Steel & Tube has downgraded its full-year profit expectations by 10%-15%, having been affected by low prices, competition and recent quality issues over labelling of its seismic mesh.
The company said its full-year underlying profit was expected to be consistent with the previous full-year's after-tax profit of $21.4million, short of last year's profit by between 10% and 15%.
"The current second half of financial year full year 2016 is proving more challenging than anticipated,'' the company said.
Steel & Tube shares were down 3.5% following the downgrade, trading at $2.17.
Craigs Investment partners broker Peter McIntyre said there were two key risks which Steel & Tube faced.
The first was that "irrational'' pricing from a key competitor would persist for longer than expected and the second, that global steel prices would not start to trend higher from now.
"Further declines in steel prices, coupled with lower margins in New Zealand distribution would see margins negatively impacted in absolute dollar terms,'' Mr McIntyre said.
He said a major issue for Steel & Tube was that despite global pricing beginning to increase, distribution pricing in New Zealand had been impacted by a key competitor continuing to be aggressive on pricing, in order to attain market share, which had seen margins squeezed.
It was revealed in March that Steel & Tube's certification for its seismic mesh had for the past four years incorrectly included the logo of an accredited, independent testing lab, while its actual mesh testing programme had been run in-house.
Mr McIntyre said while the seismic mesh issue was also likely to have contributed to the profit downgrade, he expect it to have had "only a modest impact'' to date.
Steel & Tube said New Zealand steel distribution prices had continued to decline since January, due to intense competition as some competitors vied for market share, which had impacted margins.
The company anticipated "some uplift'' in New Zealand steel prices in the early part of the new financial year, from July.
Steel & Tube's full-year result is due in August.
