GrainCorp silo
SYDNEY, AUSTRALIA — GrainCorp is anticipating a significant drop in earnings for fiscal year 2018 partly due to an Australian harvest below the long-term average, the company noted on Feb. 15.

GrainCorp said it expects net profit after tax to be in the range of A$50 million to A$70 million, compared with A$142 million in 2017.

Earnings before interest, tax, depreciation and amortization (EBITDA) is estimated in the range of A$240 million to A$265 million, compared with A$390 million in the previous year.

This includes the ongoing tax benefit from the recent change in the U.S. corporate tax rate, with an A$18 million tax benefit in fiscal year 2018.

The East Coast Australian harvest is way down on the previous year and well below the long-term average. Summer crop expectations also have deteriorated due to prolonged hot and dry weather in Queensland and northern New South Wales. Current sorghum crop estimates for are approximately 1.5 million tonnes.

GrainCorp has received approximately 5.8 million tonnes into its network, compared to total 2017 receivals of 15 million tonnes.

Graham Bradley chairman of GrainCorp
Graham Bradley, chairman of GrainCorp

“This has required the company to accelerate initiatives to capture further cost efficiencies across both our Grains and Oils businesses, and to take a further hard look at the priority previously ascribed to a number of ongoing capital projects,” Graham Bradley, chairman of GrainCorp, said in comments to shareholders. “In what promises to be a challenged year for the industry in Eastern Australia, we will seek to optimize our supply chain, reduce costs and drive operational efficiencies. We aim to do this while at the same time continuing to improve the quality of service we provide to growers and to our customers.”

Lower grain stocks across the eastern seaboard means a large portion of the crop will remain in Australia. There is particularly strong demand for grain in some northern regions due to the persistent dry conditions.

Mark Palmquist  managing director CEO of GrainCorp
Mark Palmquist, managing director and chief executive officer of GrainCorp

“The combination of these factors is currently limiting export opportunities and as a result, we expect FY18 exports to be 60% to 75% lower than last year,” said Mark Palmquist, managing director and chief executive officer of GrainCorp.

GrainCorp Malt continues to perform well and will benefit from the expanded and upgraded capacity in Pocatello, Idaho, U.S., the company said.

The restructure and cost reduction initiated in the Oils business last year are on track to deliver its targets for the current year, Palmquist said.

 GrainCorp said the 2018 guidance is subject to a range of variables, including volumes including sorghum receivals, direct to port receivals and port elevations; impact of global crush margins on Australian edible oils; new season trading opportunities in the Grains business; foreign exchange movements; and barley and oilseed procurement.