Boral, Adbright flat-lining

Building materials companies have run hard on an expected housing recovery. Investors are still waiting.

If there is a housing recovery underway in Australia, it is doing its best to avoid building material companies.

Both Boral and Adelaide Brighton are showing signs of stress as slowing revenues from resource projects have yet to be filled by growth elsewhere in the economy (see Alvin Pontoh's Housing recovery around the corner).

Boral managed to deliver underlying earnings that were ahead of most forecasts. But its subdued outlook statement sent shivers through the market, sending its stock sharply lower when it opened this morning.

Stripping out one-off costs, Boral delivered full-year profit of $104 million, up 3%. Its statutory earnings slumped 220% to $212.1 million after a major restructuring and redundancy program.

Boral chief Mike Kane targeted 700 job cuts last financial year. As of today, around 800 jobs have been shed and the company will maintain its focus on cost-cutting to compensate for it foresees as a subdued economic climate.

Australia provides the bulk of Boral’s earnings. And on a divisional basis, it is at best flat-lining while going backwards in other areas.

Earnings for the construction division are forecast to ease while losses from the building products operation are expected to continue, albeit at a lower rate.

Improved earnings in the construction division from increased cement prices are expected to be offset by reduced LNG project activity and weak conditions in South East Queensland, Victoria and South Australia.

One of the few bright spots was America.  The recovery in the US housing market could see the division break through to profitability in the second half although that won’t be enough to overcome losses from the first half.

Adelaide Brighton, with an 8.8% decline in half year net earnings to $60.9 million, told a similar tale with resource earnings in Western Australia, South Australia and Queensland countering continued weakness in residential and non residential  construction.

Source: Bloomberg

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