The still falling US new home market and the slump in the value of the Australian dollar from last July onwards has hurt building product maker Boral hard, the company yesterday revealing a surprise 40% earnings downgrade before trading started (Source).
That saw the shares plunge 83 cents or around 20% at the opening, before they steadied and then rose to close off 13.7% at $3.52.
Boral said it now expected net profit after tax of $120 million for the year to June 2009, down from a previous forecast of $200 million.
That estimate was sharply down on the $248 million earned in the year to June 2008, so the drop will be closer to 50%.
"We expect that the profits of the Australian building products businesses for the full FY2009 year will be significantly below the prior year," Managing Director Rod Pearse said in a statement to the ASX.
The company will provide more detail on the damage when it reports its interim figures on February 11. It said first half earnings after tax will be around $75 million compared to the previous estimate of $80 million.
Boral has been the subject of some speculation about its US performance and surprisingly the company’s shares didn’t push through the 52 week low of $3.16 at the opening when they bottomed out at $3.25. The shares finished down 63 cents at $3.45.
Some brokers have been wondering if Boral might be in breach of lending covenants, but the company denied that, saying:
"Based on a preliminary Balance Sheet, Boral’s closing debt / equity ratio at 31 December was around 80% but this figure remains subject to final adjustments.
Rod Pearse said that “Boral’s financial metrics remain well within its debt covenants and we don’t anticipate any breach of covenants. Boral continues to maintain substantial committed, undrawn bank facilities and has no material refinancing requirements until August 2011.”
"The US housing market downturn has continued to deepen, which is having a significant impact on Boral’s earnings. In August 2008 the consensus estimate given by external forecasters of US housing starts in FY2009 was 900,000," Boral told the ASX.
Boral’s profit guidance at the AGM in October assumed FY2009 housing starts of 750,000 to 800,000. The most recent data for the month of December indicates further weakening with annualised starts and permits at around 550,000.
Annualised housing starts for the December half (seasonally adjusted) were around 765,000 which was 37% below the prior corresponding period.
" Whilst it may prove to be conservative, it is assumed that in the June half 2009 US housing starts will be around 500,000 which taken together with the December half, would result in FY2009 housing starts of around 600,000-650,000 but in the current volatile market this is uncertain. This compares to current analyst average estimates of 813,000 starts for FY2009.
Mr Pearse, said: “As a result of the collapse in the housing market in the USA, we anticipate further significant reductions in sales and production volumes in the June half, particularly in bricks (where June half production may be around 50% lower than in the December half), but also in Boral’s roof tiles and USA construction materials businesses.
"Additional operational and step-change improvement initiatives are underway to achieve better cost outcomes and previously announced cost reduction initiatives are delivering as previously projected,” he said.
In Australia Boral said dwelling starts have also continued to weaken from the 155,000 starts reported in FY2008 and the 145,000 estimated at the AGM for the September quarter.
"Dwelling approvals, a lead indicator, weakened further to an annualised level of around 136,000 approvals in the five months to November.
"Dwelling approvals in the three months to November were at the annualised level of 128,000 which compares to underlying demand of around 185,000 starts.
"Boral estimates an annualised level of dwelling starts of around 141,000 starts in the half year to December 2008 and of 135,000 for FY2009.
Mr Pearse said: “In recent months the performance of our Australian building products businesses has been well below our expectations and the prior year.
"Continued weakness in Australian dwellings will result in lower sales and in further significant capacity reductions in the second half to supply a falling market and to offset inventory build in the December half.
"Reducing interest rates and improvements announced in October 2008 to the First Home Owners Grant will over time significantly improve housing affordability but these initiatives are not expected to favourably affect our Australian businesses until well into calendar year 2009.
"We expect that the profits of the Australian building products businesses for the full FY2009 year will be significantly below the prior year.”
And the market gave shopping centre giant, Westfield, a good whack for its surprise downgrade of 2009 distributions after trading closed Tuesday.
Yesterday the shares plunged 90 cents, or over 7% to a new 52 week low of $11.20 before they bounced to close down just 12 cents at $11.98.
Westfield revealed a $3 billion cut in valuations because of changed captalisation rates, but said the fall had been offset by the slumping Australian dollar boosting asset values. But the 2009 distribution estimate was cut to a range of 97 cents per unit to 100 cents.
The company
