Auckland, New Zealand, April 1--Shares of Feltex Carpets Ltd., the biggest carpet maker in Australia and New Zealand, plunged 31 percent after the company cut its profit estimate less than two months after saying the target was achievable.
Shares of company slumped 46 cents to NZ$1.04 at the 5 p.m. close of trading in Wellington, their biggest one-day decline. Net income in the year to June 30 will be between NZ$15 million to NZ$16 million ($11 million), compared with a previous forecast of as much as NZ$24 million, Feltex said in a statement today. Last year's profit was NZ$11 million.
Feltex, whose Web site says its carpets cover the floors of the White House, said the rising Australian and New Zealand dollars have made imported rival carpets cheaper at a time when Australian housing demand is waning. The company said Feb. 23 that the forecasts "were achievable."
"The big damage done today is directly related to their credibility, which has been blown out the window," said Arthur Lim, senior investment analyst at Macquarie New Zealand Ltd. in Auckland.
"It all comes down to companies managing market expectations well," said Lim. "The golden rule is you always under-promise and over-deliver."
Macquarie had rated Feltex "outperform" on the basis that the company would meet its earnings estimates, Lim said. The rating is being reviewed, he said.
Executives at Feltex, including Chief Executive Samuel Magill, didn't immediately return phone messages left at the company's head office. New Zealand Exchange Ltd., which manages the country's stock exchange, declined to comment on the announcement.
"NZX has no comment at this point but the results of any investigation (if any were to be conducted) would be released to the market at the conclusion of the investigation," said Damas Potoi, solicitor for NZX Regulation, in a statement e-mailed to Bloomberg by exchange spokeswoman Sara Velasquez.
Feltex joins New Zealand stocks including retailer Briscoe Group Ltd. which have slumped in the past six months after the company said profit would miss forecasts. Shares of Auckland-based Briscoe fell 15 percent on Dec. 20 after saying 2005 profit may drop 26 percent.
Feltex raised NZ$243 million in an initial public offering in June after selling shares at NZ$1.70 apiece, the low end of the range sought. The stock fell below the IPO price on its first day of trading June 4, and has never risen higher than NZ$1.75.
Shares of rival carpet maker Cavalier Corp. today fell 1.8 percent to NZ$3.73. Stock of Fletcher Building Ltd., New Zealand's biggest building products company, dropped 2.7 percent to NZ$6.46.
Feltex said full-year sales would be NZ$295 million to NZ$305 million, down from the company's previous forecast of NZ$310 million to NZ$315 million and below last year's NZ$322 million.
Gains in the Australian and New Zealand dollars had made imported carpets cheaper, making it harder for Feltex to pass on rising costs of raw materials to customers, it said. A slowing Australian housing market is also denting sales, it said.
A report today showed Australian building approvals fell for the first time in four months in October. The company also said a shortage of carpet-laying contractors meant some projects had been delayed.
New Zealand's dollar was little changed today at 71.15 U.S. cents and has gained 6.5 percent in the past 12 months. Australia's dollar has risen 0.7 percent in the same time.
