Fletcher posts profit slump

By Paul McBeth

Thursday 12th February 2009

Fletcher Building, New Zealand's biggest building products producer, posted a 27% drop in first-half profit as world demand sank. Its shares rose as the company held its dividends and said its balance sheet is strong enough to weather the downturn.

Net income fell to $172 million, or 34 NZ cents per share, in the six months ended Dec. 31, from $235 million, or 47 cents, a year earlier, the Auckland-based company said in a statement. Sales rose 6% to $3.76 billion, even as volumes fell, reflecting higher steel prices and ongoing construction activity in New Zealand.

"These guys seem to be doing a reasonable job in difficult times to manage the business, said Craig Brown, equities manager at ING New Zealand. "They are in a strong financial position in this environment."

Shares of Fletcher Building have tumbled 40% in the past 12 months as weakening housing markets in the US, New Zealand and Australia sapped earnings from building products, laminates and panels, and cut distribution profits. The group is focusing on retaining cash, selling surplus assets and cutting costs, and has un-drawn debt facilities of $615 million against refinancing needs of $211 million in the next 12 months.

Today the stock climbed 2.7% to $5.65.

"We have seen extremely tough trading conditions in most of our key markets," said chief executive Jonathan Ling. "In response to this we have a range of further cost reduction initiatives underway."

Ling said tougher trading conditions are likely to continue through 2009 and full-year earnings will probably be at the low end of analysts' forecasts of $289 million to $336 million.

Still, Fletcher "is well placed to meet the challenges of the current cyclical downturn," he said. The company's geographical and portfolio diversification, and strong balance sheet "leave the group well placed to continue to grow the business in the future."

Fletcher has retained its 24 cent interim dividend as total shareholder returns fell 4% in the first half. The second-half dividend will be decided once the company has a clear view of full-year results and the outlook for 2010, it said.

Companies exposed to the building industry worldwide are suffering as consumer spending and housing demand slump. Its chief rival in Australia, Boral, yesterday posted a 44% slide in first-half profits, blaming the collapse in house construction in the US.

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