Freight costs take a bite out of SDI profits

Dental technology company SDI Ltd (ASX:SDI) says it is expecting a solid 16% boost in revenues for the year to June 30, but that will not mean a higher earnings figure.

Higher freight costs have crimped margins and soaked up much of the solid rise in revenue for the year to June.

Melbourne-based SDI researches, develops, manufactures, and distributes specialty dental materials, across Australia and to a number of international markets.

The company told the ASX in a trading update early Tuesday that it now sees sales for the year to June 30 rising 16% to around $95.0 million, compared to $81.6 million for 2020-21.

But as solid as that performance is, SDI revealed earnings will be lower for the 2021-22 financial year, thanks to the higher cost of freight in the past few months.

“The company estimates that after tax-profit, for the twelve months ending 30 June 2022, will be within the range of $7.0 million to $7.5 million, a decrease of 16% to 22% compared to financial year 2021 of $8.9 million.

CEO Samantha Cheetham said in Tuesday’s statement;

“We are thrilled to announce that FY22 will be a record sales year for SDI, with an estimated $95 million of sales for the year.

“The strong growth momentum we achieved in the 1H22 continued throughout the 2H22, with all product areas growing strongly across all regions.

“Freight costs remain an ongoing headwind for the group, as with many other companies, impacting the bottom line with an expected net profit of $7.0-$7.5 million for FY22.

“Despite this, we remain committed to our strategy of prioritising customer service and, whilst we have incurred additional freight costs to ensure supply, we are confident that our strategy has led to increased market share underpinning this record sales result, and best positions SDI for future growth.”

Even though its a toddler in terms f market value, SDI’s experience with higher freight costs will be repeated by a large number of other companies – especially exporters and importers.

This will be on top of higher raw material costs and rising inflation.

In the current market news of a good rise in revenue and a warning for a sharp fall in profit, would have been enough to tip the shares of the reporting company out of bed and into the doghouse – just look at the way investors have sold off GUD Holdings shares by close to 25% since last Friday for a smaller earnings downgrade.

But investors didn’t worry about the news of the 22% slide in SDI’s after tax profit and sent the shares up 3.1% to 82.5 cents.

That was in a wider market up 1.4% on the day.

SDI says its 2021-22 results will be out on Friday, August 26.