Shares in shipbuilder, Austal, were smashed 40% and a bit more yesterday after downgrading forecast earnings from its US shipbuilding yards.
But the selling eased during the day the shares closed down 25% at $1.69 after touching a day’s low of $1.36 in early dealings.
Like so many other recent share crunches (Spotless and Dick Smith, for instance), Austal was punished because the downgrade appeared out of the blue.
Austal has been involved in the construction of previous combat ships for the US Navy, but this is the first time it is operating as the prime contractor and that seems to be causing problems.
In its statement to the ASX yesterday, Austal referred to “schedule and margin pressure” on LCS 6, which would also affect the cost and schedule for the next ship LCS 8 and LCS 10, both of which were in an advanced state of completion.
“Austal’s ability to apply lessons learnt and productivity enhancements from LCS 6 to vessels in advanced construction, namely LCS 8 and LCS 10, has been more limited than anticipated,” the company said.
“As a result, full-year 2016 earnings from Austal’s US shipyard are expected to be lower than in full-year 2015, with US shipbuilding EBIT margin expected to be in the range of 4.5-6.5 per cent.”
"Austal’s other major vessel program at its US shipyard, the Expeditionary Fast Transport program (formerly called the Joint High Speed Vessel), has reached construction program maturity, with shipbuilding margin stable.
"Austal Chief Executive Officer Andrew Bellamy said while there were flow on effects from LCS 6 onto LCS 8 and 10, vessels at earlier stages of construction would benefit from the lessons learnt on LCS 6 to increase future US shipbuilding margin.
“The LCS program is maturing more slowly than we had expected, however we are working hard to manage the risks and expect an improvement across the program after delivery of LCS 10,” Mr Bellamy said.
“The ongoing strong performance of the US$1.6 billion Expeditionary Fast Transport program at our US shipyard is a great illustration of the efficiencies we can deliver once a vessel program reaches the mature production phase and we are confident the LCS program will be no different.”
"Austal has a strong balance sheet and is generating good cash flow, which is enabling further investment in the business during the 2016 financial year to best position the Company to win additional contracts and service work to build our order book, revenue, and earnings into the future.”
Austal is due to report its interim figures next February.
