Rejuvenated Fletcher targets earnings of $303m

Jonathan Ling, chief executive of Fletcher Building. Photo / Paul Estcourt

Fletcher Building, New Zealand's biggest listed company, is on track to return to profitability and make up to $303 million this year.

Announcing a $154 million net profit for the December half the company yesterday predicted better times and said it would turn around last year's $46 million net loss for the year to June and meet analysts' predictions of a big profit resurgence.

Fletcher shares rose 4.2 per cent yesterday, up 32c to $7.96.

Analysts expect the Penrose-headquartered diversified building and distribution business to report net after-tax earnings of $278 million to $303 million for the June 2010 year, a result due out in August.

Chief executive Jonathan Ling said yesterday that Fletcher would meet this, barring deterioration in key markets and based on current trading performance.

Yesterday's presentation had a very different flavour from last August's full-year briefing when Ling talked mainly of redundancies, factory closures and shorter working hours. Ling said yesterday that cost-cutting measures had paid off and the business was in better shape internationally.

Net half-year earnings slid 10 per cent on the previous corresponding period, from $172 million to $154 million and sales were down 10 per cent from $3.8 billion to $3.4 billion.

Analysts had picked the half-year earnings to be in the $133 million-$135 million range so their expectations were exceeded.

Rob Mercer of Forsyth Barr praised the company for prudent management and taking a reasonable approach to its dividend which was 14c a share, down from 24c.

"The result was a good number. Parts of the business that were going to be weak didn't go beyond the numbers we thought. The good numbers were better than we thought, particularly insulation which was a lot better although obviously it's not reflective of an ongoing benefit," Mercer said.

"Earnings are past the worst and that's been a common theme in this reporting season. There's going to be a hole in infrastructure and construction and it's going to be a difficult 12 months ahead. But there's solid foundations in earnings during what has been pretty extraordinary times," Mercer said.

Kar Yue Yeo of First NZ Capital had predicted lower earnings from infrastructure and construction and forecast $135 million for the half.

Shane Solly of Mint Asset Management had predicted a mixed half-year result saying new housing starts here and over the Tasman were weak but that a good management team meant the firm was well-placed for the economic recovery.

Yesterday, he said Fletcher had produced a "good quality result driven by cost and efficiency control".

Ling said the business had noticed an improvement, particularly in this part of the world.

"Operating earnings in the first half of the 2010 financial year were 15 per cent higher than for the second half of the prior year.

"We have had a noticeable pickup in trading activity in the October to December period of 2009 with growth in sales and earnings in those businesses with exposure to the New Zealand and Australian residential housing market.

"This suggests that we are finally starting to see a recovery in residential construction activity in New Zealand and Australia."

One institutional investor said the second-half outlook was mixed. Some stimulus, for example insulation, was beginning to roll off. But it was difficult to gauge if the pickup in activity levels that occurred towards the end of the first half-year would continue.

Ling pointed to new house-building starts in five major Fletcher markets to show the severity of the downturn but even Formica is in the black. Ling said its operating earnings before unusual items were $19 million, up 67 per cent on the previous period. Laminates and panels had the best result, up 46 per cent to produce operating earnings of $70 million.

Fletcher's market capitalisation yesterday was $4.6 billion, ahead of Telecom's $4.4 billion. Ling said Fletcher now employed 16,000 people, down from 19,000 previously.

Fletcher Construction's backlog stood at $1.1 billion in December with Fletcher scoring the $240 million Victoria Park, $40 million Ormiston Rd School and $50 million Hutt Hospital jobs. More than 80 per cent of the backlog is work funded from the public purse, Ling said. Steel suffered the biggest earnings drop, down 57 per cent because of falling prices and lower demand.

Ling singled out the Australian Government's home insulation package as a big stimulus for earnings from Fletcher's building products division, up 23 per cent to $76 million, although he noted recent changes to the scheme which he said would be felt by the business.

PlaceMakers suffered an 11 per cent earnings drop, mainly due to lower demand for new houses in New Zealand, Ling said.

The infrastructure division would continue to benefit from publicly funded work in New Zealand although the timing of big projects could hurt second-half results, he said.