Australias CSR outlook below forecasts- shares slide

(Adds CEO, analyst comment, updates shares)

By Sonali Paul

MELBOURNE, July 10 (Reuters) - Australian conglomerate CSR Ltd (ASX: CSR.ax) said its profits would grow less than analysts expected this year due to a weakening economic outlook and falling aluminium earnings, knocking its shares down 17 percent.

CSR's latest forecast for earnings before interest and tax (EBIT) to grow more than 5 percent in the current fiscal year fell short of market expectations for EBIT growth of 13.8 percent to A$439.6 million ($419 million), according to Estimates.

CSR said earnings in its key building products and sugar units would both be higher than the previous year as it worked to offset higher costs.

"Some of our core business sectors, such as housing, continue to be challenging. We are seeing clear signs of interest rate stress and loss of consumer confidence," CSR Chairman Ian Blackburne told shareholders at the group's annual meeting on Thursday.

The only change in CSR's outlook was that it expected slightly lower earnings from its aluminium business, which accounts for about one-third of earnings, compared with a forecast in May for flat earnings.

Yet investors nervous about the slowdown in the Australian housing market, soaring energy costs and the credit crunch hammered the group's shares down to a four-year low of A$1.92.

Two analysts and CSR Managing Director Jerry Maycock called it an overreaction.

"It's showing you what a bear market will do. It has zero tolerance for any kind of disappointment relative to consensus expectations," said ABN AMRO analyst Simon Thackray.

"I would hasten to say that looks extremely overdone," he said.

Maycock said the softer housing outlook in Australia could weigh on the group's earnings forecast, but on the positive side sugar prices were improving and the company was putting through price increases of 3-6 percent on its building products.

"So there is upside, but the biggest issue is the level of uncertainty that everybody faces," he told reporters after the annual meeting.

The company said in May it did not expect to break itself up in the near-term, and Maycock said that remained the case as it would not create value for shareholders at this point.

Instead the group is focusing on growing its new glass business, Viridian, and capturing growth in demand for renewable energy, which it can supply with ethanol from sugar and co-generation from its plants where it uses biomass for fuel. ($1=A$1.05) (Additional reporting by Denny Thomas; Editing by Lincoln Feast)

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Thu 10th July 2008 - 04:16pm