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Fletcher Building shares on watch following FY 2020 guidance update

The Fletcher Building Limited (ASX: FBU) share price will be on watch on Thursday after the release of a trading update ahead of its annual general meeting.

In early trade in New Zealand, the building supplies company’s NZX-listed shares are down 1%.

What did Fletcher announce?

According to the release, Fletcher Building’s New Zealand core divisions remain on track against a solid market backdrop.

Activity for residential and commercial finishing trades remains strong, which is supporting a solid performance in plasterboard, insulation, and laminates.

However, activity for civil, infrastructure, and starting trades is trending slightly lower as expected. This has led to a slight easing in demand for concrete and pipes. In addition to this, the steel market remains highly competitive.

In the company’s Residential and Land Development division, management notes that demand for housing in key target segments remains strong and prices remain supportive. Unfortunately, things aren’t quite as positive for the Construction side of the business. It has been impacted by unfavourable weather during the first quarter.

In Australia, management revealed that its cost-out programme is progressing to plan and there is good turnaround momentum in Laminex and Fletcher Insulation. However, intense competitor activity in the declining residential market is placing ongoing pressure on price and margin in the Stramit and Tradelink businesses.

Furthermore, infrastructure project delays are expected to have some near-term impact on Iplex and Rocla in FY 2020.

FY 2020 guidance.

Management expects Fletcher Building’s earnings before interest and tax (EBIT) before significant items for FY 2020 to be in the range of NZ$515 million to NZ$565 million.

This compares to FY 2019’s EBIT before significant items (after adjusting for discontinued operations) of NZ$549 million. Which at best implies a 2.9% year on year increase and at worst implies a decline of 6.2% year on year.

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Motley Fool contributor James Mickleboro 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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