Fletcher Building (ASX:FBU) has released a building market update indicating that current market conditions have softened within the company’s Materials and Distribution divisions throughout FY24, both in Australia and New Zealand.
This can be considered no surprise given the current state of the housing market, with the number of new house builds across Australia and New Zealand having dropped significantly since mid-2021.
Rising interest rates, the cost of living, and material cost increases have all had an impact, as people face intensified challenges in trying to build new homes.
“Given the current conditions, our focus has been on managing things within our control, in particular, customer service, costs and margins, cash flows, capital allocation, funding, and closing out the remaining legacy construction projects.” Fletcher’s acting CEO Nick Traber said.
“Fletcher Building has many strongly positioned core business assets that have
demonstrated resilience in current market conditions. Our immediate priorities are to
optimise the performance of each of our businesses, close out legacy issues and
tightly manage risks to maximise our ability to deliver shareholder value.”
In New Zealand, market volumes in the second half of the year 2024 declined by 5% compared to the second quarter, while Australian market volumes in 2H24 were down by about 10% from 2Q24 levels.
The Company initially forecasted FY24 EBIT before Significant Items to be between $540 million and $640 million, assuming market volumes and house sales would mirror those of 2Q24.
However, revised guidance indicates lower anticipated FY24 earnings. The updated forecast now projects FY24 EBIT before Significant Items in the range of $500 million to $530 million, which includes $10 to $15 million in restructuring costs related to cost-out initiatives.
Despite ongoing market contraction and intensified price competition, one division that demonstrated resilience was Concrete, maintaining stable revenues and improved gross margins during 2H24.
Going forward, market conditions aren’t expected to improve any time soon in both New Zealand and Australia, meaning building companies could continue face the challenges pressing the market.
FBU shares are down around 9%, last traded at $2.94 at 1pm AEST.