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Key points
- The Ansell share price is down more than 20% on Monday
- First half earnings are expected to be significantly impacted due to COVID-19 demand dwindling
- A US customs order brings disposable glove supply to a halt
- Full year guidance has now been revised lower
The Ansell Limited (ASX: ANN) share price is falling off a cliff following the release of a trading update.
In morning trade, shares in the protective personal equipment manufacturer are down 20.4% to $24.90. After opening, the company's share price touched a new 52-week low of $23.85.
Ansell share price sinks on disappointing first half earnings
Investors are applying selling pressure to the Ansell share price on Monday morning after checking out the company's latest trading update.
The details contained in the release relate to the half-year ended 31 December 2021. While the official first-half results are expected to be released on 15 February 2022, today's announcement gives shareholders a fair idea of what those numbers will look like.
According to the release, Ansell expects to deliver FY22 first-half sales of US$1,009 million. Notably, this represents an increase of 7.6% compared to the prior corresponding period. However, as we run further through the financials we'll see this is the full extent of positive news.
Preliminary numbers suggest Ansell will report earnings before interest and tax (EBIT) of US$111 million. In addition, earnings per share (EPS) is slated to come in at 61 US cents for the half. Disappointingly, these metrics are down 24.7% and 26.4% respectively from the previous year's first half. Unsurprisingly, the Ansell share price is struggling on this news.
According to Ansell, margin compression is a result of COVID-19 related operational challenges and softer demand in the exam/SU division.
Additionally, the company's outsourced finished goods experienced a lower volume of sales as customers opted to reduce inventories prior to ordering more.
Other factors hurting business during the half included higher freight and labour costs; as well as manufacturing shutdowns. Although, higher costs were partially dealt with through passing on price increases to customers.
What else?
Investors could be responding negatively to Ansell's other portion of today's update. Regarding manufacturing and supply, the company has been witnessing an increase in COVID-19 cases at its manufacturing facilities. Because of this, the Malaysia facility had to shut down completely last week.
Meanwhile, on 28 January 2022, the United States Customers and Border Protection issued a withhold release order against YTY Industry Holdings Sdn Bhd (YTY). This company is a major supplier of exam/SU gloves to Ansell.
The order means ASX-listed Ansell will be unable to import its disposable gloves into the US while the order stands. At this stage, YTY is working with the necessary parties to show that its operations are free of forced labour practices.
Lastly, Ansell provided a guidance update today to allow for disruptions to YTY supply. As a result, the company now expects FY22 EPS to be between 125 cents to 145 cents. This is compared to the previous range of 175 cents to 195 cents.
The Ansell share price is now down ~37% in the last 12 months following today's update.
