Elders (ASX:ELD) shareholders are bracing for a potentially challenging year ahead in 2023-24. The company has forecasted lower earnings and a reduced dividend, following a 26% decline in underlying EBIT for the year ending in September and an 18% drop in the annual dividend.
The reasons behind this gloomy outlook are not unfamiliar during this reporting season. Factors such as inflation, high interest rates, rising costs (especially energy), and the impact of changing weather patterns, including the shift from La Niña to El Niño, have all contributed to this unsettling forecast. These weather changes have negatively affected livestock and grain values and the spending capacity of farmers.
The company will be paying a full-year dividend of 46 cents per share, down from 56 cents the previous year, reflecting the anticipated decline in earnings. Despite this, the company’s performance was slightly stronger than most forecasts, leading to an 8% increase in share value around 11.30am.
The decrease in earnings had already been communicated through two updates earlier in the year, with a corresponding reduction in the interim payout.
Elders Ltd acknowledged its challenging environment but highlighted its resilience through diversification in products, channels, and geographical areas. This diversification contributed to the second-highest EBIT in the last decade, according to the company’s directors.
Looking forward to 2024, Elders anticipates a continuation of market headwinds. However, they also plan to implement a cost-cutting and efficiency improvement initiative.
CEO Mark Allison commented, “We expect some of the market headwinds experienced in FY23 to continue into FY24, but we are well placed to pursue opportunities for further growth and diversification.”
He also noted potential challenges in the agriculture sector, particularly in summer crop production, due to dry and El Niño conditions. Nonetheless, Elders hopes to benefit from acquisition growth and advancements in its backward integration strategy. Additionally, they anticipate improvements in their Rural Products segment as input prices stabilise.
Allison also cautioned about the potential impact of interest rate pressures on the demand for regional residential properties.