Blackmores: Healthy sales, flat profit

A good sales result, but profit cracks starting to show?

What: Blackmores Limited (ASX: BKL) has today released its results for the nine months to 31st March 2012, and results show that vitamins and supplements have been good for this company. Sales came in at $186m, up 8.4 per cent compared to the previous corresponding period. Asian sales are up 19 per cent – held back by the high Australian dollar. In constant currency terms, sales were up 26 per cent.

Net profit after tax was down slightly at $20m, compared to $20.2m in the previous corresponding period.

However, it appears that Blackmores did not have a great 3rd quarter to the end of March 2012, with net profit sliding 4.4 per cent to $5.7m The decline in earnings before interest and taxes was an alarming -16.5%. An ongoing legal dispute with a building contractor, costing $1.2m so far this year has probably not helped.

The Company

Blackmores develops and markets a range of health products, including vitamins, herbal and mineral nutritional supplements. The company recently (July 2010) expanded into animal health, with distribution to over 800 veterinary clinics and 300 pet stores, as well as exports to New Zealand, North America and Korea.

The company also announced that it has progressed plans to launch in China beginning in the fourth quarter – in other words, between now and end of June 2012. The first shipment of Blackmores products is already on its way to China.

Blackmores also engaged in some unedifying spin, barely talking about profit on the first page of the earnings release and hiding a poor third-quarter result by focusing on the nine-month figures. Nothing dishonest of course – and Blackmores is far from Robinson Crusoe – but it’s the type of corporate spin we deplore and investors could well do without.

So What: Blackmores have advised that profit for the full year to June 2012 will be in line with 2011’s results, which was a net profit of $27.3m, earnings per share of $1.63 and $1.24 of fully franked dividends. On that basis, the company is trading on a forecast P/E of 17, with a prospective dividend yield of 4.5 per cent, fully franked.

Now What: Expanding sales into China and other Asian countries, is probably where Blackmores is going to garner much of the company’s future growth, with competition in Australasia extremely tough.

Blackmores supplies products to both Coles — owned by Wesfarmers Limited (ASX: WES), and Woolworths Limited (ASX: WOW), and it’s likely that both those companies are placing increasing pressure on Blackmores margins, as they take share from Australian Pharmaceutical Industries Ltd (ASX:API)  and Sigma Pharmaceutical Limited (ASX:SIP).

The company is one I’d like to own, but at current prices, it’s just a tad too unhealthy for my bank account. I’ll be watching from the sidelines for now.

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Motley Fool contributor Mike King owns shares in Woolworths. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.

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