The Wagners Holding Company Ltd (ASX: WGN) share price and the Boral Limited (ASX: BLD) share price will be on watch this morning after the two parties failed to settle their cement supply pricing dispute.
What was the dispute?
Last month the Wagners share price crashed lower after the building materials company announced the suspension of its cement supply agreement with Boral.
Wagners suspended the agreement whilst it disputed a pricing notice filed by Boral for cement supply from a competitor at a significantly lower price than its current agreement.
What's new?
According to an update released late yesterday, as the two parties have been unable to resolve the matter, Wagners has now filed a Statement of Claim in the Supreme Court of Queensland against Boral seeking a determination through the Courts of the matters currently under dispute.
Furthermore, as a result of the commencement of litigation, Wagners has reduced its FY 2019 earnings before interest and tax (EBIT) guidance by approximately $10million until such time as the litigation has been either resolved or determined by the Courts.
The reduction in its guidance also takes into account the disruption faced by the cement business as well as the impacts that will flow into the concrete market, conditions in the precast concrete market, and delays in projects starting.
Management now expects EBIT for the full year to be in the range of $25 million to $28 million.
What now?
There certainly is a lot riding on this litigation. Management advised that if it is successful in its current litigation it would restore both revenue and earnings.
Furthermore, upon resolution of the dispute, the company's sales and volumes would be expected to return to levels provided for under the cement supply agreement.
I would suggest investors wait to see how things turn out before making an investment in either company.
