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Fletcher says first-half profit to fall 10%, full-year earnings growth to stall

Wednesday 12th October 2011

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Fletcher Building, the biggest company on the NZX 50 Index, said first-half profit will fall 10% and earnings growth will stall in the full year on weak residential construction and potential delays in the rebuild of Christchurch after further quakes.

Profit in the six months ending Dec. 31 may be decline to about $150 million from 166 million a year earlier. For the year ending June 30, 2012, profit before one-time items will be about the same as 2011’s $359 million, the company said in a statement today.

Fletcher is effectively the lead managing firm for the Christchurch rebuild, a reconstruction effort that’s expected to stoke economic growth and drive demand for the company’s services.

Still, the continued after-shocks have pushed back the timing for the work to get underway in earnest and spending in Canterbury is likely to dent the amount allocated to other regions, rival construction firm Fulton Hogan has said.

“In New Zealand, no material improvement in trading conditions is expected in the first half of the 2012 financial year, and the timing of a sustained and meaningful recovery beyond that is uncertain,” Fletcher said.

“In Australia, there is a clear risk that residential and commercial construction activity will remain around the current low level for the balance of the 2012 financial year,” it said.

Shares of Fletcher were last at $7.90 and have edged up 2.9% this year. It is rated ‘outperform’ based on the consensus of 10 recommendations compiled by Reuters.

Reconstruction in Canterbury is expected to pick up in the second half of the 2012 financial year, “assuming a continuing reduction in seismic activity.” Still, the latest magnitude 5.5 quake last Sunday could further delay rebuilding efforts, the company said, citing the government.

Treasury expectations are that the rebuilding in Canterbury will not “begin in earnest” until the second half of the 2012 calendar year, Fletcher said.

While building consents have risen in recent months, that hasn’t translated into activity levels, with the number of housing starts holding at “historically low levels.”

Infrastructure activity “has remained steady” in New Zealand and is satisfactory in Australia, it said.

Australian residential and commercial consents have remained weak, with the Laminex division’s earnings hurt in particular, the company said.

A global surplus of capacity in long steel markets, combined with a high Australian dollar, has weighed on steel export earnings across the Tasman.

On a brighter note, Fletcher’s Formica laminated board business is managing to lift earnings in North America, Europe and Asia.

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