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Tenon tips earnings growth as US housing market starts to recover

Unprofitable wool mouldings company Tenon says operating earnings should rise this year amid signs of recovery in the US housing market.

Chairman Luke Moriarty held off on giving specific guidance when he addressed shareholders at their annual meeting in Wellington today, citing "uncontrollables" including a strengthening New Zealand dollar and uncertainty over fiscal cliff negotiations in Washington.

"Those issues aside, we do see improved performance from the company moving forward now, as broader market conditions continue to recover," he says.

Tenon gets about 90 percent of its revenue in the US, so its fortunes have been closely aligned with the housing market in the world's biggest economy.

In the first five months of the New Year, its sales in the new home construction market rose more than 20 percent on the same period a year earlier. That market segment accounts for about 30 percent of Tenon's sales, while the retail market – typically home renovators – makes up 70 percent.

The retail market typically lags behind home sales and new build as home buyers on average wait about nine months before starting renovations, Mr Moriarty says.

"While our operating earnings in this first six months to December 31 will be up slightly on the corresponding period last year, the expectation is that our performance will gain further momentum in the second half, particularly the final quarter of the fiscal year." 

New home sales in the US are up 17 percent, year-on-year while prices have gained about 5 percent, while home building has accelerated in the latest quarter, he says.

Shares of Tenon last traded at 74 cents, valuing the company at $48.6 million, and have gained 7.3 percent this year. The company is 59 percent owned by Rubicon.