Building products group, James Hardie produced a sort of mixed full year result yesterday and the shares got hammered in the sell off by investors nervy at the smallest bit of worrying news.
By the close Hardie shares were down nearly 8% to $19.90 as investors took a jaundiced view on the result, especially a contraction in profit margins.
Full year dividend was held steady at 38 US cents a share with the final trimmed by one cent a share to 28 US cents.
The report revealed that lower than expected asbestos claims helped James Hardie offset a squeeze on margins due to operational problems in the US. While that didn’t stop Hardie from reporting higher earnings in the year to March 31, it was enough to trigger alarm bells for concerned investors.
Investors have been focused on Hardie’s US operations for a while amid reports of plant commissioning problems and higher costs such as rising pulp, energy and freight.
James Hardie is bringing on additional capacity this year at its Summerville and Plant City sites in the US, and is working on new plants at Tacoma and Alabama to start in 2019 as it banks on the continued strength of the US housing market, which accounts for the bulk of the group’s earnings.
Group net profit rose to $US276.5 million, from $US244.4 million, for the year to March, beating analyst forecasts. That was on an 11% lift in group sales to $US1.9 billion.
But that result was due to lower asbestos claims, which resulted in a $US38.6 million ($A52 million) “favourable movement in the actuarial adjustment” by its advisers, it said. Take that from the profit and the actual result was around $US238 million, under the 2015-16 result. “EBIT (earnings before interest and tax) margin and net operating profit were below internal expectations as North America incurred higher production costs as we continued to increase our capacity,” CEO, Louis Gries said in a statement to the ASX yesterday.
The company says it expects modest market growth of the US housing market to continue into the current financial year. And sales from its Australian business are expected to trend in line with average growth of the domestic repairs and single family detached housing markets in the eastern states.
Hardie reported that in the year to March 31, asbestos claims received fell to 577 from 625 the prior year, and the average claim settlement fell from $US327,000 to $US248,000, which was 31% below actuarial estimates, it said.
Part of the reason for the decline was a lower number of large mesothelioma claims, coupled with lower average claim sizes for non-large mesothelioma claims.
Fibre cement sales (Hardie’s main product used in walls, ceilings, floors and fences) — rose 12% in the US, while solid housing market activity in Australia and New Zealand drove a 22% rise in earnings from its fibre cement business outside of the US, including Asia and the Middle East.
“Asia Pacific had a good year — the only bump in the road was the Philippines,” Mr Gries said.
He said the Australian operations were strong, with improvements in volume, price, costs and the efficiency of its new cement plant in Queensland. The final dividend was cut by 1.0 US cent to 28 US cents. That with the interim of 10 US cents a share makes a steady full year payout of 398 US cents a share. That tells you as much about the caution the company is showing about the outlook as any commentary in the report.
