Fletcher result a tale of two markets
Fletcher Building's earnings for the first half of its financial year were in line with expectations and highlighted the different market conditions on either side of the Tasman, share broker Forsyth Barr says.
Improved trading conditions in New Zealand helped the trans-Tasman building materials group post marginally higher net earnings for the six months to December of $146 million, up from $144m at the same time the previous year.
Forsyth Barr said net earnings came in above its estimate of $136m, albeit reflecting better-than-expected tax and interest costs in the period.
However, underlying earnings before tax and interest (Ebit) of $262m, up 2 per cent from $256m, were in line with expectations, highlighting an improving backdrop in New Zealand and weak market conditions in Australia.
The improved pace of New Zealand residential construction and the Canterbury rebuild drove a 31 per cent increase in local operating earnings, chief executive Mark Adamson said.
"By contrast, in Australia, weak market conditions have continued in the residential and commercial construction sectors," he said.
"Most of our Australian businesses experienced volume declines and as a result Australian operating earnings declined by 12 per cent."
Forsyth Barr said Australian earnings and the group's Crane plastic piping, plumbing and electrical supplies and copper tube division were key negatives in the result.
Crane saw operating earnings drop 26 per cent to $39m.
Cost savings from Fletcher Building's business transformation programme, dubbed 'FB Unite', had yet to be quantified, Forsyth Barr said.
"The in-line result and lack of quantitative commentary around cost saving opportunities may dampen near term investor enthusiasm for the recovery story," the brokerage said.
In his results briefing Adamson updated the market on the FB Unite programme, which was signed off by the board yesterday.
In particular, he discussed the shared services, procurement and property projects which aim to bring the group's disparate business units closer together and cut costs by consolidating back-office functions, combining buying power and rationalising work sites.
Morningstar analyst Nathan Zaia said the FB Unite project was a good initiative.
"This is basic stuff that you would hope most businesses are employing already."