Brickworks Ltd (ASX: BKW) shares are on the slide on Tuesday.
In morning trade, the ASX 200 stock is down 8.5% to a 52-week low of $23.45
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Why is this ASX 200 stock crashing?
Investors have been selling the building products company's shares following the release of a trading update.
According to the release, Brickworks is expecting to recognise a post-tax non-cash impairment charge of approximately $55 million (pre-tax $74 million) to Brickworks North America in its half year results. This is subject to the finalisation of its results, audit processes, and Board approval of those results.
Management previously advised that market conditions in North America were declining faster than anticipated. Unfortunately, these challenging conditions have continued through the balance of the first half, driving a 13% reduction in revenue compared to the prior corresponding period.
In addition, strong competition in the retail segment has resulted in a loss of some market share at the company-owned Brickworks Supply store network. This reduced demand necessitated plant shutdowns during the period, to control inventory levels, which has caused reduced plant efficiency and higher unit manufacturing costs. This has led to a significant decline in earnings before interest, tax, depreciation and amortisation (EBITDA) margin during the half.
Furthermore, the subdued building activity and scaled back production will delay the realisation of benefits expected to be delivered from plant rationalisation and upgrades that have been completed in recent years. And uncertainty around the timing of the market recovery has resulted in a moderation of the short to medium term outlook for sales activity.
Half year update
The ASX 200 stock has also provided investors with an idea of what to expect from its segments during the first half.
Property EBITDA will be higher than the prior corresponding period. This is due primarily to the prior period experiencing a significant expansion in industrial property capitalisation rates and a consequent devaluation of Property Trust assets.
In the first half of FY 2025, capitalisation rates have remained relatively stable, and as such there has been no significant change to the value of the Property Trust. Whereas development profit will be minimal as construction at Oakdale East is in its early stages. Net trust income will be marginally higher compared to the prior period.
Building Products Australia is expected to deliver EBITDA broadly in line with the prior corresponding period. This reflects the impact of lower sales volume broadly offset by portfolio rationalisation and cost reduction initiatives.
Building Products North America EBITDA will be significantly lower. This is being driven by the impacts outlined above, together with unusually extreme winter weather conditions in key regions during the latter part of the half.
Brickworks will be releasing its half year results on 20 March.
