Hammered
3Q23 RESULT
Need To Know
- FY23 net income guidance downgraded, again
- Management targeting 25% EBIT margin for NAFC, APFC
- Consensus earnings downgrades likely ~7%
Another weak data point for James Hardie sees the FY23 net profit downgraded for a third time this year to a range of US$600-620m, down -10% at the mid-point.
Management remains determined to deliver its goal of profitable volume share growth, but a declining demand environment will make this harder.
North America Fiber Cement (NAFC) third quarter revenue was flat compared to last year, but volumes fell -10% as the new construction housing market slowed sharply. There was less Repair & Remodelling work undertaken, making things worse. JHX’s key ColorPlus volume growth also slowed to +18% compared to +31% in the first two quarters of the year. EBIT margin shrank by 140bp to 27.0%.
Asia Pacific Fiber Cement (APFC) revenue slipped -13% as volumes fell -19% due to softening demand and falling inventory levels in Australia and New Zealand. EBIT margin fell 260bp to 24.7% in the period.
Europe Building Products (EBP) revenue increased 4% on a volume decline of -10%. Housing market activity in this region was also weak but saw a strong price/mix outcome of +14%. Regardless, EBIT fell -86% to €1.5m as restructuring costs, inflation and lower volumes all detracted.
The company’s share buyback continues, and the balance sheet currently has net debt of $878.1m with leverage now at 0.9x.
Investment View
Management is placing a 25% EBIT margin goal across NAFC and APFC indicating the company’s preference for market share. The number one priority for JHX is to invest in organic growth with any excess capital returned to shareholders through buybacks, not dividends. Gearing is targeted at below 2.0x through the cycle.
Capex plans of US$1.6-1.8bn have not been sacrificed indicating the long-term chase for market share is sacrosanct, for now.
The company prefers to alter shift patterns rather than idling lines or mothballing entire plants. In theory, this will keep capacity on its toes for when demand picks up.
The latest guidance downgrade is predicated on lower-than-expected volume in 2H23 in both North America and APAC, together with some restructuring charges.
No change to our Hold recommendation.
Figure 1: 3Q23 Result
Stock Overview
Share Price
Company Overview
James Hardie Industries plc is a provider of fibre cement building solutions and is engaged in fibre gypsum and cement-bonded boards in Europe.
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