Bluescope Steel shares were sold down yesterday after the company produced what many investors said was a disappointing interim report and outlook.
The shares lost 3%, or 7c, after the interim result was released before the start of trading. That saw them close at $2.30.
The reason for the weakness was easy to spot; the company had forecast a break-even first half, instead it got a bigger loss than a year ago, with the break-even postponed to the second half.
BlueScope reported a $55 million first half loss and said there remains an oversupply of steel in developed countries.
Bluescope’s first half result was almost double the $28 million loss in the previous corresponding period.
But an interim dividend of two cents per share was declared, fully franked (Qantas take note!).
Earnings before interest, tax, depreciation and amortisation fell to $127 million in the latest half from $154 million in the same period of the 2010 financial year.
Revenue for the half jumped 13% (or more than $500 million) to $4.622 billion, but the tough international conditions and the value of the dollar saw losses grow.
As a consequence of that, the company is budgeting for a "break even second half" result, meaning it could report a small loss for the year.
But it all depends on steel prices, the value of the dollar and the cost of raw materials (such as coking coal and iron ore).
Those elements will continue to be a strong influence in the second half of the current financial year, CEO Paul O’Malley said in yesterday’s statement.
The second half performance will largely depend on the steel spread in the fourth quarter, meaning the steel price compared to raw materials cost, he said.
"This spread is difficult to forecast,’’ Mr O’Malley said. At the moment Bluescope expects to deliver a breakeven reported net profit for the second half, he said.
"We are encouraged by our upside earnings leverage to a number of factors," he said.
These were, "the current higher steel price environment, recovery in developed economies, particularly the United States, and continuing strong performance in Asia".
The company took a $77 million write-down of goodwill in the Bluescope Distribution business and a $68 million write-back on its Coated China assets in the six months to December 31.
"There are signs of stronger industrial activity in the developed world this calendar year," Mr O’Malley said.
"However, steel supply, excluding China, remains in an oversupply position.
"We need to see GDP in the developed world improve, and drive increased steel demand, to narrow the supply/demand gap."
The first half performance was impacted by the stronger Australian dollar, which had a negative impact in export margins and offshore earnings, Bluescope said.
Higher raw material costs more than offset higher steel prices, while there was also lower demand in the Australian market, it said.
The company said group raw steel production was 3.45 million tonnes (vs. 2.92 Mt in first half of 2010). The company’s Port Kembla plant produced 2.64 million tonnes of steel in the six months (vs. 2.19 million tonnes).
"Total Australian domestic / export sales volume mix was 41%:59% vs. 54%/46% in the December half, due to lower domestic sales and increased production from Blast Furnace No. 5 at Port Kembla.
"Australian domestic external sales volumes in 1H FY2011 were down 75,000 tonnes (or 6%) on 1H FY2010 and down 214,000 tonnes (or 15%) on 2H FY2010 largely due to lower volumes in the Manufacturing and Pipe and Tube markets primarily resulting from imports, reduced Government stimulus spending, a stronger AUD and customer destocking," the company said.
Shares in packaging group Amcor went close to setting a new 52 week high yesterday after investors re-rated the company in the wake of a solid first half and forecast of a better second six months.
The result was in contrast to the lacklustre report and outlook from BlueScope Steel, another big locally-based manufacturer.
The shares rose 13c at the end to finish at $6.85 (a rise of 2%) after touching a day’s high of $6.97, 7c from the company’s 52 week high.
Reflecting the confidence that the expensive $1.9 billion purchase of Alcan Packaging is paying off, directors boosted interim dividend 36% to 17c a share (unfranked) from 12.5c a share (unfranked) for the first half of 2009-10.
Directors told the market yesterday that net profit before one-offs rose 55% to $267.4 million ($270 million in the July-December 31, 2010 period) from $172.5 million a year earlier.
Amcor said first half net profit (after one-off items) was $226.1 million, up 138% from the previous year when there were significant one-off costs.
That includes the negative impact from the stronger Australian dollar of almost $50 million for the half year.
Revenue jumped more than 51% to $6.1753 billion, thanks to the boost from Alcan Packaging and improved demand for packaging materials and products.
After outlining ongoing (and increased) benefits from synergies, Amcor sai
