So far this year (up till yesterday, anyway), Boral shares had outperformed the Australian market: their 3% fall compared favourably with the 21% drop in the broader market.
That’s easy to understand: the company ran a $114 million share buyback during the year which had the fortuitous result of supporting a share price that could have been further hammered in the June half with the sharp downturn in the Australian housing sector.
It must have worked because an hour or so after announcing the 19% drop in earnings and the gloomy outlook in the US, the company revealed that it will run another buyback over the next year for 10 million of its 585.7 million shares on issue.
That’s a year in which the company says the US slump will again cause more pain, as will the Australian housing downturn.
Like James Hardie, Boral has found it impossible to escape the full impact of the collapse in the US home building sector.
The reported net profit of $243 million for the year to June 30, from $298 million earned in 2007, was bit better than market consensus of $233 million. It was also better than the $234 million the company had guided the market to in a May update.
That’s after cutting production at its bricks and roof tile plants in the second half of its financial year in face of a huge backlog of unsold new homes in the US market.
It held final dividend steady at 17 cents, making an unchanged 34 cents for the year, taking the payout to around 81% of net earnings, which is a very high level. But it said it expected further declines in US earnings and cost pressures in Asia, thereby opening up speculation of further downward pressure on earnings, and perhaps the dividend.
And the market went, whoa there. The shares bounced to $6.27 in a fit of immediate enthusiasm, then sagged 15 cents to $5.96 before settling at $6.03, down 8 cents, as investors realised the company faced at least 12 more months (and more) of underperformance.
Helped by the resource and infrastructure booms in Australia, sales climbed 6% to $5.2 billion, but that was offset by the growing black hole in the US.
Boral gets around 12% of its sales from builders in the US, so the 24% drop in sales was damaging but not to the extent that a 24% drop in Australian sales would have been: it would have been terminal. Australian sales rose 13% and saved the company from greater problems.
All those US foreclosures, subprime mortgage failures and slumping new home starts are taking their toll.
"EBITDA from USA operations decreased by A$118 million to A$11 million," the company said in its statement..
"The result was driven by the continued significant deterioration in housing activity, with US housing starts down 27% to 1.13 million compared to 1.55 million starts in the prior year.
"Lower volumes, increased raw material costs, and one-off costs (of US$4 million) associated with programs to reconfigure Boral’s brick and roof tile production network contributed to the severe fall in earnings, particularly in the second half of the year.
"Cost reduction initiatives including network optimisation and overhead reduction, aimed at reducing fixed costs, continue to be implemented across the brick and roof tile business, with an expected incremental benefit of US$31.5m in FY2009.
"Overall, Boral’s earnings before interest tax depreciation & amortisation (EBITDA) declined by 10% to $688 million. Australian EBITDA of $657 million was $52 million (or 9%) higher than the prior year. Offshore EBITDA, however, declined by A$123 million (or 82%) to A$27 million," the company told the ASX.
"In Australia, EBITDA of $657 million was 9% higher than the prior year. EBITDA from Construction Materials lifted by 8% to $489 million as a result of higher volumes and prices in most markets. Building Products’ EBITDA of $168 million was 11% above last year due to strong markets in Queensland offsetting a decline in Western Australia as well as a solid lift in Timber earnings."
The company reported earnings before interest and tax (EBIT) from its US operations of a loss of $25 million compared with a profit a year earlier after it booked the impact of cost cuts and restructuring charges and the write-down of brick plant and equipment assets.
Boral Chief Executive Officer Rod Pearse said in the statement to the ASX that in the U.S., "plant capacity utilization is currently around 40 percent in bricks and less than 30 percent in concrete roof tiles, reflecting the slowdown in market demand."
Meanwhile Australia’s other steelmaker, OneSteel, is more positive about its outlook than Boral. Like its rival and former BHP business, BlueScope (which reported yesterday), OneSteel (OST) sees a positive outlook for the current financial year and expects steel prices to remain high.
Reported net profit for the year ended June 30 climbed 18.3% to $244.9 million, from $207 million in the previous year as the company rode the soaring price of steel, and benefited from higher than forecast exports of iron ore.
The market liked the results, marking up OST shares by more than 7%, or 42 cents to $6.21.
"The outlook for the balance of 2009 remains positive with OneSteel’s key segments of resources and domestic construction, particularly engineering and infrastructure expected to remain strong," chief executive officer Geoff Plummer said in a statement to the ASX.
OneSteel said the domestic manufacturing, residential construction and rural segments will remain relatively weak, but stee
