James Hardie’s Mixed Result

The quarterly and annual result from building products group James Hardie was one of those good bits/bad bits results. Earnings were solid, dividend is unchanged and a share buyback has been renewed.

But a brief reading of the result would have confused some investors who would have seen some lines suggesting a big plunge in earnings, while others suggested a not too bad result for the quarter and the year.

The news helped keep the day’s losses for the shares to only 12c (they closed at $10.33) on a day when most stocks were sold off heavily. They had hit $10.80 before the news of the poor Chinese manufacturing activity survey sent the wider market lower.

On the face of it the annual result looked terrible – after various adjustments. Before that the result was $US140.8 million down 2% from $144.3 million. After various adjustments and charges, it was off 92% to $US45.5 million against $602 million a year earlier.

For the quarter Hardie said operating profit, including adjustments such as asbestos, asset impairments, ASIC expenses, New Zealand product liability expenses and tax adjustments fell to a loss of US$69.5 million, compared to a profit of US$480.7 million in the prior corresponding quarter. (The 4th quarter of the previous year included an income tax benefit of US$485.2 million arising from the successful appeal of a disputed amended tax assessment in Australia, partially offset by income taxes payable in respect of the reversal of general interest charges previously recognised as deductible.) Ignore that distortion and the actual result doesn’t look all that bad.

Analysts especially pointed to a 10% rise in net sales in the US and European fibro cement business – the US improvement came on the back of the gradually improving fortunes of the American home building sector.

For the three months to March, the company posted a net profit of $US30.7 million, down from $US34.5 million.

The group said it benefitted from higher sales volumes in all major markets, but with lower average selling prices in the key US and Europe markets.

Chief executive Louis Gries said operating earnings from James Hardie’s US and Europe operations were steady when compared to the previous year, and sales rose because of improved conditions in the US housing market.

"In addition, we have committed capital to the re- commissioning of idled production assets at a number of our US plants,” added Louis Gries.

“During the year we funded initiatives in the US business to support market and organisational development based on our belief that a sustainable housing market recovery is well underway. However, the increased spending on market and organisational initiatives constrained the impact of the strong USA and Europe business’ top line performance on the overall profitability of the group,” said Mr Gries.

He said full year operating earnings from the Asia Pacific operations were lower than the previous year’s, due to strong competition in a weak housing environment.

And as usual it’s what a company does with its dividend payment that tells you a lot about confidence levels.

Hardie declared a final dividend of US13c along with a 24c a share special dividend (making 37c a share all told). That special payout reflects the benefit a year ago from that favourable tax judgement. All up the company will pay a total dividend for the year of around 42 USc, which is what was paid in the previous year.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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