Investors in SGH Ltd (ASX: SGH) are having a rough session today.
At the time of writing, shares in the ASX 200 industrials stock are trading at $47.20 each.
This marks a 9.2% decline from yesterday's close.
In contrast, the All Ordinaries Index (ASX: XAO) is trading flat.
The sell-off follows the release of the company's FY25 results this morning. And it appears that the group's guidance for FY26 may have triggered the fall.
Let's take a closer look to see what happened.
Operational background
SGH was originally formed in 2010 as Seven Group Holdings.
It has since grown into one of the largest diversified businesses on the ASX, with its operations spanning industrial services, energy, and media.
The company's portfolio of businesses includes WesTrac – a heavy equipment sales and services provider where SGH acts as the sole dealer for the Caterpillar brand.
It also owns the Coates equipment hire business, mobile lighting and power solutions specialist Allight, as well as Boral – Australia's largest integrated construction materials company.
Elsewhere, SGH holds a portfolio of oil and gas projects, including a 30% stake in Beach Energy Ltd (ASX: BPT).
Finally, the ASX 200 industrials stock owns a 40% interest in Seven West Media (ASX: SWM) – one of Australia's leading integrated media businesses.
What happened in FY25?
The results for FY25 appear to be solid, with SGH achieving its targeted earnings growth and margin expansion.
Operating earnings (EBIT) of $1.54 billion jumped by 8% from the previous year, with net profit after tax (NPAT) of $924 million rising by 9% during the same period.
The company's EBIT margin of 14.3% also improved by 93 basis points.
Management attributed this margin expansion to cost efficiencies at Boral and Coates, pricing discipline, as well as growth in earnings.
Notably, operating cash flow ballooned by 49% year on year to reach $1.95 billion.
And the group's fully franked FY25 dividend of 62 cents per share grew by 17%.
So why the share price dip?
SGH is guiding for low to mid single-digit EBIT growth in FY26, despite the margin improvements in FY25.
And this outlook could be weighing on the company's share price.
Analysts at UBS noted that the FY25 numbers came broadly in line with expectations, as reported in the Australian Financial Review.
However, the group's guidance for FY26 is 5% lower than UBS forecasts and 9% below consensus estimates, which may explain the soft market reaction.
That said, UBS has retained a buy rating on SGH, setting a price target of $60 per share for this ASX 200 industrials stock.
This represents 27% upside potential from the company's share price at the time of writing.
