Half-year earnings up 5pc as rosy local outlook offsets tough market in Australia.
A strong New Zealand building recovery drove the country's biggest listed entity to push up half-year earnings 5 per cent and leave analysts expecting a strong second half, fulfilling its full-year guidance.
Fletcher's chief executive Mark Adamson yesterday forecast $610 million to $650 million operating earnings before interest, tax and significant items for the June 2014 year, after announcing half-year net earnings for December 2012 rose from $146 million to $154 million for the December 2013 half-year.
New Zealand earnings were strong because of the robust construction market and Fletcher's cost-cutting, Adamson said, but the focus was more on rationalisation or mergers than new acquisitions. Fletcher's Pacific Steel sale, announced this week, was one example of this, he said.
Fletcher is part of the Well-Connected Alliance, creating Auckland's new Waterview Connection which Adamson said was a key part of new city infrastructure. "The Waterview Tunnel is a $1.3 billion investment by the Government to link the airport to the CBD," Adamson said from Sydney.
"Our share of that is about $400 million. The project is going exceedingly well. Alice is up to speed and on a daily basis, slightly ahead of schedule."
Waterview money was mainly flowing into Fletcher's construction division but building products was also benefiting from sales of steel and cement, although Adamson said Fletcher had to bid in a competitive tender to sell to jobs like the tunnel.
A new team appointed to Fletcher's factory house-building project had been on a global fact-finding tour. Factory-built houses were accepted in southern Germany and Sweden "but not so much in the UK - it will be something we have to initially market and sell".
Fletcher's half-year revenue fell 2 per cent; the 18c dividend per share was up 6 per cent; operating earnings at $281 million were up 7 per cent; earnings per share rose 5 per cent to 22.4c. New Zealand generated 47 per cent of revenue, Australia 40 per cent, the rest of the world 13 per cent.
Adamson said New Zealand residential consents rose 26 per cent to their highest level since 2008 but Australia's were up too, rising 16 per cent driven by more multi-unit dwellings.
Rob Mercer, Forsyth Barr's head of private wealth research, called the result disappointing, saying Australian earnings were weak, although there was good growth in New Zealand. It would be some time before Fletcher's earnings lifted, he said noting yesterday's trades around $9.50.
Carlie Eve of investor Mint Asset Management said the strength of business here continued to offset a weak performance from Australia. "Outlook comments were as expected with New Zealand continuing to grow and Australia uncertain. The guidance range was maintained, however, this will require a strong performance in the second half with enhanced activity levels in Australia required to achieve the upper end," she said.
Another analyst who asked not to be named said the result was in line with expectations. "They haven't changed guidance so it implies a reasonably strong second half on the basis that New Zealand continues to progress and the cost savings come."
Industry analyst and forecaster BIS Shrapnel said the Canterbury rebuild and Auckland's housing pick-up should drive the construction sector to a new peak by the March 2016 year. Its latest report, Building and Construction in New Zealand 2014-2019, said leaky home and school remediation and upgrades to earthquake-risk buildings would create more work.