Steel & Tube profit up 10% despite conditions

A continued tough trading environment for Steel & Tube did not stop it improving its margins and boosting its half-year after-tax profit about 10%, to $7.3 million.

Steel & Tube's performance, and its outlook, are being keenly watched as an indicator for both the construction sector in general and specifically the rebuilding of Christchurch, which have both been flat and, until recently, below expectations.

While Steel & Tube's revenue was down from $202.9 million to $199.5 million, brokers were pleased with the overall result. Earnings before interest and tax, margins and after-tax profit all increased.

Shares in Steel & Tube rose 4.33%, to $2.65, after the announcement of the half-year results.

Forsyth Barr broker Haley van Leeuwen said sales were down 1.6%, at $199.6 million, compared with the previous corresponding period and 4.5% below Forsyth Barr's forecast of $209 million.

''The weaker sales continue to reflect the tough underlying steel demand in New Zealand, specifically in the manufacturing and construction sectors,'' she said.

While steel prices were flat in New Zealand dollar terms and domestic demand was soft excluding Christchurch, the improvement in margins boosted the outlook for Steel & Tube, she said.

The earnings before interest and tax (ebit) were a ''positive surprise'', up 12.4% to $11 million, price hikes driving the ebit margin from 4.8% a year ago to 5.5%, which was, nonetheless, still low and below historical averages, Ms Van Leeuwen said.

Craigs Investment Partners broker Greg Easton said it was a good result and exceeded Craigs' forecasts and guidance.

''Margin improvements offset the slight fall in top line, which suggests restructuring is working well. Strong cashflows put the balance sheet in even better shape,'' he said. The result suggested a recovery in earnings momentum after a volatile start in the first quarter and some improvement in the second.

''Overall, it was a good performance, signalling a recovery is under way, and will continue to improve in the second half of the year,'' Mr Easton said. The company's focus on supply-chain initiatives was paying off, as the increased margins showed, inventory management having improved ''sharply'' on a year ago, with inventories down 13%, he said.

Steel & Tube chief executive Dave Taylor said global uncertainty was continuing to shape domestic markets important to Steel & Tube, notably the manufacturing, construction and rural sectors, as well as ''ongoing pricing volatility and sluggish, worldwide demand'' in the steel sector.

However, the construction sector was improving, led by Christchurch, and other regions were showing increased quote activity across the sector, ''suggesting the non-residential inertia has bottomed''.

''Overall, we expect the results for the second half of the year to be ahead of the first six months,'' Mr Taylor said. The Mainzeal receivership was not expected to affect Steel & Tube, he said. However, Ms Van Leeuwen said there was likely to be a one-off impact ''of some kind'', though not sufficient to affect Steel & Tube's valuation.