Fletcher Building shares tumble on weak outlook for 2012, earnings downgrade

Wednesday 12th October 2011 1 Comment

Fletcher Building shares tumbled, wiping more than half a billion dollars off the company’s market value, after it said earnings growth will stall this year, with no signs of a pick up in Australia or New Zealand.

The shares shed 11%, or 83 cents, to $7.07, heading for the lowest close since July 2009. Before today, the company was rated ‘outperform’ based on the consensus of 10 recommendations compiled by Reuters. Today’s move surprised analysts who had toured the company’s Crane facilities in Australia late last month with no hint then of a downgrade.

Profit in the six months ending Dec. 31 will fall about 10% and earnings in the full-year ending June 30, 2012, excluding one-time items, will be in line with 2011’s $359 million, the company said in a statement today. It said the timing of any pick up in New Zealand is uncertain while Australian residential and commercial activity may remain at current low levels through the end of the financial year.

“There’s a bit of angst around the timing of this,” said Paul Harrison, equities manager at BT Funds Management. “And it sends a bit of a signal in terms of the rest of the economy.”

Fletcher’s announcement comes after carpet maker Cavalier Corp. said sales fell about 20% in the first quarter and the uncertain market conditions meant it couldn’t give any meaningful full-year guidance.

Fletcher is effectively the lead manager for the rebuild of Christchurch and has face set-backs in the process as the region was rocked by a series of earthquakes since the original damaging temblor in September last year, the latest being magnitude 5.5 last Sunday.

Reconstruction in Canterbury had been expected to pick up in the second half of the 2012 financial year, “assuming a continuing reduction in seismic activity” though the latest quake could push that out to the second half of calendar 2012, Fletcher said, citing Treasury estimates.

Rival construction firm Fulton Hogan has said spending on the rebuild could channel funding away from other regions.

“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.

BT’s Harrison said the Christchurch rebuild will happen eventually, helping underpin Fletcher’s longer-term valuation. “People are reacting today over what this means for the 2012 year,” he 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,” Fletcher said.

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.

BusinessDesk.co.nz

Comments from our readers

On 12 October 2011 at 4:54 pm Tony Walker said:

Rather a 'market' over-reaction to a fair and relatively detailed analysis of their year ahead, I thought. Great buying opportunity thanks !