WATPAC'S SHARES SENT SHARPLY DOWN AFTER NEGATIVE EARNINGS UPDATE

BUILDER Watpac (ASX: WTP) has revealed an earnings downgrade which means it will only just break even this year, sending its share price down by 6.5 per cent.

The Queensland-based company says its full year guidance for 2017 will be lower than the underlying profit before tax result of $8.5 million reported in the previous financial year.

The company says it had expected a stronger second half but has been hit by "unforeseen market factors".  

"Despite an initial expectation of a stronger second half in the construction segment, cost escalation pressures in the sector and other unforeseen market factors have persisted beyond original reasonable expectations," says company secretary Mark Baker.

"This impact of cyclical forces on construction project performance further highlights the importance of the successful execution of the group's strategy which, is actively being progressed, to target opportunities in sectors and projects with higher entry barriers and returns that are more commensurate with risk profiles."

The Martin Monro-led Watpac says that despite the challenges, the current FY17 forecast would still deliver a positive contribution from both its construction and civil mining segments.

It has also not changed its forecasts for its two major projects, Sydney's 333 George Street and the Australian Nuclear Science and Technology Organisation's facility at Lucas Heights.

The company, which last year won a Master Builders state award for best project of the year for its 34-storey building at 180 Ann Street, insists it remains in a strong financial position.

"While earnings are anticipated to remain adversely impacted by unfavourable market conditions over the near-term, the conversion of a number of recent construction projects which accord with the group's targeted project selection criteria is anticipated to provide an earnings uplift in the latter part of the 2018 financial year and beyond," Baker says.

Watpac returned to profit in the first half of 2017 with a $600,000 profit but it also reported its building work had fallen by at least $500 million which it says is due to more selective tendering practices and the deferral of Gold Coast Airport's $240 million terminal redevelopment.

Watpac's share price closed 6.5 per cent lower to finish at $0.615 at the close on Thursday.

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