingly, that itself was down from $232.1 million a year earlier in FY 2022, meaning two consecutive years of sharp declines.

This poor performance means that its leverage is forecast to be above its target of 1.5 to 2.0 times through FY 2024. Though, it is forecast to return to within target in the first half of FY 2025.

One small positive is that Elders’ target cash conversion of greater than 90% of underlying net profit after tax is forecast to be achieved at 30 September 2024.

This ASX 200 share is down 14% over the last 12 months.

The post Why is this ASX 200 share plunging 29% after a trading update? appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
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• 7 ASX small-cap shares that are cheaper than the ASX 200 in March 2024
• Why Beach Energy, Elders, Lake Resources, and Premier Investments are rising today

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. 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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