A warning yesterday from building products group Boral for weaker than expected earnings for the first half of 2017-19 sent the shares down 6% to 12 month low of $5.30 at one stage before they retraced to close at $5.52, off 1.9% thanks to the big afternoon ASX rally.
CEO Mike Kane told the annual meeting in a trading update that so far profits are below internal targets for the first part of 2018-19 because of wet weather (In Australia and the US in October) and a weaker homebuilding sector in Australia.
He said heavy rainfall in parts of the southeastern and southern United States from two recent hurricanes) has slowed construction activity and seen the company lose several days output from plants in Florida and the Carolinas. Rain in NSW especially had been very heavy in October as well, delaying work and cutting demand.
He told shareholders the company will need “a very strong performance for the remainder of the year” to meet its full-year profit guidance for 2018-19.
It is also working on the assumption that weather conditions will improve, “We are now expecting a strong skew in earnings to the second half of the year because results for the first quarter and into October are below our expectation,” Mr. Kane told the meeting.
This has become a regular event for Boral in recent years with earnings skewed more and more towards the second half of the June financial year due to weather events delaying or reducing demand for products such as concrete and cement in either the early months of the first half or the latter months of the financial year.
Mr. Kane said the company had “refined” its outlook for the year which is largely unchanged from the guidance provided at the full year results announcement in August.
“We expect high single-digit EBITDA growth from Boral Australia – excluding property; EBITDA growth of around 20% or more from Boral North America after adjusting for the sale of the Block business; and earnings to grow by around 10% in USG Boral.
“We are now expecting a strong skew in earnings to the second half of the year because results for the first quarter and into October are below our expectation. We are working to claw back earnings through volume recoveries, improvement initiatives, and cost reductions.
“We will provide a further update of our full year expectations at our interim results announcement in February,” he added.
He also indicated that the company and its partner in the USG Boral (United States Gypsum) plasterboard (drywall as the Americans call it) joint venture are not discussing ways of valuing the business ahead of a decision by Boral on whether it wants to buy out its partner.
USG is in the process of merging with a German building products group which Boral says is a breach of the joint venture agreement.
“This constitutes a default under the USG Boral shareholders’ agreement, which triggers the right for Boral to acquire USG’s interest in the joint venture. In late August, we issued a Default Notice to USG, commencing a process to establish the fair market value of USG’s interest as defined in the shareholders’ agreement… we are continuing to have discussions with industry players, to assess a full range of alternatives relating to the USG Boral JV, including the formation of an expanded joint venture…our preference is to fund any transaction in relation to USG Boral, whether it’s an expanded joint venture or acquisition of USG’s share of the JV, through a combination of debt and proceeds from asset sales.
“We expect to provide an update for shareholders at our interim results announcement in February, or possibly earlier if we reach an agreement,” Mr. Kane said yesterday.
