4 Min Read
(Corrects previous earnings forecast range to NZ$720-760 mln from NZ$720-740 mln in bullet 1 and paragraph 11)
* Cut in earnings outlook to NZ$610-650 mln vs NZ$720-760 mln
* Shares plunge 12 pct to 8-month low of NZ$8
* Project delays prove costly due to labour shortage
* Bricklayers to carpenters commanding high wages
By Tom Westbrook
WELLINGTON, March 20 (Reuters) - New Zealand's biggest listed construction company, Fletcher Building Ltd, cut its earnings guidance on Monday as a nationwide worker shortage leads to project delays and increasing wage bills.
The downgrade, which sent shares in the company down 12 percent to an eight-month low of NZ$8 ($5.63), comes amid a boom in construction fired by the twin-engines of population growth and post-earthquake rebuilding that are now stretching the labour market.
Fletcher chief executive Mark Adamson said on Monday the company had to pay dearly for the extra manpower to bring two delayed projects back on track.
"It's the tightness of the market, the availability of subcontractors and subcontractors obviously pricing to economics 101," Fletcher chief executive Mark Adamson said on a conference call with investors.
"Where the program slips and you get off the original project terms, that is when things start to go wrong as they have in this case."
Fletcher shares suffered their worst intraday drop in more than five years, and dragged the benchmark S&P/NZX 50 index 1.2 percent lower.
While the earnings shock appears to contrast with the boom in construction conditions in New Zealand, it is not unusual for fast-moving labour markets to turn once profitable contracts into liabilities.
"It's not unexpected, but there's a surprise on how far reaching it's become," said Jenny Parker, from Auckland-based agency Building Recruitment
Bricklayers, scaffolders, plumbers, electricians and carpenters, as well as professionals such as engineers can name their price, especially in Auckland where Fletcher is heavily exposed, Parker told Reuters.
"Workers are finding it a very buoyant market for themselves ... they’ll perhaps pit companies against each other to go for a kind of bidding war, to see who can afford them, so it's driving all the salaries up," she said.
Fletcher said it expects full-year operating earnings of NZ$610 million to NZ$650 million ($428 million to $456 million), compared with a NZ$720 million to NZ$760 million range forecast a month ago.
The company had already flagged losses at one unnamed major construction project at its half-year results announcement in February, when it reported flat profit growth.
On Monday it said those losses widened as it rushed to pay as many as 300 extra workers to make up lost time on the behind-schedule job.
Royal Bank of Canada analyst Andrew Scott said the company's previously strong operational record led it to trade at a premium to Australian peers.
"We think this must now come under question with the appropriate multiple for the business uncertain," Scott said in a research note. ($1 = 1.4211 New Zealand dollars) (Reporting by Tom Westbrook; Editing by Larry King and Christopher Cushing)