KEY POINTS:
Rural services company PGG Wrightson has slashed its profit forecast after real estate sales "dropped off a cliff".
The NZX-listed firm yesterday cut its net earnings forecast for the year ending June 30 to between $39 million and $45 million, down from guidance in October of $46 million
to $51 million - a drop of 13.4 per cent at the mid-point.
PGG Wrightson said the main factor in the revised outlook was an expected loss in the group's real
estate business, given the impact of economic conditions on demand for properties.
Managing director Tim Miles said the real estate business was expected to be about $11 million below budget and the previous year.
"We started off all right but what we've seen ... it would be an unprecedented deterioration in the market," Miles said. "It's dropped off a cliff."
The Real Estate Institute of New Zealand said 348 farms were sold in the three months to November, down 49.1 per cent on the previous year, with sales in November alone down 64.3 per cent on the previous year.
PGG Wrightson handled $2.6 billion worth of real estate sales last year.
"I think we're pretty much saying that it [the market] won't move fast enough to have robust amounts of revenue coming through in autumn," Miles said.
Shares closed down 7c yesterday at $1.53.
Forsyth Barr analyst John Cairns said the market would have known that earnings from the real estate part of the business would have been under pressure.
"But most probably the extent of the decline and the impact upon earnings would have taken some by surprise," Cairns said.
"On [a positive] note they did say the rest of the business is performing in line with expectations but bearing in mind a lot of the earnings are very much skewed to the second half."
PGG Wrightson said the reduced guidance was up to 15 per cent higher than the previous year's operating earnings and the real estate business was performing as well as could be expected in extremely difficult conditions, with growth in market share and substantial cost reductions being implemented.
The market outlook for the rest of the season was relatively uncertain and depended on a range of factors including rural sector performance, interest rates, lenders' appetites for rural lending and currency exchange rates.
"Beyond the current season, real estate earnings are expected to recover given the impact of these factors," the company said.
"The operating performance of most of the group's other businesses in the current year remains strong despite the difficult economic environment."
Net earnings in the six months ending December 31 were expected to be affected by a writedown of an 11 per cent shareholding in NZ Farming Systems Uruguay, costs related to the termination of a partnership agreement with meat processor Silver Fern Farms and the "marking to market" of interest rate hedges and adjustment of defined benefit superannuation scheme surpluses under international financial reporting standards.
PGG Wrightson said it was not possible to be definitive about the extent of any impact at this stage and only the Silver Fern Farms exposure would be a cash item.
A deal to buy half of Silver Fern Farms for $220 million was terminated last month after PGG Wrightson missed the first instalment of $145 million in September because it was unable to finalise bank credits in the financial market environment.
PGG WRIGHTSON
* Net earnings forecast cut by 13.4 per cent to $46-$51 million.
* Real estate business is expected to be down $11 million on last year.
* Most other businesses in the group remain strong despite the environment.