Tenon's earnings hostage to the US housing market: chairman

Thursday 15th December 2011 1 Comment

Wood mouldings manufacturer Tenon's short-term earnings “are likely to continue to be held hostage to poor US macro-housing conditions and low industry demand,” according to chairman Luke Moriarty.

However, “it is obvious that, when the dust finally settles, there are some strong positive fundamentals that will support a long-term recovery in the US housing market which, in turn, will drive a much higher earnings performance,” Moriarty told shareholders at today’s annual meeting.

Those fundamentals included housing affordability at 40-year highs, new home inventories at 40-year lows, mortgage rates at 40-year lows, robust population growth while housing starts per head of population are at 60-year lows and an aging housing stock.

The median age of a US house is now greater than 35 years old, he said.

In the meantime, Tenon will focus on growing its business beyond its core US market into Australia, New Zealand, China and Japan and by participating in industry restructuring and consolidation in New Zealand and the US, Moriarty said.

Chief operating officer Tony Johnston said US housing starts are down 75 percent from their peak and nearly three million unsold homes overhang the market.

He said Tenon's Taupo manufacturing plant has faced significantly lower sales, a high New Zealand dollar, rising radiata pine log prices but hasn't been able to increase its prices. Every 1 US cent movement in the exchange rate impacts earnings from Taupo by US$550,000, Johnston said.

Management at Taupo has implemented a plan to remain profitable when the exchange rate is above 80 US cents through shedding capacity, cutting shifts from four to three, improving productivity and other cost cutting measures.

“The outcome of this plan will see Taupo site improve its financial performance in the order of US$4 million per annum and the plant is operating profitably today,” Johnston said.

Tenon reported a US$2 million loss for the year ended June 30 compared with a US$2 million profit the previous year.

Tenon shares last traded at 67 cents on Tuesday, up from its year low at 54 cents in October but well below its year high at $1.29 in January.

(BusinessDesk)

BusinessDesk.co.nz

Comments from our readers

On 17 December 2011 at 3:45 pm Bernie said:

I see Tenon as a lookalike to Rakon in that they have never paid a dividend and make endless promises on the future. When the housing market comes right new competition will emerge and this will give Tenon a new reason for inadequate profits.