Carr's Group disappoints as UK agriculture cannot follow US herd growth

Carr's Group sank to a five-month low as interim results from the mini-conglomerate showed lower revenue and pre-tax profits, but higher earnings and dividends and led to next year's earnings forecasts being trimmed.

The agricultural feeds and retailer, flour milling and engineering mini-conglomerate, which was formerly known as Carr's Milling Industries, has been facing some challenging conditions in some markets in the six months ended 27 February but delivered a robust result thanks to its wide international presence and diverse businesses.

Group revenue was down 9.4% to £189.1m and PBT slipped 0.9% to £10.5m.

However, basic earnings per share (EPS) rose 4.7% to 8.9p and EPS adjusted for acquisition costs were 3.4% higher at 9.0p.

While UK agriculture endures a torrid time due to mild winter weather and low farm gate milk and livestock prices, this was mostly counterbalanced by 11.7% growth from the USA feed block business, led by Smartlic and Feed in a Drum brands.

Sales of feed blocks in the UK were down 2.8% and manufactured feed impressively flat compared to a depressed market that is said to have declined by 4.3%.

Agri retail was solid and fuels performed well.

Directors said they expect the challenging UK farming environment to have a continued impact on the agriculture division during the second half and into the next financial year "as farm incomes continue to be under pressure and farmers look to reduce input costs and delay replacing machinery".

However, the diversity products and geographies should partially mitigate the impact, helped by the continuing expansion of US beef herds.

The milling division was able to rely on business interruption insurance to cope with a major customer being hit by December's floods in the UK, with underlying volumes up by 0.4% and operational efficiencies continue to be delivered by the new high-tech mill at Kirkcaldy.

Operating profits at the engineering division were down 58% after a slow start to the year, partly due to the phasing of contracts and as the refocusing of the UK manufacturing business on nuclear started to gain traction, though management said they were still confident of hitting full year targets as several new contracts have been won that should accelerate through the second half of the year.

Chief executive Tim Davies said: "Trading in the second half is as anticipated and we remain on track to meet the full year expectations of the board."

So, while house broker Shore Capital kept current year forecasts unchanged it cut the numbers for 2017.

For 2016, ShoreCap anticipates adjusted flat PBT of £17.5m and diluted EPS of 13.2p, slightly ahead of the prior year’s 12.9p.

For 2017, reflecting management’s guidance in the interim results, analysts factored in an increase in pressure on trading in the agriculture division that results in a downgrade to group adjusted PBT to £17.1m, a decrease of £1m or 6% and translates into a reduction in EPS of 6% to 12.9p.