Shares in James Hardie (JHX) jumped solidly yesterday despite the company admitting to constraint problems that would put a lid on expected earnings for 2016-17.
The company yesterday revealed a first-half profit drop to $US144.1 million ($A192.6 million) thanks to the added costs of hiring new staff in anticipation of increased demand for its building products.
The shares closed up 5.1% at $20.51.
Selling, general and administrative expenses for the six months to September 30 rose 14 per cent to $US141.1 million and net profit dropped from $US190.2 million from the prior corresponding period.
Revenue rose 11% to $US973.5 million, thanks to higher sales volumes in the North American fiber cement business and a higher average net sales price in the company’s international fibre cement segment, which includes Australia.
James Hardie that analysts’ forecasts for net operating profit excluding asbestos-related adjustments for the year ending March 31, 2017, ranged from $US256 million to $US285 million ($A342 million to $A381 million).
But it said management expects full-year adjusted net operating profit to be between $US250 million and $US270 million.
The comparable adjusted net operating profit for 2015-16 was $US242.9 million, so if the 2016-17 figure at the bottom of the forecast range, the result could be flat if things turn out for the worse.
Despite the lowered outlook James Hardie lifted interim dividend by 1.0 US cent to 10.0 US cents per security.
James Hardie chief financial officer Matt Marsh said in a briefing that James Hardie was taking steps to increase manufacturing capacity to meet strong demand now and in the future.
Mr Marsh said that as a result the downgrade was driven by a combination of these higher start-up costs and the company not being able to ship everything it had orders for.
"So a combination of those two is really the driver of the adjustment down to $US250 million to $US270 million," Mr Marsh said.
James Hardie CEO Louis Gries said it would be another two or three quarters (six to nine months) to get James Hardie’s manufacturing network up to targeted performance levels. So any profit boost really won’t come to 2017-18.
James Hardie expects the US housing market to grow steadily in 2016-17.
In Australia, net sales are expected to trend in line with the average growth of the renovation and single detached housing markets in the eastern states.
Although demand in the renovation and new housing markets grew in the US, James Hardie’s production costs increased because of unfavourable plant performance and higher start-up costs associated with lifting the production capacity of the US plants.
In Australia, net sales for the half-year lifted due to a higher average net sales price and greater volumes, reflecting favourable market conditions.
