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Highlights
- Brickworks shares drop 8.5% to a 52-week low of $23.45.
- $55 million post-tax impairment charge expected in North America.
- Challenging market conditions, plant shutdowns, and rising costs hit earnings.
Shares of Brickworks Ltd (ASX:BKW) slumped 8.5% in Tuesday morning trading, hitting a 52-week low of $23.45. The sharp decline followed a disappointing trading update, revealing mounting challenges in the company’s North American operations and a significant non-cash impairment charge.
North American Struggles and Impairment Costs
Brickworks announced it expects to record a post-tax non-cash impairment charge of $55 million ($74 million pre-tax) in its half-year results, pending final audits and board approval. This follows deteriorating market conditions in North America, where revenue fell 13% compared to the previous year.
Management had already warned of a faster-than-expected slowdown, but conditions worsened through the rest of the half. Intense competition in the retail segment eroded market share at Brickworks’ Supply store network, further reducing demand. In response, the company implemented plant shutdowns to manage inventory, which impacted plant efficiency and increased unit manufacturing costs, squeezing profit margins.
Delayed Benefits and Uncertain Outlook
Brickworks highlighted that weaker building activity and scaled-back production will delay expected benefits from recent plant upgrades and rationalisations. The company also acknowledged uncertainty around market recovery timing, leading to a moderated short-to-medium-term sales outlook.
Segment Performance Overview
Despite the North American setback, Brickworks offered a mixed picture of its broader performance:
- Property Division: EBITDA will be higher than the previous year, as the prior period suffered asset devaluations from rising capitalisation rates. With rates now stable, property values have held steady, though development profits will be minimal as Oakdale East construction is still in early stages.
- Building Products Australia: EBITDA is expected to be in line with the previous year, with lower sales volumes offset by cost reduction initiatives and portfolio rationalisation.
- Building Products North America: EBITDA will be significantly lower, impacted by weaker demand, higher costs, and extreme winter weather disrupting operations in key regions late in the half.
Investors will get a closer look at the company's financials when Brickworks releases its half-year results on 20 March.
