Heavy rain and high energy prices have punched another hole in Boral’s earnings

Boral’s full year earnings will be well off last year’s pace as the construction materials company announces its second downgrade in as many months.

Boral managing director Zlatko Todorcevski.

Boral has blamed “extraordinary” rainfall, particularly in New South Wales and Queensland, as well as high energy prices, for its second profit downgrade in as many months.

Shares in the company, 69.6 per cent owned by the Stokes family’s Seven Group Holdings, hit a 12-month low on the news on Wednesday, dipping as low as $3.06, well off the levels around $7.50 it was trading at in June and July last year, however the company’s $2.72 per share return of capital in February accounts for much of this drop.

Boral told the market on March 22 that full year underlying earnings from continuing operations, excluding property, would be $145m-$155m, down slightly from $157m in the previous financial year.

On Wednesday the company doubled down, saying a further $45m would be trimmed from earnings for the same reasons cited two months earlier.

About $30m of the impact is down to “exceptional’’ rainfall through to mid-May in NSW and Queensland impacting volumes and costs, as well as assumed additional rain days out to the end of June.

READ MORE:Why graphite is the next big thing

This adds to $23m in weather-related earnings impacts announced in March.

The balance of $15m in additional earnings losses is attributed to “inflationary impacts, primarily higher energy costs, which are assumed to continue to be elevated to 30 June, and other cost inflation’’.

“Product price increases implemented in January and February are realising a positive impact, however they have been insufficient to offset the impact of more recent increases in energy prices,’’ Boral told the ASX.

Given that Boral turned in EBIT of $78m for the first half, the new outlook assumes earnings of just $22m-$32m for the second half of the year.

Managing director Zlatko Todorcevski said on Wednesday the energy price increases, particularly across coal and electricity, were impacting 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,’’ Mr Todorcevski said.

The company said in its March update that its exposure to coal prices was unhedged for the second half of the financial year, and while hedging was in place for its diesel needs, that only covered the period up to April.

While thermal coal prices fell back slightly in late March after pushing beyond $US400 per tonne early in the month, they have since strengthened once more to be trading at $US414 per tonne on Wednesday, not far off record highs.

After last year selling down more than $4bn worth of North American assets, and coming under the control of Kerry Stokes’ Seven Group, Boral has been cost-cutting at the top level, saying goodbye to chief financial officer and strategy officer Tino La Spina last month.

Chairman Ryan Stokes said at the time that the company was reassessing what its management ranks should look like given Boral’s reduced operational footprint and the difficult trading conditions.

“In a tough, external, operating environment, we have decided to accelerate operational change,” Mr Stokes said at the time.

The Stokes family, via its Seven Group Holdings vehicle, made a takeover bid for Boral last May after having steadily built up a stake beforehand. It eventually reached a stake of 69.6 per cent. The Stokes family was highly influential around the Boral board table in pushing for an exit from the US by Boral before it gained control of the company.

Boral offloaded the last of its American businesses in early December with the $1 billion sale of its fly ash operations to Eco Material Technologies, a business backed by two US private equity groups.

In July, Boral completed the sale of its larger US building products business - comprising roofing, stone and windows operations - to Westlake Chemical for $US2.15 billion.