Downer guides to strong earnings bounce in FY23

Despite the entire market being dragged down (1.2%) for third consecutive trading day, courtesy of Wall Street jitters ahead of tech earnings reports, Downer EDI (ASX: DOW) managed to defy the downward trend this morning.

Clearly hungry for any good news, the market responded favourably to Downer’s predicted earnings rebound, with the share price up 4.72% around noon today.

To the uninitiated, Downer provides a broad range of services including maintaining 28,000-plus kilometres of Australian roads, plus building and maintaining electricity and gas networks and providing catering and cleaning services to schools and hospitals.

The company also operates public transport networks such as Newcastle’s buses, ferries and light rail through a joint venture, Keolis Downer.

Earnings hit

Within today’s market update Downer notes demand remains strong across its business units with strong contract awards.

Despite heavy rain and floods that hit Qld and NSW over summer - that disrupted the company’s roads, utilities and facilities businesses - and covid in NZ having a year-to-date impact on earnings (EBITA) of $50-$60m, management guided to a strong June quarter.

Meantime, year to date, Downer’s core earnings (EBITA) are down -4.7% compared with a year earlier.

Rebound

Despite maintaining a cautious outlook to prices on new contracts, the company expects a strong fourth quarter, followed by a strong rebound in earnings in FY23.

Grant Fenn CEO highlighted the importance of correct contract pricing, and where possible, expects the company to pass on rising costs to customers.

Fenn flagged immediate priorities as earnings and cash performance in FY22, managing covid, supply chain, workforce availability, contract pricing, cost management and pre-contract risk management.

Looking through the noise, Fenn told investors that the company is targeting weighted average sector spending growth of 7-8% compound annual growth rate (CAGR) out to FY25.

Fenn also reassured investors that the company is in the right sectors, at the right time as is heavily leveraged to the New Energy economy.

Downer EDI share price movement today.