BlueScope Steel (ASX:BSL)
is facing a massive slide in first half profit, according to a trading update issued ahead of yesterday’s annual meeting.
The slowdown in first earnings has been well signalled by the company as it comes off a record six-month period in the December half of 2021 when BlueScope reported earnings before interest and tax of $2.2 billion, a rise of $1.67 billion from the same period of 2020.
Now it’s looking at a $1.3-$1.4 billion slide to around $800 million for the current first half of 2022-23.
Investors had been well guided by the company and the shares actually jumped almost 5% on Tuesday to end at $16.93 as BlueScope’s update suggested the first half outcome might be a little stronger than forecast.
Yesterday, BlueScope confirmed its previous guidance provided in August that the first half result for 2022-23 would see “underlying earnings before interest and tax (EBIT) will be in the range of $800 to $900 million, subject to spread, FX and market conditions.
No mention of any dividend but there must be no chance the company will be able to match the unfranked 25 cent interim announced in February of this year for the December, 2021 half.
In commentary, directors said the “outlook this half for the Group’s US businesses has improved moderately since August driven by better-than-expected margins in downstream businesses, combined with foreign currency translation impacts of the weaker A$:US$ (rate)”
“Domestic despatches in Australia and New Zealand have been lower than anticipated due to high channel inventories, particularly in the distribution segment, combined with customer hesitancy driven by falling regional prices; underlying domestic demand remains solid supported by the ongoing pipeline of construction activity, albeit impacted by labour constraints and weather-related events.”
CEO Mark Vassella said the Australian business “is expected to deliver a lower result than 2H FY2022. Underlying domestic demand remains solid across key end-use segments, supported by a healthy construction backlog.
“However, despatch volume is expected to be lower than 2H FY2022 particularly due to distribution customers seeking to lower inventories in a falling price environment and following the arrival of delayed imports.
“Building segment despatches have also been impacted by unfavourable weather events and some labour constraints in the building and construction supply chain.
“The assessment of the reline and upgrade of the currently mothballed No. 6 Blast Furnace facility at Port Kembla is continuing. A further update will be provided at the release of BlueScope’s 1H FY2023 results in February 2023.]
The North Star BlueScope Steel plant in Ohio in the US is expected to deliver a lower result this half than it did in the final half of 2022. The company said North Star’s contribution will be around a third of the June half’s effort. “With the improvement to prior expectations driven by the depreciation of the A$:US$ benefitting translation of earnings.”
“The (North Star) business continues to operate at full capacity. The ramp-up of the expansion project is progressing well to plan, however it is not yet at the stage where it is likely to make a meaningful contribution in the half.
The company’s North American Buildings and Coated Products business, though, is forecast to double the June half contribution. “The contribution from the engineered building solutions business, which is benefitting from expanded margins on lower steel feed costs, is expected to be better than expectations at the time August guidance was provided.
A negligible contribution is expected from BlueScope Properties Group due to project timing.
Building Products in Asia and North America have seen a moderate improvement since August “but we continue to expect a slightly weaker result than 2H FY2022.”
In New Zealand and the Pacific Islands, “Expectations for segment performance have softened since the August outlook was provided. Domestic despatches are expected to be robust but lower than previously anticipated due to similar effects as seen in the Australian business,” the company said in the update.