What’s Hurting Australian Pharmaceutical Industries Ltd (ASX:API)

Australian Pharmaceutical Industries Ltd (ASX:API), a wholesale distributor and retailer of pharmaceuticals and other medical products, saw shares plunge more than 10% this Thursday after reporting an underwhelming guidance update — API expects net profit to grow only 5% during the financial year to Aug’17, well below its prior-target of a minimum 10% growth.

“While we continue to see good market share results, solid growth in transactions across our network at 4% up on FY16 and the roll-out of new stores has remained on track, overall like-for-like sales has weakened due to consumers spending less per basket and on lower value items”, said CEO Richard Vincent.

The current dividend yield of nearly 4% and a more than 100% increase in payouts over the past three years wasn’t enough for investors to overlook the weakness in the company’s bottom-line as revenues are hardly expected to grow over the next three years, as per the sell-side analysts covering it.

ASX:API Australian Pharmaceutical Industries Future Revenue and Net Income by Simply Wall St

On a positive note, the company maintained its market share. While facing pressure on the retail side, its pharmacy distribution business remained on track to meet full-year profit expectations.

“We are in a strong market position, our balance sheet remains healthy and we are confident that we are well positioned to take advantage of any upswing in market sentiment”, added Mr Vincent.

Back in April, Mr Vincent had anticipated “a challenging consumer sentiment than in previous years”; however, he was confident in the retail store pipeline and lower operational costs, driven by capital investments, to deliver a double-digit profit growth.

It’s going to be a lot harder for the shareholders to believe in the management’s narrative until it starts delivering on its promises — I’ll be looking out for the company’s full-year results to be released later in October for further commentary from the management on current operating conditions.

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