Shares in building products group James Hardie (JHX) fell sharply yesterday after the company downgraded its full year profit guidance after a flat second quarter, blaming uncertainty over the state of the US housing market and asbestos claim liabilities.
While first-half net profit rose 21.8% to $US190.2 million ($A268.25 million), the final increase was much lower once asbestos claims and other items had been taken into account.
Adjusted net profit was flat in the second quarter at $US65.3 million and up 11.5% to $US128.8 million for the half (because of the strong first quarter).
Net sales edged up 2.5% on the prior corresponding period and James Hardie issued full year adjusted net profit guidance of between $US230 million and $US250 million.
That’s up on the 2014-15 adjusted net operating profit of $US221.4 million, but down from the $US240 million to $US270 million forecast made when reporting first quarter results in August.
“Management notes the range of analysts’ forecasts for net operating profit excluding asbestos for the year ending 31 March 2016 is between $US252m and $US270m,” James Hardie said in yesterday’s statement.
"Management expects full-year adjusted net operating profit to be between $US230m and $US250m assuming, among other things, housing conditions in the United States continue to improve in line with our assumed forecast of new construction starts of between 1.1 and 1.2 million, input prices remaining stable and an average USD/AUD exchange rate that is at or near current levels for the remainder of the year."
JHX 2Y – James Hardie solid but outlook uncertain
And chief financial officer Matt Marsh said in the company’s results presentation yesterday, “Management cautions that, although US housing activity has been improving, market conditions remain somewhat uncertain and some input costs remain volatile”.
He also cited “uncertainty regarding the impact of actuarial estimates on asbestos-related assets and liabilities”.
So down went the shares, ending off 7.5% at $16.51 in a now familiar sell-off for any company surprising the market with bad news.
“Financial returns in the second quarter were again strong in all business units driven, in particular, by the strong operating performance in our US plants and lower input and freight costs relative to the same period last year,” James Hardie CEO Louis Gries said in his statement with the results.
"Primary demand growth (PDG) however, in our US business, again tracked below our targeted level. The reduction in US PDG over the last several quarters is a key focus area for management, and it is expected to take several quarters to lift our growth rate back to targeted levels. We do not feel that the reduced PDG has been driven by external factors."
The firm declared a first-half dividend of US 9 cents a share, up from 8 cents for 2014, payable on February 26, 2016.
