Nufarm shares plummet 25% after cutting profit forecast by 31%

Shares in agricultural supplier Nufarm have plummeted more than 25% this morning after the company announced a profit downgrade late yesterday due to volatile markets and demand in North America, Europe and Australia.

But in a poor day for the industry, Sigma Pharmaceuticals also dropped its full-year profit forecast by 31% in order to attract South African suitor Aspen Pharmacare to upgrade its $649.73 million bid.

Nufarm shares have dropped 27% this morning to $3.80 after the company announced late last night it expects net operating profit to be between $55-65 million, compared to its previous guidance of $110-130 million.

“Unfavourable climatic conditions – particularly in North American and Europe – have contributed to poor demand for crop protection products,” the company said.

“This has had a compounding negative impact on the business with distribution customers able to operate with unusually low inventory levels and additional competition for fewer sales resulting in price and margin pressure in key markets.”

The announcement specifically states pricing for crop protection products in Australia is “extremely competitive”.

“While price increases have been implemented on some products, the extent of those increases is well below pricing assumptions made in the company’s forecasts.”

Nufarm managing director Doug Rathbone said the result is “extremely disappointing”, and confirmed the company will now be rethinking its strategic direction – which could include reshaping the business.

“The business still has very good growth prospects, but our challenge now is to achieve those targets from a lower base,” chairman Donald McGauchie said.

Meanwhile, troubled pharmaceuticals group Sigma has slashed its full-year profit forecast by 31%. It is currently working with South African group Aspen Pharmacare, and hopes the company will increase its $649 million bid.

Its shares were down over 1% to $0.48c this morning after the announcement was made.

The company said in a statement it expects underlying net profit of between $53 million and $57 million for the year to January 2011, down from a previous forecast of $80 million. Profit is expected to be within $43-47 million.

The update comes after the company announced two weeks ago that it would be hard for the group to meet its previous $80 million forecast due to increased competition in the generics industry. In today’s announcement, the company said this particular sector was performing below expectations.

“Sigma’s performance in the first five months of the financial year has been sound in most areas of the business,” the company said in its statement to the ASX.

“Performance in the generics division remains below budget. Competition in this area remains intense. Sigma believes this is primarily due to suppliers seeking market share in anticipation of substantial future growth in the generics market.”

The company has been plagued with problems through the year, after reporting a $389 million loss for the year to January 31. Chief executive Elmo de Alwis resigned shortly afterwards, followed by chief financial officer Mark Smith and chairman John Stocker.

Analysts suggest it will be tough for Sigma to demand a solid deal for the company in light of today’s profit downgrade.