Fletcher Building lowers annual profit forecast as market slows

Fletcher Building pulled back its profit forecast to the bottom of its range, citing the impact of wet weather and a slowing market.

The building supplies and construction company lowered its expectation for operating profit in the year to June 30 to about $800 million. That’s down from its February forecast of $800m to $855m, and an earlier estimate for at least $855m. The forecast excludes significant one-time items.

The latest profit forecast would still be ahead of the $756m operating profit the company reported the previous year.

“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,” chief executive Ross Taylor told an investor day briefing in Auckland on Wednesday.

Taylor said residential market weakness was starting to impact demand across the company’s products and distribution businesses, with volumes down between 5% to 7% from their peak in the second half of the 2022 financial year.

The company has sold about 650 houses over the year, below its previous target of 800 houses.

“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.

Taylor 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.

Economists say house prices have probably bottomed out, as interest rates neared their peaks and the resurgence in migration provided a fresh source of demand, and they say prices are expected to start to lift from here on in.

Taylor said the housing market appeared to be at the middle of the cycle, and sentiment appeared to be stabilising as people felt interest rates were getting to a peak and prices were at a trough.

He said the company was leaning into the challenge to ensure it didn’t give up too many of the performance gains it had made over the last few years and it continued with growth investments to ensure it was well positioned to grow irrespective of the cycle.

Taylor said the sector’s long term growth outlook across Australia and New Zealand was “very robust”.

“This comes from a combination of strong ongoing population growth, but it’s compounded by an infrastructure deficit across both countries that requires major capital catch up expenditure,” he said.