August 20, 2018 / 7:27 AM / 3 months ago

Ansell shares pummelled as rubber price, tariffs weigh on outlook

* 2019 guidance falls well short of analyst expectations

* Shares suffer worst trading day in 2 yrs, down 7 pct

SYDNEY, Aug 20 (Reuters) - Australian rubber products maker Ansell Ltd warned on Monday that rising raw material costs and the prospect of tariffs on U.S. exports to China could stall earnings growth next year, sending shares plunging 10 percent.

The company said a short supply of synthetic latex had already begun to lift its costs, and that if China retaliates to U.S. tariffs on rubber imports with its own, Ansell earnings per share might scarcely rise in 2019.

The company has manufacturing plants in the United States, as well as around the world, including in China, Sri Lanka and Thailand. Ansell said it expects to pay between $5 million to $10 million in tariffs on Chinese exports to the United States while tariffs on U.S. imports to China, plus raw material costs rising, could reduce earnings by 5 cents to 6 cents per share.

Guidance for earnings between $1 and $1.12 per share in 2019 was well below analysts’ hopes for $1.11 and shows Ansell’s greater vulnerability to raw material and trade volatility since it sold its retail-focused condoms division last May.

“Now that they’ve sold their sexual wellness business, what they’ve got is basically an industrial play,” said Mathan Somasundaram, Market Portfolio Strategist at stock broker Blue Ocean Equities.

“With rising costs and slower growth and they will have to do a lot to just stand still, so the risk-return is more on the downside and that’s why the market is selling it.”

Ansell shares declined by the most in more than two years on Monday, falling as much as 10 percent to A$25.01 ($18.30) by midday, before recovering to close 7.2 percent lower while the broader market edged up.

Rising raw material costs also kept the company’s adjusted earnings before taxes for the year to June 30 at $193 million, 5 percent below Morgan Stanley analysts’ expectations.

Annual net profit more than tripled to $484.3 million, bolstered by a one-off $345 million gain from the sale of the condom business in May to China’s Humanwell Healthcare Group Co Ltd and CITIC Capital China Partners.

The company reports its results in U.S. dollars while its share trade in Australian dollars.

$1 = 1.3669 Australian dollars Reporting by Tom Westbrook

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