Fletcher Building earnings drop 12% before $132m charges

BUSINESSDESK: Fletcher Building, New Zealand’s biggest construction and building products company, reported a 12% drop in annual earnings before one-time charges on sales growth fuelled by the first full-year contribution from Australia’s Crane Group.

Earnings before one-time items fell to $317 million, or 46.5 cents a share, from $359 million, or 57.1 cents, a year earlier, the Auckland-based company says.

Sales rose 20% to $8.87 billion, with Crane providing the single-biggest contribution. Analysts had forecast reported profit before one-time items of $315.5 million on sales of $8.95 billion.

The second-biggest company on the NZX 50 Index has struggled with weaker building demand in New Zealand and Australia, its biggest markets, while the much-touted fillip from rebuilding earthquake-damaged Christchurch has been delayed by aftershocks and a slower-than-expected pace of insurance settlements.

“Weak building activity in New Zealand, coupled with a marked slowdown in residential and commercial construction in Australia have resulted in lower earnings being achieved compared to last year,” outgoing chief executive Jonathan Ling says.

He paints a lukewarm outlook for 2013, without giving any explicit forecasts.

“A significant increase in earnings from the current level would require a marked improvement in residential and commercial construction levels, particularly in New Zealand and Australia,” he says.

New Zealand home building activity would see a modest improvement, though commercial construction would not pick up materially.

In Australia, there was a risk of further decline in home building and commercial work outside of mining would “remain subdued”. Trading in North America would be “flat to slightly positive” and no recovery was seen in Europe. China and Southeast Asia would experience growth.

Net profit in the latest year tumbled to $185 million from $283 million and included $132 million of charges to restructure its Laminex business, closure of a Formica plant in Spain and the write down of the value of its Australian insulation business after the government abandoned a subsidy scheme.

The shares last traded at $6.66 and have gained 7% this year. The stock is rated "outperform" based on 11 recommendations compiled by Reuters, with a median price target of $7.15.

Fletcher will pay a final dividend of 17 cents a share on October 17, making 34 cents for the year, up from 33 cents in 2011.

Revenue from Crane, the pipe-maker Fletcher acquired last year, was $2.39 billion in its first full year, from a part-year contribution of $623 million in 2011. Crane earnings jumped to $106 million from $11 million on the same basis.

The results were driven by a 31% jump in earnings from pipelines after it won two coal-seam gas projects in Queensland.

Building products posted an operating loss of $7 million, from a year-earlier profit of $31 million. Earnings fell across the board for New Zealand plasterboard, insulation, roof tiles, sinkware and aluminium products.

It took a $74 million charge against its Australian insulation business to write down goodwill, write off stock and cut the value of its brands.

Earnings from concrete rose to $130 million from $125 million with New Zealand’s contribution unchanged at $56 million and Australia’s pipeline and quarry businesses lifting earnings by $5 million to $74 million.

Construction earnings dropped 17% to $50 million while the backlog of construction work climbed to $1.09 billion at the end of June from $764 million a year earlier.

Earnings at its Placemakers distribution chain fell 31% to $27 million while sales declined 5% to $813 million.

Fletcher says the business maintained market share in the face of a low level of home building activity and as competition eroded its gross margins.

Laminates and panels earnings tumbled 59% to $65 million and included $74 million of restructuring charges. Revenue fell 4%.

Steel earnings fell 42% to $48 million. Market conditions in its long steel business “were extremely difficult”, falling 58%, while volumes were up 3% on the prior year.

Fletcher’s gearing at June 30 rose to 35.4% from 33.8%, which is below the company’s target range of 40% to 50%.