With October new home starts in the US down 10.6%, thanks to big falls in single and multi-home starts, it was a confident James Hardie management yesterday who provided hints that the company’s outlook may be on the improve, after reporting a loss for the six months to September.
The fall in new home starts (permits were down as well) was to a six month low and came against the trend of a slow but steady improvement, driven as it was by a favourable tax break for building new homes.
That break has been renewed, hence the cautious optimism at Hardie that its most important marker is going to get better.
As well, the company indicated that it would soon be in a position to resume making contributions to the asbestos compensation fund after suspending them earlier in the year.
But before all that the company has to make it through the approaching northern winter which management said would be "a challenging period to earn a profit".
But notwithstanding that warning, news of the return to payments for the fund, and the hint of an improvement saw Hardie shares rise strongly to finish the day up more than 6.3%, or 47 cents, at $7.87 after touching a day’s high of $8.20.
James Hardie told the ASX yesterday that it made a loss $US97.5 million for the half year to September 30, down from a $US154.9 million profit in the prior corresponding half year.
"The net operating result including asbestos, ASIC expenses and tax adjustments was a loss of US$19.6 million, compared to a profit of US$153.5 million for the same quarter last year.
"For the half year, net operating profit excluding asbestos, ASIC expenses and tax adjustments increased 4% to US$79.2 million from US$76.2 million. Including asbestos, ASIC expenses and tax adjustments, net operating profit moved from US$154.9 million to a loss of US$97.5 million.
"The results include unfavourable asbestos adjustments of US$62.7 million for the quarter and US$182.5 million for the half year, which are solely attributable to the appreciation of the Australian dollar against the US dollar, from US$0.6872 at 31 March 2009, to US$0.8126 at 30 June 2009 and to US$0.8786 at 30 September 2009.
"USA and Europe Fibre Cement sales volume continued to decline on a year over year basis, although compared to the first quarter of fiscal year 2010 sales volume was down only slightly," Hardie said.
Net sales from ordinary activities fell 17% to $US588.7 million from $US706.9 million.
But the company said its net operating profit in the second quarter of the fiscal year was $US37.6 million, excluding some costs including those associated with asbestos, up 4% on the prior corresponding period.
James Hardie says it will not pay an interim dividend for the half year.
James Hardie chief executive officer Louis Gries said the US residential construction market remained near historical low levels during the period.
"As with the first quarter of fiscal year 2010, earnings benefitted from lower input and freight costs, improved plant performance and a higher average net sales price when compared with the corresponding period in fiscal year 2009," Mr Gries said.
"In this low-demand environment, the business continues to perform well financially and has stayed on strategy with product leadership initiatives."
After the company warned last April that it might not be able to make contributions to the asbestos compensation fund in fiscal 2010 due to the economic downturn, the company said it now expected to contribute.
"Based on its fiscal year results to date, James Hardie anticipates that it will make a contribution to the (asbestos compensation fund) in 2010" in accordance with its funding agreement with the fund and the NSW government," Mr Gries said.
In April, the fund warned that it may not be able to meet its liabilities within two years, due to restrictions on Hardie’s contributions during the downturn.
Since then, the Australian and the NSW governments said they would provide up to $160 million each towards a stand-by loan to the fund to allow it to make up any funding shortfalls.
James Hardie said US housing starts remained subdued.
"Despite this, there are some initial signs that the cycle appears to be nearing the bottom, including recent improvements in the number of monthly housing starts, albeit from a low base, a small increase in the number of single family permits, and some improvements in the NAHB/Wells Fargo Housing Market Index builder confidence index, again from a very low base," the company said.
"Challenges to a recovery remain, including restricted access to credit for prospective home owners, the expiration of the first-time home buyers credit at the end of April 2010, the October 2009 decline in housing starts to a six-month seasonally-adjusted annualised low of 529,000, and prevailing employment market conditions.
"In Australia, while housing starts in 2009 are unlikely to exceed 2008 numbers, underlying momentum in the industry appears to be gathering pace.
"In New Zealand, new residential construction is anticipated to remain at the current level, having reached a market low of around 1000 approvals per month."
James Hardie said it "notes the range of analysts’ forecasts for operating profit excluding asbestos, for the year ending March 30, 2010, is between $US77 million and $US115 million.
"Management anticipates full year earnings excluding asbestos, ASIC expenses and costs of redomicile to be at the top of the current range of analys
