Tate shares gap again after latest profit warning

Tate & Lyle slid back into the same sticky spot it’s struggled in for months, forcing it to announce its third profit warning in a year.

Shares of the UK’s largest cane sugar manufacturer were thrashed 14% lower right out of the gate on Friday morning after it warned annual profits would be below the range it forecast in September, hit by a weak performance in sweeteners in its third quarter.

This means already downgraded guidance Tate gave in September has been cut again.

Group profits for the year ended 31st March are now expected to be “modestly below” the £230m to £245m range it previously guided to in September, said Tate.

Forecasts the company gave in September had already been slashed compared with a forecast for profit to be slightly below £322m made in the previous financial year.

As in each occasion T&S has warned in the last 12 months or so, its statement today partly blamed the expected profit shortfall on a weak performance by its bulk ingredients unit, which sells products such as sweeteners, corn syrup and industrial starches.

The maker of the Splenda sweetener said it didn’t expect conditions in those markets to improve in its final quarter.

The company said transport capacity constraints in the US, weaker EU sugar prices and deterioration in ethanol margins were behind the hit to its bulk ingredients unit.

This reference to transportation snags points to the recurrence of an additional problem that’s stymied Tate’s operational performance of late.

It said in September prolonged and harsh US winter months, early in 2014, disrupted operations at its corn plants, causing global supply problems which ate into profits.

Subsequent delays meant the firm had to deliver to some customers by air, rather than by sea, increasing costs and lengthening delivery time frames.

Supply chain still kinked

Hopes rose amongst Tate & Lyle investors recently that it might have begun to put its troubles behind it.

News reports in December indicated the company had cleared its supply-chain backlog and that logistical reviews had put measures in place to decrease the likelihood such problems would recur.

Investors are therefore expressing an added measure of disappointment by selling the FTSE 250-listed stock hard, perhaps more so following its 20% advance from mid-December lows to the end of January.

Further justification for this sell-off, which could potentially increase the rate of investors dumping the share, comes from sugar industry data giving a more positive tint for the pricing environment.

Several instances of slower production around the globe have tightened capacity and strengthened markets.

Major sugar exporter India exported 2.1m tonnes last season. Shipments this season, that began last October, are expected at 1-1.5m.

This gives credence to market claims that some of Tate’s problems are starting to look deeply ingrained and company-specific, in other words structural.

This obviously trains negative attention on senior management, notably CEO Javed Ahmed, who has overseen a 19% decline in total return since 6th February 2014, albeit the return is admittedly 10% since his first full year at the helm–2010–to date.

Get used to the gaps

So another Tate warning another big gap on its daily chart.

There doesn’t appear to be much to put a break on this latest down leg before a rather obvious support level from back in August/September 2011.

Momentum signals show a sharp downturn in sentiment that could in fact take the balance of trading into the net ‘selling’ zone below the zero dividers, though it hasn’t yet, which could provide the shares with some recuperative elasticity.

Similarly, traders of the Tate & Lyle Daily Funded Trade, offered by City Index, have eased off the pedal somewhat in the latest half-hourly intervals that can be seen in a chart from City Index’s AT Pro platform below.

Here, whilst the MACD ‘Zero Cross System’ which follows the Moving Average Convergence/Divergence concept tightly hasn’t given a short exit/long entry signal yet, the MACD itself is visibly overstretched in this timeframe.

Finally short-term volatility, which is what the green line of the attached Volatility Quality Index purports to display, has tumbled, suggesting more orderly (perhaps calmer) trading. Such conditions tend to enhance any hints of stability seen elsewhere.