BackUPL trims guidance on adverse weather conditions in Americas, Europe
Headwinds in overseas markets made UPL wary about the 12-15% revenue growth guidance it had earlier given
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Investors in UPL Ltd would do better to watch weather stations than business channels. Adverse climatic conditions in its export markets not only led to disappointment in the fertilizer maker’s December quarter earnings, but also prompted the company to cut its near-term guidance.
Although December quarter sales grew 15.5% over a year ago, they fell short of analyst estimates. That miss was driven by Latin America while domestic and European markets grew by a fifth. Revenue from Latin America, which contributes more than one-third of the firm’s sales, grew by only 18% compared with a 25% pace in the year-ago period.
Business in Latin America was weighed down by adverse weather conditions and unfavourable end-product prices for some crops. Argentina and Mexico faced dry weather conditions. Consumption of agrochemicals in Colombia faced disruption due to a farmers’ strike. North America, on the other hand, registered very bad dry weather conditions in the western regions, which impacted on horticulture—a key business segment for UPL.
On the positive side, the company did see better soya bean and cotton acreage trends in Latin America. Its soya herbicides received good response in the US. But these weren’t enough to compensate for unfavourable conditions elsewhere.
UPL’s slow sales growth also led to flat operating margins. Earnings before interest, taxes, depreciation and amortization rose 15%, lower than analysts’ expectations of 19%.
The headwinds in overseas markets made the company management wary about the 12-15% revenue growth guidance it had earlier given for the current fiscal year. They now expect to meet the lower end of this target. Margin expansion estimates, too, have been cut to 80 basis points compared with one percentage point earlier. A basis point is one-hundredth of a percentage point.
While analysts like UPL for its global reach and balance sheet improvement, the December quarter results highlight the challenges the company is facing in overseas markets.
This muted outlook has evidently led to investor disappointment, as can be seen from the 10% fall in the UPL stock compared with 4% for the broader market. While the ongoing buy-back may provide some support to the stock, for it to gain considerably, the environment in the Americas and Europe has to turn favourable.
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