Why Graincorp Ltd (ASX:GNC) just upgraded its profit guidance amid a drought

Amid the worst drought Australia has seen in 50 years, agricultural business Graincorp Ltd (ASX: GNC) just managed to lift its profit guidance for the year ending 30 September 2018.

The producer and distributor of east coast grain, malts, and oilseeds now expects full year profit to come in between $60 million to $75 million on EBITDA (operating income) of between $255 million to $270 million.

The group’s CEO attributed the profit upgrade to the strong performance of its malt business in the U.S. that is benefiting from the craft beer and distilling sector. The group’s oilseed business is also reportedly performing well also thanks to “strong customer demand”.

Partially offsetting the success across some of its businesses is the effect of the “severe” drought affecting large areas of New South Wales and Queensland. Consequently, Graincorp warned investors to expect a “considerable decline” in grain production across eastern Australia in FY 2019.

The stock closed 0.6% lower at $7.96 today and is only marginally higher since yesterday’s news of a profit upgrade.

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Motley Fool contributor Tom Richardson 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 Scott Phillips.

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