BlueScope Steel Limited (ASX: BSL) has released a market update this morning, reducing earnings forecasts but committing to an extension of the current share buyback.
About BlueScope
BlueScope is the steel producer which spun out of BHP in 2002 and has operations in Australia and throughout the Oceanic region. It’s perhaps best-known for its Colourbond range of products.
Earnings Forecasts
BlueScope announced FY19 underlying EBIT is expected to be approximately $1,350 million, representing a 6% increase on FY18 EBIT (click here to learn what EBIT is). Prior guidance was for an increase of around 10%.
BlueScope says despite North Star sales volumes and operating performance remaining strong, benchmark steel spreads for second half FY19 are now expected to be around US$150/tonne lower than 1H19, compared to the previous estimate of US$130/tonne lower.
In the Building Products sector, Asia and North America markets have been softer than anticipated, while North America margins have also fallen.
Other business sectors have performed in-line with expectations.
Extension of Buyback
BlueScope announced a $250 million on-market share buyback in December 2018 which is now nearing completion. This has been extended and BlueScope will now buy back up to a further $250 million, primarily during 1H20.
Managing Director and CEO Mark Vassella said, “With the transformed business continuing to generate strong cash flow, we are able to pursue a mix of returns to shareholders and investing for future growth.
“We remain committed to our clearly stated financial principles and disciplined approach to capital allocation.”
Summary
While the earnings downgrade will likely weigh on the share price, the extension of the share buyback could help to minimise any loss. This earnings downgrade is a good example of why I try to avoid price-taking businesses that can be hurt by fluctuating commodity prices.
I’d rather invest in one of the businesses mentioned in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
