New Zealand's third biggest company, Fletcher Building Ltd, indicated a huge drop in the half year's profit and predicted its earnings down 5% in four out of its five divisions as its half year profit dropped 27 per cent from $235 million to $172 million.
Fletcher is a global building materials manufacturer and distributor dealing in concrete, steel, fibreglass insulation, aluminium extrusion, roofing, access flooring systems, sinkware, laminates, panels, residential and commercial construction and it dominates the New Zealand market and competes in Australia with various companies like CSR Ltd. and Boral Ltd.
Rob Mercer, Head of research at Forsyth Barr, had projected $161 million net profit after tax and while praising Fletcher's performance, he said, "It's a pretty solid result in the current trading period. It's not a long way from where a whole lot of us are already. Housing activity is an an all-time low in New Zealand, Australia and the United States, although there's a pipeline of commitment on the government front which is needed to cushion what would otherwise be a much larger downturn."
Formica, which Fletcher bought for nearly $1 billion, had very poor operating earnings of $2.9 million which included $3.2 million restructuring costs. The work back log of Fletcher Construction was $1.3 billion at the end of last year and is 1.2 billion now.
The drop in earnings was in the areas: Building products' from $86 million to $67 million; distribution (which includes 62 PlaceMakers' stores) from $45 million to $23 million; infrastructure (concrete, construction and property) from $146 million to $127 million; property $30 million to $10 million; and laminates and panels (Laminex and Formica) $128 million to $80 million.
Good performance was only noticed in the steel sector where earnings rose from $59 million to $108 million and indicative of higher prices of steel and increase in volumes.
Though Jonathan Ling, Chief Executive, Fletcher Building, is optimistic about large infrastructure works in New Zealand, Resource Management Act reform and Australian Prime Minister Kevin Rudd's $53 billion economic stimulus and rescue plan for schools, roads and housing but he was cautious and said , "The trading environment in 2009 and 2010 will remain pretty tough."
Last year about 1700 people were laid off by Fletcher 700 in New Zealand, 200 at Laminex in Australia and the rest at Formica in North America and Europe. Further layoffs are planned, shifts and hours of operation have been cut, frame and truss operations have been rationalised and the ready-mix cement truck fleet has been reduced.