Inghams (ASX:ING) share price sinks as Omicron bites

Inghams shares are down as COVID hurts its operations.

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The Inghams Group Ltd (ASX: ING) share price is falling, down 7% in early trading, after the poultry company told the market that the Omicron COVID variant is impacting its operations.

A couple of months ago, the business told investors that lockdowns and global COVID effects were a key feature of early FY22 and were causing challenges. But the rapid spread of the Omicron variant is now causing substantial effects too.

Omicron impacts operations and Inghams share price

There were four areas that Inghams updated the market about.

First, the large amount of COVID transmission in the eastern Australian states from December 2021 is resulting in staff shortages. This is now also having an impact on the Australian supply chain, operations, logistics, and sales performance of the ASX share, as well as affecting some suppliers and customers. Management re-iterated there are disruptions to production and distribution capability, as well as an impact on sales.

Second, however, the company has managed to keep all of its major Australian sites operational and it hasn't experienced any "significant" on-site transmission of COVID. But, those sites are currently experiencing significantly lower levels of staff availability. This is impacting production volumes and operational efficiency.

To combat this, Inghams' third message was that operational changes are being made to volume and mix across the Australian business. The company said it isn't possible for management to predict how long this disruption will continue for. It is "premature" to draw any conclusions on the overall impacts on the business and trading results.

Finally, Inghams noted that feed costs continue to remain elevated.

The Inghams share price had drifted lower after the company's operational update in early November 2021 which included a warning on higher feed costs.

However, it was noted that both the federal and state governments recently changed isolation rules for close contacts in the food sector which should help alleviate some of the current staff shortages. It's expecting production capacity to recover relatively quickly to meet demand.

Management commentary

Noting the difficulties, the Inghams CEO and managing director Andrew Reeves said:

The operational and trading difficulties have resulted in significant operational inefficiency, additional costs and the temporary suspension of a number of Ingham's products. Ingham's is working closely with our customers and we are focused on supplying as much product as possible to customers while the current disruption continues.

The company continues to manage the cumulative impacts associated with COVID issues which have arisen through FY22. We will continue to closely manage our working capital and inventory and seek to implement initiatives to minimise the financial and other impacts of COVID through the second half.

Inghams share price snapshot

Prior to today's announcement, Inghams shares had fallen 15% over the past four months. Only part of that decline came after the November 2021 AGM update. Now it is down around 22% in four months.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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.

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