Why did the Maggie Beer share price just crumble 17%?

The gourmet food producer is increasing prices and downgrading guidance after it was hit with unforeseen costs.

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Key points

  • The Maggie Beer share price is suffering on Thursday after the company dropped its financial year 2022 earnings guidance by around 30% 
  • The drop in expected earnings came after the company was hit with millions of dollars of unforeseen expenses over the four months to April
  • It has upped the retail prices of its products in response to the additional costs and remains on track to announce its maiden dividend alongside its full-year results

The Maggie Beer Holdings Ltd (ASX: MBH) share price is sinking after the company released a trading update for financial year 2022.

While sales continued to increase at the company's core businesses, it's faced notable unforeseen costs. In reaction, the company dropped its earnings guidance and upped prices charged for its products.

At the time of writing, the Maggie Beer share price is 40 cents, 13.04% lower than its previous close.

However, that's an improvement on its earlier performance. The stock was swapping hands for just 38 cents at its intraday low, representing a 17% tumble.  

Maggie Beer share price plummets as costs surge

Some of the key points from the Maggie Beer trading update include:

  • The company's core business Hampers and Gifts Australia saw pro-forma sales increase 25.6% over the financial year to April compared to the same period of last financial year
  • Fellow core business, Maggie Beer Products, saw a 19.3% increase in sales over the period
  • Maggie Beer's e-commerce sales rose 165.6% while its net sales increased 13.1%.
  • The company dropped its earnings guidance by $4.2 million
  • It's on track to announce its maiden dividend at the end of the financial year

What's happened over the financial year so far?

The Maggie Beer share price is plunging on bad news regarding the company's full-year earnings.

The company has realised $4.2 million of unforeseen and higher than expected costs. Many of these were born from floods in Australia, the war in Ukraine, lockdowns in China, and global fuel and freight costs.

Maggie Beer's dairy segment accounted for around $2.8 million of the expenses. It was hampered by ongoing COVID-19 impacts, a shortage of milk, and high commodity prices.

Paris Creek Farms' branded milk's launch into 400 stores – scheduled for March – was delayed by COVID-19 disruptions and flood events. The milk reached 200 stores in May with the remainder expected to be on shelves by September. That will dint the company's earnings for this financial year.

Additionally, its Saint David Dairy has struggled through skills and labour shortages, resulting in the loss of some customers.

The company noted it has now labelled its dairy businesses "non-core". It expects to outline the segment's future in its full-year results.

Maggie Beer started working to increase the price of its products to offset the additional costs in March.

However, such increases are slow to hit the major supermarkets. The price rise should be reflected on grocery store shelves later this month.

What did management say?

Maggie Beer CEO and managing director Chantale Millard commented on the news driving the company's share price lower today, saying:

As with all businesses, the second half of [financial year 2022] has seen many new challenges arise, with further flow-on effects of COVID-19, increases in costs due to the devastating floods in Central Australia and Northern NSW and QLD, and the war in Ukraine.

The group and in particular [Maggie Beer Products] and [Hampers and Gifts Australia] have continued to perform well, with its diversified revenue stream, whilst absorbing the higher costs and delivering industry leading gross margins.

With price increases being implemented across the group we expect to see our earnings growth return to expected levels in [financial year 2023].

What's next?

The Maggie Beer share price is likely also being dinted by a guidance downgrade.

It's on track to reach its previously given net sales guidance of between $95 million and $100 million.

However, its earnings before interest, tax, depreciation, and amortisation (EBITDA) for the full year is now expected to fall between $9.25 million and $10.5 million. Previously, its financial year 2022 EBITDA guidance was $13.5 million to $15.5 million.

The company has also brought forward its working capital requirements on the expectation of increased demand and supply chain issues next financial year.

Finally, Maggie Beer expects to declare a maiden dividend or capital return of no less than 1 cent per share alongside its final results.

Maggie Beer share price snapshot

Today's fall included, the Maggie Beer share price has tumbled 27% in 2022.

Though, it's 25% higher than it was this time last year.

Motley Fool contributor Brooke Cooper 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 Scott Phillips.

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