inleith strike costs keep CHH analysts guessing

By PAM GRAHAM

Carter Holt Harvey's second-quarter earnings - due on July 16 - will not match the first quarter.

The company's prediction on releasing a $51 million first-quarter net profit, that the second quarter would be similar, was now looking optimistic, analysts said.

ABN Amro last week cut its second-quarter forecast to $42 million and said earnings before interest and tax would be $68 million, 12 per cent lower than the first quarter.

Of the seven analysts who cover the stock, four would not give their forecasts to the Herald and only one said the second quarter, which ended on June 30, would match the first.

Analysts said predicting this quarter was a lottery because they did not know the one-time charge for the Kinleith strike that ended in the quarter.

Apart from a strong Australasian building market very little had gone the company's way in the quarter.

Still, most analysts said the outlook for global demand was more important than any one quarter's results and the other ongoing issue was the low return on capital from the New Zealand forest estate.

Carter Holt's best performing assets are wood processing and packaging businesses built up in Australia in the last decade. "The commodity companies are basically hostage to a recovery in demand and therefore economic growth," said David Stanley, head of research at Macquarie Equities.

Companies with a low cost structure would do relatively better when all rose on a rising global economy tide.

Commodity prices remain bleak. ABN Amro says in a report the largest radiata market, South Korea, is importing 20 per cent fewer logs because its economy contracted in the first quarter, reducing building activity.

Carter Holt has been doing research on the supply of softwood from Russia into the China market and an update on this great unknown is possible.

Global pulp inventories rose in the quarter, swinging the balance of power in that market in favour of buyers. ABN Amro was worried that producers would have to give back price gains achieved earlier in the year.

The building products businesses in Australia and New Zealand will again benefit from buoyant building sectors. However, demand will have been weaker from sawmillers exposed to export markets who were hurt by the high New Zealand dollar.

Macquarie's Stanley said that while the high kiwi hurt, the rate against the Australian dollar had not been as high as some had feared.

"I think the market is already factoring into a lot of stocks in the sector that earnings are off their worst but it is a long struggle upwards and there is some volatility."