It’s no wonder NZ-based Fletcher Building Ltd stood out with a better than expected rise in profit yesterday: a report that saw the shares jump a solid 4.8% on a day when the market fell 2%.
There was every reason for investors to push the shares 24c higher to $5.24 and further away from their 52 week low of $4.66.
The company reported record earnings of $NZ467 million, much higher than the market forecast of $NZ431 million and well above the $NZ399 million estimate from Goldman Sachs JBWere.
Full year profit was down 4%, which wasn’t a bad performance given the spread of problems facing the company in its key markets.
And the company earned in the face of the terrible US building industry collapse and the sluggish Australian building sector, especially NSW; not to mention the slowdown in NZ housing this year.
The result went some way to reassuring the market that 2007’s buy of the Formica Corporation had not tossed the company into a black hole caused by the subprime crisis and housing slump.
Fletcher’s $700 million purchase of Cincinnati-based Formica 13 months ago was made to reduce its reliance on Australian and New Zealand housing.
Fletcher shares rose in NZ and rose in Australia, shaking off some of its unwanted mantle as the worst performing stock in the NZ main stockmarket index.
Fletcher rose 15c, or 2.3%, to NZ$6.58 at the 5 p.m. close of trading in Wellington, after earlier falling as low as NZ$6.35. The stock is the worst performer in the benchmark NZX 50 index, down 43% this year.
In May, the company warned that delays reorganizing Formica’s output, the slowing US building market and a high NZ and Australian dollar would reduce earnings by about NZ$50 million.
The company didn’t give earnings guidance for 2009, citing possible continued weakness in construction demand in its major markets in New Zealand, Australia and Europe.
"The company faces a mix of market conditions that make the outlook for the current year difficult to predict," the company said yesterday.
"In New Zealand, the outlook is for divergent conditions between the housing market and the infrastructure and commercial construction markets. Residential activity is expected to slow further throughout the year, with new housing consents forecast to decline by about 20 percent from the previous year.
"However, larger scale commercial building and infrastructure markets should remain at similar levels to those in 2008.
"In Australia, the national housing market is at a cyclical low, with New South Wales in a slump, offset in part by strength in Queensland and Western Australia.
"A gradual recovery is expected in New South Wales during late 2009. Infrastructure related markets are expected to vary markedly.
"Growth in non-residential building is expected to slow. Engineering construction activity is expected to continue to grow strongly in line with growth in infrastructure.
"In the US, it is not expected that there will be any improvement in general economic conditions during the first half of the current year, and any gains in the second half are likely to be marginal.
"Uncertainty about near-term trading conditions also exists in the company’s European markets. There is no indication of improvement in the main markets in Spain and the UK, and the outlook for Central and Northern Europe is also unclear at this stage.
"The outlook is somewhat stronger in the company’s Asian markets, with good growth prospects available for the Formica plants in China, Taiwan and Thailand.
"Given the degree of uncertainty in many of our markets, and as it is early in the financial year, it is not considered appropriate to provide any quantitative earnings guidance on our 2009 results at this stage," the company told the ASX.
Bloomberg says analysts are forecasting a 24% fall in net income to NZ$354 million for the 2009 financial year.
Fletcher gets about half its sales and about a quarter of pre-tax earnings from NZ, while Australia contributes about 30% of sales.
The CEO’s forecast that "A gradual recovery is expected in New South Wales during late 2009,” is one a lot of Australian companies are hoping eventuates, and are hoping for a rate cut next month to start the process.
The company said a final dividend of 24.5 NZ cents per share will be paid, taking the total dividend for the year to 48.5 NZ cents from, 45 cents per share and is the thirteenth consecutive dividend increase.
"Divisional results included increases in operating earnings by Building Products, Steel, Laminates & Panels and Infrastructure, more than offsetting the decrease in Distribution.
"Formica contributed to the full year result of Laminates & Panels for the first time, although the result was well below expectations," the company said in the profit discussion.
"Property related earnings, being principally the residential business, quarry end use activities, and surplus asset sales contributed $80 million to the Infrastructure trading result, up from $49 million in the prior year."
Chief Executive Officer, Jonathan Ling said “we have achieved record operating earnings this year notwithstanding the increasingly difficult markets.
"The performance of our New Zealand and Australian businesses, and Formica’s operations in Asia and Europe, has been very pleasing.
"While the delay in capturing the operational improvements identified prior to Formica’s acquisition has been disappointing, we are still confident that we will achieve a significantly improved operating performance in Formica’s US
