Morningstar | Chr. Hansen Reports 3Q Results, Lowers Organic Growth Guidance for the Year; Shares Still Rich
Chr. Hansen reported third-quarter and nine-month results for fiscal 2019 with group sales growth of 8% (6% volume, 2% pricing) and 9% (6% volume, 3% pricing), respectively, slightly lower than our full-year estimates. The company also reduced fiscal 2019 organic revenue growth guidance for the group to 7%-8% from 9%-11%, owing to more challenging trading conditions in emerging markets (natural colors), negative growth of the food cultures and enzymes business in China, and continued underperformance of the animal health business. That said, Chr. Hansen left its long-term group guidance of 8%-10% organic revenue growth unchanged and said a lot of work is needed to deliver on those targets . Following this, we reduce our fiscal 2019 organic growth estimate for the group to 7.6% from 9.7%, with the negative effect on our FVE being largely offset by the time value of money. This leaves our FVE unchanged at DKK 600 . A  great deal of CHR's value is driven by our long-term outlook for the business and our belief that recent challenges will not have a structural effect on long-term fundamentals. The shares are still trading in 2-star territory despite being down almost 12% after the results were announced.Group EBIT margin before special items was up 0.7 percentage point to 28.2% year to date, the result of higher capacity utilization at the Copenhagen site as well as profitability improvements and lower raw material prices in the natural colors division. Although management reduced guidance in natural colors for the second time in a year (it had lowered organic growth for natural colors to 5%-7% from 6%-9% based on declining raw material prices and weakness in the Asia-Pacific and Latin America during the second quarter of the year), we do not yet believe this is a result of a structural decline in the underlying business.
Management also announced the distribution of a DKK 6.24 per share extraordinary dividend (versus our expectations of DKK 6.5 per share).
Chr. Hansen is a biosciences group based in Denmark. Co. develops and supplies natural ingredient solutions for the food, pharmaceutical, nutritional, and agricultural industries worldwide. Co. operates in three divisions: Cultures and Enzymes (develops, produces, and sells cultures, enzymes, and probiotics for the food and dairy industries); Health and Nutrition (develops products for the dietary supplement, over-the-counter pharmaceutical, infant formula, and animal feed industries); and Natural Colors (develops natural color solutions to the food industry, primarily for the beverage, dairy, confectionery, fruit preparation and ice cream, as well as functional blends for processed meats).
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