GUD plunges 20 per cent on earnings downgrade, sees "significant slowing" in autos market

GUD Holdings (ASX: GUD) downgraded its FY22 earnings guidance after hours on Thursday, citing supply chain constraints and a decline in new vehicle sales. The company’s stock is down -20% in early trade.

For the uninitiated, GUD manufactures products that cover the life of a vehicle, from accessories for new vehicles to service and replacement parts. Its products are sold through various channels including original equipment manufacturers (OEM) and automotive retailers.  

GUD said that in recent months, the volatility in new vehicle supply has increased, exacerbated by the Russia-Ukraine conflict and strict lockdowns in Southern China. The supply-side issues has led to year-on-year declines in new vehicle sales, which has negatively impacted near-term earnings. 

FY22 earnings was downgraded to $147m compared to a prior guidance of $155-160m, just two months ago.

"While frustrating in the near term, we remain positive on the underlying customer demand profile of the GUD businesses that serve the new vehicle market, noting many industry commentators are reporting order backlogs well in excess of 12 months," commented Managing Director, Graeme Whickman.

Auto markets under pressure

GUD started to see a “significant slowing in offtake from OEM customers through the latter part of April and in May”.

It warned that many indicators suggest OEM customers are seeing a slowdown in vehicle supply, evidenced by a -12.2% year-on-year decline in new car registrations in April and -6.4% in May. GUD said over the same months, it has experienced pick-up volumes fall -9.2% and -5.5% respectively. 

GUD reaffirmed that underlying demand for new vehicles remains in the range of 1.1m to 1.2m units, in-line with its 2022 guidance. Although its outlook commentary paints a rather gloomy picture for the year ahead.

Aftermarket business remains resilient

Sales momentum continued across aftermarket and automotive retail businesses, which was supported by prior strategic investments in higher inventory levels.

GUD said that costs continue to be a challenging factor, but price increases have been rolled out across all businesses to protect margins. More price hikes are expected in July and August.  

Brutal selling

Recession fears has triggered yet another brutal selloff for the S&P/ASX 200, down -2.5% in early trade on Friday.

With the broader market selloff intensifying and GUD dropping an earnings downgrade, its share price could only go one way - down.

The company's stock opened -13% lower at $8.30, with selling pressure pushing it down -19.4% to $7.75 an hour into trade.

GUD share price chart