Falling construction activity, notably in Australia, and international financial instability have prompted tapware company Methven to revise downwards its earnings outlook for the year to March 31, 2012.
Forsyth Barr broker Suzanne Kinnaird said the company had downgraded its reported profit to between $6 million and $8 million, compared with a forecast of $9 million made in July.
That compared with the previous year's reported profit of $4.7 million, or $6.7 million before one-off items. The company cited a significant deterioration in Australian building activity.
"In Australia, performance has been further affected by a reduction in sales in the higher-margin plumber and merchant channel in favour of the lower-margin DIY channel."
New Zealand activity remained depressed. Ongoing delays in Christchurch would dampen the expected increase in activity during the second half of the 2012 financial year, Ms Kinnaird said.
The United Kingdom operation had returned to profit, despite difficult trading conditions. It was benefiting from extensive restructuring initiatives under the new chief executive.
The business was expected to generate a profit of about $1 million for the first half of the financial year.
Forsyth Barr had downgraded its full-year operating earnings forecast by 10.2% to $15.7 million following discussions with the company, she said.
The main changes were lower contributions from New Zealand and Australia, offset in part by a higher contribution from the United Kingdom.
The revised valuation was $1.95 a share, down from $2, Ms Kinnaird said.
"While we continue to like the longer-term prospects for Methven, based on the water and energy conservation features of its proprietary showerware, our confidence in Methven management has been unsettled following the 2011 impairment provisioning and this profit downgrade."
Previous guidance assumed a continuation of difficult economic conditions, a turn-around in the UK and improving operational efficiency, she said.
Forsyth Barr retained its hold recommendation.
