BlueScope shares hit hard on earnings slide

Company News

by Glenn Dyer

BlueScope Steel (ASX:BSL) shares ended down 10% on Monday after orders for steel slid in most of its major regions in the six months to December, taking prices and earnings with them.

And that sharp fall in earnings – of more than $1 billion – has finally wiped out the memory of the company’s great earnings boom in 2021-22 when underlying EBIT surged to an all-time high of $3.798 billion.

And if the guidance yesterday for underlying EBIT around the $1.4 billion mark is any guide, the overall drop will be well over $2 billion for the year to June 30.

Interim dividend was set at an unchanged 25 cents per share, though this year’s payout will be fully franked for the first time since 2018 now that BlueScope has exhausted Australian tax losses and restarted tax payments.

The December half saw $120 million of stock was bought through the $500 million buy-back and the BSL board has approved an extension of the buy-back program, to allow the remaining capacity of up to $380 million to be bought over the next 12 months.

That will provide handy support for the shares which face more downward pressure from the slide in demand for steel. The shares ended at $17.84 but the 10% loss on the day trimmed the year’s gain to just over 6%.

BlueScope reported a December half year net profit after tax of $599 million, down $1,045 million from the December, 2021 half year. Underlying EBIT for the half year was $851 million.

That will see underlying EBIT in the range of $480 to $550 million “This is lower than 1H FY2023 mainly due to softer Asian and Midwest steel spreads, and is subject to spread, foreign exchange and market conditions,” BSL said on Monday.

That will put the underlying EBIT around $1.33 billion to $1.455 billion and substantially lower than the huge $3.778 billion in 2021-22. Net profit will be substantially less than the $2.768 billion for the same year.

CEO Mark Vassella said on Monday “This result demonstrates the resilience of our diversified business model, as the strength in many of our downstream businesses and operations partly offset the impact of steel spreads softening from record levels.

“Operating cash flow for the half year, after capital expenditure, was $751 million and the balance sheet remains strong with $606 million net cash. This position continues to enable us to invest in long-term growth and deliver returns to shareholders through the economic and steel price cycle.

Earnings in Australia and the US fell in the half year and face further weakness this half.

The company’s Australian steel products business delivered underlying EBIT of $274 million – down 55% on the prior half. BSL said dispatches softened as customers lowered inventories amid falling prices.

Its North Star business’ in the US state of Ohio saw a 70% slump in underlying EBIT to $202 million, but its North American buildings and coated products leg saw underling EBIT jump 118% to $173 million.

BSL remains very upbeat about its US operations, even after the slump in the December half.

“BlueScope continues to see the US as a great place to make and sell flat steel products, and at full capacity, North Star will represent approximately 5 per cent of total annual US flat steelmaking production.

“The confidence in this view is supported both by the recent consolidation amongst industry participants and by ongoing growth in demand for steel in this large market – particularly with the need for large scale infrastructure investment, development of steel intensive renewable energy systems and the build out of e-commerce infrastructure over the coming decade.

“The ramp up of the expansion at North Star is advancing well, as the team has increasing success in sequencing the steel flows from the equipment into the existing operations. Expectations continue to be that the full ramp up will progress over an 18-month period from August 2022.

“BlueScope Recycling has continued to gather momentum, through a number of low capital capacity projects and the acquisition of the Mansfield, Ohio site in August 2022.

“1H FY2023 marked the first six months of BlueScope ownership of the Coil Coatings business, now known as BlueScope Coated Products. This business will provide BlueScope with a range of near-term synergies and medium to longer-term “growth potential through process and technology upgrades, product development and the introduction of branded and packaged products. The integration and execution of the business case is underway, with preliminary progress encouraging.”

Do you get the feeling that BlueScope is more enthusiastic about the US market than anywhere else?

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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