Fletcher Building shares drop on weaker earnings forecast

Tuesday 20th November 2018

Fletcher Building shares fell 7 percent after the company said it expects first-half operating profit before “significant items” and losses on high-rise projects will come in about 10 percent lower than a year earlier.

Fletcher said earnings before interest and tax will be $630-680 million for the year through June and the reduction is mainly due to “challenging” Australian trading conditions and the timing of house sales in New Zealand.

The company's forecast represents a 5 percent downgrade to the mid-point of analysts' consensus forecasts.

Fletcher shares fell 41 cents, or 7.4 percent, to $5.14 in early trading.

“While the company continues to target the top end of this range, it is prudent at this stage in the year to highlight that full-year 2019 ebit will be impacted by the outage at the Golden Bay Cement plant, the slowdown in the Australian residential market and the reduction in land development earnings compared to last year,” Fletcher said in a statement.

The Golden Bay Cement four-week outage is expected to shave $8 million to $11 million off first-half ebit.

Nevertheless, the company said it is still aiming to resume paying dividends in this financial year, but that will be subject to satisfactory trading conditions and group cash flows.

“The dividend policy of paying dividends in the range of 50-to-75 percent of net earnings before significant items, with consideration of available cash flow in the same period, remains unchanged,” the company said.

Fletcher said there is no change in its estimate of the Building + Interiors unit’s losses, which amounted to almost $1 billion in the 18 months ended June, most of which was booked against the results for the June year.

The company said trading in New Zealand is in line with the market, which is flat to slightly down on the year ended June, with the volume of house sales being lower and taking longer to settle than expected.

In Australia, the company is implementing its turn-around strategy but faces challenging trading conditions for most of its businesses there as the residential sector cools.

The businesses exposed to infrastructure are doing better although input cost increases continue to put pressure on margins.

The Formica business, which was earmarked for sale within 18 months back in April, is trading to plan and performing strongly, particularly in Asia, Fletcher said, adding that the weaker New Zealand dollar is helping the translation of earnings.

(BusinessDesk)

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