Fletcher Building's shares were surprisingly punished by investors yesterday despite the multi-division global company booking increased revenue and after-tax profits of 19% and 22% respectively for the half-year to December, in the face of already challenging markets.
Fletcher Building shares opened at $9.15 and gathered to $9.30 following the company's half-year report, released at 9am yesterday, but steadily traded down to lose about 3% overall and close at a 16-month low of $8.87 - wiping more than $150 million off its $5.07 billion market capitalisation.
Operating revenue was up 19% from $2.98 billion to $3.54 billion, while after-tax profit for the sixmonth period was up 22% from $193 million to $235 million.
Chief executive Jonathan Ling said sales had increased by 19%, or $567 million, to $3.54 billion, largely thanks to the acquisition of Formica Corp in the US, which contributed $537 million to sales.
Mr Ling said Fletcher's five divisions had all booked increased revenues and profits, and he reiterated earlier forecasts that the company expected to deliver after-tax profits of up to $460 million for the full year.
ABN Amro Craigs broker Peter McIntyre said the result, especially the Laminates and Panels division's boost from Formica, was well above expectations.
‘‘[However], even good results are being sold down as everyone is looking for future guidance,'' Mr McIntyre said, referring to investors selling down Fletcher yesterday.
He was surprised at the market reaction, wiping $150 million off Fletcher's market capitalisation, saying investors ‘‘should have garnered some confidence out of that [good] result''.
Mr Ling said provided there was no significant change in economic conditions, Fletcher's outlook was for a satisfactory financial performance for the full year, while noting US housing was experiencing a downturn, Formica was trading ‘‘in a difficult market'' and higher interest rates in New Zealand and Australia would impact on residential housing work.
While there was an expected downturn in residential, nonresidential and commercial building work, different countries were expected to balance declines elsewhere. Mr
Ling highlighted the record backlog of more than $1 billion of construction orders in New Zealand.
‘‘The board remains comfortable with the consensus of analysts' forecast for net earnings to be in the range of $450 million to $460 million for the year,'' Mr Ling said.
The 24c per share dividend is the company's 12th consecutive increase and 2c more than the same period last year.
ABN maintained a ‘‘buy'' recommendation on the stock, and a 12-month share price target of $13.50, which was recently reduced from $14.25 to take into account forecast housing downturn and US subprime mortgage issues.
Mr Ling said acquisitions were still being considered by Fletcher, and noted it had retained access to $500 million in loans. While it would complete its Formica restructuring before considering an acquisition of the same proportions, medium-sized ‘‘bolt-on'' businesses could be purchased during the next half of the year.
All Fletcher divisions booked increased earnings for the period. Laminates, which acquired Formica in the US last July, booked a 40% increase in operating earnings from $65 million to $91 million, with market conditions in New Zealand and Australia remaining positive, but there was pressure on retaining margins in some parts of the market.
Building Products was up 3% from $72 million to $74 million, with plasterboard, insulation and metal roof tile sales generally holding or increasing volumes and going against the trend of weaker residential housing markets in New Zealand and Australia.
Distribution earnings were up 8% at $42 million for the period but trading margins were down slightly on the corresponding period last year because of competitive pressure in NZ.
Steel's operating earnings and sales were both up slightly, at $47 million and $611 million respectively. Strong global demand for steel products and increasing freight and raw material costs were already starting to push prices higher Mr Ling said.
Infrastructure's earnings were up 18.8% from $122 million to $145 million, including a $16 million profit from land appreciation and from the sale of Fletcher's Stresscrete company.
‘‘Despite softer market conditions in New Zealand and New South Wales, the trading result was 10% above that for the previous December half-year,' Mr Ling said.
