Fletcher Building Drops After Slashing Workforce

Fletcher Building Limited [ASX:FBU] shares are down today 3.47%. At time of writing, shares were trading at $3.06, down from $3.17 at the close yesterday.

Fletcher Building is a New Zealand company listed in both the ASX and the NZX. The company manufactures building materials such as insulation and cement and has exposure to the residential and commercial markets.

Why are Fletcher Building shares dropping today?

 The company revealed today it’s suffered ‘significant’ impact over the last two months due to New Zealand’s stage 4 lockdowns that developed in response to the COVID-19 pandemic.

Fletcher Building’s revenue in New Zealand took a hit as it shut most of its operations during the lockdown, recording NZ$55 million loss. In Australia, revenues were 10% lower than expected pre-COVID-19, allowing the company to breakeven.

Since restrictions have eased, the New Zealand portion of the business is trading at around 80% of the forecasted revenues while Australia continues to trade at around 90% of pre-pandemic expectations.

The company expects the economy to shrink further, which will reduce customer demand and productivity levels.

Ross Taylor chief executive said:

In Australia, residential approvals prior to COVID-19 had been showing signs of renewed growth from a base of around 150,000. Our base case is that we now expect approvals to fall by a further 15% to 129,000 in FY21. In commercial and infrastructure, we expect a similar dynamic to that of New Zealand, with the value of work done declining by similar percentages in both sectors.

To prepare for this new outlook, the company is taking a number of measures that included reducing spending by NZ$60 million to NZ$240 million for FY20 and slashing the workforce by 1,500 people.

According to their website, Fletcher Building employs around 10,000 people in New Zealand and 5000 in Australia. They’re looking to reduce their employees by 10% in both countries.

What could happen next?

 The company is quite exposed to the residential commercial market with residential making 48% of the company’s revenue in NZ and 54% in Australia, as you can see below.

Source: Fletcher Building

As I’ve written before, much of our recent property growth in Australia has been pushed by high immigration and low interest rates. It’s why, in my view, with immigration reduced and unemployment climbing, the property market will continue to take a hit.

Rum Rebellion Editor Vern Gowdie thinks our close to 30-year record economy may be a farce. To access his research, click here.


Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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