The ending of the El Nino dry spell with widespread wet weather across much of the country since May has taken a toll on the revenue and earnings of Boral (BLD).
The building products company yesterday reported first half performance would be weaker than expected, news that sent the shares down more than 5%.
The company’s warning stands in quite stark contrast to the optimism the day before from rival building products group, CSR, which failed to mention any impact of the wet weather on its operations in the six months to September 30.
The difference is perhaps the greater concentration of Boral’s business in infrastructure such as road and freeways.
Boral CEO, Mike Kane said wet weather across the nation and unexpectedly slow sales in Western Australia would take a toll on first-half earnings.
The news saw Boral shares lose 32.5 cents, or 5.2%, to $5.83 at the close yesterday.
“Unfortunately, there has been significantly more wet weather across the country compared to seasonal averages and this has had an impact on our business, at least in the short-term,” Mr Kane told investors at the company’s AGM yesterday.
"In Australia we are behind where we thought we would be at the end of the first quarter, primarily because of wet weather and lower volumes in Western Australia.
"Every time it rains, our business is affected."
And while the downturn in South Australian sales was in line with company forecasts, the depth of the slide in demand in WA, due to a lack of major projects, was unexpected.
"The Western Australian market has come off a little harder than we thought it would," he said.
The company now plans to cut back production at its Midland Brick operation in Perth even further after it mothballed one of its kilns late in 2015-16 financial year.
"We have seen East Coast housing activity remain strong and the uplift in major roads and infrastructure projects is firming, as expected. We have commenced or are about to commence a number of large road and highway projects, which will bolster the second half, and we are seeing stronger pricing environments which should also positively impact the second half,“ Mr Kane said.
"I don’t need to tell you how wet the past quarter has been in Sydney and in fact, the majority of the country experienced higher than average volumes of rainfall in the September quarter and in many areas record high levels of rain were recorded. Even in areas that only experienced average volumes, they tended to experience more wet days than average," Mr Kane told the annual meeting.
On Boral’s US business, Mr Kane said despite weaker housing starts in the first quarter, the company still expected earnings to grow for the full year.
Looking to the year to June, Mr Kane was confident said Boral Australia will could deliver slightly higher full-year earnings in 2016-17 if weather patterns returned to normal.
Our overall near-term outlook is that Boral’s EBIT will be higher in FY2017 compared with FY2016. He said housing activity strength and an uplift in major infrastructure projects on the east coast are expected to provide a boost to the company’s second (June) half results.
But Boral copped shareholder backlash against overpaid executives at yesterday’s AGM, suffering a “first strike” vote against its pay packages. Investors holding more than a quarter of its capital rejected its remuneration report.
Boral chairman James Clark said the company had endeavoured to explain its position to investors and would continue to work on resolving the situation. A second “ trike vote” – triggered when holders of more than 25% of a company’s issued shares reject its remuneration report – next year could prompt a board spill, forcing all directors to seek re-election.
