Investors took a set against Fletcher Building Ltd yesterday in the wake of the New Zealand building products and services giant's 2007 results release and comments on the outlook.
Fletcher (FBU) said profit rose 28% thanks to a one-off insurance profit and a lower tax bill. Net profit rose to $NZ484 million in 2007 from $NZ379 million in 2006.
And CEO, Jonathon Ling, then painted a fairly dull outlook for 2008 with results not much better than the 2007 outcome for most of the company's businesses.
The one exception he said in Auckland, was the worldwide assets of Formica whose purchase is still being bedded down.
FBU shares were sold down 33c to $10.83, more than $1 under the all-time peak of $11.99 reached about three weeks ago in the wake of the completion of the huge Formica purchase.
Excluding the insurance gain and a NZ$70 million tax benefit, profit rose just 5% to NZ$399 million, which is around what had been expected by analysts, who had already factored in the impact of the insurance payment and lower tax.
Fletcher's result showed it had not been too badly hurt by the volatile and sluggish home building industries in New Zealand and in eastern Australia. It built more offices and commercial businesses to make up for lost business elsewhere.
NZ homeowners and builders have had to put up with a sharp rise in official interest rates because of a home buying boom, higher than wanted inflation, and strong rural incomes.
Fletcher yesterday forecast a decline in New Zealand building permits in the coming year, which helped soften the market's view of the coming 12 months for the company.
The company said NZ housing consents would be down 8% to 12%, which is fairly robust.
CEO Ling was confident in a statement, especially about the impact the Formica acquisition would have on the company.
"We've done a good job through both our product and geographical diversification (which) is now delivering solid results for a third year in a row in softening markets," Mr Ling said.
But he said at a press briefing that Fletcher's full-year operating profit rose about 3% because of price increases and control of costs.
Excluding Formica, "it's hard to see that growth rates would be any different (this year)", he was quoted by Bloomberg as saying.
And that seemed to upset the market
Australia makes up 31% of the company's earnings, and New Zealand 67% – a figure that will fall after Formica starts contributing.
US-based Formica was acquired on July 2 for $US700 million and made Fletcher the world leader in laminates.
Formica is expected to contribute a little over $NZ1 billion in annual revenue in 2008.
The company said it was expecting a gradual recovery in the Australian housing market, led by Queensland and Western Australia.
"A gradual recovery is expected in residential construction, while growth in non-residential building is expected to slow," the company said.
"Infrastructure markets are expected to vary in strength from state to state, with engineering construction continuing to grow strongly."
But obviously not quick enough for impatient investors.
