Marshalls Shares Fall Over 20% – Here’s Why

Shares of Marshalls (LON: MSLH) tumbled on Friday after the company warned that profit would be slightly below its previously forecasted range due to inflation headwinds.

“We continue to effectively mitigate cost inflation through price increases,” Marshalls said in its press release.

However, it said taking into account the combined impact of an accelerated rate of revenue contraction in Marshalls Landscape Products in the third quarter and the reduction in efficiency resulting from lower manufacturing output in this reporting segment, it now anticipates that “the outturn for the Group as a whole will be slightly below the bottom end of the current range of market expectations.” The range previously forecasted was between £95.1 million and £101 million.

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The company's shares fell more than 20% following the news, trading at 241p at the time of writing.

Marshalls Landscape Products segment continues to face “tough trading conditions.” In the nine months that ended September 30, it reported revenue of £311 million compared to £330 million in 2021, representing a 6% decline.

The contraction rate in the third quarter increased to 16% compared to 1% at the half year. The company said it was due to softening demand for private housing RMI in the UK and international markets. As a result, Marshalls has reduced its manufacturing output to manage inventory levels, which has impacted the efficiency of its factories in the short term.

“These actions will reduce capacity and costs within our manufacturing network and trading function to ensure alignment with lower levels of demand and this is expected to reduce operating costs by around £10 million per annum from the start of 2023,” the company stated.

Group revenue for the nine months came in at £544 million, compared to £453 million in 2021, representing year-on-year growth of 20%. Like-for-like growth was 4%.

In its Building Products segment, the company saw revenue growth of 22% to £149 million during the period, partly due to a “particularly strong” performance from its Bricks & Masonry business.

Furthermore, Marshalls said its balance sheet continues to be robust, with pre-IFRS16 net debt to proforma EBITDA expected to be approximately 1.5 times at the year-end. The company said it maintained “good headroom” against its bank facility and covenants.