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James Hardie reports softer 3Q, flags modest FY17 downgrade

Glenn Freeman  |  03 Feb 2017Text size  Decrease  Increase  |  

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James Hardie has reported softer earnings for the third quarter ending 31 December 2016, and foreshadowed a slight downgrade for the full year to 31 March 2017.


Building materials and cement company James Hardie Industries (ASX: JHX) has reported US$52.6 million in adjusted net profits for the third quarter of fiscal 2017, down 6 per cent from $55.8 million in the previous corresponding quarter.

In its guidance for the full year ending 31 March 2017, James Hardie flagged a modest downgrade of around 4 per cent, anticipating adjusted net operating profit of between US$245 million and US$255 million.

Louis Gries, James Hardie CEO, cautioned that "although US housing activity has been improving, market conditions remain somewhat uncertain and some input costs remain volatile".

Morningstar equity analyst Tim Mann previously anticipated NPAT of US$258 million for the year ending March 2017, having already trimmed this 2 per cent in November 2016 after an earlier downgrade from James Hardie management. Mann is reducing his fiscal 2017 guidance by an additional 1 to 2 per cent.

For the quarter ending 31 December 2016, the weaker bottom-line growth is attributed largely to higher production costs in the company's North American fibre cement segment. Adjusted earnings before interest and tax (EBIT) margins here fell to 16 per cent, down 3.5 points.

Management pointed to a number of contributing factors, including "unfavourable plant performance, accelerated and higher-than-planned start-up costs and higher freight costs". This EBIT decline occurred despite a 10 per cent increase in net sales over the quarter.

"The volume performance was offset by manufacturing inefficiencies and start-up costs associated with increasing our network capacity. Additionally, we continued to invest in organisation costs and market development programs," said Gries.

James Hardie's international fibre cement business saw an overall 1 per cent decline in sales volumes during the quarter. EBIT growth in Australia and New Zealand were driven by price and lower production costs, offset by volume and EBIT falls in its Philippines business.

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Glenn Freeman is Morningstar's senior editor.

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