Why the Costa share price is crashing 14% to a 52-week low

The Costa Group Holdings Ltd (ASX: CGC) share price has come under pressure on Monday morning.

In early trade, the horticulture company’s shares are down 14% to $1.98.

Why is the Costa share price sinking?

Investors have been selling down the Costa share price on Monday after the company released an update on its earnings guidance.

According to the release, Costa is expecting its full year earnings for the Citrus category to be considerably lower than previously forecast.

The release notes that lower quality levels across all citrus regions have continued, which has resulted in considerably lower packouts, as well as reduced volumes of first grade fruit for export. This has been driven by adverse weather conditions, including both higher rainfall and cooler temperatures.

One positive, though, is that market demand and pricing in its export destinations remain very strong which bodes well for the 2023 season.

In addition, the company notes that the effort to produce the crop in challenging conditions has also caused an increase in labour expenditure, as well as higher spraying costs in relation to pest and disease control.

What does this mean for its full-year profits?

Costa advised that it currently expect full year group EBITDA-S to be marginally ahead of last year’s results.

This will be a sharp slowdown on its first half performance, when it delivered EBITDA-S growth of 12.6%.

Management also warned that while it does not expect any additional material impact from recent heavy rainfalls experienced across the country, further downside risk is possible if the extreme adverse weather continues.

Finally, Costa also confirmed that despite its EBITDA-S being lower than previously forecast, debt levels and related ratios remain comfortably manageable for the company.

The post Why the Costa share price is crashing 14% to a 52-week low 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 COSTA GRP FPO. 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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