Steel and Tube expects 1H earnings to marginally improve on reviving economy

Steel & Tube Holdings [NZX: STU], the steel building products firm, expects first half earnings to be "marginally ahead" of the same period a year earlier as it benefits from price rises in an improving economy.

"The start to the new financial year has seen volumes steadily improve but pricing remaining soft," chief executive Dave Taylor said in notes for delivery at today's annual meeting in Wellington. "An October 1 price increase on several distribution products is improving margins, and we expect the first half to be marginally ahead of the corresponding period last year."

He didn't provide further details. In the first half last year, Steel & Tube posted a 14 percent increase in profit to $7.3 million. The company increased prices in its first half last year, helping earnings, but wasn't able to implement a planned increase in the second half because of soft demand in Asia and New Zealand.

Steel & Tube expects to benefit from a pick-up in economic sentiment and activity levels, citing an increase in construction led by Auckland and Christchurch, future infrastructure projects and a more optimistic rural sector. An anticipated pick up in construction activity in the second half should be reflected in the company's results, Taylor said today.

Still, a lag between when building consents are lodged and construction begins means the benefits from an improvement in construction may be felt more in the 2015 financial year and beyond rather than this financial year, Taylor said.

Steel & Tube, which posted a 2013 full-year profit of $15.6 million, is expected to increase 2014 profit to $16.8 million and 2015 profit to $20.1 million, according to a Reuters poll of analysts. The stock is rated a 'buy' according to the consensus of analysts polled by Reuters.

"It seems that the cyclical nature of our business is moving towards the positive," Taylor said.

Still, he said excess steel production capacity, particularly in China, is weighing on the industry, holding down prices and squeezing margins. The industry remains "intensely competitive" and demand still lags pre global financial crisis levels, resulting in low margins, he said.

Shares in Steel & Tube slipped 0.6 percent to $3.15. The stock has gained 30 percent so far this year.

(BusinessDesk)