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Why the Boral share price crashed 8% lower on Wednesday

One of the worst performers on the S&P/ASX 200 index on Wednesday was the Boral Limited (ASX: BLD) share price.

The building products company’s shares finished the day 8% lower than where they started it at $5.16.

Why did the Boral share price get hammered on Wednesday?

Investors were quick to hit the sell button on Wednesday after one of the company’s industry peers released a very disappointing trading update.

According to the announcement out of Adelaide Brighton Ltd (ASX: ABC), it now expects underlying net profit after tax (excluding property) for FY 2019 to be in the range of $120 million to $130 million.

This will be a decline of 31.5% to 37% on FY 2018’s profit of $190 million and well short of its previous guidance, given as recently as May, for a decline of around 10% to 15% year on year.

Management explained: “The revised guidance is a consequence of a further softening of conditions in the residential and civil construction markets, continued competitive pressure in Queensland and South Australia, sustained increase in raw material costs and one-off shipping costs associated with the cancellation of import orders for cementitious materials given the softening volumes in Victoria.”

The company also advised that it would be scrapping its interim dividend in order to preserve capital.

This sparked fears that trading conditions for the rest of the industry might not be as favourable as investors thought and that they too could fall short of expectations in August.

As well as Boral having its shares sold off, the CSR Limited (ASX: CSR) share price sank 4% and the Lendlease Group (ASX: LLC) share price also fell 4%.

Interestingly, on Tuesday I revealed that Goldman Sachs had tipped Adelaide Brighton to disappoint during earnings season. The broker certainly was on the money with this one.

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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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