KEY POINTS:
New Zealand's third-biggest company, Fletcher Building, has downgraded its full-year earnings forecast 5 per cent after declaring a big half-year profit slide yesterday.
Fletcher had forecast its after-tax profit for the June year to be $289 million-$354 million, the consensus of analysts' predictions. But yesterday, that top end was revised down $18 million to $336 million as the business cited the global recession, the commercial building slowdown and sluggish housing markets.
Fletcher also qualified that narrowed forecast by saying its ability to achieve the goal assumed "no significant further deterioration in trading conditions".
Half-year profit dropped 27 per cent from $235 million to $172 million.
Instead of talking about new acquisitions as in previous years, chief executive Jonathan Ling spoke of Fletcher's long history, its centenary this year and of the business having weathered the Great Depression and two world wars.
About 1700 people have been laid off from Fletcher businesses in the past year: 700 here, 200 at Laminex in Australia and the rest at Formica in North America and Europe, Ling announced.
Further layoffs are planned, plants have cut shifts and hours of operation, frame and truss operations have been rationalised and the ready-mix cement truck fleet has been cut.
Formica, which Fletcher bought for almost $1 billion, had pitiful operating earnings of $2.9 million and Ling refused to project its full-year result. Formica's interim result included $3.2 million restructuring costs.
Victoria's bushfires could provide some opportunities and Ling referred to the dozens of schools and hundreds of houses lost: "There will be a focus on rebuilding parts of Victoria quite quickly and yes, we will probably benefit."
Fletcher Construction's work backlog stood at $1.3 billion towards the end of last year and was now $1.2 billion, he said.
Ling was optimistic about large infrastructure works in New Zealand, Resource Management Act reform and Australian Prime Minister Kevin Rudd's A$42 billion ($53 billion) economic stimulus and rescue plan for schools, roads and housing.
But he was bearish about the outlook: "The trading environment in 2009 and 2010 will remain pretty tough."
Fletcher - a global building materials manufacturer and distributor with operations in concrete, steel, fibreglass insulation, aluminium extrusion, roofing, access flooring systems, sinkware, laminates, panels, residential and commercial construction - suffered earnings drops in four of its five divisions.
Building products' operating earnings fell from $86 million to $67 million; distribution (which includes 62 PlaceMakers' stores) dropped from $45 million to $23 million; infrastructure (concrete, construction and property) fell from $146 million to $127 million; property $30 million to $10 million; and laminates and panels (Laminex and Formica) $128 million to $80 million.
Only steel bucked the trend, rising from $59 million to $108 million, reflecting higher steel prices and volumes.
Rob Mercer, head of research at Forsyth Barr, had projected $161 million net profit after tax and praised Fletcher's performance. "It's a pretty solid result in the current trading period," he said, picking improvement in activity next year and saying it was no surprise that the full-year result had been narrowed.
"It's not a long way from where a whole lot of us are already. Housing activity is an an all-time low in New Zealand, Australia and the United States, although there's a pipeline of commitment on the government front which is needed to cushion what would otherwise be a much larger downturn," Mercer said.
Fletcher Building shares closed up 4c yesterday at $5.54.
Fletcher has established a centenary website www.fletchersince1909.com for past and present employees.
