Fletcher Building’s Stock Tumbles On Lower Revenue In 1H FY19

  • Feb 20, 2019 AEDT
  • Team Kalkine
Fletcher Building’s Stock Tumbles On Lower Revenue In 1H FY19

Fletcher’s stock price plunged more than 5% in early trade today after the company reported a 3% decline in revenue of $4.8 billion during the six months to 31 December 2018. FBU declined by 5.268% to last trade at $4.765 on 20 February 2019.

The downward shift in Fletcher’s revenue reflects the reduction in its Construction business’ revenue as the company progressively completed the remaining B+I projects. This translates a decline of 13% in Construction revenue to NZ$866 million in 1H FY19 compared to NZ$1,001 million in 1H FY18. The Group’s profitability was pulled back also due to the lower bid win rates.

However, on the overall front, Fletcher Building Limited (ASX: FBU) interim results have shown a welcome return to profitability with operating earnings before significant items, or EBIT, of NZ$285 million, compared to a loss of NZ$322 million in the first half of FY18. Adjusting for the impact of the B+I provisions, its current year earnings decreased by 8% to NZ$285 million when compared to NZ$309 million in the prior period. And 1H FY19 Net earnings were NZ$89 million compared to a loss of NZ$273 million in the previous corresponding period.

CEO Ross Taylor led company has witnessed a revenue increase of 6% in its residential division as house sale volumes remained high. Moreover, in New Zealand, the company’s Distribution, Steel, and Building Products divisions were reportedly in line with the revenue of prior year, reporting the margins in the Distribution and Concrete divisions at flat or slightly higher than the preceding period.

In Australia, gross revenue grew 1% while operating earnings declined by NZ$20 million or 38% compared to the prior period. The performance was reportedly impacted by a combination of a sharp decline in the residential market, which resulted in lower volumes and heightened competitive intensity in businesses exposed to that sector.

Earnings per share for 1H FY19 were reported to 10.4 cents compared with 39.2 cents per share in the prior corresponding period. However, after adjusting for the impact of B+I and significant items, the company’s earnings per share shot up to 18.8 cents compared with 26.0 cents per share in the prior corresponding period. Further, FBU’s Board declared an interim dividend of 8.0 cents per share for 1H FY19, payable on 10 April 2019.

Outlook:

The Group expects its Fiscal 2019 EBIT to range between NZ$650 million and NZ$700 million, significantly up from company’s previously stated earnings guidance of NZ$630 million to NZ$680 million as provided at the Annual Shareholders’ Meeting. This NZ$20 million increase in earnings guidance reflects the mere accounting treatment under which the company intends to take Formica business as ‘held for sale’ resulting to which the assets would not be subject to depreciation in the second half of FY19.

Going forward, the company commits to focus on completing the B+I projects within current provisions and to develop more stringent bidding discipline. However, a continued strong contribution is reportedly expected from Higgins despite the roll-off of some significant contracts in Fiji and New Zealand.


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