Fletcher Building downgrades profit forecast: Market tougher than expected

Fletcher Building has cited issues including 'intense price competition' in its market update. Photo / Natalie Slade

Poor trading conditions, intense price competition and lower building product sales have prompted Fletcher Building to downgrade its full-year profit forecast from $540 million to $640m Ebit before significant items to $500m to $530m.

Trading conditions in the company’s second half of the full financial year prompted the announcement, forecasting the results of its year to June 30, 2024.

“As a result of the trading conditions in 2H24, the company now expects lower FY24 earnings,” it said.

Although all of the material and distribution divisions had experienced softer revenues due to the market conditions, the company’s updated guidance was mostly driven by factors including challenging conditions in the distribution division, given its exposure to the residential sector, which the company said caused intense price competition.

The distribution division’s market share had stabilised due to lower pricing, the company said.

But that meant lower gross margins and a sharp correction in the Australian residential market leading to an expected 10 per cent revenue decline for the Australian division in the second half compared to the second quarter.

The company also cited a combination of weaker revenues and gross margin pressure in certain building products businesses, notably Iplex NZ and steel, where end markets were especially soft.

However, Fletcher’s residential development activities were doing well and the company expected to report it had built around 900 new homes in the full year.

Earnings from its construction division had also improved, reflecting the rebalancing of the order book to a lower risk profit and strong performance from the Brian Perry Civil business.

“The company expects further significant trading cash inflows in the May-June period, driven by the seasonally higher trading months in the materials and distribution divisions and settlement of house and industrial land sales in residential and development.”

Net debt by June 30 will be $1.9b to $2b.

“The company’s liquidity profile remains robust, with $2.8b of debt facilities in place,” it said.

Nick Traber will be acting chief executive of NZX and ASX listed Fletcher Building from March 29. Photo / Fletcher Building

Nick Traber, acting chief executive, said: “Given the current conditions, our focus has been on managing things within our control, in particular customer service, costs and margins, cash flows, capital allocation, funding; and closing out the remaining legacy construction projects.

“Fletcher Building has many strongly positioned core business assets that have demonstrated resilience in current market conditions. Our immediate priorities are to optimise the performance of each of our businesses, close out legacy issues and tightly manage risks to maximise our ability to deliver shareholder value. Our people are integral to achieving this and I would like to thank each of them for their ongoing efforts as we navigate the tougher market environment.”

Fletcher plans a conference call at midday today.

Three bosses and two directors are all leaving in a shakeup of the company.

On February 14, the company said chief executive Ross Taylor would go, but he had a six-month notice period. Then on March 25, concrete division chief executive Nick Traber was named to become acting CEO from March 29 for an interim period until a permanent CEO was appointed.

Barbara Chapman is acting chair but will not be putting herself forward as permanent chair.

On April 5, Traber said CFO Bevan McKenzie was going, although his departure is being carried out with somewhat less haste. He goes on October 4. Directors Doug McKay and Rob McDonald are also leaving.

Fletcher’s market cap has shrunk from $3.1b last month to $2.7b when it closed on Friday. Shares were then trading down 26 per cent annually at just $3.51.

Anne Gibson has been the Herald’s property editor for 24 years, has won many awards, written books and covered property extensively here and overseas.