Fletcher Building's share price has slumped by more than seven per cent on the back of today's half-year result.
Shortly after 2pm the building company's shares were trading at $9.48 each, down 7.15 per cent.
Matthew Henry of Forsyth Barr described the result as "below our expectation principally due to a lower performance from the construction business. Excluding the newly acquired Higgins, construction earned EBIT of $5m vs. $36m in the previous corresponding period.
"Construction is inherently opaque and can be impacted by project timing, but we suspect 'losses incurred on a major construction project' have had a material impact on earnings.
"Besides construction, the result is generally solid with NZ EBIT up 20 per cent (excluding construction and divestment of Pacific Steel) broadly in line with our expectation," Henry wrote.
Kar Yue Yeo of First NZ Capital said the result was below expectation due to the underperformance of the construction unit.
"Overall group EBIT margin: 6.7 per cent compared with our 7.1 per cent estimate in the first half, driven substantially by weaker performance in the construction division," a\
he wrote, estimating losses of about $30 million on one project alone.
Fletcher also explained a reduction in construction's operating earnings as being partly due to "losses incurred on a major construction project".
Fletcher announced it had pushed up revenue 4 per cent, from $4.4 billion to $4.6b, to make $176 million net earnings after tax, up from $172m in its latest half-year.
Fletcher has a market capitalisation of $7b, second only to Auckland International Airport's $8.3b and ahead of Meridian Energy's $6.8b but the result was immediately greeted with being below market expectations.
The NZX-listed business has declared its interim profit for the six months to December 31, 2016 saying the result included a net loss from significant items of $11m due to costs associated with site closures in Rocla Products and Fletcher Insulation.
Mark Lister of Craigs Investment Partners said: "At first glance, it looks a little softer than we would've liked. Guidance for the full year is unchanged, but due to the slightly weaker first half numbers they will have to put in a good performance in the second half of the year to make up for it.
"Overall, not hugely out of line with expectations but wouldn't be surprised to see the share price weaken a little when the market opens. Fletcher's share price is up about 55 per cent in the last 12 months, compared to the NZX50 up 16 per cent over the same period, which means there is much less room for disappointment," Lister said.
Net earnings excluding significant items were 18 per cent higher at $187m.
Operating earnings (earnings before interest and tax and significant items) were $310m, up 12 per cent on the $278m reported in the prior corresponding period.
This reflected a sustained improvement across almost all parts of the portfolio, signalling the benefit that businesses are getting from a strong New Zealand economy, improved customer propositions, operational efficiencies, cost reductions, and in some cases organisational restructuring, the business said.
Revenue of $4.6b was 4 per cent higher for the period, reflecting sales growth in the New Zealand businesses and the acquisition of the Higgins contracting business which operates in New Zealand and the South Pacific and was effective from July 29 last year, Fletcher said.
An interim dividend of 20.0 cents per share will be paid on April 12, with full New Zealand tax credits attached. The dividend reinvestment plan will be operative for this dividend payment.
Mark Adamson, chief executive, said the result was driven by an excellent performance by the distribution and international businesses which both reported increases in operating earnings in excess of 30 per cent versus the previous comparable period.
Fletcher won contracts to build the two largest New Zealand construction projects: Precinct Property's $850m 39-level Commercial Bay waterfront office/shopping tower and SkyCity Entertainment Group's $700m NZ International Convention Centre in the heart of Auckland.
Analysts tipped Fletcher to have a strong 12 months in its financial year to June 30, 2017.
The Herald reported in January that Craigs Investment Partners said full year 2017 ebit will be above the company's top-end guidance of $760m, at $764m, while brokerage Forsyth Barr is similarly above guidance, estimating ebit at $766m.