BlueScope Steel profit misses analysts’ expectations (update2)

21-Aug-2007 Intellasia | Bloomberg | 6:53 AM

BlueScope Steel Ltd, Australia’s largest steelmaker, had worse-than-expected second-half profit after costs rose and the stronger local currency eroded earnings. Net income gained to A$298 million (US$238 million) for the six months ended June 30 from A$26 million a year ago, the Melbourne-based company said today. That missed the A$311 million average estimate of 12 analysts compiled by Bloomberg.

Higher iron ore, zinc and scrap metal prices boosted BlueScope’s full-year production costs by A$365 million. The stronger Australian dollar cut earnings in the second half by about A$30 million, Chief Financial Officer Paul O’Malley said on a conference call.

“The numbers were a little disappointing,” compared with estimates, said Peter Arden, an analyst at Ord Minnett Ltd, in Melbourne. “There have been cost increases for them, which would have bitten. Part of the profit miss was also the stronger Australian dollar.”

BlueScope rose as much as 51 cents, or 5%, to A$10.74 on the Australian Stock Exchange and traded at A$10.73 at 12:45 p.m. Sydney time. The benchmark S&P/ASX 200 Index gained as much as 3.8% after the US Federal Reserve unexpectedly on August 17 cut the rate it charges banks for loans. Rival OneSteel Ltd rose as much as 5.4%.

“We have started full-year 2008 with a stronger Australian dollar, a stable global steel price environment and high metal coating costs,” outgoing Chief Executive Officer Kirby Adams said today in a statement to the exchange. Global steel demand will remain positive this year driven by Asia, Europe and the US, he said.

Adams will be succeeded by O’Malley on November 1. The Australian dollar bought an average 81 US cents in the second half, compared with 76 cents in the first, O’Malley said.

Arcelor Mittal, the world’s largest steel-maker, reported a 50% increase in second-quarter profit on August 1 after raising prices in the US and Europe. Posco, Asia’s third-largest producer of steel, on July 16 posted a 55% increase in profit as it raised prices to meet rising demand from carmakers and shipbuilders.

Higher Prices

BlueScope’s full-year net income rose to A$686 million, or 94.6 cents a share, for the 12 months ended June 30 from A$338 million, or 47.7 cents a share, a year ago, the company said in a statement. That compares with the A$699 million average estimate of 12 analysts compiled by Bloomberg last week. The second-half estimate was derived from the full-year estimate.

Profit from operations rose to A$643 million from A$555 million. The company will pay a final dividend of 26 cents a share, up 2 cents from a year ago, it said.

Profit was boosted by a A$59 million gain from the sale of an aluminum unit, according to slides presentation. The company had taken charges of A$127 million in 2006 on the cost of the closure of a plant in Taiwan and its tinplate operations in Australia.

BlueScope produces hot-rolled steel coil, a benchmark product, used in cars and buildings, and also processed to make pipes and tubes. It also paints, coats and processes steel, turning it into roofs, fences and walls. Customers include OneSteel Ltd, Australia’s second-largest steelmaker, and general Motors Corp.

Adams said in March the company would raise export prices in May and June of its hot-rolled coils, slabs and plates by US$20 to US$40 a metric tonne. The price of hot-rolled coil in East Asia rose 8.4% in the June quarter, from a year ago, Merrill Lynch & Co said August 10.

Australian Demand

BlueScope’s hot-rolled products unit in Australia accounted for 69% of its pretax earnings for the second half, the highest contributor. It rose to A$320 million in the half, from A$46 million a year ago, the company said.

Steel demand in Australia is expected to continue to be strong, Adams said on the analyst conference call.

Leighton Holdings Ltd, Australia’s biggest engineering and construction company, last week posted a 65% increase in second-half profit as infrastructure and mining contracts swelled its order book to a record.

“You go to build a project, you can’t get a crane,” said Adams on the call. “That’s the best evidence I can give you on the underlying demand that’s coming out of the system on industrial, commercial and infrastructure projects in Australia.”

BlueScope is spending A$1.5 billion expanding plants in Thailand, Vietnam, China and India in an attempt to diversify earnings.