Investors wipe $1 billion from Toll Holdings

February 26, 2010 Edward

MORE than $1 billion was wiped from Toll Holdings’ market value yesterday after the transport and logistics company posted a worse than expected fall in first-half profit.

The company, renowned for its acquisitive bent, reported a 32 per cent fall in net profit to $107 million for the six months to December 31, which included a $37 million charge relating to the acquisition of Japanese freight operator Footwork Express last year. Toll blamed a 6 per cent fall in revenue to $3.3 billion on the impact of the global financial crisis on trading in the markets where it operates.

First-half earnings were well below analysts’ expectations and sent Toll shares plunging 18 per cent, or $1.55, to a $7.10 six-month low yesterday. Toll’s day in the dog-house stood in marked contrast to its spin-off Asciano, which for once has enjoyed basking in a better than expected result this week.

White Funds Management managing director Angus Gluskie said many analysts had been ”too extravagant’ in their forecasts for Toll’s earnings, and management would have been wise to have talked down the high expectations earlier.

“The big surprise was the softness in the Australian business and a lack of recovery in the freight forwarding business.” he said. Freight forwarding is central to Toll’s long-term strategic plan. It wants to break into the top 10 global freight forwarders within three years by boosting revenue from about $1 billion to $3 billion, and has boasted of having more than $1 billion to spend on acquisitions.

Investors were also disappointed to hear from Toll management that the trading results in the second half would only be about the same as the first half. Although the second half is traditionally weaker, investors were hoping signs of recovery would flow through to the bottom line sooner.

The guidance implies that Toll will report a $288 million net profit for the full year – well below the market consensus of $328 million.

Responding to investors deserting the stock, Toll managing director Paul Little said the company appeared to be paying the price for “17 years of thrilling the market with our results”. He went out of his way to emphasise that trading conditions had stabilised.

Mr Little said the first six months had been one of the toughest environments for the logistics sector in many years. The low point in terms of activity in Australia had been in the first quarter, although he said conditions did recover in the second quarter and this had continued.