The still-falling US new home market and the slump in the value of the Australian dollar from last July onwards has hit building product maker Boral hard, the company springing a surprise 40% earnings downgrade before the start of trade.

That saw the shares plunge 83 cents or around 20% at the opening, before they steadied.

It said it now expected a net profit after tax of $120 million for the year to June 2009, down from a previous forecast of $200 million. That estimate was sharply down on the $248 million earned in the year to June 2008, so the actual drop will be more than 50%.

“We expect that the profits of the Australian building products businesses for the full FY2009 year will be significantly below the prior year,” Managing Director Rod Pearse said in a statement to the ASX this morning.

The company will provide more detail on the damage when it reports its interim figures on 11 February. The company said first-half earnings after tax will be around $75 million compared to the previous estimate of $80 million.

Boral has been the subject of some speculation about its US performance and, surprisingly, the company’s shares didn’t push through the 52-week low of $3.16 at the opening today when they bottomed out at $3.25.

Some brokers have been wondering if Boral might be in breach of lending covenants, but the company denied that today, saying:

Based on a preliminary Balance Sheet, Boral’s closing debt / equity ratio at 31 December was around 80% but this figure remains subject to final adjustments. Boral’s financial metrics remain well within its debt covenants and we don’t anticipate any breach of covenants. Boral continues to maintain substantial committed, undrawn bank facilities and has no material refinancing requirements until August 2011.

And the market gave shopping centre giant, Westfield, a good whack for its surprise downgrade of 2009 distributions after trading closed Tuesday. This morning, the shares plunged 90 cents, or over 7% to a new 52-week low of $11.20 before they bounced a little.

Westfield revealed a $3 billion cut in valuations because of changed captalisation rates, but said the fall had been offset by the slumping Australian dollar boosting asset values. But the 2009 distribution estimate was cut to a range of 97 cents per unit to 100 cents. The company said it would pay its 106.5c per security for the year ending 31 December, 2008 with a final distribution of 53.25 cents.

For the 12 months to 31 December 2009, assuming no material changes in currency exchange rates or economic conditions, the Group expects to earn Operational segment earnings per security in the range of 97 cents to 100 cents.

The Operational segment earnings forecast for 2009 reflects the impact of higher finance costs and the deterioration of retail fundamentals in the United States, United Kingdom and New Zealand and a continuation of the strong performance of the Group’s Australian portfolio.

The forecast includes the full year impact of the recently completed Westfield London development which, since opening on October 30 last year, has performed very well in terms of customer visits and retail sales.

The cut caused some brokers to wonder if Westfield would need more capital, but the company’s full 2008 financial results won’t be released until late next month. That’s when we see the extent of any property revaluations.

Peter Fray

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