Fletcher Building is picked to announce a "precipitous" decline in profits in its full-year result today, scoured out by abnormal writedowns.
But analysts are picking an imminent turn in the flagging building cycle.
When abnormal accounting costs of about $345 million were deducted from a forecast profit by brokers of $279.7 million, the bottom line was expected to produce a $64.3 million loss, ABN Amro Craigs broker Peter McIntyre said.
Among the abnormal costs dragging Fletcher from the black into the red was $84 million in restructuring costs, US tax adjustments of $US50 million ($NZ74.2 million) and $150 million in a goodwill writedown on its US-acquisition Formica, which cost Fletcher $960 million. Fletcher produced a $406 million profit for the same period last year.
Mr McIntyre said while earnings this financial year, and the next, were likely to fall before a recovery in 2011, there had been recent increases in existing home and section sales and home loan approvals.
"Our forecasts assume this market is likely to have bottomed, and that the substantial stimulus provided by historically low mortgage rates and strong net migration flows will drive a recovery," Mr McIntyre said.
Forsyth Barr has lowered its Fletcher forecasts, with full-year earnings before interest and tax down 3.9% to $531.6 million for 2009.
It is predicting a 5.7% decline, to $510.1 million, for 2010.
However, Forsyth Barr broker Peter Young said Fletcher's earnings downgrade cycle was almost complete and residential building activity was expected to improve.
"While we are making another downgrade to earnings this merely reflects the weak current trading conditions and doesn't alter our view that we are at the tail end of the earnings downgrade phase," Mr Young said yesterday.
The turning point in the residential building cycle would become more evident within the next six months, driven by the low interest rate environment and rising net migration; while earnings from non-residential building activity would be "sustainable over the next few years".
"The pipeline for major infrastructure projects remains a key medium-term positive.
"However, a turnaround in small and private sector-funded commercial construction projects is unlikely to occur until the full-year [result] of 2011," Mr Young said.
