A year ago Boral shareholders heard complaints from management in the August results and the annual meeting about the impact of weeks of wet weather on its operations along the Australian east coast. In fact the delays had a real impact on sales of its building products in these markets for most of 2016-17.
A year on and there were more complaints – not about Australia (where, apart from wet weather in Queensland for a couple of weeks last month and in parts of Western Australia) conditions have been OK – indeed so OK that Boral has upgraded its Australian earnings forecasts after a much better than expected first quarter.
That news saw Boral shares jump nearly 4% to end at $7.415, a more than 10 year high and up 37% so far in 2017.
Instead it’s been the impact of hurricanes, especially the one named Harvey (in and around Houston, Texas, America’s 6th biggest city), that have hurt the company’s American operations, especially in the southern states.
While the dry weather here contributed to strong first-quarter growth in its Australian business, the hurricanes (three of them) hit earnings in the US.
Boral completed the expansion of its North American business earlier this year with the $3.5 billion acquisition of Headwaters.
The acquisition significantly will see Boral’s fly ash business grow significantly and it also expands its light building products offering, and doubles the size of Boral’s roofing and manufactured stone positions.
The meeting was told that while the integration of the Headwaters business is on track, Hurricane Harvey in Texas and Hurricane Irma in Florida had hit the business. And wildfires in the wine country of northern California had also caused interruptions.
“The financial impact on Boral of the two major hurricanes is estimated to range between 5US million and $US10 million, primarily in the first quarter of the year, meaning that we have ended the first quarter behind where we thought we would be for Boral North America,” CEO Mike Kane told the meeting yesterday (https://www.boral.com/sites/corporate/files/media/field_document/AGM%202017%20CEO%20address%20-%20FINAL.pdf).
But in Australia a better tune. While Boral had expected that earnings for its Australian business would be flat in 2018 compared to the previous year because of the slowing pace of activity in home and apartment building, the better weather had lifted returns.
The “unprecedented period of continuous, uninterrupted construction activity in New South Wales and Queensland due to the exceptional dry weather” has helped those states deliver far better results in the September quarter than expected, according to the company.
While this was offset by poor weather and tougher markets conditions in Western Australia (where home and apartment demand remains very weak), and more generally in the housing market and higher energy prices, Mr Kane was able to tell the meeting that the group had upgraded its Australian earnings.
"Overall, Boral Australia has delivered better than expected first-quarter earnings. We now expect to see high single-digit earnings growth from Boral Australia in the 2018 financial year compared with 2017, excluding earnings from property sales in both years," Mr Kane told the meeting.
"This outlook assumes a return to more average weather conditions, which we are now seeing in some parts of Australia, including wet conditions in Queensland in October."
And with a moderate La Nina period forecast to start soon and extend into 2018, Boral could encounter more delays from any upsurge in wet weather, especially in NSW and Queensland.
