Lower-end profit expected

Peter McIntyre.
Peter McIntyre.
Analysts are picking Fletcher Building - the lead contractor of Christchurch's multibillion-dollar rebuilding - will deliver after-tax profit at the lower end of its forecast range of $310 million to $340 million range tomorrow.

Estimates of the Christchurch rebuilding work are being pushed out further, while softening construction conditions are being reported in Australia, where Fletcher was expected to be making larger gains.

Craigs Investment Partners broker Peter McIntyre said while Fletcher stood by its earlier guidance, the market was expecting it to report earnings at the bottom end of this range, and a 16% lift in earnings in 2013.

Fletcher was trading just above its three-year lows and would look reasonable value if these expectations were met, he said.

"Conversely, the stock will be punished if it disappoints the market, having just reiterated guidance," Mr McIntyre said.

Key negative risks for Fletcher included cost escalation, a prolonged downturn in New Zealand and Australian housing markets, weaker commercial and infrastructure demand, and pricing.

However, there were positives in more price increases in steel, faster-than-expected restructuring of the Formica division and more product demand from recent earthquakes.

Forsyth Barr is forecasting underlying net profit of $320 million - a drop of 11% on the previous year.

Ongoing weakness in New Zealand and a slowdown in Australia had negatively affected the company's near-term earnings, Forsyth Barr's Rob Mercer said.

The suppressed levels of activity, reflected in 20 consecutive months of decline in residential consent data, highlighted a challenging environment in Australia, he said.

However, a stimulatory backdrop and continued population growth should help in at least a modest recovery in that market this financial year.

"We expect the infrastructure sector will remain strong."

Domestic conditions for Fletcher were tough but improving, Mr Mercer said, citing the rebuilding in Christchurch and stronger Auckland new-dwellings data.

"This should support a better second half, with further improvement into 2013."

More price competition in steel, and subdued volumes, were pressuring margins and Mr Mercer questioned Fletcher's longer-term participation and commitment to this sector, in light of the negative outlook.

Restructuring-related costs of up to $50 million were expected from Laminex for the second half, in addition to the $21 million incurred in the first half, Mr Mercer said.

"Further restructuring provisioning is likely in the Australian and New Zealand insulation businesses, which have been subject to a strategic review." - Additional reporting: The New Zealand Herald

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