The Adelaide Brighton Ltd (ASX: ABC) share price fell 10% today after releasing a market update to the ASX.
Established in 1882, Adelaide Brighton is a leading building and construction materials producer. They are the second largest supplier of cement in Australia and the largest producer of lime.
Adelaide Brighton’s Market update
In today’s market update, Adelaide Brighton announced that they expect underlying net profit after tax for the year ending 31 December 2019 to be 10-15% lower than the prior year.
Management cited the primary driver for the decline in expected earnings as being:
“further softening of demand for construction materials in the residential market, increased competition for cement imports, increased competitive pressures in Queensland and higher costs of raw materials”.
Talk about a triple whammy: revenue lower, with costs and competition higher! In my opinion, that doesn’t present a pretty picture for Adelaide Brighton’s year ahead — no wonder its shares were down 10% today.
Buy, Hold or Sell
What’s interesting about today’s update from Adelaide Brighton is that fellow building materials company CSR Limited (ASX: CSR) released its full-year result yesterday showing revenue was up 4% on the previous year. However, CSR also felt the pinch on costs, with profit down 14%.
On a positive note, having been in business for 137 years, Adelaide Brighton must be doing something right. Indeed, it appears to be a high-quality company, employing over 1,500 employees and is a leader in the fields it operates in.
Unfortunately, it operates in a cyclical industry and, as such, timing your buying and selling of its shares can be important. For now, the cycle doesn’t look to be headed in the right direction, and as such I’m sitting on the sidelines.
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At the time of writing, David does not have a financial interest in any of the companies mentioned.
