Boral Ltd said Wednesday net profit in the six months ended December 31 fell 10.1% because of a housing slump in its key markets, adding full-year earnings may fall lower.
The Sydney-based company reported earnings of A$132.4m in the first half, down from A$147.2m a year ago, as sales rose 5% to A$2.63bn from A$2.49bn in the same period in fiscal year 2007.
Profit growth at Boral, which makes bricks, roof tiles, cement, plasterboard and other construction products, has been crimped by a residential building slump in Australia’s most populous state, New South Wales, and across the U.S.
"If you look at the U.S., things will be tougher I think rather than easier," Chief Executive Rod Pearse told reporters at a briefing, adding the number of new housing construction starts are forecast to decline 35% this half from a year ago after a 24% decline in the first half.
"Despite the significant contraction in U.S. housing markets and in construction activity in NSW, we have long-term confidence in these key markets," he added.
Boral expects its net profit in the year ending June 30 will be about 15% lower than the A$298m reported in fiscal 2007, largely because of the uncertainty surrounding the U.S. housing market and subject to Australian weather, which may hamper construction.
Boral’s first-half sales growth reflected strong volume in most Australian markets, except in NSW, together with price increases and benefits from growth initiatives, offsetting a 19% decline in U.S. revenue, Pearse said.
About 90% of Boral’s A$360m EBITDA in the half came from Australia, up by A$42m from the first half of fiscal 2007 and from 74% of total pretax earnings a year ago, while U.S. Ebitda contracted by A$64m.
"This geographical shift in Boral’s earnings reflects the significant deterioration in US housing activity and a solid lift in Australian non-dwellings and major projects," Pearse said.
In Australia, pretax earnings from its construction materials business rose 15% to A$236m, helped by infrastructure and nonresidential building projects, and higher prices and sales volumes.
Pretax earnings from Boral’s local building products unit rose 14% to A$90m, driven by improved pricing and volume.
U.S. bricks and roof tiles sales declined 20% and 43% in the half because of a downturn in home building, which account for about 70% of Boral’s sales, across all major markets, Pearse said.
Boral has slowed production and temporarily closed some plants, which will significantly affect its earnings in the second half, he added.