Fletcher result expected at lower end

Rod Deane, Fletcher Building chairman

Fletcher Building is being picked to announce a half-year result at the lower end of expectations this week.

Rob Mercer of Forsyth Barr is forecasting $133 million net after-tax profit, 22 per cent down on the comparative period.

Operating profit could fall from $303 million to $233 million and the dividend is expected to be cut, a prudent move in tougher times, Mercer said.

Fletcher, with a market capitalisation of $4.5 billion, is trading around $7.55, down on its annual high of $8.56.

Its half-year results will be announced by chief executive Jonathan Ling in Auckland on Wednesday.

Shareholders at Fletcher's November annual meeting in Dunedin were primed to expect less.

Chairman Rod Deane said then that the current analysts' forecasts for net earnings after tax, excluding unusual items, for the full year to June were $261 million to $340 million.

"Based on current trading performance, and assuming no further deterioration in key markets, net earnings should fall within this range. However, without a sustained recovery in volumes, net earnings would likely be at the lower end of the range," he said.

Mercer said a dividend cut was prudent and already flagged at the annual meeting. The building sector had deteriorated further in the past few months, particularly house-building, he said.

Even though figures showed a slight upswing, the changes came after extremely low levels of activity.

Mercer rates Fletcher's longer-term outlook highly, saying the highly cyclical business will recover in the next two to three years.

"This is an extremely cyclical business and right now you're looking at the bottom of the earnings. We've had a big correction in housing and that has a knock-on effect on commercial construction and infrastructure," he said.

Kar Yue Yeo of First NZ Capital is forecasting net after-tax profit of $135 million, operating profit of $233 million and the company to stick to its profit guidance of distributing a full-year dividend of 28 cents. Earnings from all divisions are expected to be down.

Results from Fletcher's United States-headquartered Formica will be pretty similar to the second half of last year and revenue from infrastructure and construction will be down on last year's results, he predicted.

Shane Solly of Mint Asset Management said the result could be mixed.

"Housing starts here and in Australia are not as strong as some may have expected. But Fletcher has a good management team and some of the efficiency programmes they put in place last year will assist them," he said.

Deane told shareholders three months ago that the infrastructure division continued to see good work flows from government-sponsored engineering and construction projects in New Zealand.

But weaker residential and commercial construction markets would continue to hurt earnings from concrete and related products.

In Australia, the picture is similar and Fletcher's performance there will depend on how the housing and commercial construction markets perform, he said.

Laminates and panels could enjoy an operating earnings lift because of capacity rationalisation and other cost cuts, Deane said.

In Australia, Laminex expects demand to remain subdued in the commercial sector and the outlook for housing is uncertain.

US sales volumes from Formica would stay low in the commercial and residential sectors and Europe was expected to stabilise but not improve materially, he said.

"We do expect to see further growth this year in Formica's Asian operations. For steel, we have previously indicated that earnings will be lower this year compared with last year, due to lower volumes and prices."