BlueScope Steel Full Year Result: BSL shares slump on disappointing guidance

BlueScope Steel (BSL) posted a softer than expected annual underlying profit result, despite more than doubling earnings to $650.8m for the 12 months ended June 2017. The result was held back by rising input commodity prices and slowing momentum in its cost reduction plans. The company announced a smaller than hoped share buyback, its long-time Chief Executive, Paul O’Malley announced plans to retire on December 31 (after 10 years in top job) and revealed BSL has been under investigation by the ACCC. 

 Another disappointment and one of the main drivers of its shares price movement, which is down ~20% today, is its soft guidance moving forward. The company’s comments suggested a 20% fall in underlying earnings over the first half of the 2018 financial year. BSL also warned of likely pressures on its margins partly due to higher energy costs, lower US steel margins due to scrap prices increasing ahead of steel prices and currency volatility. 

 In its results, BSL said underlying earnings were boosted by the “…full ownership of North Star [a producer of hot rolled coil in Ohio, US], higher spreads and margins with steel prices rising more than raw material cost increases, higher manufacturing production rates and sales volume increases”. North Star contributed $406.6 million to underlying EBIT, a 178% lift on last year. 

 Its Australia & New Zealand steel business – one of its biggest earners – was boosted by strong steel prices but held back by higher than anticipated costs. 

 BSL will pay eligible investors a $0.05 per share final dividend on 16 October 2017. This takes its payments for the full year to $0.09 and gives the group a dividend yield ~0.7%. It will trade ex-dividend (the key cut-off date for dividend eligibility) on 8 September 2017. 

 The steel producer will also return funds to investors by conducting a share buy-back up to $150 million during the first half of the financial year. This adds to the $150m buy-back announced in its interim results back in February and fell short of some analyst expectations. 

 BSL took advantage of a lift in cash flow by paying off debt. Its net debt position was reduced to $232.2m over the year. The overall result has pushed BSL shares down by ~20% today in what is one of its worst ever daily tumbles. Despite’s the weakness, its shares are up ~20% Year-to-Date (since January 2017). 

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