Why is the Ansell share price crashing 13% today?

Here's why the Ansell share price is getting a lot of attention today.

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Key points

  • Ansell shares are being smashed on Tuesday
  • Management advised that it is on track to achieve its guidance in FY 2023
  • However, FY 2024 earnings are forecast to fall year on year

The Ansell Limited (ASX: ANN) share price is on the slide on Tuesday morning.

At the time of writing, the health and safety products company's shares are down 14% to $23.85.

Why is the Ansell share price crashing?

Investors have been hitting the sell button this morning in response to the release of a trading update that provided guidance for both FY 2023 and FY 2024.

According to the release, based on the initial consolidation of its full-year results, Ansell expects to report statutory FY 2023 earnings per share (EPS) in the range of 117 US cents to 118 US cents.

After excluding the benefit of provision adjustments associated with its Russian exit, underlying EPS will be in the middle of its most recent guidance range and at the low end of its original guidance range.

What happened during the year?

Management advised that Industrial GBU sales for FY 2023 were approximately US$750 million, which is down slightly from US$762.5 million a year earlier. In the second half of the year, organic growth was achieved in both Mechanical and Chemical, as well as overall margin improvement compared to the prior half.

Healthcare GBU sales were approximately US$900 million for the year, down from US$1,189.6 million in FY 2022. The company revealed that the effects of channel partners and end customers reducing high levels of inventory accumulated over the past two years continued to be experienced in the second half.

FY 2024 trading update

The company appears cautiously optimistic about its Industrial prospects in FY 2024. Though, it acknowledges that its "performance will be influenced by broader macroeconomic developments."

In Healthcare, the company expects volumes to recover but for this to be offset by price reductions. It also highlights that underlying end-user demand for its Surgical and Life Sciences products is expected to continue to grow. However, it also anticipates that distributors will continue reducing their inventories.

Investment program

Ansell also plans to embark on a major investment program encompassing a series of productivity initiatives. These are being designed to drive EPS growth and improve returns on capital employed.

Management advised that it aims to:

Simplify and streamline our organisational structure, achieving clearer organisational alignment to customer and market-oriented growth strategies and reducing cost with less duplication of leadership responsibility.

Reduce manufacturing employee numbers in order to provide a partial offset to the unfavorable impact of slowing production while investing in improving longer term manufacturing productivity through increasing automation, leveraging new operating systems and making limited changes to our manufacturing configuration where optimisation opportunities exist.

Ansell expects the program to have a cash cost of US$40 million to US$50 million. However, these investments are expected to deliver annualised pre-tax cost savings of US$45 million by FY 2026.

Earnings to fall in FY 2024

Based on the above, the company has warned that its earnings could fall in FY 2024.

It is guiding to FY 2024 EPS in the range of 92 US cents to 112 US cents on an adjusted basis (excluding its investment program costs).

Including its investment program costs, Ansell's EPS is expected to be in the range of 57 US cents to 77 US cents.

The Ansell share price has now wiped out all its 12-month gains and some more.

Motley Fool contributor James Mickleboro 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 recommended Ansell. 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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