13 Oct 2011

Fletcher Building's forecast shocks investors

8:30 am on 13 October 2011

A Fletcher Building profit warning has shocked investors and sent the company's share price plunging by 12% to its lowest in more than two years.

The price fell 98c to $6.92 on Wednesday after the country's largest listed firm forecast a half-year profit of about $149 million - 10% lower than for the same period a year ago - because of lacklustre housing markets on both sides of the Tasman.

That'll flow through to full-year earnings, though the company says the contribution from its recent acquisition, Cranes, will bolster profit to a level similar to last year's underlying profit of $359 million.

Morningstar Research's senior equities analyst, Nachi Moghe, says that's substantially lower than analysts had expected.

The head of investor relations at Fletcher Building, Philip King, says housing and commercial construction activity has not picked up, and the company will be considering further cost-cutting to compensate for tepid demand.

Mr King says the company expects earnings growth at its Formica business, though that will be partly due to cost-cutting in Europe and the United States, where it's still experiencing flat demand.

Continuing strong earthquake activity in Christchurch is expected to again delay the rebuilding of the city until the second half of next year.