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Fletcher trims output of insulation as Australia quits scheme, hurting earnings

Thursday 22nd April 2010

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Fletcher Building announced its second reduction in output of glass wool in Australia after the federal government ended its insulation incentive, leaving the company with excess inventory and hurting earnings.

Shares of Fletcher fell 1.1% to $8.43 after the company said full-year operating earnings from Australian insulation will tumble to $12 million from $23 million a year earlier. The decline mainly reflects one-time costs of $18 million for redundancies and inventory management costs, it said in a statement today.

Fletcher reiterated its full-year profit guidance for the group, though, affirming it will likely fall within the analysts’ consensus range of $278 million to $303 million. The cut in production at the glass wool insulation plant at Dandenong follows the suspension of operations at its Rooty Hill, Sydney glass wool insulation plant last month.

The cut backs “have resulted from the termination of the Australian Government stimulus package on 19 February 2010,” the company said. “The termination has resulted in major industry participants, including Fletcher Insulation, holding significant excess inventory at current demand rates.”

Fletcher said the government stimulus package which started in February last year was intended to spend A$3.9 billion insulating 2.7 million houses by December 2011. The programme was progressively reduced in scale to 1.8 million homes in scope, but on termination only 1.1 million homes have been insulated.

“The government has further announced today that there will be no replacement scheme as originally contemplated,” Fletcher said. In total, 120 jobs have been lost from the scaling back, it said.

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