Rinker points to US growth and price hikes

Shares of Rinker Group Ltd., Australia’s largest building materials maker, had their biggest gain in a year after the company said first-quarter profit surged and increased its US earnings forecast for the second time. The stock jumped 6.4 percent after Sydney-based Rinker today said net income rose 62 per cent to A$181 million in the three months ended June 30, up from A$112 million a year earlier. Earnings before interest and tax in the US, which accounts for four-fifths of profit, will rise 30 per cent this year, up from a May forecast of 25 per cent, the company said.

Chief Executive David Clarke said he expects to make further acquisitions in the US this year to take advantage of demand in Florida and Arizona, which allowed him to raise prices up to three times in some markets last year. Florida’s construction industry has grown eight per cent a year since 1990, and Arizona at 10 per cent, twice the national average.

 In Florida, which accounts for half of Rinker’s US sales, the company increased prices by about five per cent in July. “Although it is still very early days, it seems likely that the price rises will hold,’’ Clarke, said.

“It looks like the US price rises have stuck and the growth will go on next year,’’ said Michael Birch, who manages the equivalent of $80 million at Wallace Funds Management in Sydney. “People have been calling the top of the US construction cycle, and it looks like it’s not there yet.’’

 Rinker shares surged 89 cents to A$14.72 at the 4 p.m. close of trade in Sydney, after reaching a record A$14.85. The stock has tripled since Rinker was spun off from CSR Ltd., Australia’s biggest sugar refiner, in March 2003.

“Rinker’s result stacks up pretty well, so you’d have to be enthusiastic about the construction industry in the US,’’ said Steven Marsh, who holds Rinker shares for the equivalent of A$380 million he manages at Trust Co. of Australia Ltd. in Sydney. “We’ll stick with it for a while yet.’’

Rinker’s US profit margin, which represents earnings before interest and tax as a proportion of sales, rose to 22.9 per cent from 17.2 per cent. Total sales rose 17 per cent to A$1.24bn.