Gloves and condoms maker Ansell insists it can lift full year earnings despite a steep drop in first half profit.
Ansell disappointed the market with a 15 per cent fall in net profit to $55 million for the six months to December 31, despite revenues growing 5.1 per cent to $627.9 million.
News of a buyback of up to three million shares and Ansell lifting its interim dividend by one cent to 16 cents also failed to impress investors.
But chief executive Magnus Nicolin insisted Ansell could still meet its target of mid-single to low-double digit earnings per share growth this financial year, despite the lower-than-expected first half result.
The group was expected to benefit from its four recent acquisitions, new product launches and lower raw material costs in the second half.
“We have a lot of confidence because we have done the maths on the components,” Mr Nicolin told analysts on Wednesday.
“This is not based on hope, this is based on analysis.”
Investors didn’t appear to share the same confidence, pushing Ansell’s shares down 97 cents, or 5.7 per cent, to $15.94.
CMC Markets chief market strategist Michael McCarthy said Ansell would have to lift its profits by 25 per cent in the second half to meet its full year earnings target.
“I’m not sure how much credibility management have for their full year guidance,” he said.
“The market is pricing in future downgrades.”
Mr Nicolin said Ansell had faced challenges from integrating its recent acquisitions, including French glove maker Comasec and Brazilian protective equipment maker Hercules, during the first half.
Its organic sales had also been flat, partly because of European car makers buying fewer gloves after cutting back their working weeks to four days from seven.
Distributors in the United States and Europe had also slashed the number of Ansell gloves they had in stock.
But Mr Nicolin said benefits had begun to flow from the acquisitions and the raft of new products Ansell launched in the first half.
Its new SKYN condoms brand were already taking market share in the US, France and Poland.
Ansell’s best performer during the first half was its medical business, which makes surgical gloves and saw earnings up 5.5 per cent to $17.2 million.
However earnings at its industrial gloves business fell four per cent to $38.1 million due to the cost of several new product launches.
Ansell’s specialty markets division also saw earnings halve to $4.8 million, partly because of turbulence in the military business due to soldiers returning from Afghanistan and the Australian military postponing orders.
Ansell’s sexual wellness earnings also slumped 29.6 per cent to $14.5 million from $18.8 million despite solid growth in the company’s branded condoms.
Chief financial officer Rustom Jilla said Ansell was launching a share buyback because of its strong cash position.
He added that Ansell was hitting the pause button on acquisitions as it focused on integrating its recent acquisitions.
