Negative reactions were the order of the day to yesterday’s flood of downgrades or other news. A near 6% drop in the market, after Wall Street’s lurch set the tone.
Statements from a range of companies set the tone, as we have seen with the separate report from the Commonwealth Bank and from Westpac and St George.
Although property group, Lend Lease tried hard to be positive; the market looked at its earnings outlook statement and gave it the thumbs down.
The shares sank more than 12% in morning trading before coming back a touch to finish down 9%, or 70c at $7.10.
It said its earnings should be down in line with previous guidance, and revealed it had taken its King of Prussia shopping mall in the US off the market.
Lend Lease owns 50% of what’s America’s third biggest mall. But the company’s comments that it would not be "forced sellers" worried investors.
"Lend Lease is not a forced seller of assets, and will not sell assets at sub-optimal values to meet profit targets,” the company said in a statement to the ASX.
But what also worried the market was Lend Lease’s statement that it would have to sell assets to meet that earlier guidance.
While the company said it would not proceed with the sale of its King of Prussia shopping mall in the United States because the price was not high enough, it still was negotiating other potential transactions necessary to help it meet guidance targets.
"Lend Lease is in negotiation on a number of other potential transactions which, if successfully completed, will enable it to meet its earlier guidance," the company said.
That was taken to mean the operating performance was weaker than expected and that if these other asset sales were not done, profits would drop further.
Lend Lease reiterated that earlier guidance full-year operating profit will fall 10% to 15% in the year to June 30, 2009, compared with $447.2 million earned in 2008. That could put net earnings at around $380 million in 2008-09, providing conditions don’t worsen any further in its key markets of Australia, the US and UK.
Lend Lease said it had cash reserves of more than $800 million at October 31, and will take a $272 million write-down on its retirement business in the UK.
But analysts said lend Lease was heading towards a loss for the first time in its 50-year history, after being forced to write off $490 million from the value of its assets due to deteriorating market conditions.
In the year to June 30, 2008, Lend Lease reported a statutory profit of $265.4 million.
Yesterday’s ‘paper’ write-down of $272 million eliminates that profit figure this financial year.
Included in the cut in asset values is the goodwill on the Crosby housing group, based in Britain, and Lend Lease’s 4.3% stake in property group FKP, which has dropped from $4.32 a share to $1.12. That was a $30 million write-down.
Given the reductions are "paper" values, the operating profit, estimated to be about $380 million, will stay broadly unchanged. The board is also reviewing the dividend policy.
But brokers said they were more concerned with Lend Lease’s decision to shelve plans to sell its half share in the shopping mall King of Prussia. That was to have been a part of the 2008 profit.
"Unprecedented financial market conditions make it prudent to take pro-active steps to adjust our balance sheet and investment outlook so we are in a good position to explore opportunities as markets recover,” Chief Executive Officer Greg Clarke (who is departing as soon as a replacement is found) said in the statement.
Lend Lease acquired its share of FKP at an average price of $4.32 per share. The current share price is $1.12. Stockland has a 14% stake in FKP, but is now stalking GPT.
Radio group, Austereo says its first half results will be slightly lower than the previous comparable period as advertising revenue dries up.
That’s a downgrade for the operator of the struggling Triple M network and stations including 2DAY FM in Sydney and Fox FM in Melbourne.
In August, Austereo forecast earnings to continue growing this financial year after buoyant ratings and advertising revenue helped drive a 5% rise in 2008 earnings.
At the time, it reported net profit of $48.8 million, saying it expected a rise of up to 3% in radio advertising sales in capital city markets in the December half year of the 2009 financial year.
No more, it like so many other companies in the media have been mugged by reality.
Yesterday, chairman Peter Harvie revised those industry estimates downwards at the company’s AGM.
"Based on the market year-to-date figures, it is our belief that the July-December `08 half capital city revenue will be around minus 3.5%," Mr Harvie said.
"We also believe that Austereo’s first half financial results will be slightly below the previous comparative period.
"We are confident of the strength of radio in challenging times."
Austereo shares drifted down 5c to $1.30.
Staying with the media
and Fairfax Media’s AGM heard nothing but gloom and groans in Melbourne yesterday. Some staff, current and former, complained about all the job cuts and other changes, some shareholders complained about management salaries and disclosure, and others didn’t like the way earnings were going.
But Fairfax, like every other company, is hostage to the slumping economy, domestically or globally. Being in business is a tough place to be at the moment.
While Fair
