Fletcher's NZ outlook promising

Fletcher Building has booked an increased half-year after-tax profit of $154 million - largely from New Zealand operations - despite being undermined by foreign currency transactions amounting to $131 million.

For its half-year to December, Canterbury's lead construction contractor said total revenue for the group decreased 2% to $4.273 billion and its operating earnings (earnings before interest and tax/Ebit) of $281 million were $19 million, or 7%, higher than a year ago. Fletcher's after-tax profit was up from $146 million a year ago to $154 million.

The result was below or softer than analyst expectations. Fletcher shares were down 3.5% at $9.38, following the announcement, which included a dividend increase from 17c to 18c.

Australian operations are the problem child. New Zealand residential in general and Canterbury's rebuild were the domestic beacons.

Fletcher Building chief executive Mark Adamson said the improved result was driven by more increased activity levels across most New Zealand sectors and improved conditions in the US, as well as early benefits from company restructuring.

''In New Zealand, where residential housing consents have recovered to levels last seen in 2008, the continued improvement in house-building activity is expected to underpin trading results for the rest of the year, with additional activity driven by rebuilding work in Canterbury,'' he said in a statement yesterday.

Adjusting for the adverse effects of foreign currency translation, operating earnings would have been up $32 million or 13% in the period, while similarly for total revenue, again adjusting for foreign exchange effects, revenue would have been $99 million higher, up 2%.

Craigs Investment Partners broker Peter McIntyre said the profit was ''below expectations'', but full-year guidance for Ebit, of $610 million to $650 million, was unchanged.

''In New Zealand, housing, Christchurch's rebuild, commercial and civil construction are all expected improve during the second-half trading.

''Housing improvement is expected in Australia, but commercial construction and mining investment is expected to be subdued,'' Mr McIntyre said.

Forsyth Barr broker Andrew Rooney said the result was ''softer'' than expected, and while Ebit overall was up 7% at $281 million on a year ago, ''Australia remains a key challenge for management''.

''While conditions are buoyant in New Zealand and momentum continues to build, the company refers to an uncertain outlook in Australia,'' Mr Rooney said.

He said the full-year Ebit result was now under pressure, and while he was ''bullish'' on New Zealand work, the Australian first-half performance was a concern, particularly as profit margins declined.

Mr Adamson said sales volumes were mixed across most of Fletcher's Australian businesses.

- simon.hartley@odt.co.nz


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