Why the McPherson's share price dropped 15% today

The McPherson's Ltd (ASX: MCP) share price has fallen sharply today following release of the consumer company's first-half results

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The McPherson's Ltd (ASX: MCP) share price has fallen sharply today following release of the retail company's first-half results. McPherson's shares were down by as much as 15.2% in early trade but have pulled back since to be trading 9.1% lower at the time of writing at $2.81.

Weighing on the company's share price appears to be, among other factors, ongoing concern about how Chinese trading conditions will impact its bottom line moving forward.

McPherson's is a supplier of health, wellness and beauty products in Australasia and increasingly, China. Its brands include the likes of A'kin, Dr. LeWinn's, Swisspers and Lady Jayne.

What did McPherson's announce?

For the half-year ended 31 December 2019, McPherson's recorded profit before tax of $8.5 million. Compared to the $7.8 million reported in 1H19, this represents an increase of 9%.

However, if the impact of the new leasing accounting standard is excluded from the calculation, profit before tax actually came in lower at $8.0 million, an increase of just 3% on the prior corresponding period (pcp).

Total sales revenue of $106 million was marginally below the result in 1H19 of $106.5 million. On a more positive note, sales actually increased by 6% excluding the impact of recently terminated distribution agreements with brands Trilogy and Karen Murrell.

The company achieved significant growth from its portfolio of owned brands, which were up pleasingly by 13% on the pcp to $87.9 million.

Strong growth in China

Dr. LeWinn's, a key owned brand, is reported to be continuing to deliver very high growth in export markets with sales up 272% to $13.9 million for 1H20. Dr. LeWinn's has also seen very robust growth in its domestic market with sales up 49% to $11.2 million.

An interim fully franked dividend of 4.0 cents per share was declared and will be paid on 19 March 2020. This interim ordinary dividend represents a 74% payout ratio of 1H20 earnings per share, which is in line with McPherson's dividend policy to pay a minimum of 60% of underlying profit after tax.

Outlook and guidance

McPherson's commented that due to strong momentum and further growth in its Dr. LeWinn's brand, the business believes it is very well positioned to continue growing in the 2020 financial year.

The company further commented that the broader retail environment in all operating geographies is likely to be impacted by the coronavirus, particularly given the significance of Chinese tourism and education to the South East Asian region.

McPherson's said it remains on track to meet its previously stated guidance of FY20 growth in profit before tax of approximately 10% on FY19. This is due to its solid 1H20 results and a good start so far to date in 2H20.

However, the company further added that the external environment presents greater uncertainty than it did two months ago and it will be actively monitoring the coronavirus situation as it evolves.

Motley Fool contributor Phil Harpur 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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