UPDATE: Fletcher Building earnings driven by NZ growth; sells Rocla Quarry

UPDATED: Fletcher Building [NZX: FBU] met its guidance with a 5% gain in full-year earnings before one-time charges, as strong growth in its biggest market of New Zealand offset a weaker performance in Australia and the rest of the world. The shares gained 1.6%.

Operating earnings excluding one-time items rose 5% to $653 million in the year ended June 30, in line with company guidance and just above the $651.9 million forecast by brokerage Forsyth Barr. Net profit fell 20% to $270 million after $150 million of one-time charges for plant closures and impairments.

Shares of Fletcher, which has achieved uneven earnings over the past five years, have missed a 59% rally in the S&P/NZX All Index in that period, gaining just 3.2%. Chief executive officer Mark Adamson, who started in October 2012, has embarked on a transformation strategy for the building materials and construction company, overhauling his executive team and selling under-performing businesses.

Separately today, Fletcher said it has conditionally agreed to sell the operations of Rocla Quarry Products to Hanson Construction Materials in a deal valued at about $A203 million. The company expects a pretax gain of about $A100 million on the sale, which requires Australian regulatory approval.

Six of Fletcher's seven divisions lifted operating earnings in the latest year. It gave no specific guidance for 2016.

"The outlook is one of the key things," said Michael Sherrock, a portfolio manager at Nikko Asset Management. "New Zealand is continuing along as it has. In Australia there's a little bit of weakness, in Europe there's mixed conditions with a weak outlook, North America is going reasonably well and Asia is a little bit volatile."

Mr Sherrock made the comments ahead of the company's conference call for analysts and investors and said he wanted to hear how the company saw margins holding up and its ability to maintain price increases for products such as concrete and plasterboard. He expects Fletcher to give guidance at its annual shareholders' meeting.

The company will pay a final dividend of 19c a share, making 37c for the year, up from 36c in 2014. Fletcher shares rose 12c to $7.70 and are rated a 'buy' based on the consensus of 10 analysts polled by Reuters.

Fletcher's $150 million of one-time charges in the latest year included a $78 million impairment of goodwill relating to its Forman, Stramit, Tasman Insulation and Humes businesses. There were site closure costs of $65 million related to the Crane Copper Tube business and Iplex Australia.

Operating earnings before one-time items in New Zealand rose 24% in the latest year, accounting for 69% of the group total, while in Australia earnings fell 30% and for the rest of the world by 7%.

The heavy building products, which includes New Zealand concrete pipes, cement and quarry products, Australian concrete and quarry products, plastic pipes and steel and is Fletcher's biggest division, recorded a 6% decline in gross revenue to $2.1 billion. Operating earnings dropped 17% to $177 million, as weaker trading in Australia offset gains in New Zealand. An $8 million loss from plastic pipes reflected a drop in demand from the coal seam gas sector and increased competition in Australia.

Light building products, which takes in New Zealand and Australian building materials and roofing tiles, had little changed gross revenue at $1.3 billion, while operating earnings before one-time items rose 2% to $118 million. Laminates and panels increased gross revenue by 6% to $1.8 billion and operating earnings rose 4% to $129 million, reflecting growth from its Laminex businesses and a weaker performance from Formica.

New Zealand distribution revenue rose 6% to $1.76 billion and earnings gained 29% to $108 million, with most of the growth coming from building supplies, which includes the PlaceMakers chain. In Australia, distribution revenue fell 11% to $826 million and operating earnings before one-time items rose 6% to $18 million.

Construction revenue jumped 21% to $1.58 billion and earnings before items rose 32% to $140 million.

"The New Zealand construction market was strong across the residential, commercial and infrastructure sectors and we experienced strong volume growth in most of our businesses," Mr Adamson said. "Conditions in Australia were much more mixed, with a buoyant residential construction market but weak conditions in the mining, resources and infrastructure sectors. Operating earnings beyond New Zealand and Australia were lower, with continued weak conditions in Europe and a more difficult trading environment experienced in China but a strong performance from Formica in North America."

Fletcher said its gearing fell to 31.8% as at June 30, from 32.3% a year earlier. Of total available funding of $2.48 billion, about $614 million was undrawn and Fletcher also had $228 million of cash on hand.

(BusinessDesk)