GrainCorp not so positive

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Investors hammered GrainCorp after the company issued a cautious outlook statement and reported full year earnings that failed to meet market expectations.

The grains handler and marketer, which recently added a malting business to its portfolio of assets, said net profit for the 12 months to September 30, 2010 came in at $80.2 million, up 27 per cent from the prior corresponding period.

While the result was within company guidance of between $75 million and $90 million, it was below market consensus of $87.2 million.

And the company said there would be pressure on earnings from the malt business, given a soft demand for beer in mature markets such as Europe and the US.

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A high Australian dollar would also hit export sales.

"It is hard to be positive about a stock when they are so leveraged to what could be a fairly subdued market in North America and Europe, and I don't see the Australian dollar heading too far south in the near term."

GrainCorp said revenue rose 19.9 per cent to $1.996 billion.

Chief executive Alison Watkins, delivering her first earnings result since being appointed in June, attributed the lift in profit to the company's newly acquired malt business.

"The story really is that the diversification of the business into malt has underpinned a sound result," Ms Watkins said during a conference call with analysts on Thursday.

"It has added, as well as that earnings diversification, a geographic diversity.

But Ms Watkins said there would be pressure on malt earnings in the current year amid "quite soft" beer demand in markets such as the US and Europe.

"Certainly we are being impacted by the demand in the mature markets," she said.

Grain receivables were "below normal" in fiscal 2010, falling to 7.4 million metric tonnes (mmt), down from 9.6 mmt in the prior corresponding period.

Grain exports handled dropped to 3.5 mmt, compared with 5.2 mmt in fiscal 2009.

Ms Watkins said a bumper crop was expected at this year's harvest, but added it was running about three to four weeks late.

Australian Crop Forecasters expect this year's grain harvest to come in at 22 mmt, which would be "one of the largest harvests on record" in eastern Australia.

"That is by any measure a big crop. We would say a normal crop is about 16 million tonnes," Ms Watkins said.

She said the late crop was reflected in the fact GrainCorp had handled about 3.2 mmt so far this season, compared with about five mmt at this stage of a normal year.

Ms Watkins said this, coupled with concerns about the impact of weather on the quality of the grain, meant it wasn't possible to provide the market with a profit forecast for the current year.

"At this time of the year, we don't find it appropriate or wise to try and provide specific earnings guidance because there is a lot of uncertainty, particularly around the crop," Ms Watkins said.

The company declared a final dividend of 10 cents per security, fully franked, as well as a special dividend of five cents per share, also fully franked.

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