The GrainCorp Ltd (ASX: GNC) share price has dropped 6.5% lower this morning following the release of the integrated grain company's half year results.
In the first half of FY 2019 GrainCorp reported underlying EBITDA of $27 million, down a disappointing 77% from the prior corresponding period.
On the bottom line the company recorded a half year underlying loss after tax of $48 million, compared to a half year profit after tax of $36 million a year earlier. Things weren't any better on a statutory basis, with GrainCorp declaring a net loss after tax of $59 million compared to a statutory profit after tax of $36 million in the prior corresponding period.
The company's poor performance has been largely down to the drought in eastern Australia.
CEO Mark Palmquist said: "These results reflect a particularly challenging period in grains and oilseeds, including severe drought conditions in eastern Australia and grain flows have been disrupted by grain trade conditions."
He added: "East coast Australian grain production was the lowest in over a decade and this has had a significant unfavourable impact on both our Grains and Oilseeds businesses."
How does this compare to expectations?
GrainCorp's struggles were widely known by the market and expectations were low.
However, I don't believe expectations were as low as this. According to a note out of Goldman Sachs, its analysts expected to company to post EBIT of $9 million and a loss after tax of $8 million.
Whilst GrainCorp didn't release an EBIT figure, its underlying loss after tax of $48 million was significantly worse than the broker expected.
What's next?
Management advised that it expects the challenging conditions in eastern Australia to continue in the second half.
However, it does expect "continued robust demand for Malt products in the 2019 northern hemisphere summer and further benefits to be derived from the continuous improvement program in Foods during the second half."
Should you invest?
Whilst I'm not overly interested in investing in GrainCorp as a whole, I am interested in its Malt business which it plans to spin off.
If its shares get sold off then it could be worth buying shares in anticipation of the potential spin off, though it may be prudent to wait for it to become a reality before parting with your money.
If you plan to wait then Costa Group Holdings Ltd (ASX: CGC) and Rural Funds Group (ASX: RFF) shares could be great alternatives.