Why Graincorp shares are sinking on a profit warning

Graincorp Ltd (ASX: GNC) is still struggling with east coast drought conditions and weak demand.

Tom Richardson

Tom is a holder of the CFA Society of the UK administered Investment Management Certificate (IMC) and has more than a decade's professional experience in the investment management industry in Australia and the UK. Tom now works as a writer and editor for TMF Australia and has two easy to remember rules of investing he likes to follow. Avoid overpaying for growth stocks and avoid paying at all for stocks that are cheap for a reason. Tom prefers growth investing over value investing and says it's not rocket science, just avoid overpaying for the best returns.

Published August 2, 2019 10:15 am AEST

The Graincorp Ltd (ASX: GNC) share price is likely to fall this morning after the grains, malt and oils producer warned investors it now expects underlying EBITDA between $65 million to $85 million and a net loss between $70 million to $90 million for the financial year ending September 30, 2019.

GrainCorp CEO, Mark Palmquist, said: "This is an extremely difficult year for GrainCorp due to the significant disruptions we've seen in global grain markets, compounded by the drought in eastern Australia. The extraordinary circumstances in eastern Australia are highlighted by the fact we expect to ship 2.3 million tonnes of grain from South and Western Australia to meet east coast domestic demand."

Graincorp also reported that crop forecasters are now predicting a below average year in 2019/20 due to the east coast drought-like conditions. The malt and oils production businesses are reportedly tracking to forecasts though.

The company also had net debt of $1,744 million as at March 31, 2019.

Shares in Australian Agricultural Company Ltd (ASX: AAC) have also fallen over the past year due to tough weather conditions.

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