Dechra warns earnings will miss City forecasts as pet healthcare company suffers ‘stock reduction’ in US and UK
- Destocking had a material impact on trade in the first quarter of 2023
- Full-year profit comes in at less than £186m, lowering analyst expectations
- Private equity candidate EQT has until June 2 to make a final offer or walk away
Shares in takeover target Dechra fell after the pet health company warned its annual earnings will miss City’s forecasts.
The company, which makes pet medicines and farm animal treatments, said wholesalers in the US and UK are holding fewer stocks, causing sales to fall.
The impact of destocking “is deeper and longer than initially expected,” the FTSE 250 group told investors, with a “material” impact on its performance for the first three months of the year.
Dechra said wholesalers in the US and UK are holding fewer stocks, causing sales to fall
Dechra, which is in talks with Swedish private equity group EQT over a £4.6bn takeover bid, now expects full-year earnings to be below £186m.
Analysts had forecast profits to be between £186m and £199m.
The trade update sent Dechra shares fell 13 percent to £31.70 in late Monday trading.
However, they remain 20 percent higher year-to-date, after rising 33 percent following EQT’s takeover proposal.
EQT has until June 2 to make a real offer or walk away. Dechra said there was no certainty that a final offer will be made.
During the pandemic lockdowns, there was a huge increase in pet ownership, boosting the fortunes of pet companies like Dechra.
But the group said the trading environment has been “more volatile and challenging” than expected since the start of the year.
The market appears to be slowing due to the cost of living crisis that has prompted some families to spend less on the well-being of their dogs and cats.
However, Dechra said there were encouraging signs that the situation was improving in both the US and the UK.
The group insisted it remained “very well positioned” to continue to grow in the medium and long term, despite the “unprecedented” and “short-term trade headwinds.”
The company’s fundamentals and strategy remain strong, our underlying markets continue to grow structurally, we continue to grow in our chosen markets and we have an established, highly experienced and focused management team.
“Our strategy is robust, including a very attractive development pipeline of new products to support our future growth, supported by a strong balance sheet.”