Boral Lower As Expected

By Glenn Dyer | More Articles by Glenn Dyer

The market shrugged off the latest gloomy news and outlook for building products group, Boral which produced a 14.6 per cent decline in interim earnings yesterday and forecast more of the same in the second half.

The shares bounced as high at $8.53 after opening at $8.35, to be21c up on the day at $8.44.

Quite strong in fact, although it was a strong market and even underperformers are being rewarded.

Although much of the poor news has been in the market for a while, either known or suspected, it was still a solid reaction to the lower earnings outlook.

Much of it is probably still due to suspicions that Boral could be on a private equity buyout list, somewhere, or could move into the sights of companies like Cemex, should its huge bid for Rinker Group fail.

Boral said yesterday that first half net profit came out at $147.2 million, down 14.6 per cent.

The fall reflected a solid Australian construction materials profit offset by the impact of lower performance in building products because of the downturn in the Australian housing market particularly in NSW, and that sharp decline in the US.

CEO, Rod Pearse said in a statement that Boral anticipated strong activity in Australian non-dwellings and infrastructure segments in the June half, which with concrete and quarry price increases will offset the Australian housing-related volume impacts.

“We expect Australian dwelling commencements to be around 145,000 which is four per cent below FY2006 and well below underlying demand levels of around 160,000 to 165,000 starts,” he said in a statement.

Mr Pearse said Boral expected its annual net profit to be in line with guidance provided at the company’s annual general meeting in October.

“We expect that Boral’s net profit after tax in FY2007 will be around 15 per cent below the $362 million reported in FY2006.”

So I suppose the market liked the fact that there were no surprises and that the downturn here and in the US hadn’t deepened and taken a bigger toll on BLD’s earnings.

It reported earnings per share of 24.8 cents for the half and an unchanged, fully franked interim dividend of 17 cents a share will paid.

Mr Pearse said that a solid lift in Australian non-dwelling and infrastructure work which has increased EBITDA in the construction materials business by five per cent.”

That’s the impact of the infrastructure and resources booms.

EBITDA in the group’s Asian operations also rose five per cent but the story in building products reflected the downturn in housing. EBITDA in this division fell eight per cent.

The damage was done in the US where that sharp second slide in housing activity took its toll on BLD with EBITDA down 13 per cent. The company said this was due to a 23 per cent drop in total housing starts in America, with most of that decline happening from June onwards.

And Mr Pearse held out little expectations of any improvement in the Us saying Boral expected US housing starts to be around 1.6 million for the financial year, down 25 per cent on last year again.

“This substantial downturn will have a greater impact on our roof tile and brick operations in the second half of the year,” Mr Pearse said.

He said effective price and cost management should ease some of the impact from lower housing-related production and sales in Australia and the USA.

Temporary plant closures to better manage inventory levels in the two countries was planned to help improve cost of manufacturing building products.

But these, while helping match demand and production “will adversely impact Boral’s cost of manufacturing building products”, according to Mr Pearse.

It’s what Boral has been using in the NSW market for some time.

But he said that “Quarry End Use should contribute around $50 million of earnings with $45 million to be delivered in the second half of the year.

“In Asia, we expect that market conditions will remain competitive and that Boral’s underlying earnings from Asia will be resilient.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →