Release Date: November 19, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Elders Ltd (EDESY) achieved a strong second half performance, marking the biggest second half in the company's history.
• The company successfully executed 13 bolt-on acquisitions, contributing an annualized EBIT of $14 million.
• Elders Ltd (EDESY) is on track with its backward integration strategy, achieving 58% of the addressable market on a revenue basis.
• The acquisition of Delta Ag aligns with Elders' growth strategy, adding geographical diversification and significant IP and expertise.
• The systems modernization project is progressing well, with technical go-live achieved for Wave 2, promising future benefits.

Negative Points

• Elders Ltd (EDESY) reported a decline in return on capital to 11.3%, below the company's hurdle rate of 15%.
• The company's leverage came in at 3.1 times, exceeding its target range of 1.5 to 2 times.
• Competitive pressures in Western and Southern Australia impacted margins, contributing to a lower-than-expected EBIT.
• The first quarter of FY24 was problematic, leading to a significant impact on leverage and return on capital.
• The transformation projects incurred upfront capital expenditure without delivering significant earnings in FY24.

Q & A Highlights

• Warning! GuruFocus has detected 8 Warning Signs with EDESY.

Q: Did the winter cropping season unfold as expected, given the FY Q4 EBIT guidance? A: Yes, the winter cropping season largely unfolded as expected. Elders ended up just below the midpoint of the EBIT guidance range at $128 million. The first quarter was problematic, but there was recovery in livestock prices and other areas in the second half, despite some competitive pricing pressures in Rural Products.

Q: What second half factors reduced the result from the top end of guidance? A: The second half was strong but not as good as it could have been due to competitive pressures, particularly in Western and South Australia, which had a dry late start to the winter crop. These regions, which are significant for Elders, saw a drop in EBIT contribution from 41% in FY23 to 33% in FY24.

Q: Can you provide an update on current seasonal conditions and the outlook for FY25? A: The outlook for FY25 is positive, with expectations of a return to average conditions in the first quarter. The assumption is for a normal season across rural products and livestock, with some variations like a slight decrease in dry land cotton due to higher planting in Northwest New South Wales.

Q: What are the key drivers of the decline in core return on capital in FY Q4, and what is the outlook for FY25? A: The decline to 11.3% was primarily due to the first quarter impact, which accounted for a 2.8% drop. Transformation projects also weighed on return on capital as capital was spent upfront. However, benefits from these projects are expected to flow through in FY25 and FY26.

Q: How does the acquisition of Delta Ag align with Elders' growth strategy? A: The acquisition aligns well with Elders' strategy by adding geographical diversification and specific IP. Delta Ag brings strong presence in New South Wales, Victoria, and South Australia, along with regulatory packages for animal health and crop protection, enhancing Elders' portfolio.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.