Fletcher beats estimates with $326M FY profit as NZ revives, Australia stays flat

Wednesday 21st August 2013

Fletcher Building posted a bounce back in annual profit, led by growth in its New Zealand operations and an absence of the year-earlier charges in Australia, where trading is expected to remain weak.

Net profit jumped to $326 million in the 12 months ended June 30, from $185 million a year earlier, when the Auckland-based company took $132 million of charges. Sales fell 4 percent to $8.8 billion.

Profit beat First NZ Capital's estimate of $304 million though New Zealand's largest construction and building products group confirmed the brokerage's concerns about Australia, saying the outlook in its second-largest market "remains soft and uncertain." By contrast, in New Zealand construction activity is expected to pick up, driven by housing in Auckland and the rebuild of Christchurch.

"A sustained improvement in activity levels in New Zealand coupled with operational efficiency gains should drive earnings growth," the company said. "However, no significant volume growth is forecast in the Australian market and any further deterioration from current levels will temper the group's earnings momentum."

The company gave no specific earnings guidance, saying it will update shareholders at their annual meeting in October.

Fletcher will pay a final dividend of 17 cents a share, making 34 cents for the year, unchanged from 2012. The shares rose 2.3 percent to $8.40 in early trading and have slipped 2 percent this year. The stock is rated a 'hold' based on the consensus of 10 analysts surveyed by Reuters, with a median price target of $8.72.

"While no guidance was provided, the outlook summed up what we expected for an improving New Zealand but the statement around Australia could spook investors," said Rickey Ward, head of equities at Tyndall Funds Management.

"No obvious signs of improvement will concern many, the market is predicating around 12 percent improvement for next year," he said. "The outlook statement would indicate that the market will have to downgrade these."

Full-year operating earnings were $569 million, at the low end of the $560 million to $610 million guidance Fletcher gave with its first-half results in February. Still, the company lifted its estimate for annual cost savings from its FBUnite programme to break down silos between divisions to between $75 million and $100 million, from a $75 million target previously.

Earnings before interest and tax and excluding one-time items in New Zealand climbed 38 percent to $286 million, while in Australia earnings on that basis fell 22 percent to $203 million. For the rest of the world, earnings slipped to $80 million from $90 million.

The company garners 45 percent of its sales in New Zealand and 50 percent of EBIT, while Australia generates 43 percent in revenue but only 36 percent of earnings.

By division, infrastructure products EBIT rose 6.2 percent to $222 million, led by a 6 percent gain for cement, concrete and aggregates and a 10 percent increase in concrete pipes and products. Earnings at Iplex and Crane Copper Tube fell 21 percent on a decline in Australian volumes, while earnings from steel jumped to $28 million from $11 million.

Building products earnings rose 12 percent to $122 million as New Zealand demand drove a 43 percent increase in plasterboard, while insulation earnings fell 36 percent on shrinking margins in Australia. Sinkware earnings fell 37 percent and aluminium earnings doubled, the company said. Coated steel earnings rose 7 percent and roof tiles rose 31 percent.

Operating earnings from laminates and panels almost doubled to $120 million, though year-earlier results were eroded by $74 million of charges and on a like-for-like basis were down 13 percent. Formica earnings fell to $58 million before items from $71 million while Laminex recorded earnings before items of $62 million, down from $68 million.

Distribution earnings fell to $50 million from $65 million, with a 33 percent gain from Placemakers, offset by a 62 percent decline for Tradelink, Hudson Building Supplies and Mico Plumbing.

Construction earnings soared 74 percent driven by house sales and increased activity in Canterbury.

BusinessDesk.co.nz

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