Smashed: food giant in jam as avocado, tomato and berry sales diced
Australia's largest fruit and vegetable grower has been smashed by an unexpected fall in tomato, berry and avocado sales last month, promoting a hefty profit downgrade and a share-price savaging.
Investors savaged Costa Group on Thursday slicing 37 per cent of its share price by 2.30pm and wiping almost $1 billion off its market value in the process after it said it expected flat profit growth this year and not the healthy growth it had earlier forecast.
The company said it experienced "subdued demand" for tomato, berry and avocado in December, and trading had been "slower than planned" so far in January too.
"This patchy demand has been reflected in reduced pricing for a number of product lines," the company said in a trading update released to the ASX.
Australia's peak avocado body however said that domestic demand for the fruit was "steady", with consumption increasing at about 6 per cent every year since 2006.
Production was also ramping up rapidly, with about 26 per cent more fresh avocados in the combined Australian and New Zealand market in December compared to a year earlier, according to Avocados Australia CEO John Tyas, who said the industry needed to start exporting more to an oversupply at home.
"The expected growth in supply is well above previous consumption growth," Mr Tyas said.
"The expectation is that significantly more fruit will be marketed to offshore markets as the domestic market approaches saturation."
Costa in November reaffirmed its guidance for net profit after tax growth in the "low double digits", or at least 10 per cent, this financial year.
But on Thursday the group said its profit for the year to June 2019 would be largely flat on last year's result of $76 million.
As well as the lower December sales, Costa said profit would be lower because of the cost of investing in a blueberry farm in Morocco and a hold-up in upgrading a mushroom farm in South Australia.
"The company does not view the immediate issues as structural and regards the conditions as a cyclic situation", Costa said, adding that its compound annual growth rate would still be in the double digits for the period between 2017 and 2019.