Somero trims guidance amid US market struggles

Concrete placement equipment specialist Somero Enterprises lowered its full-year guidance on Tuesday, reporting that while its main markets in the US, Europe, and Australia were displaying positive non-residential construction activity, new factors had emerged that were impacting the translation of construction projects into trading in the US.

The AIM-traded firm said the US non-residential construction market remained active, with customers reporting extended project backlogs across various sectors, including large manufacturing facilities, data centres, and medical facilities.

Similarly, the positive momentum in Europe and Australia from 2022 had carried over into 2023, with the strong non-residential construction activity forming the basis for the company's 2023 outlook, as provided in its final results on 8 March.

However, certain challenges had arisen that were affecting the US market, with elevated interest rates, tightened bank lending standards, and construction permitting delays due to complex projects leading to an increase in delayed starts for non-residential construction projects.

The delays had impacted the timing of equipment purchase decisions by some customers, although no project cancellations had been reported.

Additionally, the limited availability of the S-22EZ - a product relaunched in early 2023 - had further delayed sales to customers who prefer it.

Other market factors, such as a limited supply of concrete across the US, had remained unchanged since the company's previous statement.

Taking the factors into account, Somero said it expected its revenue for the first half to be between 15% and 20% below the record revenue of $68.5m reported in the first six months of 2022.

Consequently, the company now projected its total revenue for 2023 to approximate $120m, representing a decline of about 10% year-on-year.

However, Somero said it anticipated an improvement in revenue for the second half, primarily due to increased availability of the S-22EZ during that period.

The company said it remained optimistic about strong contributions to 2023 revenue from Europe, Australia and other territories, with Europe and Australia each expected to meet or exceed their revenue totals for the first half of the 2022 financial year.

To address the anticipated reduction in sales, Somero said it had taken measures to adapt its operating model.

The company had reduced its operational workforce by 10%, effective immediately alongside Tuesday’s trading update.

It said the restructuring, combined with strict cost controls for the rest of 2023, would help offset the impact on profitability caused by the revised revenue expectations.

Additionally, the firm had implemented strategies to minimise inventory levels, including regular reviews of safety stock levels and adjustments to inbound inventory purchasing to align with anticipated volume.

Those efforts, along with maintaining low levels of accounts receivable, were expected to have a positive impact on year-end cash.

Somero Enterprises said it now expected 2023 full-year revenues of around $120m, which is lower than the previous market consensus estimate of $132.1m.

The company also expected EBITDA for 2023 to be about $36m, down from the previous market consensus estimate of $42.8m.

However, year-end cash was projected to be $32m, exceeding the previous consensus forecast of $31m.

“Our customers continue to report high levels of non-residential construction activity across our territories,” said chief executive officer Jack Cooney.

“While some projects in the US are experiencing delays, we are confident the underlying market remains in good health and provides the company meaningful opportunity.

“We expect to see an improved second-half with strong demand for the S-22EZ that will reach full production imminently.”

Outside the US, Cooney said the firm was “pleased” with its performance in Europe and Australia - each poised to deliver strong first half and full year contributions.

“Our proven operating model provides the company the flexibility, through a high level of variable costs, to adapt quickly and effectively to changing conditions.

“This continues to be a key strength of the company.

“As such, we have been able to mitigate the impact of reduced near-term volumes on profitability without compromising our long-term growth initiatives.”

At 1411 BST, shares in Somero Enterprises were down 9.09% at 301.99p.

Reporting by Josh White for Sharecast.com.