Boral shares tumble on ASX after company cuts profit forecast

Wednesday 28th January 2009

Boral fell almost 15% on the ASX after Australia's largest building supplies company cut its 2009 profit forecast by 40% because of the economic downturn, particularly in the US.

Profit may tumble to A$120 million in the year ending June 30 from A$243 million in the previous year, the company said. Boral lowered its forecast from a previous estimate of A$200 million.

"As a result of the collapse in the housing market in the US, we anticipate further significant reductions in sales and production volumes in the June half," managing director Rod Pearse said. Australian demand is also "well below our expectations and the prior year," he said.

US housing starts may slide to 600,000-650,000 in fiscal 2009, based on the latest data, well down from analysts' estimates of 813,000. In Australia, housing starts may weaken to 135,000 this year from 155,000. Demand for housing is sliding in the US as companies slash jobs and home values fall in the face of the worst recession since the 1930s.

The S&P/Case-Shiller 20-city index, a measure of house prices in the biggest US metropolitan areas, fell 18.2% in November from the same month of 2007, a record drop for the eight-year-old index, according to a report yesterday.

Australian building approvals fell almost 13% in November, the fifth monthly decline, according to government figures this month.

Asian markets "weakened significantly in the final three months of 2008 and sales volumes are expected to deteriorate further in the next six months, the company said.

Boral's shares fell 61 cents to A$3.47, bringing their six-month slide to 31%. James Hardie Industries fell 7.8% to A%3.76 while New Zealand rival Fletcher Building dropped 2.8% to $5.55.

In November, Moody's Investors Service cut the long-term debt rating to Baa2 from Baa1 citing the "challenging nature of Boral's operating environment, which has weakened the company's key metrics."

Boral's forecasts assume the Australian dollar will average about 65 US cents in the six months through June. The currency was recently at 66.46 cents.

By Jonathan Underhill

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