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Australia's Boral warns profit to fall further, shares plunge
[SYDNEY] Australia's largest building materials maker Boral Ltd warned of an even bigger profit decline this year after a housing construction slump hammered its 2019 profit, pushing its shares to their biggest ever intra-day fall on Monday.
Boral is also regaining full control of its local higher-margin plasterboard and sheeting materials unit at a time Australia's biggest house price correction in a generation continues to impact companies exposed to it.
Sydney-based Boral said underlying net profit slumped 7 per cent to A$440.1 million (S$412.2 million) for the year to end-June, below the average analyst forecast of A$476 million, as the construction slowdown wiped out the benefit of cost savings at its US division resulting from takeovers.
The company plans to pick up the shortfall with its infrastructure and industrial building work, but acknowledged a lag between the drop-off in home builds and the start of large-scale infrastructure projects - a gap that is expected to push profit down another 5 per cent to 15 per cent in 2020.
"Housing moves a lot faster than infrastructure does," Chief Executive Mike Kane told reporters.
Shares of Boral fell more than 20 per cent by midafternoon, headed for their their biggest one-day fall since listing in 2000, amid a broader market sell-off, as analysts downgraded their forecasts from previous expectations of a slight profit recovery next year.
"The core of the business is finding things quite challenging," said Danial Moradi, equities strategist at Lonsec Research.
After a year and a half of continuous monthly declines, Australian house prices began to flatten in June as interventions like interest rate cuts and relaxed lending rules lured buyers back to the market.
But the home construction sector typically lags the house purchasing market as developers wait for longer-term forecasts before greenlighting projects, added Mr Moradi.
"It remains to be seen how how these lower interest rates filter through to the housing market and whether the availability of credit to the banks is going to play a part ... in terms of a rebound," he said.
Nathan Bell, head of research at InvestSMART, said when volume or prices are hit in a slowdown "earnings get smashed because it's hard to cut costs and you don't want to cut good staff that you'll need when the cycle improves."
Boral is taking full ownership of its higher-margin plasterboard unit USG Boral Australia and New Zealand, from a half share, as part of a two-step re-set of a joint venture with Germany's Gebr Knauf KG.
The deal, which also expands another joint venture with Knauf to include sales to China and South East Asia, will cost Boral US$441 million in total.
Boral declared a final dividend of 13.5 Australian cents per share, down from 14 cents last year.