Fletcher Building reported NPAT of $144m, down 13% year on year and below guidance. The company also guided expectations down from $360m for the full year to $310 to $340, pre restructuring charges of $40-50m for Laminex.
The group has 44% of its FY12 Earnings before Interest and Tax (EBIT) exposed to the slowing Australian and NZ residential markets, therefore any cyclical assistance for earnings recovery appears poor in the near term. On top of this there continues to be significant issues with regards to the rebuilding of Christchurch. Insurance remains an issue in the earthquake devastated City, either due to the inability to obtain insurance pay-outs or insufficient insurance to cover costs of rebuilding.
Further earthquake activity remains a significant risk to the rebuild efforts and the 6.3 magnitude quake in December 2011 has further pushed back rebuild efforts. Expert opinion suggests there is an 82% probability of a 5.0 or greater shock in 2012. An earthquake of this magnitude will further delay activity for up to 12 months.
While 2012 earnings estimates have been downgraded, we believe the market has been slow to react to downgrading 2013 estimates and see this as a risk going forward.
With uncertainty due to the housing cycle and the Christchurch rebuild efforts, Government infrastructure project being delayed or cancelled and further downgrades likely, we remain cautious on the outlook for the next 12 months.