The dismissal of CEO Jack Truong is an unfortunate distraction to the strong underlying growth occurring across all regions for James Hardie. The company has upgraded its FY22 guidance which should please shareholders while the management is reshuffled.
The coincidental update of JHX’s FY22 guidance has effectively neutralised the obvious shock factor of the CEO’s forced departure. Instead of ruminating on the management issue, shareholders have been given the tonic that earnings momentum is firmly in place and likely to continue even under a new leader.
It will be an interesting test for the Board and the reshuffled management team to maintain the trajectory of earnings, but the company has signalled its confidence by indicating that FY23 guidance will be provided at the 3Q22 earnings release.
During the investor call following the announcement, it was revealed that several senior executives were contemplating leaving JHX as a result of the CEO’s behaviour. The extensive survey work conducted behind the scenes provided the Board with sufficient reason to remove Jack Truong and this action may have saved the loss of experienced executives with no resolution to the real problem.
Harold Wiens becomes the interim CEO until a permanent appointment is made. Mr Wiens joined the JHX Board almost two years ago and has significant industry experience. Chairman Michael Hammes will also assume an executive role while the management transition is underway. Sean Gadd has been promoted to run the North American business, a role he has effectively been doing for the last three years.
FY22 net income guidance has been upgraded to US$605-625 million from US$580-600 million on the back of strong execution of the global strategy across all three regions. JHX is expecting continued growth in the US residential market in the USA.
Investment view
The ends did not justify the means so JHX’s strong and consistent performance was not enough to justify Jack Truong’s management ‘style’ which was demonstrably outside the company’s code of conduct. It is commendable to see a Board live its message rather than cover up an underlying problem. In doing so, JHX may have turned a clearly negative situation into a positive, particularly from an internal morale perspective.
Having assertively dealt with the problem, the Board and management can get back to working on what has been a successful strategy to date and seems set to deliver further gains.
The share price reaction was more muted than might have been the case and we suggest any sustained weakness presents an opportunity. It is clear that the business is in good shape and the early provision of FY23f earnings in February is a strong signal of confidence.
