The Huon Aquaculture Group Ltd (ASX: HUO) share price got hit by a shock profit downgrade as it was hit by a series of unfortunate events.
The HUO share price is like a fish out of water. It slumped 7.8% to $2.82 in late morning trade even as the S&P/ASX 200 Index (Index:^AXJO) jumped 1%.
The salmon farmer warned investors that its FY21 earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to take a big hit compared to last year when it turned in an EBITDA of $47.3 million.
Huon also said it expected to take an impairment charge for the year with its market cap trading below the book value of its assets.
Multiple factors drowning the HUO share price
Management didn't quantify the damage but investors were left with no doubt these will be very material to the profitability of the group.
These were several things that went wrong for the HUO share price to cause this disappointing outcome.
The COVID-19 disruption is only but one factor, although the pandemic continues to be a major challenge for the company and industry.
International demand for salmon during the health crisis suffered and any pick-up in the domestic market wasn't enough to offset the loss.
Poor timing contributed to supply glut
Then there was bad timing on Huon's part. It increased production as demand fell away. The group increased net sales to 19,290 tonnes in 1HFY21 versus 13,321 tonnes it sold the same time last year.
The extra supply meant that Huon was selling more fish into the export market. Management said that 40% of total volume went into this lower-priced spot market that is struggling with excess supply.
Salmon prices are down around 40% in the six months ended December 2020 compared to the same period in 2019.
Margin squeeze
While domestic salmon prices are holding up, the average price Huon will receive for its product is tipped to fall by 15% to $11.40/HOG kg in the first half.
If these negatives weren't enough to put investors off, higher freight costs and increase global production of salmon of between 0.5% and 2% in 2021 are also weighing on the stock.
Let's not forget the resurging Australian dollar too. As the international salmon trade is priced in US dollars, a stronger Aussie means lower translated earnings for Huon.
Then there were the "accidents". Huon lost a lot of fish from its farms from fires, tear in nets and criminal conduct.
Foolish takeaway
All these factors may not be so bad if there was light at the end of this long dark tunnel. Unfortunately, management couldn't provide that either.
Conditions remain too volatile and uncertain for Huon to paint a brighter outlook. It looks like the HUO share price will be stuck in the sin bin for a while.
But the bad news doesn't only taint Huon. The Tassal Group Limited (ASX: TGR) share price lost 2.5% to $3.34 at the time of writing.
Some of the currents that Huon is swimming against are likely felt by Tassal as well. This all leaves a bad tastes in investors' mouths.