A deceleration in New Zealand profits for Fletcher Building is expected to deliver a flat first-half trading result this week, but with an improving outlook for the rest of the year.
Forsyth Barr broker Suzanne Kinnaird said while profit growth in New Zealand operations had been positive, it was expected to have decelerated during the six-month trading period, with Australian operations ‘‘stabilising'', but rest-of-world operations ‘‘deteriorating''.
‘‘Our modelling once again implies a stronger second half, consistent with [Fletcher] management's recent messaging,'' she said.
Fletcher is scheduled to report its half-year to December on Wednesday.
Overall sales revenue is estimated by the brokerage to rise 4%, from $4.32billion last year to $4.49billion, with earnings before interest and tax (ebit) up 2% to $295million and underlying after-tax profit up 1% to $172million.
Mrs Kinnaird said there were several key issues at present: slowing momentum in New Zealand, albeit temporary; the earnings trough in Australia, which was now behind Fletcher; and more restructuring ahead.
‘‘The timing of [NZ] construction revenue recognition and lower residential earnings will exacerbate the slowdown in residential related activity, as reflected in consenting nine to 15 months ago,'' she said.
‘‘The domestic market is above mid-cycle and is supported by the Christchurch rebuild and higher levels of house building,'' she said.
While there were restructuring costs in Australia, Mrs Kinnaird said she expected improved ebit, which would be cost driven and reflect a number of restructuring initiatives.
While there would be a ‘‘drag'' from restructuring costs in Australia and the UK during the trading period, she expected a ‘‘partial pay-back'' would emerge in the second half of the year.
‘‘In Australia the commercial and infrastructure sectors are challenged by depressed demand, though we think Fletcher is through the trough in earnings,'' she said.
She said there were increasing new opportunities for Fletcher, noting its increasing land bank for future New Zealand residential opportunities, and it had also recently acquired roading company Higgins.
At a glance
• Estimated divisional sales growthBuilding products down 4% to $1.03billion.
• International up 11% to $1.1billion.
• Distribution 0% at $1.53billion.
• Construction up 8% to $685million.
• Housing and development up 40% to $141million.
• Estimated geographical sales New Zealand up 8% to $2.3billion.
• Australia down 5% to $A1.39billion.
• Rest of world down 8% to $US439million.
Source: Forsyth Barr
