Shares in household and personal care products supplier McBride slumped up to 18% this morning after the company said full year 2017/18 adjusted pre-tax profits would be “marginally below the lower end of analyst expectations”. The trouble is that “marginally below” is still worse than even the most pessimistic of number crunchers. And traders don’t like profits warnings, especially so late in the day, and having already issued one in January.

France is highlighted as registering continued revenue declines since half-year results in Feb, albeit balanced by growth in Germany. Personal Care & Aerosols is expected to post marginally higher losses than expected due to weak revenues.

Today’s admission comes after weaker than expected sales in May and June, despite increasing volumes in the final quarter. Matter were made worse by higher distribution/warehousing costs and inefficiencies. Disappointing sales on higher volumes with higher costs: not a good recipe for profitability.

June may have shown some sales improvement, but clearly nowhere near enough to make up for May. And June was obviously still weak itself. The aggregate clearly made for an extremely disappointing close to the year, so much so that it nullified Feb’s full year guidance (“adj. PBT and adj. EPS broadly in-line with last year”). Either that or the company was already sailing too close to the wind at the half way stage and was hoping for the best.

Only a couple of days into July, the risk is that the weakness that lead to today’s warning persists, making for a weak start to the new financial year. This is likely what hurt the shares most today: reduced expectations have a knock on for financial forecasts and thus valuations.

The company clearly waited until the very end of the period to see whether profits might sneak in at the lower end of guidance. It wasn’t to be. Results on 6 September will offer much more detail and of course fresh guidance on 2018/19 which could impact valuations and the share price again.

With the shares well off their worst levels though, investors (and bargain hunters) are clearly hoping that the improvement in June persists into July and August, that the company’s downbeat assessment and share price are both over-reactions, and that things are brighter going forward. Work to do, though, with the shares -46.1% YTD from December’s best in nearly 8 years.

Mike van Dulken, Head of Research, 3 July 2018