The Brickworks Ltd (ASX: BKW) share price is under heavy selling pressure on Monday after the company was forced to cut back operations at facilities in New South Wales and Queensland.
Investors were quick to react to the negative news, with the Brickworks share price sliding 5.38% to $23.74 within the first 10 minutes of trade.
At the time of writing, shares in the building products and property developer are down 3.26% to $24.35.
Why the Brickworks share price is tumbling on Monday
The recent outbreak of COVID-19 across NSW and Queensland and consequent lockdowns has seen a significant decline in building product sales.
Management said that brick sales in NSW were in line with local production capacity during June and in early July.
However, “dispatches abruptly reduced by 80% during the pause in construction activity across Sydney in late July. These were the most severe restrictions that our business has faced since the onset of the pandemic …”
The company said the partial recommencement of construction activity in August resulted in some degree of improvement for brick sales. However, it only represents 50% of pre-lockdown levels.
With the company’s production outstripping demand, a number of storage yards were quick to reach full capacity.
“As such, we have been forced to temporarily curtail production at two of our five brick kilns across the state, representing 30% of total production capacity.”
Encouragingly, management said that it has no intention of laying off any workers and has committed to working with its staff to “preserve their employment throughout this period of uncertainty”.
Impact on earnings
Given the timing of restrictions in NSW, just two weeks prior to the end of Brickworks’ financial year, management does not expect a material impact on its FY21 performance.
However, the company flagged the NSW restrictions are having a material impact on current building products earnings.
Management added that “with the situation remaining highly volatile and unpredictable, it is difficult to quantify the ongoing impact and we have no confidence in being able to accurately forecast business performance until there is a full reopening of construction activity across the state”.
Brickworks share price snapshot
Despite today’s sharp selloff, the Brickworks share price is still up 27% year-to-date.
The company’s upbeat trading update on 9 June was a major catalyst behind its solid performance this year.
The post Brickworks (ASX: BKW) share price down 5% as operations curtailed appeared first on The Motley Fool Australia.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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