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Why the Fletcher Building Limited (Australia) share price is cratering today

The Fletcher Building Limited (Australia) (ASX: FBU) share price is on the floor today after the New Zealand-focused construction giant announced a big downgrade to its earnings guidance for the year ending June 30 2017.

The firm now expects full year earnings before interest, tax and significant items (EBIT) to come in between NZ$610 million to NZ$650 million for the full year compared to prior guidance for EBIT between NZ$720 million to NZ$760 million.

The big shock is the size of the downgrade (around $100 million) and how quickly the company has downgraded guidance that was given just on February 22.

It blamed the outcome on the “identification of estimated losses and downside risk in the Buildings and Interiors (B+I) business unit of the Construction division.” More specifically management flagged that a complex single “major project” will now produce a bigger-than-expected loss as the result of ongoing operational reviews.

No surprise that the shares are down 10% to $7.50 this morning as investors mark the stock down, although it has still climbed around 10% over the past year thanks to a robust Kiwi economy supported in part by falling base lending rates.

Other businesses in the construction and building materials industry closely followed by property hawks include Mirvac Group (ASX: MGR), Boral Ltd (ASX: BLD), Brickworks Limited (ASX: BKW) and U.S. focused James Hardie Industries plc (ASX: JHX).

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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 Bruce Jackson.

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