Strong NZ market expected to boost Fletcher Building 2016 earnings

Fletcher Building [NZX: FBU] expects to boost annual earnings as strong market conditions in New Zealand offset more mixed conditions in Australia.

Operating earnings before interest, tax and significant items is expected to be between $650-690 million in the year ending June 30, 2016, the Auckland-based company said in a statement. That compares with $653 million reported in the year earlier period, or $610 million on a normalised basis when excluding one-time items, it said.

"We expect the current strong market conditions in the New Zealand construction industry to persist through the 2016 financial year, with demand for new housing particularly in Auckland and surrounding provinces, an increase in commercial construction activity off the back of the significant increase in the value of consents, and government expenditure on infrastructure to remain at the present healthy levels," chairman Ralph Norris said in notes prepared for delivery at the company's annual meeting in Auckland.

"In Australia, the outlook is more mixed. Residential construction activity may slow, particularly in the multi-dwelling segment, while stand-alone housing should be more resilient to potential changes in foreign capital inflows. Commercial construction activity is unlikely to lift from current levels. Continued federal and state government fiscal deficits are likely to mean that infrastructure activity is further constrained."

Mr Norris said residential and commercial construction activity levels in North America are expected to remain broadly consistent with the past year, while European conditions are likely to remain mixed with a generally weak economic outlook.

Further volume growth is expected in Southeast Asian markets, but market conditions in China are likely to remain highly competitive, he said.

The forecast earnings exclude about $A100 million of pre-tax profit expected from the sale of its Australian quarrying business, Rocla Quarries, slated for completion in January 2016, the company said.

First-half earnings are expected to decline from the year earlier period, reflecting a decline in construction earnings because of reduced activity in the South Pacific and the timing of earnings recognition on a number of key New Zealand projects, lower residential development earnings, lower earnings from its Australian distribution unit because of restructuring costs in Australian bathroom and plumbing supplies firm Tradelink, and increased operating losses in its Formica Europe unit due to restructuring costs in the UK.

Its shares gained 1% to $7.45. Before today, the stock had shed 11% this year. The shares are rated an average 'hold' according to the recommendation of 12 analysts compiled by Reuters.

(BusinessDesk)