Cavalier flags 50% profit slump in current financial year

Friday 18th November 2011

Carpet-maker Cavalier Corp is flagging full-year profits will be as much as 50 percent lower than 2011 on surging wool prices and tepid demand for carpets among Australian residential consumers.

The carpet-maker expects to make tax-paid earnings of between $8.5 million and $10.5 million in the 2011/12 financial year, down from $17.3 million in the previous year, managing director Wayne Chung told shareholders at their annual meeting in Auckland.

He blamed an 80 percent increase in the price of wool, which has made Cavalier’s carpets less competitive than their synthetic rivals.

That’s been compounded by weak demand for carpets as the global economic downturn saps households’ appetite for major renovations and purchases.

“This is a substantial shortfall on the previous year, but it is largely down to the poor start to the year,” Chung said. “This outlook is based on a gradual improving of market conditions for the remainder of the year, and we are seeing some glimmers of this in the commercial segment.”

Despite the glum news, Cavalier shares rose slightly in morning trading, up 1.9 percent to $2.70, although they are down 14 percent this year.

Last month, Cavalier said it would can this year’s dividend reinvestment plan after first-quarter sales dropped by a fifth.

Chairman Alan James said the weak sales meant the company won’t pay a first half dividend, but that the board was more optimistic about the future.

“A feast generally follows a famine. That has been our experience in the past, and unless the world has irrevocably changed, it is likely to be the case again,” he said.

Chung said the company has downsized capacity at all of its plants to reflect weaker sales and the board wants “to assure shareholders that we are responding to the challenges before us in a proactive way and are doing our utmost to protect earnings where we can.”

BusinessDesk.co.nz

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