The slump in the US housing industry caused by the subprime crisis and credit crunch has snared another Australian company (or quasi-company) operating in America.
A couple of weeks ago it was Boral partly blaming the US for an earnings downgrade for the June 2008 year (and the sluggish NSW housing market as well).
And earlier this week, Fletcher Building products said the Formica business it paid $US700 million for in the US in May of last year, would drop around $60 million in earnings this year because of the American housing slump.
Yesterday it was James Hardie which surprised with a worse than expected performance in the year to March and outlook. Hardie shares (JHX) fell 10% at one stage on the news before a slight recovery saw them end off 45c, or nearly 7.4% at $5.58.
Hardie was bearish about the 2009 outlook, which seems to have moved the market more. The forecast isn’t hard to understand given the US Fed cut its growth forecast for the rest of 2008 and forecast a continuation of tough conditions for employment and housing, plus rising inflation.
Hardie said that its net operating profit, excluding asbestos provisions, fell 20% to $US169.7 million ($A177.2 million) in the year ended March, from $US211.8 million in the previous year.
The reported net result was a loss of $US71.6 million ($A74.76 million), compared to a profit of $US151.7 million ($A158.4 million).
"In North America, factors such as high inventory levels of new homes for sale, an increased rate of foreclosures placing more existing properties on the market, weaker economic conditions and consumer sentiment, and tighter mortgage lending standards, all suggest that further weakness in the level of new housing construction activity is likely in the short-term," the company said.
"However, as a result of the severe decline in housing construction activity and the prospect of a further decline in the short-term, the business has increased its focus on initiatives that build earnings before interest and tax performance," it added.
The company sees a flat outlook for activity in the Australian residential construction market in the short term, with the New Zealand market expected to be slightly weaker, and the Philippines stronger.
"In the US, the housing market continued to deteriorate in all four quarters of this past year," chief executive Louis Gries said.
New housing starts were down 37% from last year and 55% from their peak in 2006.
"Our USA fibre cement business again outperformed the broader market for the year with sales down only nine per cent," Mr Gries said.
"Indicators of future housing construction activity suggest some further weakness is to be expected," he said.
"However, early first quarter sales for the US business indicate a slight pick up in demand, although not to the extent experienced in previous years."
During the year, group net sales fell 5% to $US1.47 billion ($A1.53 billion) while earnings before interest and tax (EBIT) excluding asbestos provisions fell 12% to $US281.7 million ($A294.14 million).
In the fourth quarter, net operating profit excluding asbestos provisions fell 61% to just $US20.1 million ($A20.99 million).
The net operations loss was $US146.9 million, compared to a profit of $US103.1 million ($A107.65 million) in the fourth quarter of fiscal 2007.
James Hardie declared a final dividend of eight US cents.
The company’s shares had been down just over 7% so far this year: that loss doubled yesterday.
And there was at least something small to smile about at what looks like being the last AGM for toy wholesaler and importer, Funtastic, which is on the end of a $132 million buyout offer from private equity group, Archer Capital and a group of investors.
The 80c a share offer is condition but has the backing of the board: the market though seems to have a few doubts because the shares eased 4.5c to 66.5c. Buying FUN shares now and accepting the bid would give you a 13c a share return over a relatively short period of time.
At this price there’s still another $15 million of value in the share price, so perhaps it’s one for the brave.
But shareholders were told at the AGM that trading for the first four months of this year was in line with budget.
Managing director Tony Oates said the toy company’s calendar 2008 first half result (to June 30) would also be in line with budget, while noting that the full impact of its turnaround plans won’t be felt until the second half.
Funtastic, which on Wednesday received a non-binding, indicative $132 million takeover offer from a consortium led by Archer Capital, is aiming for $3 million in cost savings and a significant reduction in debt.
Funtastic plans to divest underperforming assets and cut its inventory, which could raise about $10 million to pay down debt this year.
It will also cut costs by simplifying its organisational structure, stricter monitoring of expenses and rationalising its warehousing and logistics.
Perhaps Archer will get to do that instead of Funtastic.
"To the end of April, we are trading in line with our budget," Mr Oates told shareholders "We also expect that the half year result will be consistent with our original budget."
Chairman David Hendy stressed to shareholders that the 80c per share offer from the Archer-led consortium was indicative only.
"The Funtastic board has commenced discussions with the Archer consortium and is facilitating a process to enable the consortium to undertake due diligence," he said.
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