Fletcher looks forward to strong full year profit

Fletcher Building's chief executive Jonathan Ling. Photo / Natalie Slade

Fletcher Building is on target to push up its full-year result after announcing an 8 per cent rise in its half-year net after-tax profit.

Fletcher, New Zealand's largest listed company, made $166 million net after-tax profit in the six months to December 31, a result which left at least one analyst downgrading his forecast but still tagging the stock with a "buy" recommendation.

Rob Mercer, Forsyth Barr analyst, said the half-year result was below his more aggressive target expectation of $185 million but closer to other analysts' projections.

"The result was still a good achievement and we are less concerned with it coming in below expectations and we are encouraged that its full-year profit guidance is to achieve the current consensus forecast of $354 million, although this will lead to us downgrading our current forecast of $393 million," Mercer said.

Financial gains from natural catastrophes here and in Australia would be a little delayed, he predicted.

"The timing of increased activity around the Christchurch earthquake and Queensland floods is being pushed further out into late 2012 rather than there being any immediate benefit. This is the key reason behind the need for us to downgrade our full-year forecasts," Mercer said.

Emily Behncke and John Hynd, Deutsche Bank analysts, had forecast $170 million so were somewhat disappointed but said the dividend and ebit were ahead of their expectations. They are picking a $374 million full-year result but said the quake and floods would push up 2012 year earnings, not those in 2011's second half.

Formica, Fletcher's giant American-headquartered business, showed good signs of improvement with operating earnings up 130 per cent, steel's result was better than expected and distribution (PlaceMakers) was also slightly ahead, implying robust cost-cutting, they said.

"While today's results were mixed, we believe overall the results were in line, to slightly ahead of, expectations," they said.

Andrew Scott at Royal Bank of Scotland said the interim result was softer than expected but annual result guidance was pleasing and he retained a "buy" recommendation, valuing Fletcher shares at an average $9.21.

Jonathan Ling, Fletcher chief executive, outlined how the floods, cyclones, the quake and many aftershocks would push up demand for Fletcher products, citing Rocla pipes, Laminex laminates and panels, Stramit steel sheds and wood.

And although he mentioned about 60,000 Canterbury "jobs", he refused to put precise figures on the extra money Fletcher would make supplying goods for damaged buildings.

But he did tell how Fletcher's infrastructure and construction division had a $885 million backlog by December and is the preferred contractor for a further $440 million of work. Jobs include the Victoria Park Tunnel, work at Auckland University and the new ASB headquarters in Auckland's Wynyard Quarter.

Fletcher will also continue to pursue growth aspirations in Australia, building on what Ling called the company's existing positions in the building products and construction material sector.

While Australasia is the main area of focus, the company wants to keep its global lead via Formica and Laminex.

Fletcher shares closed up 2c at $8.23 yesterday.

FLETCHER BUILDING
SIX MONTHS TO DECEMBER 31

Sales:
2010 - $3.4b
2009 - $3.3b

Operating earnings:
2010 -$285m
2009 - $271m

Net profit after tax:
2010 - $166m
2009 - $154m

Dividend:
2010 - 16cps
2009 - 14cps

DIVISIONAL EARNINGS

Laminates & panels:
2010 - $80m
2009 - $70m

Infrastructure:
2010 - $77m
2009 - $68m

Building products:
2010 - $56m
2009 - $76m

Steel:
2010 - $43m
2009 - $42m

Distribution:
2010 - $25m
2009 - $17m

Property:
2010 - $13m
2009 - $7m