Don't let the big jump in CSR Limited's (ASX: CSR) interim net profit fool you. Things aren't going gangbusters for the building materials supplier as it cut its interim dividend.
The CSR share price slumped more than 3% to $3.90 at the market open – making it one of the biggest laggards on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index – before clawing back some of the losses.
Its peers are faring better. The Boral Limited (ASX: BLD) share price dipped 0.2% to $5.02 is while the James Hardie Industries plc (ASX: JHX) share price rallied 1.1% to $25.16 at the time of writing.
How CSR's businesses are faring
CSR reported a $27 million improvement to its first half statutory net profit of $68.8 million but that's because the previous comparable period was marred by a big impairment charge for the sale of its troubled Viridian Glass business.
On an adjusted basis, net profit dropped 20% to $71.6 million and trading revenue dipped 4% to $1.2 billion as the slowdown in residential construction, particularly for high-rise apartments, took a big bite out of its bottom line.
Its Building Products division reported an 18% slide in earnings before interest and tax to $95.9 million, while its Hebel and AFS businesses were also hit hard.
The silver lining was that the Gyprock and Bradford volumes held steady due to their exposure to infrastructure construction and the Aluminium business improved as power prices stabilised.
Dividends up but it's still a cut
The disproportionate decline between sales and earnings shows ow operating leverage is working against the group and prompted management to cut its interim dividend to 10 cents a share compared to the 13 cents it paid last year.
But CSR is making up for it by declaring a 4-cent special dividend with both payments franked at 50%.
Don't be fooled into thinking that CSR actually increased its dividend. The thing about special dividends is that they are usually one-off. The dividend base has been reset lower!
Earnings guidance
The other thing that disappointed was management's full year earnings guidance. Analysts' forecasts are all over the place as trying to predict the group's earnings is like betting on the Melbourne Cup winner.
The more conservative analysts are probably more on the money though. Management said that underlying net profit is likely to range between the low end of analysts' forecast and the median estimate. This puts NPAT in the range of $107 million to $133 million.
The wide dispersion may have to do with the timing of sales from CSR's property division. The group sold 20 hectares of land at Horsley Park but it won't see any of that cash till FY21.
