McGrath Ltd share price hammered 12% on updated guidance

The McGrath Ltd (ASX:MEA) share price is under the hammer on today's update.

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The McGrath Ltd (ASX: MEA) share price has been hammered by 12% due to several pieces of bad news released today.

The first disappointing update was that McGrath told the market that half-year earnings have been adversely affected by underperformance in the company-owned sales division, including Project Marketing. McGrath said that the Franchise, Property Management and other businesses are performing largely to expectation.

The McGrath board anticipate that the company's earnings before interest, tax, depreciation and amortisation (EBITDA) for the half-year to 31 December 2017 will be $1.63 million before one-off items and a 'small loss of $50,000 post one-off items.'

The McGrath update said that the above estimates exclude any potential goodwill impairment which may arise when the carrying value of each division is reviewed.

The business' cost reduction initiatives are reportedly on track, which should remove around $5 million in costs on a full-year basis.

The company believes that full-year EBITDA is expected to be in the range of $5.8 million to $6.8 million after one-off items, which translates to underlying earnings of $10.6 million to $11.6 million.

McGrath CEO Mr Cameron Judson, Head of Corporate Services Mr Morgan Sloper and Nigel Dews are all leaving the company.

McGrath Chair Cass O'Connor and current non-executive directors Elizabath Crouch and Cath Rogers have announced their intention to resign following this transition period. John McGrath will assume the role of interim Executive Chair.

Mr McGrath said "Like all shareholders I am very disappointed with the performance of the company over the last two years. Now is the time for a new approach. Despite the challenges we have endured since listing, McGrath remains one of the best real estate businesses in Australia with outstanding talent throughout the company."

"Our investors and team have exhibited great patience and loyalty during this difficult time and I intend to work very hard to repay them for their confidence in the company. I have a clear plan to rebuild momentum, but I will let our results speak for themselves from here."

Foolish takeaway

McGrath's share price has fallen by around 40% during the last year and this update isn't going to give investors confidence it can turn it around any time soon. Plus, the property market looks as though it's starting to go down which won't help matters.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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