The CSR Limited (ASX: CSR) share price has fallen 11% to $4.60 after the leading manufacturer and supplier of building products posted a full-year profit of $183.8 million for the year ending March 31 2017.
Today's result is an 11% increase in net profit after tax (before significant items) year-on-year and came courtesy of a strong performance from its key Buildings Products segment.
Earnings before interest and tax (EBIT) grew 21% year-on-year in the segment to $202.8 million, thanks to strong demand for residential housing on the east coast of Australia.
Thankfully this strong performance more than offset weakness in all its other segments. The most disappointing was its Aluminium segment. Segment EBIT fell 10.5% to $93.1 million due partly to weaker aluminium prices.
Looking ahead management has painted a mixed picture. While it believes its Aluminium segment will benefit from higher realised prices, its outlook on its Building Products segment is not as positive.
Management advised that it believes segment earnings will only be supported by reasonably steady demand on the east coast for detached housing and high-rise construction.
I interpret this as an expectation for zero growth next year from its biggest segment, which is especially disappointing.
Should you buy the dip?
CSR delivered full-year earnings per share of 36.5 cents, up 11% from 32.9 cents last year. This means that its shares are changing hands at just under 13x earnings after today's decline.
Whilst this does look cheap on paper, it is worth remembering that its shares have a tendency of trading on lower earnings multiples than the market average.
So although it looks like a bit of a bargain, I would suggest investors give CSR a miss until its outlook improves.
In the meantime I think materials sector peers Syrah Resources Ltd (ASX: SYR) and South32 Ltd (ASX: S32) could be worth a closer look.
