Building materials group James Hardie has dropped its interim dividend as returns from the slumping US housing sector continues to depress earnings.
Hardie said in yesterday’s interim earnings statement to the ASX that first half operating profit fell and this and continuing uncertainty about the outlook for housing, forced it to drop the dividend.
In their statement to the ASX, directors didn’t hold out much hope for an early resumption, saying that the housing sector would have to improve "significantly" before a resumption in payouts could be made.
The company gives every impression it is settling in for a long hard slog before things improve in the US.
It said the net operating profit, excluding asbestos liabilities, legal expenses and tax adjustments, fell 36% to $US76.2 million ($A114.3 million) in the half, from the same period in the previous year.
Including asbestos, legal expenses and tax adjustment, net profit rose to $US154.9 million ($A232.4 million), from $US58.2 million.
The company said the operating result is considered a truer measure of the group’s performance and that was significantly affected by declines in the US housing market, where housing starts fell 35% in the first half.
Figures out later this week will show a further fall for October.
The impact of the slumping US housing sector showed up in the company’s second quarter net operating profit result, which dropped 26% to $US36.2 million ($A54.3 million) in the three months ended September 30.
"Given these current conditions and the high level of uncertainty surrounding the global economy and future industry trends, the board has decided to omit the interim dividend for the current fiscal year," James Hardie said in a statement yesterday.
"In May 2007 the company announced a dividend policy of a payout ratio of between 50% and 75% of net income before asbestos adjustments, subject to funding requirements.
"The company’s United States business, which contributes approximately three quarters of the Group’s earnings, is now well into the third year of a severe cyclical downturn in new residential construction.
"On an annualised basis, new housing starts are down approximately 65% from a peak of 2.2 million in late 2005/early 2006 to approximately 800,000.
"More recently, the US repair and remodel market has also been declining, as homeowners have found it more difficult to access credit and to justify upgrading properties when home values are declining.
"Given these current conditions, the level of uncertainty surrounding the global economy and future industry trends, and in order to conserve capital, the Board has decided to omit the interim dividend for the current fiscal year.
"The FY 2008 interim dividend was US12.0 cents.
"The Board recognises the value investors place upon dividends but believes that omitting the interim dividend is in the best long term interest of the company.
"The company will continue to review its dividend policy, but it is likely dividends will be suspended until conditions improve significantly."
Second quarter net sales decreased 12% to US$341.9 million, gross profit was down 18% to US$113.2 million and EBIT excluding asbestos and ASIC expenses was 26% lower at US$56.7 million. EBIT including asbestos and ASIC expenses increased from US$44.7 million to US$192.2 million.
For the half year, net sales decreased 13% to US$706.9 million, gross profit was down 22% to US$237.2 million and EBIT excluding asbestos and ASIC expenses decreased 33% to US$122.2 million.
EBIT including asbestos and ASIC expenses increased 80% from US$119.7 million to US$215.1 million.
Net sales of the USA and Europe Fibre Cement business decreased 16% for the quarter and 18% for the half year. USA and Europe Fibre Cement EBIT was down 26% to S$61.1 million and 35% to US$126.7 million for the quarter and half year, respectively, as a result of lower volumes and higher costs, partially offset by lower SG&A spending.
Asia Pacific Fibre Cement net sales were up 4% and 10% for the quarter and half year, respectively.
Asia Pacific EBIT increased 14% to US$14.1 million and 21% to US$29.9 million for the quarter and half year, respectively, primarily due to favourable currency exchange rate movements of the Asia Pacific business’ currencies compared to the US dollar.
Hardie shares closed down 35c at $4.40.
