McPherson's (ASX:MCP) share price on watch on Wednesday after Q1 update

The McPherson's Ltd (ASX:MCP) share price will be one to watch on Wednesday after the release of its Q1 update…

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The McPherson's Ltd (ASX: MCP) share price will be one to watch on Wednesday after the release of its first quarter update after the market close.

How did McPherson's perform in the first quarter?

The health, wellness and beauty products company has started the year in a positive fashion.

According to the release, for the three months ended 30 September, McPherson's sales revenue was up 4% on the prior corresponding period to $49.7 million.

This was underpinned by 8% growth in sales revenue from owned brands to $41.7 million. Management notes that its category market share grew in 4 out of 6 core brands and its China sales were strong thanks to its ABM partnership model.

Things were even better for its earnings, with McPherson's reporting an 84% lift in underlying profit before tax to $2.9 million. However, it is worth noting that this does not include a hefty $5.7 million non-recurring full provision for the write down of its hand sanitiser inventory.

Management advised that delays in the supply of hand sanitiser products led to a customer cancelling the majority of its orders. This left it with a significant quantity of product.

Since then, demand has dissipated and the supply base for such products has become much more competitive. As a result, the company is currently holding excess quantities of hand sanitiser inventory.

This could be bad news for Zoono Group Ltd (ASX: ZNO), which was profiting greatly from increased demand at the height of the pandemic. But judging by this update, it appears that the market is now saturated.

McPherson's Chief Executive Officer and Managing Director, Laurence McAllister, was disappointed with the provision but pleased with the overall quarter. Especially given how this is traditionally the company's weakest.

He commented: "While we are very disappointed with the nonrecurring provision to fully write down legacy hand sanitiser inventory, our core business has made a strong start to FY21."

"The strong growth in sales from our owned brands in the midst of the disrupted COVID-19 trading environment confirms the market strength and resilience of our brand portfolio. This top line growth in combination with improved contribution margins across the majority of our brands has generated a very strong lift in first quarter FY21 profitability from our core business, noting that the first quarter of our financial year is our seasonally lowest in terms of profitability," he added.

Outlook.

McPherson's is one of just a handful of companies which has stuck its neck out and provided guidance for the full year.

It has forecast first half underlying FY 2021 profit before tax growth in the range of 20% to 30% and full year underlying FY 2021 profit before tax growth in the range of 5% to 10%.

Management notes that its guidance takes into account the cycling of strong COVID-19 demand from the second half of FY 2020.

In addition to this, the company's dividend policy remains in place. It intends to pay out a minimum dividend of 60% of underlying profit after tax, subject to cash requirements.

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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