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Incitec Pivot share price crashes 12% lower after downgrade its guidance

In morning trade the Incitec Pivot Ltd (ASX: IPL) share price has crashed lower following a disappointing trading update.

At the time of writing the shares of the manufacturer and distributor of industrial explosives, industrial chemicals and fertilisers are down 12% to a 52-week low of $2.81.

What was announced?

Investors have been heading to the exits in a hurry after it revealed that it would not be hitting the earnings before interest and tax (EBIT) guidance it provided to the market in May when it released its half year results.

That guidance was for full year EBIT of $370 million to $415 million.

At the end of last month the company reassessed its earnings estimates and acknowledges that a number of factors means it will fall well short of this guidance.

These factors include lower than forecast ammonia production at Waggaman, lower Fertilisers earnings mainly as a result of continued drought impacts in New South Wales and Queensland, and increased gas costs at its Gibson Island operation.

In light of this, the company has revised its EBIT guidance for FY 2019 to be in the range of approximately $285 million to $295 million. This range excludes approximately $20 million of one-off items (potential insurance proceeds in respect of the rail outage at Phosphate Hill and a sale of surplus land in the United States), which could fall into either FY 2019 or FY 2020 if they materialise.

This new range is a disappointing downgrade of 23% to 29% on its previous guidance.

Management also advised that its previous interest expense guidance of $145 million remains unchanged, while the effective tax rate is likely to be lower at approximately 5% due to the financial impact of the adverse events during the year.

Should you buy the dip?

Whilst Incitec Pivot’s shares could now be trading at an attractive level for a long-term investment, I would suggest investors wait for trading conditions to improve before making a move.

The same applies for Inghams Group Ltd (ASX: ING) and Nufarm Limited (ASX: NUF) which are also under pressure due to the negative impact of the droughts.

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Motley Fool contributor James Mickleboro 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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