Krones, the world’s leading manufacturer of filling and packaging technology from Neutraubling, Germany, had today one of its worst days as a listed company after the stock crashed more than ten percent.
The company released yesterday after the close of trading a profit warning, saying that “the earnings before tax (EBT) for this period will be significantly below the expectations.” Instead of the previously expected six percent, the return on sales before taxes will be only three percent.
“The profitability of Krones is influenced by high costs, in particular the material cost ratio, remains on high level,” the company said in the statement.
Krones expected that the weaker economic outlook in other important industries in 2019 would have resulted in an easing in the increasing of material costs. Also, the additional measures, which are implemented by Krones to reduce the material costs materialize with a delay.
Furthermore, the product mix has an unfavorable effect on the earnings for the period January till June 2019. Especially in the second quarter 2019 the sales of products with a high own value added, like machines and lines for the plastic technology, were lower than expected.
Apparently, Krones suffers from the growing environmental awareness of consumers. In Germany, for example, glass as a packaging material for beverages is once again in vogue. Customers therefore order fewer machines for filling plastic containers, but these are particularly lucrative for Krones.
Another important reason for the actual earnings development is the sales growth of the high-margin after sales business (LCS), which were in the first 6 month of 2019 below expectations. The demand of the customers of Krones for some parts of the LCS product and service offering, were negatively influenced by the macroeconomic uncertainties. In the second half year the LCS business is expected to recover.
Krones still expects an unchanged growth target of 3% in 2019. The EBT margin is planned around 3% (prior target: around 6%). For its third target, working capital to revenue, Krones expects an unchanged figure of 26%.
The board has taken measures in order to counteract the earnings decline. This includes among others a hiring freeze and measures to reduce the material costs. The strategic measures that Krones has introduced so far, like the price increase and the development of the global footprint are however not sufficient to reach the ambitious targets. Hence, the board is working in additional structural changes in order to strengthen its earning level in the long run.
Krones keeps its mid term targets. Depending on the macro economic environment and development of Krones markets, the board envisages a year-on-year revenue growth of 3 to 5% without acquisition effects, an EBT margin of 6 to 8% and a working capital to revenue ratio of 22 to 24%.
Krones will publish the interim report as of June 30th of 2019 by 25th of July 2019.
