A profit warning from cement maker Adelaide Brighton has highlighted weak conditions in the once-strong construction sector and pounded share prices across the industry.
The company on Wednesday dropped its annual profit guidance by as much 30 per cent, cut its interim dividend and said it cancelled ingredient imports and booked a $100 million impairment charge, sending its shares lower by a fifth.
The company attributed the bad news to further softening of already weak conditions in residential and civil building markets, which bodes ill for the national economy and also sparked selling across the building materials sector.
Shares in supplier Boral Ltd dropped 8.0 per cent while rival CSR Ltd fell 6.0 per cent, both hitting one-month lows by mid-session.
The broader market fell 0.2 per cent.
Adelaide Brighton’s 19 per cent plunge was the stock’s steepest drop in 15 years.
“The sector should be doing well in this environment on the infrastructure side, but certainly the residential side has fallen off a cliff,” said Daniel Cuthbertson, managing director at Value Point Asset Management.
The fund sold out of Adelaide Brighton over the past 12 months amid management changes.
The downgrade underlines how support from government-driven infrastructure building has failed to offset sliding homebuilding activity, as a slump in building approvals catches up with work underway.
Tighter lending and a sharp drop in home values this year are expected to hold activity low for a while, with Australia’s AIG Construction Index showing a tenth straight month of contracting activity in June.
Adelaide Brighton said it expected 2019 underlying profit, excluding property, to fall to between $120 million and $130 million – as much as 37 per cent below 2018’s figure of $190.1 million.
The company had in May forecast a drop of between 10 per cent and 15 per cent and in February was predicting overall demand for building materials to be stable in 2019.
Diana Mousina, senior economist at AMP Capital expects activity to fall further still, as infrastructure projects are completed and home starts hold low – adding pressure to Australia’s creaking economy.
“There’s still weakness to go,” she said.
“We think that there might be about 60,000 job losses related to the downturn in housing,” a figure high enough to lift a 5.2 per cent jobless rate that the central bank is seeking to push under 4.5 per cent.