The Boral Limited (ASX: BLD) share price is under pressure on Wednesday.
In morning trade, the building products company's shares are down 3% to $3.12.
Why is the Boral share price sinking?
Investors have been selling down the Boral share price today after the company revealed that its earnings have taken a hit from recent inclement weather and higher energy prices.
According to the release, the company no longer expects to achieve the earnings guidance it provided in late March. It was previously expecting underlying earnings before interest and tax (EBIT) for its continuing operations (excluding Property) in FY 2022 to be between $145 million and $155 million.
Though, that guidance came with a proviso. It assumed no further extraordinary rain events. Unfortunately, that has not been the case, with New South Wales and Queensland continuing to face heavy rainfall in April and May.
As a result, the company expects this inclement weather and inflationary cost pressures to adversely impacts its underlying earnings in FY 2022 by ~$45 million.
This comprises a ∼$30 million adverse impact from exceptional rainfall on volumes and costs and a ~$15 million impact from inflation. The latter is primarily due to higher energy costs, which are assumed to continue to be elevated until the end of FY 2022.
Transformation plan falls short
Boral also provided an update on product price increases and its transformation program.
In respect to the former, Boral advised that the product price increases implemented in January and February are having a positive impact. However, they have been insufficient to offset the impact of more recent increases in energy prices.
And while its transformation program is expected to deliver a benefit of $45 million to $50 million in FY 2022, this has fallen short of its target range of $60 million to $75 million.
Management commentary
Boral's CEO & Managing Director, Zlatko Todorcevski, said:
Ongoing rainfall in many parts of the east coast, particularly in New South Wales and Queensland, has continued to significantly impact our sales volumes, while also resulting in additional costs.
This has coincided with further sharp increases in energy prices, particularly in coal and electricity, impacting our production and logistics costs.
We are responding to this challenging operating environment by implementing additional measures to mitigate the impact of transport and fuel inflation alongside the already announced out of cycle price increases, and accelerating our focus on costs.
