Trading update from Creightons Creightons (LON:CRL) released at just after 4pm states that significant and unexpectedly higher order intake has resulted in demand outpacing manufacturing capacity. As a consequence the Company has decided to outsource the supply of some branded product lines rather than disappoint customers, which has adversely impacted profit margins. The net result is that full year profit before tax is likely to be marginally lower than last year, so around £1.5m. However the profit after tax will also be impacted by the first full year of full corporation taxes, which as far as I can tell is 19%. I am not sure how this impacts earnings. For the year to March 2017 diluted EPS was1.88p
I have a small holding in Creightons and would ordinarily sell a stock on a profit warning but given the nature of the warning and that Creightons is in the process of addressing the capacity issue, I am inclined to hold and depending on the price reaction may add. The share price fell about 14% on the announcement which is comparatively muted, perhaps reflecting the nature of the profit warning.
Thoughts and views welcome.
Jonno
Good questions.
1 They are only sacrificing margin because of the outsourcing. Margins improved last year and they are getting higher margins on increased own product sales.
2 They are in the fast moving consummer goods (FMCG) sector and so by the very nature there is limited visibility on forward orders. This goes with the territory but Creightons (LON:CRL) has such a growing reputation and demand for their capabilities it is unlikely they will be screwed as badly as most suppliers. They formulate many of their clients products and are not merely a supplier bidding on contract price.