Fletcher magic lost on market

Ralph Waters

Fletcher Building reported another record profit yesterday but said two of its four divisions suffered an earnings drop.

Fletcher's half-year after-tax profit was up 10.4 per cent to $190 million, and earnings before interest and tax rose 12 per cent to $335 million. The interim dividend rose 27 per cent from 15c to 19c a share.

Chief executive Ralph Waters said earnings in the building products division and distribution division were down. He blamed falling steel prices and softer demand in the Australasian building sector for the tumble, but said the outlook for steel prices showed an improvement.

Waters predicted the full year's earnings before interest and tax could be 5 per cent ahead of last year's, noting that directors had previously agreed with analysts and brokers that $637 million was achievable. The company could earn $630 million to $650 million, with the mid-point range being "a pleasing outcome".

In New Zealand, demand was mixed. The residential building sector was declining but conditions were buoyant in non-residential and infrastructure.

In Australia, demand for all product categories was well off the highs of 2004 but Fletcher had a greater concentration of assets in Western Australia and Queensland, which were some of that country's better performing markets.

Shares in Fletcher Building fell 20c yesterday to $7.52.

Slade Robertson, equity research head at BT Funds Management, said unrealistic expectations from some quarters expecting further profit upgrades had resulted in the shares trading down.

But Fletcher had delivered yet another good result, although the announcement held no surprises.

"They didn't deliver on the upside," Robertson said, adding that Waters' full-year profit predictions were in line with analysts' forecasts and were not upgraded.

For the past several years, Fletcher Building's profits have beaten market expectations. The company did so again in the first half, but only slightly: its 10 per cent increase in net profit was just above the 8 per cent growth expected by analysts.

Waters encouraged people to keep the results in perspective.

"This country has just enjoyed the biggest boom it's ever seen,' he said, taking a swipe at negative business confidence surveys, the media's pessimistic reporting and National leader Don Brash's Orewa speech predicting economic decline.

Waters said talking the economy down could become a self-fulfilling prophecy and his forecasts remained positive.

"We're not lying awake in our beds at night," he said.

Australia's housing market appeared to be near the bottom of its cycle and could recover after six months. More new home-buyers were back in that market, indicating pent-up demand and that country's residential market was experiencing "a slowdown rather than a slump".

New Zealand residential building consents rose in December and January, indicating some recovery. Waters said infrastructure demand was so strong Fletcher would not be unhappy if spending was a little less ambitious.

Output from Fletcher's Golden Bay cement plant had been upgraded from 600,000 tonnes in 2001 to 850,000 tonnes by July, an indication of demand - and yet the company was only keeping pace.