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James Hardie Up on Improved Q4 Earnings

Zacks Equity Research

Shares of James Hardie Industries plc (JHX) gained around 3.4% after the company reported strong results for fourth-quarter fiscal 2014 (ended Mar 31, 2014). Adjusted earnings improved 43% to 10 cents per share from the prior-year quarter figure of 7 cents.

Including asbestos and New Zealand product liability and tax adjustments as well as Australian Securities and Investments Commission (ASIC) expenses, the company recorded a loss of 42 cents a share, wider than loss per share of 16 cents in the year-ago quarter.

Operational Updates

Revenues in the reported quarter increased 15% year over year to $376 million. The growth was mainly driven by enhanced sales volume and a higher average net sales price. The segments were aided by improved activity in the new construction as well as in the repair and remodel markets and execution of the company’s pricing strategies.

Cost of sales rose 11.5% to $250.9 million from $225 million in the year-ago quarter. Gross profit improved 23% year over year to $125.5 million. Consequently, gross margin expanded 210 basis points (bps) to 33.3% year over year.

Selling, general and administrative expenses, excluding New Zealand product liability adjustment, increased 4.8% year over year to $60.8 million. Adjusted operating income (excluding asbestos, ASIC expenses and New Zealand product liability) increased to $57.4 million from $37 million in the prior-year quarter. Operating margin expanded 400 bps from the year-ago quarter to 15.3%.

Financial Update

During fiscal 2014, with cash flow from operating activities was $322.8 million, up from $109.3 million in the prior year comparable period, driven by amended tax assessment, decrease in contribution to Asbestos Injuries Compensation Fund Ltd. (:AICF) and higher earnings.

For fiscal 2014, net capital expenditures climbed to $115.4 million from $61.1 million in the prior fiscal. The increase was primarily due to the various capacity expansion and refurbishment projects undertaken by the company at its plants in Australia and the U.S.

James Hardie Industries paid a dividend of $199.1 million for the full year ended March 2014, an increase from $188.5 million in the prior year. The company announced an ordinary second half dividend of 32 cents per share and a full year special dividend of 20 cents per share.


James Hardie Industries will benefit from the expected recovery in the U.S. housing market. According to the U.S. Census Bureau, the single family building permits were 616,300 for the full year ended March 31, 2014, an increase of 13% from the prior year. James Hardie Industries forecasts earnings before interest and tax (:EBIT) margin will continue to expand in the coming years as the U.S. operating environment continues to improve.

The operating environment in Australia will improve modestly. However, The New Zealand business is expected to deliver improved results supported by a stronger local housing market, particularly in the Auckland and Christchurch areas.

During FY14, the company also confirmed its commitment towards infrastructure growth with the reopening of Fontana, CA location, the commencement of capacity expansion projects at Cleburne, TX and Plant City, FL locations. The construction of a new manufacturing line at Carole Park, Queensland location will also drive growth. The Company intends to increase capital expenditure to an average of approximately $200 million per year over the next three years.

Based in Dublin, Ireland, James Hardie Industries manufactures fiber cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand and the Philippines. These products are used in a number of markets, including new residential construction, manufactured housing, repair and remodeling as well as a variety of commercial and industrial applications.

James Hardie Industries currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Simpson Manufacturing Co., Inc. (SSD), Gibraltar Industries, Inc. (ROCK) and The New Home Co. LLC (NWHM). While Simpson sports a Zacks Rank #1 (Strong Buy), Gibraltar and The New Home Company carry a Zacks Rank #2 (Buy).

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