Building and construction materials companies are doing it tough in an industry reported to be experiencing its worst conditions in 20 years.
Boral Limited (ASX: BLD) has reported a first half net loss of $25.3 million, compared to a profit of $152.7 million in the previous year. Much of the loss is due to significant items of $77 million, as the company suspends unprofitable operations, restructures its business and redundancy costs.
Still, on an underlying basis, net profit was just $52 million, down 16% compared to $66.7 million in the first half of 2011. And that's on increased revenues of $2.8 billion. That's a profit margin of just 1.9%, which doesn't give the company much leeway when it comes to swinging between a profit or a loss, and one of the reasons why Foolish investors would do well to stay well clear of this company.
Difficult conditions in the building and construction industry are expected to continue, with the company stating that US housing activity is still 44% below its 50-year annual average. Add in uncertain market recoveries globally and adverse weather conditions, and the company faces an onslaught of headwinds.
The Australian building and construction sector is also experiencing tough conditions, with land sales falling off a cliff, although new home sales have recently recorded two consecutive months of rises.
Foolish takeaway
For Boral and its competitors, including CSR Limited (ASX: CSR), James Hardie (ASX: JHX) and Fletcher Building (ASX: FBU), no clear signs have emerged to suggest that 2013 will be much better than recent years.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.
