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Why the Austal share price popped 15% this morning

The Austal Limited (ASX: ASB) share price opened 14.65% higher this morning on news released yesterday evening that the company expects earnings for FY20 to be higher than initially expected.

Austal shares ended trading yesterday at $3.55 but opened this morning at $4.02 and rose as high as $4.14 before dropping back slightly to $3.94 at the time of writing.

Austal is an Australian shipbuilder which designs and manufactures some of the world’s most advanced commercial and military ships. The company is our largest ASX-listed shipbuilder as well as the largest aluminium shipbuilder in the world, with extensive contracts, including with the United States (US) military.

What did Austal tell the market yesterday?

Yesterday’s announcement to the ASX (made after market close) outlined Austal’s expectation of earnings before interest and tax (EBIT) for FY19 to come in at $92 million on top of revenue of $1.8 billion–$1.9 billion.

Austal stated it “does not typically provide EBIT guidance, following a preliminary consolidation of its FY2019 results, the Company’s associated outlook for FY2020and a comparison with analysts’ expectations, the Company considers it appropriate to update the market for FY2020.”

The company expects EBIT to rise by 14% in FY20 and come in at $105 million, “largely driven by improvement from Austal’s Australasia shipyards as well as continued strong performance on Austal’s two major vessel programs for the US Navy.”

Austal also outlined the ongoing growth in shipbuilding throughput, enabled by the company’s expansion of its Philippines shipyard and the establishment of a “leased” shipyard in Vietnam.

Although Austal has stated that “the extent of earnings growth from Austal Australasia in FY2020 will become clearer as the commercial ferry contracts are completed”, the company is planning on releasing its full FY19 results by 30 August and will provide updated guidance at that time.

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Motley Fool contributor Sebastian Bowen 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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