Mainfreight shares punished for rare earnings disappointment

By Jonathan Underhill

Feb. 14 (BusinessDesk) – Mainfreight, whose chief executive Don Braid was named Management magazine Executive of the Year in 2011, saw it shares punished today after the transport group posted earnings that missed estimates.

The shares declined as much as 9.6 percent, heading for the biggest one-day drop since April 2000. They recently traded at $9.38. Trading lagged behind its expectations in the third quarter in Europe, Asia and New Zealand, the company said.

Third-quarter profit dropped to $17.7 million, from $18.1 million a year earlier, based on figures the company release for the first nine months of the year.

The results caught some investors off-guard as Mainfreight hadn’t provided any guidance to suggest weaker performance and its results typically exceed expectations. The stock had almost doubled in the past two years from as low as $5.78 in February 2010.

The market wasn’t expecting anything near the level of disappointment the company provided,” said Rickey Ward, equities manager at Tyndall Investment Management. For a company that’s been the darling for quite some time it shows you don’t have to do much to lose that credibility.”

Braid played down the stock decline today and said he is “still confident about the business and how we’re going.”

“There’s plenty to fix as well as opportunities for us,” he told BusinessDesk. “We know we’re going good into 2012 and 2013.”

Mainfreight isn’t obliged to post quarterly earnings as the NZX only requires first-half and full-year accounts. It is one of the few on the NZX to still report each three months. While the extra reporting is designed to keep investors informed, it can mean “we take a hammering for it,” Braid said.

Freight volumes and returns “only matched prior year levels,” Mainfreight said in its statement today. “December trading, in particular, was below our expectations.”

For the first nine months of the year, profit rose 35 percent to a record $46.75 million and sales rose 35 percent to $1.37 billion.

Revenue from its Australia International unit fell 5.7 percent to $137.9 million while earnings before interest, tax, depreciation and amortisation dropped 3.3 percent to A$4.5 million.

Braid said the result reflected the absence in the latest period of what is typically a ‘peak’ season between September and December, when trade is swelled by the pick-up in retailing.

“That did not happen – not just for us – for shipping companies, for everyone,” he said.

There was also “intense competition in the shipping sector,” which saw freight rates decline, inhibiting revenues and margin performance,” the company said.

In Europe, where Mainfreight acquired the Wim Bosman Group, sales were 181.8 million euros, generating EBITDA of 12.7 million euros. Trading in the second and third quarters “was below our expectations,” Mainfreight said.

The company cited poor performance at its Belgium Transport operations and its Air & Sea International business, and reduced use of its ‘s-Heerenberg Logistics operations.

Braid said the company knew it was going to lose a couple of major contracts in Europe and it has been working to win new business but replacement accounts won’t show up until June or July this year.

Mainfreight is “trying hard to make it better,” he said of the Belgium business.

Asia International revenue rose 3.1 percent to US$21.96 million and EBITDA fell 11 percent to US$1.72 million, reflecting “reduced shipping rates, volumes, excess capacity and increased operating costs from our network expansion.”

Trading in Asia in the fourth quarter “has started slowly, with activity dented by the Chinese New Year.

Mainfreight said the fourth quarter “has begun positively” and the company is “confident of further improvements and increased trading through to our year end.”

The company’s New Zealand domestic business, its biggest by earnings, reported a 14 percent gain in earnings before interest, tax depreciation and amortisation to $35 million in the first nine months of the year, with market share gains in food and beverage products, though December trading” only matched that of the year prior.”

Mainfreight’s New Zealand International division lifted nine-month sales by 9.9 percent to $100.3 million and EBITDA gained 11 percent to $4.37 million.

(BusinessDesk)

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