http://www.smh.com.au/news/business/rinker-packs-on-the-earnings/...

http://www.smh.com.au/news/business/rinker-packs-on-the-earnings/2006/04/06/1143916654245.html

Rinker packs on the earnings

By Matt O'Sullivan
April 7, 2006
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BUILDING materials company Rinker has again under-promised and over-delivered with its fourth profit upgrade in a year as the benefits from a construction boom in key markets in the US take effect.

Always a company to keep its estimates on the conservative side, Rinker has indicated the good times will continue in the US, where it generates 80 per cent of its profits.

The market darling has forecast net profit will rise 50 per cent to about $US740 million ($1.02 billion) for the year to March 31 - slightly above market expectations.

The CSR spin-off has also forecast a 15 per cent increase in profits for next financial year, lifting earnings per share estimates from about US80c to as much as US92c.

Shares in Rinker soared almost 8 per cent, or $1.56, to a record $21.74 yesterday. The market capitalisation for the maker of asphalt, cement and concrete pipes has quadrupled since it listed in March 2003.

The latest upgrade did not surprise analysts, who had already factored it into their estimates for the full year, but the outlook for 2007 suggests Rinker stands to benefit from "stronger-for-longer" construction activity in the US.

Rinker's chief executive, David Clarke, attributed the profit upgrade to the strong performance of its major markets in Florida, Arizona and Nevada, where growing populations are fuelling a construction boom.

"Population growth, strong employment and economic expansion together with healthy state finances are behind the continuing growth in construction activity," he said.

"These are long-term trends in our key markets, which support strong activity levels across the residential, non-residential and infrastructure sectors."

Rinker's earnings forecast for the next financial year is based on "substantial housing backlogs", improving activity in the non-residential sector and higher infrastructure lettings in the US.

In Australia, where Rinker generates the remaining 20 per cent of its profits, commercial and infrastructure construction remained strong but housing continued to weaken, although there were indications it might be bottoming, Mr Clarke said.

ABN Amro analyst Simon Thackray said Rinker stood to benefit from better than expected construction activity in the US. "When you look at the strength of their cash flows, it is a very strong fundamental story for a company with little debt on the balance sheet," he said.

However, Rinker has struggled to find a sizeable acquisition in the US since its $US540 million purchase of Arizona's Kiewit Materials in 2002.

The company has often talked up its interest in acquisitions since demerging from CSR but as many US construction material businesses are privately owned, finding deals is difficult.

Rinker's chairman, John Morschel, said the company was still looking for acquisitions but he declined to elaborate or comment on speculation it could be interested in Dallas construction materials company Texas Industries.

Wallace Funds Management's portfolio manager, Michael Birch, said Rinker was not under any pressure to make acquisitions because of its performance in the past 18 months.

"If they go out and over-pay for an aquisition at this stage in the cycle they will destroy a lot of the good work," he said. "To undertake a high-risk acquisition at the moment wouldn't be a smart move by management."

The forecast profit was again evidence Rinker was continuing to "under-promise and over-deliver", Mr Birch said. "They are in an industry in the States and Australia, where people are still expecting growth."