Austal (ASX: ASB) share price down 8% after earnings downgrade

The shipbuilder’s share price is plunging to two-year lows. Let’s take a look.

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The Austal Ltd (ASX: ASB) share price is taking a beating this morning. This comes after the global shipbuilder and defence contractor announced a negative FY21 earnings update.

At the time of writing, Austal shares are down 7.73% trading at $2.15.

Guidance downgrade

In today’s statement, Austal advised it now expects earnings before interest and tax (EBIT) to be in the range of $112 million to $118 million, with revenue of approximately $1.55 billion.

This compares to its previous guidance of $125 million EBIT and revenue of approximately $1.65 billion for FY21.

From a year-on-year perspective, in FY20, Austal delivered an EBIT of $130.4 million and revenues of $2.1 billion. This means that today’s earnings downgrade will result in a greater year-on-year decline in earnings, with EBIT falling between 9.5% and 14%, and a 26% slide in revenue.

Why earnings are sliding

Austal had previously flagged COVID-19 related issues in its 1H21 results, citing delays as a result of the pandemic had shifted revenue into FY22.

Today’s announcement has revealed a continuation of these challenges, with the company advising “delays experienced on programs and associated costs caused by COVID-19 related border closures, travel restrictions and resourcing challenges that are impacting Austal‚Äôs shipbuilding operations in Australia and the Philippines”.

Another drag on earnings was the company’s “requirement to (provide) for expected future expenses” associated with civil penalty proceedings commenced by ASIC in the Federal Court recently.

After investigating its behaviour in 2016, ASIC has started a civil case against the shipbuilder over allegations Austal was holding back information about a major earnings downgrade.

Austal share price at 2-year lows

Austal shares staged a meteoric rise in 2019, surging from ~$2.00 in January to as high as $4.99 by November.

In recent times, the Austal share price has struggled to perform, despite the S&P/ASX 200 Index (ASX: XJO) rallying to record all-time highs.

At current ~$2.20 levels, it’s almost back to square one for Austal shares.

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Motley Fool¬†contributor¬†Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Austal Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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