Boral shares fell more than 8% yesterday after the building products groups revealed a less than stellar trading update ahead of the release of full interim figures later this month.
In fact, the company says it is not looking at much growth in earnings at all for the six months to December 2018.
Boral told the market that it expects first-half net profit after tax of “approximately $200 million… and earnings before interest, tax, depreciation, and amortisation (EBITDA) to be approximately $485 million, subject to finalisation of the auditors’ review.”
“Excluding the impact of lower earnings due to the sale of Denver Construction Materials (in July 2018) and Texas Block (in November 2018), EBITDA for the first half of FY2019 is expected to be broadly steady on the first half of FY2018, with EBITDA growth from Boral North America offset by lower earnings in Australia and a lower contribution from USG Boral,“ the company said in yesterday’s statement.
The shares dipped and remained down around 7% for much of the session. They hit a 12 month low of $4.49 during trading and ended down more than 7.8% at $4.55. That’s a fall of more than 42% in the past year.
Boral’s warning follows profit downgrades at rival supplier James Hardie Industries, builders LendLease Group, and AV Jennings Ltd and a slump in building approvals, as wobbles hit one of the economy’s stronger sectors.
Taking into account the first half result and trading for January, together with a detailed review of improvement opportunities to claw back first half volume shortfalls and market outlook for the remainder of the year, Boral’s FY2019 divisional guidance has been revised.
But the company again told the market that EBITDA will be higher for the year to June because of a skew caused by:
“EBITDA from Boral Australia excluding Property to be similar to the prior year, and Property earnings of around $30 million, which will all be in the second half (compared with $63 million in FY2018);
“FY2019 EBITDA growth from Boral North America, of approximately 15% in US dollars, excluding discontinued operations; and slightly lower profits from USG Boral.”
Boral said it would be announcing its interim FY2019 results on Monday, February 25, at which time it will provide a comprehensive review of first-half performance. Key factors impacting first-half earnings include the following.
Boral Australia: Underlying demand remains strong and the business is delivering good returns. However, first-half earnings have been impacted by volume lags and delays to major projects and infrastructure, extreme rainfalls on the east coast in October and a less favourable product and geographic mix shift.
Boral North America: Delivery of Headwaters acquisition synergies is progressing well. First half was impacted by above average rainfalls in key US states, which slowed volumes in most businesses. Underlying demand growth is moderate while growth rates are mixed geographically, with Roofing benefiting from strong growth.
USG Boral: Strong results from Australia. However, South Korea has been heavily impacted by a cyclical market decline and intensifying competition and was also affected by Typhoon Soulik in the September quarter.
On strategic matters, work is continuing to progress the fair market valuation process of USG Boral in order for Boral to decide whether to exercise its call option to acquire USG’s 50% stake in the joint venture. Discussions with industry players are also continuing.
The sale of the Texas Block business completed on 30 November; proceeds of US$156 million have now been received.
