The CSR Limited (ASX: CSR) share price will be in the spotlight today after it posted a big drop in underlying profits.

But the decline is better than what brokers were forecasting and could give the underperforming building supplies group a much-needed boost.

The CSR share price shed more than a quarter of its value since the start of the year when the S&P/ASX 200 Index (Index:^AXJO) lost 18% of its value.

COVID-19 impact on sector

Stocks exposed to housing construction have been doing it tough as the COVID-19 pandemic threatens to bring housing activity to its knees!

CSR’s peers, James Hardie Industries plc (ASX: JHX) and Boral Limited (ASX: BLD), have also been doing it tough. The JHX share price lost 22% and the BLD share price surrendered close to 40% since January.

Shareholders in CSR will be hoping for a bit of respite after management announced a 60.6% jump in full year net profit to $125.3 million.

NPAT beats expectations

This was due to impairment charges it took in the previous financial year, although if you excluded this, underlying net profit “only” declined 25.8% to $134.8 million.

I say “only” because consensus estimates were predicting a more than 30% plunge to around $120 million.

The group’s Building Products revenue fell 6% to $1.6 billion due to weakness in the housing market even before the COVID-19 outbreak, but this is a good number given that residential construction activity was down 21% on average.

Its aluminium business helped offset some of the losses with the division posting a 63% increase in earnings before interest and tax (EBIT). This isn’t unexpected as input costs stabilised in the second half of the year while the lower Australian dollar provided another uplift.

Building on solid ground

Investors will also find it reassuring that management is yet to notice any material impact from the coronavirus on its operations. The first few months of FY21, which started on 1 April, have been pretty steady with sales at its Building Products division dipping 3%.

CSR claims to have a strong balance sheet with net cash of $95 million, but management is taking no chances. It cancelled its final dividend, suspended its on-market share buyback and secured an additional $200 million in debt.

Foolish takeaway

But the group isn’t out of the woods. While the coronavirus hasn’t derailed demand for its products, management believes its only a matter of time before it’s impacted.

The problem is CSR doesn’t know when that might happen or to what extent earnings will suffer.

This is likely to temper broker’s willingness to upgrade their forecasts on the back of the better than expected FY20 profit results.

Shareholders should enjoy any bump in CSR’s share price today as it’s going to be an anxious few months.

More reading

• Is it time to invest in shares or wait on the sidelines?
• In a post-COVID world, could Australia be the next superpower?
• 5 things to watch on the ASX 200 on Tuesday
• 3 cheap ASX 200 shares for value investors
• The latest ASX shares to be downgraded by top brokers

Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc. Connect with him on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Altium Limited (ASX: ALU) share price could come under pressure today after it warned that it could fall short of its aspirational goal of US$200 million in revenue in FY 2020.

What did Altium announce?

This morning the electronic design software company advised that it is anticipating some headwinds in May and June as a result of the ongoing restrictions and continued lockdowns associated with COVID-19 in the United States and Western Europe.

Management explained that while Altium is operationally and commercially well positioned, the consequential economic and social impacts of the lockdowns are likely to impact its performance in the final quarter of the financial year.

Altium’s CEO, Aram Mirkazemi, commented: “While engineers are actively doing prototype designs, and the electronics industry is holding up relatively well, the cash preservation priorities of small to medium size businesses are likely to affect the timing of closing sales in our typically strongest months of the year being May and especially June.”

In an effort to drive volume during these challenging market conditions, the company has launched attractive pricing and extended payment terms. It has also accelerated the introduction of its new digital online sales capability, as part of the execution of its man-out-of-the-loop strategy to bolster transactional sales capacity.

Management explained that this digital sales model will take time to ramp up but is expected to be important to support its climb to the 100,000 subscribers target by 2025.

This will be a big increase on the subscribers it expects to report in FY 2020. Altium’s CFO, Joe Bedewi, confirmed that the company remains committed to achieving its 50,000 subscriber target for the full year.

What about the rest of the business?

While Altium is best known for its Altium Designer product, there are a number of businesses that make up the group.

Mr Bedewi provided an update on how they have been performing through the crisis.

He said: “Our NEXUS team is actively closing deals and has a good pipeline for the remainder of Q4. TASKING also has performed well on a year to date basis and is further buoyed by the reopening of car manufacturing production in Europe. Octopart is receiving solid traffic to its website, as engineers search for electronic parts, and, at this point, is holding up its cost-per-click rates with distributors.”

Outlook.

Altium remains well-positioned to navigate this short term headwind. The company is financially very strong and has a current cash balance of more than US$77 million.

Mr Bedewi concluded: “While we may see a positive impact from stimulus packages to be released by governments in key economies, and are excited by the rollout of Altium 365 and our digital online sales platform, our long-term aspirational goal of US$200 million revenue for the full year will require our typically strong months of May and June to be unaffected and have the usual strong finish. At this point, given the economic consequences of the continued restrictions, this is likely to be a low probability.”

More reading

• In a post-COVID world, could Australia be the next superpower?
• Is the Altium share price a buy?
• 3 ASX growth shares to buy immediately with $3,000
• 2 ASX shares that every investor should own
• 3 of the best ASX 200 shares to buy and hold for 10 years

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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