Huge demand for James Hardie building materials products during the pandemic

Lockdowns led homeowners viewing their home as their castle and spending up big on cladding, walls and floors to chase their reno dreams, which has helped James Hardie.

James Hardie is reaping the rewards of marketing directly to homeowners and renovators its vast range of cladding, flooring and interior products, and is confident that as economies open up and people view their ‘home as their castle’ will continue to drive strong sales.

Unveiling its second quarter and interim financial results on Tuesday, the company has emerged as one of the big winners of the Covid-19 pandemic as homeowners in lockdown improve their surroundings.

Such is the momentum in the business, with all its regions growing at once and the expectation for continued residential and market growth in the US, James Hardie raised its guidance for the 2022 financial year.

The fibre cement and cladding supplier now expects 2022 adjusted income of between US$580m ($A783m) and US$600m, up from its previous forecast range of US$550m and US$590m.

Chief executive Jack Truong said marketing to the homeowner to help drive brand awareness and demand for its building products had paid off, particularly through the pandemic where “the home is the castle”.

This elevated demand had shown itself in key metrics for the group through the half as it had a 109 per cent growth in its key brand metrics, an 81 per cent lift in company website traffic and a 61 per cent increase in leads within its target markets.

James Hardie — which carries the legacy of asbestos poisonings and an ongoing compensation fund for victims — reported a 23 per cent jump in global net sales to $US903.2m for the second quarter as adjusted profit after tax rose 29 per cent to $US154.9m.

For the six months to September 30, net sales rose 28 per cent to $US1.75bn and net profit more than doubled to $US271.5m.

After reinstating its dividend since the pandemic, James Hardie declared a first half dividend of 40 US cents a share payable on December 17.

Within its key international markets in the second quarter, the flagship North America fibre cement segment net sales increased 23 per cent to US$635.3m and adjusted EBIT also increased 23 per cent to US$182.5m.

Europe building products segment net sales increased 23 per cent to €104.6m ($A163m) and adjusted EBIT jumped 51 per cent to €14.2m.

The second quarter group performance marked James Hardie’s tenth consecutive quarter of delivering growth above market and strong returns.

“This is the fourth consecutive quarter where all three regions delivered double-digit sales growth and double-digit EBIT growth,” said Dr Truong.

“We continue to make excellent progress on our stated global strategy. Our strong execution on this strategy is reflected in second quarter global price/mix growth of 9 per cent.

“Our growth momentum in accelerating high value products penetration, which underpins price/mix, is the result of enabling our customers to make more money by selling more James Hardie products and marketing directly to the homeowners to create demand of our high value products through our customers.”

James Hardie plans to invest in new capacity expansions including a greenfield manufacturing site in Victoria, as well as expansion of an existing plant in Alabama, US, and the expansion of an existing fibre gypsum plant in Spain.

“Ten consecutive quarters of growth above market with strong returns has led to an acceleration in operating cash flow, which is allowing us to: expand our global manufacturing capacity, accelerate our growth initiatives, return to ordinary dividends, reduce our debt position, and increase the cash contributions to the Asbestos Injuries Compensation Fund.”

RBC Capital Markets said the results came in line with expectations, although the performance of the company’s North America fibre cement division — earnings of $US183m — was below its forecast of $US200m.

“Segment revenue of $US635m was below our $US646m forecast due to lower-than-expected volume which was partially offset by slightly higher-than-expected pricing,” RBC said in a research note.

“According to management, exteriors volumes were up 16 year on year while Interiors volumes were flat year on year. In addition, the adjusted EBIT margin of 28.7 per cent was below our 31 per cent forecast; management noted that the company is more than offsetting the inflationary environment and is making significant investment in marketing directly to homeowners.”

Macquarie Research has an outperform recommendation on James Hardie and rated the results positively, especially given the group’s 2022 earnings upgrade.

“Solid result in a strong market context. Raised guidance is a positive, particularly set against clear growth investment in operational expenditure and additional plans to add capacity to the network including in the European Union.”