Construction company and materials manufacturer and distributor Fletcher Building could declare an interim result 10 per cent down due to a cement plant outage, the slowing Australian economy and lower land development profits.

Fletcher, due to announce on Wednesday, has already forecast the December 31, 2018 half-year earnings to be down.

"HY2019 EBIT before significant items is expected to be approximately 10 per cent below HY2018 EBIT before significant items," the company said in guidance out last year," the company said.

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It expects to make $630 million to $680m operational earnings for its June 30, 2019 full year so the market will get an initial taste of performance in the half-year.

In guidance issued at its general meeting in November, the company said: "Fletcher Building expects EBIT before significant items for FY2019 to be in the range of $630m to $680 million."

Frances Sweetman of Milford Asset Management said the market was expecting the New Zealand result to be resilient.

"We can look at building consent and ready-mix concrete data to get a reasonable feel for what construction volumes are doing, and the New Zealand dollar can be a guide for prices and margins," she said.

Fletcher flagged some issues in November: "While the company continues to target a result at the top end of this range, it is prudent at this stage in the year to highlight that FY2019 EBIT will be impacted by the outage at the Golden Bay Cement plant, the slowdown in the Australian residential market, and the reduction in land development earnings compared to last year."

Fletcher has been dogged by protests over its Ihumātao site at Māngere where it plans to start work this year on 480 houses. Protesters occupying the land picketed Fletcher's AGM last year at Eden Park and on Friday, February 15, staged a picket line in front of the Penrose headquarters.

Fletcher might claim around $11m insurance for the Golden Bay outage, one source said, but that might not be paid until the June 30, 2019 second-half and is therefore unlikely to appear in Wednesday's result.

 Frances Sweetman of Milford Asset Management. Photo/supplied
Frances Sweetman of Milford Asset Management. Photo/supplied

Sweetman: "Fletchers have been quite clear on what they expect to report at the interim result, having given guidance at the annual shareholders meeting in November for earnings before significant items to be approximately 10 per cent below the 2018 interim."


That means first-half earnings just under $300m. Fletcher's previous corresponding period saw it declare $309m operating earnings before significant items.

Grant Swanepoel of Craigs is looking out for any unknowns, including an announcement of what the company plans to do with the $1.2m from its Formica sale.

"Do they consider a share buyback. It would be taken very positively if they announced that," he said, referring to a possible capital restructuring. He saw this week's SkyCity Entertainment Group update on the $703m NZ International Convention Centre as a positive for the Fletcher balance sheet.

Fletcher Building chief executive Ross Taylor. Photo/Greg Bowker
Fletcher Building chief executive Ross Taylor. Photo/Greg Bowker

SkyCity, not Fletcher, appeared to be paying for the $25m for the remove of aluminium composite panels and a re-clad, Swanepoel said. Timing for the possible completion of that centre had also been signalled and he believes there is enough "fat" for Fletcher to meet that target.

"One risk area is Commercial Bay," Swanepoel said of that $1b 39-level waterfront tower which Fletcher is building for Precinct Properties. "I look out my window and I can see it still going up slowly. Delays push costs up," he said.

Sweetman also expects a capital announcement: "With the sale of both Formica and Roof Tiles Group announced, the market will be hoping for an update on capital management and the potential for capital to be returned to shareholders, but with the sale still subject to regulatory approvals, management has suggested the company will continue to take a prudent approach to the balance sheet and reinstated dividend."

Reinstatement of dividends is a popular move and the Formica price announced just before Christmas pleased investors.

Sweetman said the market was very focussed on the Australian business, "given this was one of the sources of the downgrade and forward-looking data - such as building consents and house prices - is weak."

The performance of the Australian business wa supposed to deliver a lot of the earnings growth in the next few years if it achieves its target to double earnings during five years, she said. It was also important area of focus for the credibility of the new chief executive Ross Taylor.