One of the worst performers on the market on Tuesday has been the Asaleo Care Ltd (ASX: AHY) share price.
In early trade the personal care company's shares are down 12% to $1.40.
What happened?
This morning Asaleo Care provided the market with a disappointing market update.
Management has advised that its Feminine Care category has underperformed expectations due to extensive competitive pricing. This has impacted sales volumes and led to a full-year guidance downgrade.
According to the release, competitors' increasingly aggressive price activity has led to Asaleo Care's Feminine Care range becoming uncompetitively priced as a result of being locked into fixed every day pricing in major retail accounts.
As a result, FY 2018 underlying EBITDA is now expected to be between $124 million and $125 million. This will be a decline of between 4.3% and 5.1% on FY 2017's $130.7 million and compares to previous guidance of "low single digit growth".
The story becomes worse on the bottom line. Full-year underlying net profit after tax is now expected to between $59 million and $60 million, down between 7.1% and 8.7% year-on-year. Once again, management had previously forecast for low single digit growth.
Finally, free cash flow is now forecast to be between $70 million and $75 million compared to previous guidance of $85 million and $95 million.
What now?
Pleasingly, the company chose to exit the Every Day Pricing arrangements at the end of October and now has more flexibility to price competitively. With this increased price flexibility and based on November sales, management is confident that the Libra Feminine Care brand will return to growth.
Based on its guidance Asaleo Care's shares are changing hands at approximately 13x underlying earnings. Whilst this is cheap, I would suggest investors hold off an investment until it does actually return to growth again.
In the meantime, investors may want to consider personal care companies such as BWX Ltd (ASX: BWX) and Trilogy International Ltd (ASX: TIL) instead.
