Brick and masonry products maker Ibstock (LON:IBST) cut its FY earnings guidance again due to weak market conditions. As a result, EBITDA is now seen in the mid-£40 million range against a previous forecast of around £60 million.
Trading conditions deteriorated sharply during the third quarter, with weakness continuing into October, said CEO Joe Hudson. ‘We have responded by reducing production to manage inventory, taking further cost action and maintaining tight control of cash. These production decisions create an additional near-term earnings headwind but are necessary to align output with demand’, added Hudson.
FY guidance cut again
Having already lowered its FY EBITDA forecast in August with its H1 results, Ibstock cut its outlook again due to weak H2 trading. Due to soft demand in September and October, Q3 brick sales were 22% below target.
Therefore, to align output with lower demand and limit inventory build, the group cut production by around 20% from its H1 forecast. Consequently, H2 results will be ‘materially’ below previous expectations.
The new guidance represents a cut of around 25% from the previous forecast of £60 million, which was the bottom end of analysts’ estimates. Ibstock says it will prioritise cash generation through disciplined management of existing inventory, capital spending and other costs.
Today’s guidance cut isn’t that much of a surprise given how sluggish new-build housing activity has been. That’s why the shares are down less than 10%, rather than 20% to 30% like other firms which have warned. Also, hedge funds were already short Ibstock going into today’s update, so there may be some squaring of positions.
At the end of the day, Ibstock has no influence on the cycle, it can only ‘control the controllables’. That means cutting output, cutting spending where possible and managing cash tightly.
The delay of the ‘Your First Home’ support scheme till next April is obviously disappointing, but at some point demand will recover. When it does, no doubt there will be plenty of opportunity to make money in housebuilders and building materials, we just aren’t there yet.
