The Costa Group Ltd (ASX: CGC) share price is up 4.3% to $4.84 today as the stock continues to divide the bulls and bears after last Thursday’s shock profit downgrade saw Costa shares shed nearly 40% in a day.
In last week’s announcement Costa’s management warned that weaker-than-expected demand for berries, tomatoes and avocados meant the group now expects flat profit growth for the 12-month period to June 2019, compared to a prior forecast for double-digit profit growth.
It seems the Costa bears and bulls are divided along the lines of whether the group’s problems are just cyclical as supply and demand for fruit and vegetable products in its markets realigns according to seasonal conditions, or whether it faces a structural problem as heavy new supply of avocados for examples is set to bring previously boom-time prices down permanently.
From 2019 onwards Costa is set to transition to a calendar year reporting period to reflect a heavy earnings skew to the Jan – June half-year period, with profits from blueberries (via the African Blue acquisition) generally booked in this period. Investment costs also tend to be accrued during the second half of the calendar year.
Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. 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.