Fletcher Building earnings forecasts downgraded

Delays in the rebuilding of Christchurch have led analysts to cut back their earnings forecast for Fletcher Buidling. Photo / Sarah Ivey

Share market analysts have been paring back their earnings forecasts for Fletcher Building to below the construction and building materials group's own guidance for the 2011/12 year and beyond, financial market sources said.

Bearish conditions in the Australian and New Zealand housing markets, lower steel prices, ongoing delays in reconstruction activity in Christchurch , and last week's downbeat annual meeting, have combined to make for a bleaker earnings outlook for the company, they said.

Fletcher Building chairman Ralph Waters said at the annual meeting on November 16 that there had been no material improvement in trading in any market except Asia in the first half of 2012, and that there was a risk of further earnings downgrades if construction volumes fell.

Waters reiterated the company's forecast of a 10 per cent decline in first-half profit to $166 million, and no growth in full-year earnings, before one-time items, from last year's $359 million. The company's own forecasts assume no further deterioration in its key markets.

Six out of 11 analysts who cover the stock have cut their 2012 and 2013 earnings. The most pessimistic of forecasts has the company reporting a net profit of $320m for 2011/12.

"There is certainly a bit of trimming going on with people's expectations," said one fund manager.

Forsyth Barr head of research Rob Mercer said the timing of any rebuilding activity in Christchurch continued to be problematic, especially since aftershocks continue to plague the city.

"It's still hard for people to commit to the rebuild," he told APNZ.

Fletcher Building's share price has gone from $9.52 in April to $5.92 yesterday.

"I think the market was certainly over-confident when it was trading over $9.00 but similarly, it has now moved to an overly pessimistic level," said Mercer, who declined to disclose his own forecast for the company's earnings.

He said Fletcher Building's guidances were such that there was a reasonable level of confidence that they could achieve them. However, the market's view was one of caution.

"There is certainly a view that there is still pressure on their short term earnings and some people are going below their (Fletcher Building's) guidance," he said.

Fletcher Building bought Australian pipe manufacturer and distributor Crane for A$1 billion in March.

Mercer said the market still regarded Crane as being a positive move, even though Fletcher Building had paid a "full" price.