Rural services company PGG-Wrightson has downgraded its earnings potential by as much as 12%, on the back of the weaker dairying forecast payout.
PGG Wrightson (PGW) yesterday forecast its full year operating earnings before interest, tax, depreciation and amortisation (Ebitda) for 2015 is expected to be in the range of $61million to $67 million, the extreme prediction being 12.3% down on last year's $69.6million.
PGW chief executive Mark Dewdney said an earlier low dairy payout forecast by Fonterra, at the time farm budgets were being set, was the key reason PGW's earnings ''may dip'' during 2016.
''While the recent bounce in global dairy prices provides welcome relief for the sector, our view is that this news has come a little late for New Zealand dairy farmers to materially increase their spending with us for the current season,'' Mr Dewdney said.
Shares in PGW were down slightly, trading around 42.5c, after the announcement.
Craigs Investment Partners broker Peter McIntyre said the dairy sector was always going to have an influence on PGW.
''[However] the recent dairy recovery is not strong enough to replace the 60% pull back in [global] prices,'' he said.
The overall (all products) global dairy trade index had fallen 60.4% from March to August this year, while the index rebound from August to late October has recovered by 49%.
Mr McIntyre also noted while PGW was positive on beef and lamb, the potential effects of an El Nino summer also had to be considered.
With the first quarter of the current financial year finished, Mr Dewdney said PGW was ''tracking slightly ahead'' of expectations, with its Seeds division having booked ''a strong start to the year''.
''Although dairy is a significant part of the overall story, you need to look at the wider agri-sector to get a more comprehensive view on things,'' he said.
Confidence remained high in beef, horticulture and viticulture, which were sectors where PGW was very strongly represented, while improvements within PGW would help support 2016 earnings, he said.
