SMH: (Full article available in Fairfax publications ) Rinker Group's already bullish outlook in the United States was given a major boost on the weekend, after the US Senate passed a $286.5 billion ($378 billion) six-year highway construction bill.
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Rinker Group profit booms
By Teresa Ooi, News Corp.
July 19, 2005
BOOMING residential construction markets in the southern states of the US are fuelling a surge in profits at Rinker Group, Australia's largest construction company, raising its earnings forecast for the second time in two months on the back of robust first-quarter earnings.
Rinker said first-quarter profits rose 62 per cent to $US181 million ($242 million) and that profits in the US, where 80 per cent of the business is based, would rise 30 per cent this year.
In May, Rinker forecast a ( mere ) 25 per cent increase.
Chief executive David Clarke said he expected to make further acquisitions in the US this year to take advantage of surging building demand in Florida and Arizona.
Florida's construction industry has grown 8 per cent a year since 1990 on the back of 1000 people a day moving to the state, while Arizona has grown at 10 per cent, twice the national average.
Rinker has increased prices in the US three times in the past year, the last time by 5 per cent in Florida.
"It looks like the price rises have stuck and the growth will go on next year," said Michael Birch at Wallace Funds Management.
"People have been calling the top of the US construction cycle, and it looks like it's not there yet," he said.
Shares in Rinker jumped 6.44 per cent to close 89c up at $14.72.
They have increased almost fivefold since the company was split from its Australian parent CSR and listed separately in May 2003.
"We look forward to another year of solid growth in the US and have lifted our expectations for the current full-year profit," chairman John Morschel told shareholders at the annual meeting in Sydney yesterday.
"We now expect our US subsidiary Rinker Materials, to deliver an increase in operational EBIT of around 30 per cent. For the Australian business, Readymix, our expectations of profit in line with last year's record result remains unchanged."
The senior investment manager of Trust Company, Steven Marsh, said Rinker was well exposed to the growth areas of the southern states of the US.
"The company is quite conservative in its earnings forecast and has consistently under-promised and over-delivered," Mr Marsh said.
"Compared to the company's US peers, Rinker is trading at a discount and has attracted increasing interest from US funds management."
Mr Marsh also said that the company had "next to no debt" which meant that it had lots of ammunition to spend on bolt-on acquisitions or on capital return to shareholders.
Net debt had dropped from $US601 million a year ago to $US280 million.
"Our balance sheet is very strong and Rinker continues to generate strong cash flows - so we are in excellent shape to fund ongoing growth.
"We are also committed to making value-adding acquisitions. We pursue small acquisitions which can bolt-on to our existing businesses whenever that makes sense.
And we can afford to spend a great deal of cash on larger acquisitions, if the right one comes along, at the right price."
Apart from acquisitions, organic growth and paying down debt, Rinker has also used spare cash to buy back shares.
It bought back 7.2 million shares at a cost of $87 million in the first quarter of this financial year.
RIN
rinker group limited
