The CSR Limited (ASX: CSR) share price is taking a beating this morning after the building materials company posted a 59% crash in net profit.
The CSR share price tumbled 1.8% to a near two-month low of $3.33 at the time of writing, although to be fair, you would be hard pressed to find any stock trading higher today.
This isn't an auspicious day to be releasing results given the broad-based selloff on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index, which is off 0.6% following a weak lead from overnight markets as trade tensions between the US and China flared.
Fellow building supply companies are also trading lower with the James Hardie Industries plc (ASX: JHX) share price shedding over 1% and Boral Limited (ASX: BLD) share price slumping 1.6%.
Looking for the silver lining
CSR is putting a brave face to the results. While its statutory net profit fell by more than half to $78 million for the year ended March 31, 2019, it reported a big jump in net cash to $50 million compared to the negative balance of $14.3 million in FY18.
It also pointed out that sales across all businesses increased with group revenue lifting 4% to $2.3 billion. That's not bad considering the tough operating conditions facing the sector from the housing market slump.
The company is pointing its finger at the aluminium business for the profit pain, saying that this division was the key reason behind the earnings fall, no thanks to high electricity prices squeezing margins.
CSR also divested its problematic Viridian Glass business and if investors excluded discontinued operations, net profit would be down a more modest 30% to $138.9 million.
The slight cut in its final dividend to 13 cents from 13.5 cents per share also probably isn't a shock to investors as I believe the market was anticipating this.
Is it time to buy CSR?
But to be frank, it's hard to find a silver lining to the results. While the divestment of Viridian Glass has improved the rate of returns on the group significantly, its other businesses are still moving backwards.
Even if you ignored the problems with its Aluminium division, profits and margins on its Building Products and Property businesses are on the decline.
What's more, I am not sure if we can count on a pick-up in residential construction even though there are early positive signs that the decline in house prices are easing. I suspect we will need to see house prices stabilise before construction activity picks up meaningfully – and house prices are likely to keep falling until sometime in calendar 2020.
If you are looking to gain exposure to a rebound in the housing sector, I think there are better options, and this includes the big banks although I would wait before buying into the sector given the market turmoil.
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