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Weak Australian crop prospects overshadow GrainCorp profits surge

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Shares in GrainCorp tumbled as the malt-to-vegetable oils group overshadowed the release of results showing a quadrupling in earnings by forecasting a reversal ahead, thanks to Australia’s weakened crop prospects.


The Sydney-based group unveiled earnings of Aus$125.2m for the year to the end of September, up from Aus$30.9m the year before, on revenues up 10.0% at Aus$4.58bn.


The earnings growth reflected jumps in profits at GrainCorp’s storage and logistics unit, and its marketing division – both of which benefited from the extra volumes provided by Australia’s record winter grains harvest last year.


The businesses, which GrainCorp is now combining, “benefited from increases storage and merchandising opportunities aided by the large harvest”, said Mark Palmquist, the GrainCorp chief executive.


“We successfully executed a large grain export programme despite persistently high global crop supplies and depressed grain prices,” with shipments of 7.2m tonnes up from 3.0m tonnes the year before.


Grain receivals from growers, at 15.0m tonnes, were up 70% year on year, while total grains throughput, at 19.9m tonnes, grew 72%.


‘Challenging year’


Nonetheless, GrainCorp Shares closed down 4.9% at Aus$8.13 in Sydney, with the group reporting underlying earnings of Aus$142m, below the Aus$156m figure that investors had expected.


Mr Palmquist acknowledged “a number of challenges” in the foods business within GrainCorp’s oils division, “with margin compression and prolonged process in capturing efficiency improvements at our plant in West Footscray”, in Melbourne.


And he forecast a “challenging year” ahead for the group’s grains business, thanks to the prospect of a “substantially smaller crop in eastern Australia”, its core operating area, where drought has wrought particular damage to yield prospects.


‘Down considerably’


“Estimates that are out there from forecasters are definitely looking at a smaller crop,” he told investors, flagging a forecast from the official Abares bureau of an east coast harvest of 16.8m tonnes, while Australian Crop Forecasts puts the figure at 15.5m tonnes.


“So down considerably from a crop size of over 27m [tonnes] last year.”


“We are planning for big declines in receivables due to the small harvest in Queensland and northern New South Wales.


“East coast production is definitely going to be skewed towards Victoria and southern New South Wales.”


Summer crop outlook


Mr Palmquist added that the initial outlook for summer crops was “promising”, thanks to recent rains which have boosted sowings hopes for the likes of sorghum, if slowing the wheat harvest.


Nonetheless, the group was forecasting “grain exports to be well below average” in the current financial year.


Analysts at Credit Suisse lowered to Aus$9.02m, from Aus$9.42, their target price for GrainCorp shares, but kept an "outperform" rating.

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