We had a profit warning today from Balfour Beatty (LSE: BBY), and within minutes we heard that the firm’s boss, Andrew McNaughton, had had a rectangular opening in the wall brought to his attention.
Shortfall
The warning told us that 2014 profits would be “significantly lower than expected“, and the share price crashed by 55p (19%) to 231p by mid-afternoon as a result. The announcement revealed that the company now expects “a £30 million shortfall in our UK construction business in 2014“, and that pre-tax profit for 2014 should be in the range of £145-160m — City analysts were expecting around £185m before today.
But Mr McNaughton had only been in the job for a year, so has he been treated as a scapegoat? A look at the sector as a whole suggests a definite maybe.
Although the revised pre-tax profit figure is less than previously expected, it would still represent a massive recovery from the two-year slump the company has been through — in 2012, we saw a pre-tax profit of £147m, followed by a big crash to just £32m last year (although underlying figures were given as £277m and £187m respectively).
Before today, analysts had predicted a 5% recovery in earnings per share for this year, with double-digit rises to follow — and there’s a 5% dividend yield on the cards.
If we look at the competition, we see a similar picture.
Tough time all round
Kier Group (LSE: KIE) also saw earnings dip in 2013, and has a further 23% drop in EPS forecast for the year to June 2014 before there’s any return to growth on the cards — and Kier shares are valued at a forward P/E of a pretty big 16, with a dividend yield of a relatively modest 4.2% expected.
The last interim update we had from Kier told us that things were going well, with the firm’s acquisition of May Gurney helping boost revenue to £1.4bn. But chief executive Paul Sheffield spoke of “continuing financial pressures in the markets“.
And if we take a look at Morgan Sindall (LSE: MGNS), a smaller firm in the same general market and one I consider especially well managed, we see a fall of a third in EPS for 2013, with only a modest 2% recovery predicted for 2014.
And again, we have a company telling us of “tough market conditions throughout the year” in its 2013 results statement released in February.
So what’s really going on at Balfour Beatty, and should we be expecting more bad news to follow? It’s very hard to say, but in Mr McNaughton’s shoes today I think I might be feeling a bit miffed.