James Hardie Weathers Housing Downturn

By Glenn Dyer | More Articles by Glenn Dyer

Shares in James Hardie ended up 3.7% at $18.50 yesterday after the Ireland-based construction materials supplier lifted its full-year profit 57% to $US228.8 million ($A331 million).

Despite that solid result, the company cut its final dividend to an unfranked 26 US cents, down from 30 US cents a year ago. With an unchanged 10 US cent interim, the full payout is 36 US cents a share, down from 40 US cents.

The reduction seems to more a bit of insurance in case there are problems in the US, Australia or European building sectors in early 2019-20.

Given the optimistic outlook, that doesn’t seem to be the case.

Certainly, the results for 2018-19 show Hardie shook off the weaker Australian housing market to lift revenue 22% to $US2.51 billion for the year.

That was driven by its acquisition of Fermacell in Europe and higher net sales in its North America Fibre Cement segment.

Hardie said net operating profit increased for the quarter and full year, driven by fewer-than-expected asbestos-related adjustments and higher gross profit, partially offset by higher income tax expense and general expenses.

Adjusted operating profit for the year, which excludes one-off items such as compensation payments to people claiming asbestos-related illness, was $US300.5 million ($A434.2 million), up 3% and in line with a downgraded outlook published in November.

Chief executive Jack Truong said the Australian and Philippines businesses led the way in gaining volume growth above that in their underlying market.

“This strong growth was achieved despite a continued, softening Australian housing market throughout the year,” Dr. Truong said.

James Hardie said it had received 568 asbestos-related illness claims for the year, a slight uptick on a year ago but 8.0% below estimates.

The average asbestos claim settlement was 24% below estimates at $253,000.

The company said it also booked US$24.1 million discontinuation expenses, including costs related to the exit of its fiberglass windows business.

Looking to the current financial year the outlook was upbeat.

“We expect to see modest growth in the US housing market in fiscal year 2020. The single-family new construction market and repair and remodel market growth rates in fiscal year 2020 are expected to grow, albeit at a growth rate lower than that in fiscal year 2019. The Company expects new construction starts between approximately 1.2 million and 1.3 million,” directors said

‘We expect our North America Fiber Cement segment EBIT margin to be in the top half of our range of 20% to 25% for fiscal year 2020. This expectation is based upon the Company continuing to improve operating performance in our plants, improved net average sales price and mix, continued inflation for input costs and modest underlying housing growth.

‘In Australia, it is anticipated that our addressable underlying market will decrease in fiscal year 2020 compared to fiscal year 2019. Net sales from our Australian business are expected to continue to trend above the average growth of the domestic repair and remodel and single family detached housing markets in the eastern states of Australia.

“We expect our Europe Building Product segment to achieve year on year net sales and EBIT margin growth,“ the statement added.

Glenn Dyer

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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