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Why the Adelaide Brighton share price crashed 12% lower today

One of the worst performers on the S&P/ASX 200 index on Thursday has been the Adelaide Brighton Ltd (ASX: ABC) share price.

In morning trade the building products company’s shares crashed as much as 12% lower to a 52-week low of $3.68.

Its shares have since rebounded but are still down around 6% at the time of writing.

Why did the Adelaide Brighton share price crash lower today?

Investors have been hitting the sell button in a panic this morning after Adelaide Brighton released a disappointing market update.

According to the release, management expects full year underlying net profit after tax (excluding property) to be down 10% to 15% on the $190.1 million it achieved in FY 2018.

This poor performance has been blamed on further softening of demand for construction materials in the residential market, increased competition from cement imports, increased competitive pressures in Queensland, and higher costs of key raw materials compared to the prior period.

Despite this disappointment, the company’s CEO, Nick Miller, was upbeat on the company’s future.

He said: “While market conditions are expected to impact current year earnings, our balance sheet is strong and provides us with flexibility to pursue new opportunities that arise in challenging market conditions. We will continue to focus on operational improvement and cost efficiency to mitigate the impact on earnings.”

This news appears to have spooked the shareholders of some of its industry peers. In morning trade the Boral Limited (ASX: BLD) share price has fallen 2%, the CSR Limited (ASX: CSR) share price has dropped over 3%, and the Fletcher Building Limited (ASX: FBU) share price has tumbled 2.5% lower.

Should you buy the dip?

Whilst Adelaide Brighton is a quality company, I’m not sure that now is the time to be investing.

I would suggest investors wait for demand for construction materials in the residential market to improve before considering an investment in its shares or the industry.

Until then, I would focus on other areas of the market with brighter outlooks.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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