PGG Wrightson lifts annual earnings outlook for a second time, warns of weak farmer confidence

PGG Wrightson [NZX: PGW], the rural services firm controlled by China's Agria Corp, lifted its annual earnings outlook as second-half trading came in ahead of expectations but warned weak farmer confidence may weigh on future sales.

The Christchurch-based company expects annual operating earnings before interest, tax, depreciation and amortisation to be between $66-69 million in the year ending June 30, above the February forecast for earnings between $62-68 million. That in itself was an upgrade from previous guidance to beat last year's earnings of $58.7 million.

Wrightson is trading ahead of expectations, with strong seed sales across New Zealand and Australia, despite "challenging conditions" in the domestic market, it said in a statement. Still, dairy prices have dropped, hitting New Zealand's largest export commodity and denting farmer confidence, while a dry summer had also been felt in some regions.

"The improving PGW results we are seeing are a direct result of the hard work we've put into our business over recent years," chief executive Mark Dewdney said. "Looking ahead, reduced farmer confidence in dairy and lamb is creating more uncertainty than usual over spending intentions for next season. This may result in farmers reducing expenditure, which will potentially impact our financial performance."

The Reserve Bank yesterday cut interest rates as falling dairy prices dragged down the nation's terms of trade more than expected, and has previously cited the sector as a key risk to the nation's financial stability given the industry's concentration of high indebtedness.

In February Wrightson reported a 47% gain in first-half profit to $19.7 million in the six months ended December 30, beating analysts' expectations. Operating ebitda climbed 51% to $33.6 million and revenue from continuing operation increased 3.1% to $654.7 million.

Agria first invested in Wrightson in 2009 when the company was forced to raise new equity to repay bank debt during the global financial crisis, after Wrightson's funding lines dried up and scuttled a bid to merge with Silver Fern Farms a year earlier.

Wrightson shares rose 2.2% percent to 46.5c and have fallen 1.1% since the start of the year.

(BusinessDesk)