Fletcher Building shares plunged yesterday after the company slashed its first-half earnings outlook by 10% to just under $150 million in the face of declining residential and commercial work and after last weekend's 5.5 earthquake in Christchurch, which might further delay rebuilding.
Residential consents were up in New Zealand for the quarter to September, but building activity was down; as was commercial activity.
Australia has seen a significant downturn in residential consents and continued weak approval levels in commercial construction, affecting the earnings of businesses in those sectors.
Following the 10% earnings downgrade and lacklustre outlook, Fletcher shares slumped to a more than two-year low, steadily trading down 12.4% to close at $6.92, with 7.9 million shares changing hands, wiping more than $597 million off market capitalisation.
Fletcher expects its 2012 half-year result to be down around 10% from last year's $166 million. But for the full 2012 financial year, after-tax profit is expected to be similar to the $359 million last financial year.
Craigs Investment Partners broker Peter McIntyre said consents were at a 30-year low and Fletcher was right in releasing the update yesterday following the weekend's latest quake, given it is the lead contractor operating in Christchurch.
"The revenue for Fletcher is going to come, but its delayed again from [part of] 2012 through to 2013. Construction is still operating in very difficult conditions," he said.
In mid-August, Fletcher booked more than $100 million in one-off costs for its full-year to June result, but managed to beat analysts' expectations to deliver an improved after-tax profit of $359 million. After-tax profit rose 19.2% from $301 million last year to $359 million.
Turnover rose 9% at $7.416 billion, while it had to book $108 million (before tax) in one-off unusual costs.
Fletcher's general manager for investor relations, Philip King, said that in New Zealand, there was no improvement in trading conditions expected during the first half of the 2012 financial year, and "the timing of a sustained and meaningful recovery beyond that is uncertain".
"In Australia, there is a clear risk that residential and commercial construction activity will remain around the current low level for the balance of the 2012 financial year," Mr King said in a statement to markets yesterday.
Markets in North America and Europe were expected to remain flat, while Asia is expected to continue its growth trend.
Mr King said the pace of reconstruction efforts in Canterbury had been expected to accelerate in the second half of the 2012 financial year, assuming a reduction in seismic activity, but last weekend's magnitude 5.5 earthquake has the Government believing rebuilding efforts could be further delayed.
"New Zealand Treasury expectations are that the rebuilding in Canterbury will not begin in earnest until the second half of the 2012 calendar year," Mr King said.
The Formica division's earnings had grown in each of its three regions - in North America, Europe and Asia - and there was growth in Asia. Cost reduction initiatives in Europe and North America were underpinning generally flat market conditions there, he said.
