Dulux's profit drops but firm hopes for pick-up

DuluxGroup hope the new homes market will pick up later in the year. Photo / Greg Bowker

Paint maker DuluxGroup hopes the new homes market will pick up later in the year, but further interest rate cuts could be needed to stimulate the sector.

The group expects its core Australian markets to remain subdued in the short term, but says the recent rate cut is a step in the right direction.

Managing director Patrick Houlihan said despite a strong historical link between the performance of the new housing sector and interest rate cuts, the sector potentially required more cuts.

"That break from the traditional correlation shows we're playing in a new paradigm at the moment," Houlihan said after the release of the company's half year results.

"We will ultimately hope to see some pick up in the segment, but for us there's a little bit of a lag effect before that kicks in and that's why in terms of our outlook we expect things to remain somewhat subdued."

All of the major banks have passed on the Reserve Bank of Australia's (RBA) recent 25 basis point cut to 2.75 per cent, bringing the cash rate to a 50-year low.

DuluxGroup's first half profit dropped 31 per cent to $32.9 million because of costs from its takeover of building products and garage door supplier Alesco.

While conditions were soft during the six-month period, Houlihan said the renovation sector, where the majority of its revenue comes from, was proving resilient to the downturn in the housing and construction markets.

The paint business, which represents about 40 per cent of the company's revenue, had recorded good residential sales and soft trade sales.

DuluxGroup is positioned at the end of the housing cycle, as people paint their homes and install garage doors.

The group has forecast a full year profit of about $89 million after declaring a fully franked interim dividend of A8c cents per share.