The CSR Limited (ASX: CSR) share price is the worst performing stock in the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index this morning after the building materials supplier released its half-year result.
CSR’s share price tumbled 7% to $3.34 this morning and is just 2 cents shy of last week’s two-and-a-half year low.
In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is down 0.2% with the Corporate Travel Management Ltd (ASX: CTD) share price and Pact Group Holdings Ltd (ASX: PGH) share price recording big losses that are just behind CSR.
The market was expecting a weak result from CSR given the challenging residential property market but the 31% dive in net profit to $94 million for the six months ended September 30 was worse than expected.
The main drivers for the poor result was a sharp drop in earnings from its property and aluminium divisions.
Property suffered a 91% plunge in earnings before interest and tax (EBIT) to $4.3 million and aluminium posted a 54% dive in EBIT to $23 million.
Management blamed timing issues for the underperformance of the property business and rising power and alumina costs for declining profits at its aluminium business.
A cut in the interim dividend to 13 cents a share from 13.5 cents isn’t helping either although management is putting on a brave face and is reassuring investors that its full-year underlying net profit will be within the current range of analysts’ forecasts of $180 million to $205 million.
The embattled property division will also post a much stronger second half result with FY19 EBIT tipped to rise to between $35 million and $40 million.
The aluminium business should record a slightly better second half too with full-year EBIT expected to hit $45 million.
CSR’s building products and Viridian glass business is the only division that posted an increase in earnings with EBIT rising 1% to $123.6 million.
Management said the slowdown in multi-dwelling construction along the east coast is offset by the growth in other construction work.
I suspect the outlook won’t save CSR from consensus downgrades, and while the stock looks on FY19 earnings, analysts are forecasting a further profit drop in FY20.
I am not brave enough to bargain hunt CSR. I think other building materials stocks with large US market exposure make more attractive options.
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Motley Fool contributor Brendon Lau owns shares of Boral Limited. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management 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.