Boral cuts forecast on US housing slump, wet weather

Boral cuts forecast on US housing slump, wet weather
08 May 2008

Boral Ltd, Australia’s largest building products maker by sales, Thursday said net profit for the year ending June 30 may drop as much as 21% because of the US housing slump and wet weather at home.
Profit growth at Boral has been crimped also by a residential building slump in Australia’s most populous state, New South Wales.
This led Sydney-based Boral to cut its full-year guidance to the "lower end" of analysts’ estimates, which range from A$234 million to A$256 million.
"The U.S. decline has been a more significant impact to our business," Chief Financial Officer Ken Barton said in an interview with Dow Jones Newswires. "We’re looking at a much lower level of activity than we have seen in the past."
Annualized housing starts in the U.S. fell 25% to about 900,000 in the quarter ended March 30 from the six months to December, the company said. In some U.S. markets, the drop was 40%.
Traditionally, sales in the U.S. - where the company usually records about a fifth of its revenue - recover by May, said Barton.
But "so far through April, we haven’t seen the bounce we would normally see," he said. "Our sense is the U.S. housing market is staying at low levels and even seasonally is not recovering."
Barton added: "We’ll know when we hit the bottom of the housing market when it stops dropping month by month, and that phenomena hasn’t occurred."
"There’s an overhang of housing stock," he said.
"It’s more difficult to get financing for a house than it was a year ago and we keep seeing month on month declines (on housing starts) so there is every possibility that it may get worse before it gets better."
In October, Boral told investors at its annual meeting that profit may drop 15% from the A$298 million posted in the year ended June 30, indicating that it may post a profit of around A$253 million.
The company has taken steps to cut the impact of the U.S. downturn but these will be insufficient to offset the deterioration in the market, Chief Executive Rod Pearse said in a statement.
As a result, the company expects its U.S. second-half earnings to be significantly less than its first half.
First-half earnings before interest and tax from the U.S. unit dropped 85% to US$9 million from US$56 million.
In the U.S., Boral is reducing production capacity to match demand and trying to cut costs "wherever we can" to boost profitability, Barton said.
"As you imagine, we have a lot of fixed operating facilities that come with fixed costs and it’s quite hard to offset that level of volume" and remain profitable, he said.
Boral’s earnings in the six months to Dec. 31 was A$132.4 million, down 10% from A$147.2 million a year earlier.
"We did a little better in the first half than we first thought and most of the improvement came out of the Australian businesses, and we are still seeing strength in the Australian businesses," Barton said.
"Unfortunately, we are quite a weather-dependent business," he said, adding that the company lost ground as poor weather in Queensland slowed construction in the January-March quarter.
The company will attempt to boost sales in New South Wales state, where the market has been weak, but it will be difficult to regain lost ground, Barton said.
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