Fletcher Building's bleak FY23 outlook

Company News

by Glenn Dyer

Trans Tasman building products giant, Fletcher Building (ASX:FBU) has trimmed its 2022-23 earnings outlook 9 days before it rules off its books for the financial year and given a big hint that the new financial year will be tough.

The company told an investor day streamed to both sides of the Tasman on Wednesday that the new operating profit estimate will be at the bottom of its guidance range at around NZ$800 million.

The company blamed the impact of wet weather in the North Island of NZ in particular and a slowing building and construction market in both countries.

The new earnings estimate of around NZ$800 million is down from its February forecast range of NZ$800-$855 million, and an earlier estimate for at least $855 million. The forecast excludes significant one-time items.

But the new profit forecast would still be ahead of the NZ$756 operating profit reported in 2021-22.

“Since we last updated the market in February, the second half wet weather misery in New Zealand has continued, although not quite as severe as the first two months,” CEO Ross Taylor told the investor day briefing.

“While this is down on our forecast, it remains a strong result in what has been a tough market,” he said.

Taylor said he expects the market to tighten further in the coming year.

“While we expect to see further declines in volumes across our materials and distribution businesses, we are seeing some signs that the New Zealand housing market itself is starting to stabilise,” he said.

Cost inflation and tighter house sale prices were likely to compress margins in the company’s residential development business in the coming 2024 financial year, although he expected that to start recovering through the 2025 financial year.

Taylor did not provide any guidance for the 2023-24 financial year - that will come with the annual results report in August and then the annual meeting later in the year.

But he did give a couple of hints that FBU will face pressure to maintain earnings at 2022-23 levels simply because the slowdown in both countries in building and construction will put continuing pressure on margins in the new year, making it hard to recover cost rises in higher prices.

"For FY24, our current outlook is for market volumes in our materials and distribution businesses to soften by a further c.8%, and we are targeting 700-800 house sales. In Construction, our legacy projects are nearing completion, with some risk still to manage as we close out claims, but our go-forward business is well-positioned with a more focused and lower-risk order book,” he told the briefing.

He said FBU will be "Focused on preserving operational gains through FY24 as we drive medium term margin improvements.”

That certainly sounds like battening down the hatches even tighter and preserving revenues and margins and not chasing growth.

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