Earnings: why Persimmon shares plunged today

House builder persimmon (LSE: PSN) released its full year results today and shares are almost 10% lower than yesterday.

However, with the share price close to 1,319p, it is now down around 43% from its level a year ago.

Negative outlook for 2023

Looks like the outlook statement did the damage today. Chief executive Dean Finch said the market was for new homes “remains uncertain”. But the company’s marketing campaign helped raise the level of sales in the new year from the lowest level seen at the end of 2022. But they still declined every year.

Finch said sales prices have been resilient. And the company “quick answer” to the general housing market malaise at the end of the year for “stimulate sales, improve cost control and conserve cash”. And on top of that, the director slowed down new land investment in the fourth quarter of the last year.

However, Finch thinks the sales rate for the last five months will end “too low” in 2023. And that will lead to lower profits. However, directors have yet to give optimistic guidance on possible trading figures.

The big danger for investors today is the cyclical nature of these companies’ operations. For example, if the new housing market deteriorates, Persimmon shares may fall. However, on the other hand, there is an undeniable recovery potential in the business.

But it’s always difficult to time test an investment into cyclical company stocks like Persimmon. However, there are many positives in these figures. For example, new houses were built a little last year. Like the selling price of a new home. And underlying profit before tax increased by about 4% annually.

But there could be more pain for shareholders. You see, today’s forward sales numbers show a decline from a year ago’s numbers. It stood at £1.52bn, compared to £2.21bn 12 months earlier. And City analysts expect earnings to fall by almost 50% this year.

market fundamentals are strong

The company said the sales position is forward showing the “important” drop in private sales rates in the fourth quarter of 2022. But cancellation rates have already begun “A return to typical historical levels”.

Meanwhile, shareholder dividends are on the slide. The next dividend payment on 60P shares is scheduled for 2022 “dividend only for financial year 2022”. And for 2023, the directors expect to maintain the 2022 dividend with the goal of long-term growth.

For context, shareholders receive a total dividend of 235p per share in 2022, representing a return on capital from the 2021 trading year.

Despite this belt-tightening, Finch said he expects further progress beyond 2023, the fundamentals of new home demand being strong. And targeting companies “disciplined growth in the coming years”.

Overall, Persimmon is not an easy stock or business for investors to analyze today. So doing a lot of research seems important before jumping in and buying any stock.