James Hardie blames inflation, softer US housing market for earnings downgrade

James Hardie has cut its earnings guidance for a third time and slashed its workforce as the global housing downturn deepens.

James Hardie is feeling the pinch from high inflation and a softening US housing market. Picture: REUTERS/Tim Wimborne

Rampant inflation, restructuring costs and a softening US Housing market have been blamed for a third earnings downgrade at building materials group James Hardie.

The company’s new chief executive has also warned of ongoing challenges for the business in Australia, where the housing boom is grinding to a halt in the face of surging interest rates and the end of the federal government’s HomeBuilder stimulus.

James Hardie reported an adjusted net income of $US129.2m in the three months to December, down 16 per cent from the same time last year and missing consensus estimates of around $153m.

Global net sales of its fibre cement and cladding products were down 4 per cent in the third quarter, to $US860.8m, driven lower by falling sales volumes in its largest market in the US, as well as in Europe and the Asia-Pacific region.

Price increases partially offset an 11 per cent decline in global sales volumes.

The challenging conditions led to full-year earnings guidance being cut for a third time, with adjusted net income expected to come in at $US600m to $US620m for the full-year to March, down from a previous estimate of $US650m to $US710m set in November. It’s now in line with the previous year’s result of $US620.7m.

Restructuring costs of $US6m were incurred in the third quarter as the company shed 6 per cent of its global workforce.

James Hardie chief executive Aaron Erter told analysts the US housing market - including new housing construction and renovations - had rapidly deteriorated in recent months, and it would take some time to recover.

“The projection we have for 2023 is for single family new construction to still be down 17 per cent,” he said.

“Even though there have been some positive comments around foot traffic, of the 12 publicly traded big builders who released earnings in the past few weeks, to my knowledge only four of them provided guidance for orders for the next quarter, and that guidance was for orders to be down 18, 20, 50 and 60 per cent respectively.

“The fundamentals are still there in that we have an affordability issue with housing that may take some time for the markets to fully adjust to.”

Single family housing construction in the US fell by 11 per cent in 2022, while renovations activity - known as repair and remodel - was down 1 per cent.

Mr Erter took the helm in September amid a series of challenges facing James Hardie and the broader housing market, which has been adjusting to escalating interest rates and surging materials costs.

He said conditions in Australia had deteriorated further since his appointment, following five more interest rate rises from the Reserve Bank.

The latest Australian Bureau of Statistics figures showed dwelling starts fell 21.2 per cent in the three months to September – to 45,489 – compared to the same period in 2021. They were down 5.2 per cent when compared to the previous quarter.

“When I first began in the September timeframe, and sitting with some of our largest customers, as we looked forward the outlook was pretty positive,” Mr Erter said.

“But as we look now ... with rapidly rising rates, home prices not having the affordability, we see some challenges with the business moving forward in Australia and New Zealand.”

James Hardie has taken its own steps to manage rising freight, energy and materials costs, cutting its workforce and reducing shifts at its manufacturing sites.

Despite the challenges facing the company, Mr Erter said it was still on track to deliver record sales volumes and revenue for the full-year.

“The rapid deceleration in the US housing market was unexpected by the industry,” he said.

“A lot of factors drove this rapid market deceleration, and they were outside of our control, but I believe the James Hardie team responded quickly and have course-corrected with what is the new reality.

“Most importantly we remain aggressive, and we are laser focused on driving profitable volume share gain in every region and segment we do business in.”

James Hardie shares were trading 4.9 per cent lower in morning trade at $30.19.

Originally published as James Hardie blames inflation, softer US housing market for earnings downgrade