Steel & Tube cuts earnings outlook on margin squeeze, inventory restatement

Monday 20th May 2019

Steel & Tube Holdings has cut its earnings outlook as margins remain under pressure, and after restating its year-earlier accounts gave it a lower starting point.

The steel products maker expects earnings before interest and tax of $15.5-17.5 million in the year ending June 30, down from previous guidance of $25 million. Steel & Tube restated its 2018 earnings to $13.6 million after finding a $4 million inventory write-off related to the production process which should have been included in the cost of goods sold.

That alone would have lowered the 2019 guidance to $21 million, however, tighter competition and lower prices for some its higher value products cut the outlook further.

Despite that, the board still expects to pay a final dividend in line with the company's policy and said it has headroom over its key banking covenants.

"While Steel & Tube has grown market share, volumes and sales, the margin pressures noted in the first-half results have continued into the second half of the financial year," it said.

Steel & Tube recapitalised last year after breaching a lending covenant when impairment charges and restructuring costs pushed it into the red.

It's been cutting costs by rationalising sites, internalising warehouse functions, making better use of freight, and restructuring to lift earnings. The downgraded forecast is still an uplift of 20-35 percent on the restated ebit.

"Operating cost discipline has continued and it is expected that a reduction versus the prior year will be achieved despite absorbing the full year impact of increased rental costs from sale-leasebacks, general cost inflation and the impact of NZIFRS 9 requirements," Steel & Tube said.

The shares last traded at $1.23, and are down 33 percent over the past 12 months.

(BusinessDesk)

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