BluseScope breaks earnings record and flags aggressive US expansion

BlueScope Steel Limited (ASX: BSL) posted record first-half underlying earnings that was ahead of guidance and is promising more growth at its full year.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Steel products maker BlueScope Steel Limited (ASX: BSL) posted record first half underlying earnings this morning that was ahead of guidance and is promising more growth at its full year.

Shareholders will be hoping that the news will support the sagging BSL share price, which has collapsed 30% since the last reporting season when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index has only dipped 2%.

But it's not only the all-time high earnings and outlook that will capture attention. News that two key risk factors that have weighed heavily on the stock weren't enough to derail growth will also be warmly welcomed.

What's eating the BlueScope share price?

The first is the housing construction slowdown in the US and Australia. The second is the US steel spreads, which is the profit margin of steel mills.

The home building indices in the US and Australia have softened significantly over the past six months and a rebound is looking elusive.

Meanwhile, the abnormally high profit margins from US steel makers since US President Donald Trump slapped tariffs on steel imports into the country are easing back.

There's little doubt these issues have taken a bite out of BlueScope's earnings but their impact may not be as big as sceptics have feared.

Record earnings and outlook

Management posted a 62% surge in underlying earnings before interest and tax (EBIT) over the same period last year to $325.4 million – it's best half year performance ever.

The 1HFY19 figure is 14% above what the company posted in 2HFY18. That's significant because management was guiding for a 10% increase.

What's more, it's US business North Star and its Australian Steel division posted strong growth. Its steel products may have some exposure to housing construction, but it's predominantly used in infrastructure, industrial and commercial construction projects.

The two divisions that posted a loss, Building Products Asia and North America and Buildings North America, make up a relatively small proportion of group EBIT (under 12%).

Management is fixing these issues and is expecting to lift EBIT for Building Products Asia and North America by $40 million in FY20 (enough to return it to growth) and noted that sales of buildings (in the Buildings North America division) to industrial, healthcare, manufacturing, warehousing, aviation and energy customers remain strong.

Foolish takeaway

However, investors may be disappointed that BlueScope isn't lifting its interim dividend, which is flat at 6 cents per share.

Management also warned that the current half will be weaker than the first half, which is probably due to weakening steel spreads.

Nonetheless, BlueScope is tipping that full year FY19 underlying EBIT will increase by 10% over last year and its looking at an aggressive expansion of its US business.

BlueScope is a buy in my book as it provides good exposure to a range of sectors in the US and because the stock is cheap.

Naysayers will point out that consensus forecast is tipping a drop in profits in FY20 but I think the bad news is already in the price with the stock trading on a price-earnings of 8 times for that year.

Motley Fool contributor Brendon Lau owns shares of BlueScope Steel Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A female ASX investor looks through a magnifying glass that enlarges her eye and holds her hand to her face with her mouth open as if looking at something of great interest or surprise.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Broker Notes

These ASX 200 shares could rise 50% to 60%

Brokers believe these shares could deliver big returns for investors.

Read more »

A girl is handed an oversized ice cream cone with lots of different flavours.
Best Shares

8 ASX All Ords shares that tripled in value in FY25

Just 8 out of the 500 companies making up the ASX All Ords achieved share price growth of 200% or…

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman with a scared look has hands on her face.
Broker Notes

Bapcor shares fell more than 30% yesterday. Should investors buy in the dip?

Is this a value opportunity?

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Broker Notes

Broker raises price targets on 2 ASX 200 shares to buy

Ord Minnett has just upped its 12-month share price targets on 2 buy-rated ASX 200 stocks.

Read more »

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why DroneShield, Gentrack, Metals X, and Northern Star shares are tumbling today

These shares are ending the week in the red. But why?

Read more »