Fletcher Building (ASX:FBU) share price lifts after upbeat outlook

The Fletcher Building Limited (ASX: FBU) share price has climbed in early morning trading by 0.46% to $5.50, after the building materials manufacturer provided earnings guidance for the first half of FY21. 

The company says that its half earnings before interest and tax (EBIT) for the first six months will be between $NZ305 million and $NZ320 million, which compares favourably to the NZ$219 million it made in the first half of 2019.

What else did Fletcher announce today

For the first four months of trading up to 31 October, Fletcher also reported revenues up slightly by 1% to NZ$2.7 billion. It also reported EBIT of NZ$227 million, up by NZ$80 million. Group EBIT margin up 2.9% to 8.4%, due to improved operating efficiency.

Fletcher Building says robust conditions in the residential construction market in both New Zealand and Australia have triggered this solid rebound in profits for the first four months.

However, the company believes there is still a large amount of uncertainty ahead for the rest of 2020-21, although trading would stay solid for the next couple of months at least.

Fletcher expects to restart dividend payments in the 2021 financial year.

A brief look at Fletcher Building

Fletcher Building is a home builder and building products company. Its operations span the entire building supply chain, from raw materials right through to construction.

The company operates across 7 divisions: building products, distribution, steel, concrete, construction, residential and development, and Australia. Some of the leading brands under the company’s banner include Laminex, iPlex, and Tradelink.

Around one third of the group earnings are derived from the manufacture of building products. Following substantial losses incurred in its construction segment, Fletcher has taken corrective action by divesting its global Formica business, and withdrawing from commercial construction projects that led to significant losses. 

Earlier this month, financial analyst Morningstar increased its target price estimate for Fletcher by 7% to $4.50, citing a rebound in the cyclical recovery of the New Zealand home construction industry. 

Fletcher Building’s share price performance in 2020

In early August, Fletcher reported a heavy full-year loss of $NZ196 million for 2019-20. The loss was caused mainly by one-off losses of $NZ276 million, as a result of mass redundancies and fallout from COVID-19.

Due to better market conditions in the second half of FY20, the Fletcher share price has risen by 12% this year. In November alone, its share price increased by almost 40%, following news of the successful vaccine testing. At the current price of $5.50, the company commands a market cap of $4.5 billion.

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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