Select Harvests (ASX:SHV) share price falls on plummeting profits

The Select Harvests (ASX: SHV) share price is down 2.6% today after the company posted a 93% drop in net profits.

| More on:
sad and disappointed farmer on a farm with a tractor in the background

Image source: Getty Images

The Select Harvests Limited (ASX: SHV) share price is sliding today after the company released its results for the 6-months up to 31 March 2021.

At the time of writing, shares in the fruit and nut grower are trading for $5.80 each – down 2.68%. By comparison, the S&P/ASX All Ordinaries Index (ASX: XAO) is 0.84% higher.

Let’s take a closer look at the numbers and what they mean for the Select Harvests share price.

Select Harvests share price falls with profits

For the first half of FY21, net profit after tax collapsed 92.7% from the prior corresponding period (pcp) to $1.27 billion. Total revenue actually increased 37.4% to $84.8 billion in the period.

Cost of sales, however, shot up 71.8% at the same time. Select Harvests attributed the rising revenue to more crop harvests (and therefore sales). At the same time, the company claims the increase in costs outpaced revenue because of higher water rights prices. Water rights prices are lower this year and the company expects this to flow through to the next financial report.

In today’s release, Select Harvest was also pessimistic about the future prices of almonds, its main product. The company says almond prices are set mostly by output from California. It is expecting supply from the state to increase into the next year, thus hampering the almond price.

The price of almonds was already down 20% on the pcp to $6.00 a kilogram.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) are down 62.9% on the pcp to $12.8 million. Earnings per share (EPS) sunk 94.3% to 1.1 cents and, unsurprisingly, no interim dividend was paid.

Management commentary

Select Harvests managing director Paul Thompson said of today’s results:

As anticipated, lower global almond prices have negatively impacted earnings, delivering a first half financial result well below recent prior periods.

With a record breaking 2020 Californian crop and a USDA Subjective Almond Estimate indicating another large crop this year, we are anticipating low levels of pricing for the remainder of 2021.

Looking forward to the 2022 crop, our tree health remains good with strong 2021 vegetative growth and high bud load. Water prices are expected to remain relatively low given current weather forecasts and storage levels. Global demand for almonds continues to increase at a steady rate, as plant-based protein consumption grows in all markets.

Select Harvests share price snapshot

Over the past 12 months, the Select Harvests share price has decreased 11.42%. Before the COVID-induced market sell-off of March 2020, company shares ended a trading day as high as $9.18 at the beginning of that year.

Given its current share price, Select Harvests has a market capitalisation of $679 million.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Consumer Staples & Discretionary Shares