Fletcher Building is this week expected to post a flat first-half after-tax profit of between $133 million and $141 million with little in the way of surprises, but the result might reflect the bottom of the recessionary trough and recovery ahead.
Forsyth Barr's forecast reported profit is 23% down on the corresponding period last year at $133 million, while Craigs Investment Partners is 17.6% down at $141.6 million.
A combination of indicators pointing to a recovery of the New Zealand residential market include historically low mortgage rates and strong net migration in-flows.
Fletcher is scheduled to report its half-year to December result on Wednesday this week.
Craigs Investment Partners broker Peter McIntyre said trading in the the first half of 2010 was likely to mark the trough of Fletcher's earnings cycle and he did not expect any surprises in Wednesday's announcement.
"Leading indicators continue to point to a looming recovery in New Zealand residential markets.
"Given the scale of the collapse in activity which occurred in the second half of 2009, this implies that growth in the second half of 2010, relative to the previous corresponding period, of some 25%," Mr McIntyre said.
Forsyth Barr broker Tony Conroy was forecasting both earnings before interest and tax and after-tax profit down 23%, at respectively $234 million and $133 million.
"The Australian operations are expected to perform relatively better than the New Zealand operations, particularly Laminex and the insulation businesses," Mr Conroy said.
However, the key risk facing Fletcher's was the sharp deterioration in earnings, being exposed to the New Zealand commercial building sector, namely in cement, steel and aggregates.
"We're forecasting infrastructure earnings before interest and tax to decline by 17.5% to $85 million.
"However, the risk is that earnings may have fallen even further and our full-year 2010 forecast of earnings before tax and interest of $161 million may also be too high," Mr Conroy cautioned in his analysis.
On a division-by-division basis, Mr McIntyre expected a "mixed bag" of results and forecast its building products would show 11% growth, given the "strong uptake" of government stimulus packages.
"In particular in Australia, but also on a smaller scale in New Zealand, which is driving strong sales growth and high production efficiencies in the insulation business," he said.
All other divisions; distribution, infrastructure, laminates & panels and steel, were forecast to be down.
Mr McIntyre noted the steel division, which is forecast to have the least growth at -26%, will likely report a substantial decline in earnings.
A year ago, commodity prices were "exceptionally buoyant", but they had since declined, as had volumes into construction markets, but steel would have some benefits due from the recovery in the residential market this year, Mr McIntyre said.
"While challenges clearly remain with regard to the non-residential markets, signs of a relatively robust recovery emerging in the residential market should underpin our forecasts and sentiment towards the stock," Mr McIntyre said.
