Fletcher Building has delivered an increased after-tax profit of 8% to $166 million for its half-year to December and boosted shareholder dividends, but the good news was tempered by news that the construction company's expected returns from rebuilding Christchurch might occur next year.
Fletcher's increased profit, which was below broking houses Forsyth Barr's and Craigs Investment Partners' expectations of $185 million and $170 million respectively, was largely on the back of strong performances in several Australian divisions; Laminates and Panels and Steel divisions.
Fletcher shares initially dropped about 1% to trade around $8.12 after the announcement, but recovered to $8.24.
Fletcher chief executive Jonathan Ling said the result was "strong", considering the mixed market conditions.
"This was a result of increased volumes in many of the group's Australian businesses, most notably in the Laminates and Panels and Steel products business, although [Australian] insulation revenues were down significantly as a result of the withdrawal of the Australian government insulation subsidy scheme," Mr Ling said.
He noted inventory levels were expanded during the six months to ensure the Fletcher group was "well positioned to respond to an upturn in activity levels".
Mr Ling said Christchurch's rebuilding work, in which Fletcher has a share of $190 million in infrastructure contracts, "would accelerate" during the second half of 2011, while flood devastation in Queensland and Victoria would "likely" have a short-term negative impact, but have a more positive contribution in 2012.
Craigs Investment partners broker Chris Timms and Forsyth Barr broker Tony Conroy both said investors and analysts alike were picking that "positive bottom-line contributions" from rebuilding work in both Christchurch and Australia would now be "pushed out" from second-half 2011 into 2012 results.
Mr Timms said this expectation was reflected by yesterday's share price softening and would cause further share price weakness during the year.
Mr Conroy said while the half-year result was below his more "aggressive target" of $185 million, the result was still a good achievement.
"We're less concerned with it coming in below expectations and are encouraged that its full-year 2011 profit guidance is to achieve the current consensus forecast of $354 million," Mr Conroy said.
In the short term there are several challenges for Fletcher with trading conditions relatively subdued.
"The timing of increased activity around the Christchurch earthquake and Queensland floods is being pushed further out into late 2012, rather than there being any immediate benefit," he said.
Mr Timms said it was notable that the Formica purchase; which he described as having become a "millstone acquisition" for Fletcher, was 130% ahead on earnings before interest and tax at $US23 million, largely on the back of growth in Asia and in-house cost reduction programmes.
Following the acquisition of Formica in May 2007, Fletcher was forecasting earnings before interest, tax, depreciation and amortisation of $US94 million.
For the half-year to December 2008, Formica delivered $US7 million, followed a year later for the corresponding period ebitda of $US17 million.
"Even if they doubled that again, it's still a long way off [initial] expectations," Mr Timms said.
The dividend increase, from 14c per share to 16c, was above expectations of both brokerages.
Mr Timms said there was "commentary" Fletcher, highly regarded by shareholders for its stable dividend income, would retain its earnings to pump back into company growth, but Mr Ling had decided to stay with the "tried and true" policy of delivering to shareholders.
Both brokers are confident Fletcher looks set to complete its hostile $A800 million ($NZ1.05 billion) takeover bid for Australian rival Crane Group.
Crane's board has recommended shareholders accept the second, revised, Fletcher bid for $A10.07 per share, comprised of Fletcher scrip and cash.
