Why Shares In Tate & Lyle PLC Are Falling Today

Sweetener producer and sugar refiner, Tate & Lyle’s (LSE: TATE) shares are collapsing today, down around 17% at time of writing after the company issued yet another profit warning. 

The group announced today that profit for the full-year will be in the range of £230m to £245m, down from the previously expected £292m — the consensus amongst City analysts. 

A tough yeartate&lyle

Tate’s troubles can be traced to the company’s supply chain, where the prolonged and severe winter within the US earlier this year, caused operational difficulties at the company’s corn plants. As a result, Tate entered the year with lower inventories of corn than usual. What’s more, the group was hurt by the extended shutdown of its SPLENDA® Sucralose facility in Singapore during the first quarter.

Unfortunately, even though these supply chain disruptions occurred during the first quarter, supply chain disruption lasted longer than expected. Due to the continued disruption, the group expects to incur additional non-recurring costs during the second quarter of around £20m, bringing the total exceptional costs for the first half to around £40m.

In addition, the group expects to report further non-recurring costs of around £10m during the second half of the financial year.

Commenting on today’s warning Javed Ahmed, chief executive, said:

“The Group’s performance in the first half has been extremely disappointing as we have faced significant manufacturing and supply chain challenges, and intense competition in SPLENDA® Sucralose. I have instigated an immediate review of our planning and supply chain processes…I continue to be encouraged by our robust innovation pipeline, the strength of the Speciality Food Ingredients business excluding SPLENDA® Sucralose, and continued growth in emerging markets…”

A great outlook 

Still, even though today’s profit warning is disappointing, investors shouldn’t jump ship just yet. Indeed, Tate has many attractive qualities, supply chain disruptions due to a severe winter is hardly something the company can control. What’s more, Tate’s directors have recently been showing their support for the company.

Over the past few months, Tate’s directors have been buying big chunks of the company’s shares. Javed Ahmed brought 20,000 shares a few months ago and chairman Sir Peter Gershon acquired 10,000 shares at a similar price. In total these transactions totalled just under £200,000 — not a small bet. 

Attractive dividend 

And then there’s Tate’s hefty, well-covered dividend payout. At present, after today’s declines the company supports a dividend yield of around 4.5% and City analysts have a 3.3% dividend increase pencilled in for next year. Last year the payout was covered twice by earnings per share. 

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The Motley Fool has recommended shares in Tate & Lyle.