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Why the Boral Limited (ASX:BLD) share price has crashed to a 2-year low

The Boral Limited (ASX: BLD) share price plunged 5.2% to a two-year low of $5.34 at the time of writing – making it the worst performing stock on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index.

This comes after management of the building products company this morning released its first-quarter trading update at its annual general meeting.

Its sharp drop eclipses those of other big underperformers today such as the Eclipx Group Ltd (ASX: ECX) share price fall of 3.8%, Viva Energy Group Ltd’s (ASX: VEA) share price decline of 3.6% and the Blackmores Limited (ASX: BKL) share price decrease of 2.3%.

The disappointing update from Boral also seems to have infected its peer with the James Hardie Industries plc (ASX: JHX) share price falling 2.9% in sympathy.

Boral is at the mercy of the weather. Its share price was already under pressure due to a pullback in building construction activity in the US due to hurricanes and heavy rainfall.

While the company is largely sticking to its FY19 guidance with its US business expected to deliver a 20% increase in earnings before interest, tax, depreciation and amortisation (EBITDA), this is premised on better weather ahead, particularly in the northern hemisphere Spring of 2019.

The good news is that Boral still believes it can achieve its targeted US$25 million in synergies this financial year from the acquisition of Headwaters in the US.

However, bad weather is also playing havoc in Australia with October ushering in wet conditions in New South Wales and parts of Queensland.

This has delayed industry activity with management warning that volume and earnings are “substantially down” this month.

Boral is also experiencing delays in some major project works and the shutdown of its Berrima plant for repairs and maintenance is also taking its toll.

The volume of concrete it is selling to its largest major projects in Sydney is also lower than expected and a major road project in Queensland is also behind target.

Boral’s Australian property business is adding a further drag on earnings. Boral Australia should be able to deliver high-single-digit EBITDA growth in FY19 but that’s excluding Property. If this division is added into the mix, EBITDA is likely to be flat.

There isn’t much good news from management’s update although most of the damage seems to be outside of the company’s control.

That will bring little comfort in the short-term to shareholders, but I believe the stock is cheap if you are willing to stomach the nearer-term volatility.

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Motley Fool contributor Brendon Lau owns shares of Boral Limited. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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