Construction products manufacturer James Hardie Industries plc [ASX:JHX] climbed 4.3% this morning to $19.77 per share. The stock is still down more than 9% for the year. But could this be the start of a late run to put the stock in positive territory for 2017?
What Happened to James Hardie Industries?
Investors jumped into JXH due to its positive second quarter results, which were released this morning.
Net sales from ordinary activities were up 6%, to US$1.03 billion, and net tangible assets per share, which includes cash, property and inventories, was up 31%, to US$(0.48). This figure represents the product of tangible assets minus all liabilities. So the company has a loss of 48 cents per share when it comes to net tangible assets. And while it’s a loss, it’s still an improvement from last year.
The company let profitability slip 14%, to US$123.8 million. ‘Our half year group results reflect marginal top pine growth, as well as EBIT margin and Adjusted NOPAT that were below our expectations,’ James Hardie CEO Louis Gries said.
‘However, we expect performance in North America to continue to improve throughout fiscal year 2018. Finally, we announced a fiscal year 2018 first half dividend of US 10.0 cents per security.’
What Now for James Hardie?
What’s positive about a drop in profitability?
Well, it wasn’t really current profits that investors were looking at. They were likely more concerned with the dividend and near-term outlook for the US housing market. As you would expect, if more homes are constructed and infrastructure spending picks up, there’s an opportunity for Hardie to grow earnings.
And that’s exactly what management is expecting in the near term. Hardie expects to see ‘steady growth’ in the US housing market. They’re also expecting an earnings before interest and tax (EBIT) margin for their North American fibre cement business of 20–25%.
Net operating profits for FY18 are expected to be between US$245 and US$275 million. This, of course, assumes housing conditions in the US continue to improve and building product prices continue to rise.
Junior Analyst, Money Morning
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