Fletcher Building profit edges up 1% as NZ pickup offsets Australian decline

Mark Adamson

Fletcher Building, the biggest company on the NZX 50 Index, posted a 1 percent gain in first-half profit as home building and Canterbury reconstruction in New Zealand made up for declining Australian earnings. The stock fell on the results.

Profit rose to $146 million in the six months ended December 31, from $144 million a year earlier, the Auckland-based company says in a statement. Sales dropped 3 percent to $4.38 billion.

Fletcher reiterated the guidance given at its annual meeting for full-year profit of $560 million to $610 million.

It sees no improvement in Australian trading in the second half, while all of its New Zealand businesses should show gains, underpinned by increased home building, infrastructure projects and continued strong reconstruction activity in Canterbury.

"The pace of new residential construction in New Zealand has improved substantially over the past six months in both Canterbury and Auckland," chief executive Mark Adamson says in the statement. "By contrast, in Australia, weak market conditions have continued in the residential and commercial construction sectors."

The biggest deterioration came from Crane Group, the Australian pipe manufacturer and distribution company acquired in early 2011 with the aim of diversifying Australian earnings.

Fletcher shares fell 3.3 percent to $9.01, having gained almost 40 percent in the past year. The stock is rated a 'hold' based on the consensus of 11 analysts polled by Reuters, with a median price target of $8.75.

First-half profit just missed First NZ Capital's forecast of $147 million, while the unchanged 17 cent interim dividend declared met expectations. The dividend reinvestment plan will be in effect for the payment.

"Overall, it probably just met or was a smidgeon below expectations," says Matthew Goodson, portfolio manager at BT Funds Management. "New Zealand looks solid, Australia weak. The Crane acquisition is rather disappointing thus far."

Mr Adamson says weak conditions in residential and commercial construction in Australia led to a 12 percent decline in earnings from operations across the Tasman, while in New Zealand, rising residential building activity, especially in Auckland and Christchurch, lifted local earnings by 31 percent.

Sales fell about 15 percent to $1.1 billion, still the biggest Fletcher business by revenue, while reported earnings dropped 26 percent to $39 million.

Operating earnings from Crane's pipeline business rose 7 percent to $31 million, while at the distribution business, earnings tumbled 59 percent to $9 million, reflecting the weak Australian residential housing market.

Strongest gains

By contrast, Fletcher's construction business showed the strongest gains during the first half, with sales rising 18 percent to $613 million and earnings jumping 48 percent to $37 million because of rising home sales and more recovery work in Canterbury.

Its construction backlog fell to $1.19 billion as at December 31 from $1.2 billion a year earlier. That excludes a $550 million contract which was delayed and will not have an earnings impact until 2014.

Building product sales fell 5.1 percent to $701 million and earnings declined 13 percent to $56 million.

The decline was driven by a 54 percent drop in earnings from insulation, excluding a year-earlier gain from the sale of a flooring business. Australian glass wool volumes fell and margins shrank, while volumes were flat in New Zealand.

Earnings from roll-forming, metal roof tiles and coated steel fell 24 percent, New Zealand coated steel earnings were flat and roof tile volumes rose 8 percent on increases in Europe and Africa, the company says.

Infrastructure product sales rose 4.3 percent to $711 million and earnings climbed 14 percent to $72 million on a 3 percent increase in earnings from cement, concrete and aggregates, a 7 percent decline for concrete pipes and products, and a 30 percent gain in steel earnings.

Distribution sales rose 9.6 percent to $424 million, leading to a 13 percent gain in earnings to $17 million. The company saystrading at its PlaceMakers outlets began to improve in the second quarter, led by Auckland and Christchurch.

Sales from laminates and panels rose 4.3 percent to $711 million and earnings jumped 21 percent to $51 million. Excluding significant items, year-earlier earnings were $63 million. Operating earnings at Formica fell 12 percent to $23 million and earnings from Laminex dropped 24 percent to $28 million excluding items.


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