Steel & Tube blames ‘recessionary’ environment for forecast earnings drop

Steel & Tube expects its earnings to drop in the current financial year to June. Photo / Supplied

Steel & Tube blamed a “recessionary operating environment” and cost pressures for what it expects to be a sharp decline in earnings for the current year to June 30.

The company, in an update, said it continued to perform well against a backdrop of tightening economic conditions and weather events over the past 10 months.

Revenues had kept growing, driven by elevated international pricing but the company said higher input prices and cost pressures had impacted margins.

Steel & Tube - New Zealand’s largest supplier, distributor and processor of steel products - said it had built a resilient platform with significant reductions in debt and inventory positions, and solid underlying cash generation.

“Given the recessionary operating environment, second-half 2023 volumes are expected to be 10 to 15 per cent less than first half of 2023,” it said today.

Steel & Tube is forecasting 2023 normalised earnings before interest and taxes (ebit) of between $28m and $32m.

It forecasted normalised earnings before interest, taxes, depreciation, and amortisation (ebitda) of between $48m and $52m.

In the previous year, Steel & Tube’s ebit came to $47.6m while its ebitda was $66.6m. The company’s net profit was $30.2m.

“Steel & Tube has a track record of effectively navigating changes through economic cycles and is undertaking a comprehensive cost out programme focusing on $5m of operating costs in full year 2024,” the company said.

As a result, the company expected 2024 operating costs to be flat on 2023′s.

In the 10 months to April, Steel & Tube’s net profit came to $12.4m, down from $24.1m in the previous comparable period.

Revenue was $489m, up from $479.3m a year earlier.

Ebitda was $40.8m ($53.6m) in the 10 months, and ebit was $23.6m ($37.9m).

Chief executive Mark Malpass said the company had focused on strengthening the core business platform.

He said the recent expansion of Steel & Tube’s aluminium offer was proving popular.

“The company has a healthy pipeline of work in place across a diverse range of industries,” he said.

“The Government has estimated the cyclone and flooding rebuild costs at between $9 billion and $14.5b, with half of that related to public infrastructure,” he said.

“Steel is an essential construction material, as demonstrated in the Canterbury rebuild, and Steel & Tube has the capability and capacity, as well as the expertise, to deliver innovative solutions to assist with rebuilding vital assets,” Malpass said.

Steel & Tube shares last traded at 99c, down 4c, or 3.9 per cent, from Tuesday’s close. The stock has dropped by 27 per cent over the last 12 months.