* Cut in earnings outlook to NZ$610-650 mln vs NS$720-740
* Shares plunge 12 pct to 8-month low of NZ$8
* Project delays prove costly due to labour shortage
* Bricklayers to carpenters commanding high wages
(Recasts on labour shortage, adds shares, CEO quotes, industry
sourcing and analyst quotes)
By Tom Westbrook
WELLINGTON, March 20 New Zealand's biggest
listed construction company, Fletcher Building Ltd, cut
its earnings guidance on Monday as a nationwide worker shortage
leads to project delays and increasing wage bills.
The downgrade, which sent shares in the company down 12
percent to an eight-month low of NZ$8 ($5.63), comes amid a boom
in construction fired by the twin-engines of population growth
and post-earthquake rebuilding that are now stretching the
Fletcher chief executive Mark Adamson said on Monday the
company had to pay dearly for the extra manpower to bring two
delayed projects back on track.
"It's the tightness of the market, the availability of
subcontractors and subcontractors obviously pricing to economics
101," Fletcher chief executive Mark Adamson said on a conference
call with investors.
"Where the program slips and you get off the original
project terms, that is when things start to go wrong as they
have in this case."
Fletcher shares suffered their worst intraday drop in more
than five years, and dragged the benchmark S&P/NZX 50 index
1.2 percent lower.
While the earnings shock appears to contrast with the boom
in construction conditions in New Zealand, it is not unusual for
fast-moving labour markets to turn once profitable contracts
"It's not unexpected, but there's a surprise on how far
reaching it's become," said Jenny Parker, from Auckland-based
agency Building Recruitment
Bricklayers, scaffolders, plumbers, electricians and
carpenters, as well as professionals such as engineers can name
their price, especially in Auckland where Fletcher is heavily
exposed, Parker told Reuters.
"Workers are finding it a very buoyant market for themselves
... they’ll perhaps pit companies against each other to go for a
kind of bidding war, to see who can afford them, so it's driving
all the salaries up," she said.
Fletcher said it expects full-year operating earnings of
NZ$610 million to NZ$650 million ($428 million to $456 million),
compared with a NZ$720 million to NZ$740 million range forecast
a month ago.
The company had already flagged losses at one unnamed major
construction project at its half-year results announcement in
February, when it reported flat profit growth.
On Monday it said those losses widened as it rushed to pay
as many as 300 extra workers to make up lost time on the
Royal Bank of Canada analyst Andrew Scott said the company's
previously strong operational record led it to trade at a
premium to Australian peers.
"We think this must now come under question with the
appropriate multiple for the business uncertain," Scott said in
a research note.
($1 = 1.4211 New Zealand dollars)
(Reporting by Tom Westbrook; Editing by Larry King and