Austrian brickmaker Wienerberger warned on Thursday that earnings would fall this year as residential construction in Britain "collapsed" and U.S. building fell sharper than expected, sending its shares down as much as 23 percent.
Wienerberger, the world's largest brickmaker, said in a statement business started to worsen in the second quarter, leading to a decline in quarterly revenues and a 10 percent drop in core earnings for the first six months of the year.
Its shares were down 22.5 percent at 17.65 euros after hitting the lowest level in almost five years, leading a 3.5 percent drop of the DJ European Construction and Materials index as fears of further profit warnings weighed.
"This came with a ferocity that I didn't expect," said UniCredit analyst Peter Bauernfried. "I would have thought that they would still manage to raise earnings."
Wienerberger had earnings before interest, tax, depreciation and amortisation (EBITDA) of 551.2 million euros ($866.5 million) in 2007.
It said in May it expected EBITDA to grow by more than the industry average this year. Analysts polled by Reuters Estimates on average forecast a 6 percent EBITDA rise to 586.7 million euros this year.
Credit Suisse warned just before Wienerberger's statement it expected more building materials makers to cut forecasts.
It named Saint-Gobain, Italcementi and Holcim as the most likely to warn on profits.
Also before Wienerberger's statement, Irish bank Davy cut its estimates for the Austrian company, predicting an EBITDA drop.
"In the short term, the market will be shocked by the scale of downgrades," Davy said in a note to clients.
Central Europe Loses Momentum
Wienerberger blamed a slump in new residential construction in Britain that began in April for the earnings decline, as well as a steep drop in housing starts in the United States and a lack of recovery in German building.
The collapse of Britain's housing market forced Barratt Developments Plc on Thursday to cut nearly a fifth of its workforce, joining other builders taking similar measures.
The downturn in Britain started shortly after Wienerberger acquired two British rivals, brickmaker Baggeridge and roof tile maker Sandtoft, to boost its market share in the country.
At the same time, its growth engine in the emerging markets of central and eastern Europe began to sputter.
"Developments in Central-East Europe remained positive, but with weaker momentum on individual markets," it said. "Against the backdrop of higher inflation, rising interest rates and a growing credit shortage, further weakness can be expected on markets across Europe."
To counter declining demand, Wienerberger said it will shut down smaller and unprofitable plants and move production to larger facilities. This will lead to 25 million euros of cash expenses and another 25 million euros in writedowns. It is due to report second-quarter results on Aug. 19.