* Fletcher pessimistic on Australia market through 2014
* Shares fall nearly 6 pct on outlook, H1 profits
* Cost-cutting to boost earnings by NZ$70 mln per year
WELLINGTON, Feb 20 Fletcher Building,
Australasia's biggest maker of building products, issued a grim
outlook for the Australian construction sector and reported
weaker half-year profits than analysts had expected, sending its
shares to a one-month low.
The news underscores how Fletcher continues to struggle in
Australia, which accounts for almost half of its revenue,
because of a moribund housing market that has hurt demand for
its building products including laminates and insulation.
Net profit edged up 1 percent to NZ$146 million ($123.60
million) in its financial first half that ended Dec. 31,
Fletcher said on Wednesday, below the average forecast for
NZ$151.1 million in a Reuters poll of four analysts.
In the Australian market, Fletcher said its adjusted
operating earnings before interest and tax (EBIT) had fallen 12
percent from a year earlier to NZ$106 million.
"In Australia, the downturn in residential consents and
continued weak approval levels in commercial construction are
likely to mean that volumes remain weak," Chief Executive
Officer Mark Adamson told reporters.
"We're rapidly developing the view that it is unlikely there
will be an improvement in the first six months of the next
fiscal year," he said.
Shares of the New Zealand company fell 6 percent to NZ$8.75
after the results announcement.
"They're not seeing any market improvement coming through
the Australian market in the near term," said Rickey Ward, head
of equities at Tyndall Investment Management, adding that this
had taken investors by surprise.
Fletcher earns 47 percent of its revenue in Australia, 41
percent in New Zealand, and 12 percent from Asia, Europe and the
While the Australian market would continue to provide
headwinds, Fletcher reaffirmed its EBIT forecast of NZ$560
million to NZ$610 million in the financial year ending in June.
Cost-cutting measures will help lift earnings down the line,
Adamson said, adding that its new programme would not be
slash-and-burn or see large-scale plant closures, but would see
hundreds of jobs lost over time in New Zealand and Australia.
"We talked with the analyst community about a number around
the NZ$70 million mark in terms of long-term sustainable
improvement in earnings," he said, referring to the effect of
cost-cutting. "We expect ... to get some improvement in 2014,
but principally in 2015/16."
A pick-up in reconstruction activity in the
earthquake-devastated Canterbury region boosted the company's
domestic operating earnings by roughly 30 percent to NZ$124
million in the July-December half.
Fletcher is spearheading reconstruction in Christchurch and
the surrounding region after two devastating earthquakes in 2010
Fletcher reported an interim dividend of 17 cents per share,
unchanged from a year earlier.
(Reporting by Naomi Tajitsu; Editing by Chris Gallagher)