James Hardie builds for growth despite inflation strain

Sacked chief Jack Truong’s strategic shift to high-value products and direct marketing to homeowners continues to deliver ‘above market’ growth for the building products supplier.

Housing and renovation-related demand during the pandemic has delivered returns for building products supplier James Hardie.

Building materials giant James Hardie is battling inflationary pressures for raw material and freight in its key North American market, while using price rises to offset gas hyperinflation in Europe, but expects to continue its strong profit run.

The confidence and optimism comes after a tumultuous few months for James Hardie, which is searching for a permanent chief executive after sacking Jack Truong in January over allegations he created a “hostile” work environment.

Mr Truong has denied these claims, saying he was ‘blindsided’ by the move by the board of the fibre cement and gypsum maker for the US, Australia, Europe, New Zealand and the Philippines markets.

Meanwhile, the business continues to benefit from the move to a lean manufacturing model and direct marketing to homeowners – strategies introduced by Mr Truong in mid-2021.

James Hardie reported a 24 per cent increase in net sales to $US3.6bn ($5.1bn) for the full year ended March 31, which helped deliver a 75 per cent lift in net income (profit) to $US459.1m ($656.3m) following “above market growth and returns” in the fourth quarter.

Full year adjusted net income rose 36 per cent to $US620.7m ($886.9m), in line with analyst expectations.

In the fourth quarter, global net sales rose 20 per cent to $US968.2m while adjusted earnings before interest and taxes increased 30 per cent to $US225.3m. Adjusted net income was a gain of 42 per cent to $US177.5m.

The group now expects fiscal year 2023 adjusted net income to be in the range of $US740m and $US820m, a 19-32 per cent lift.

Strategies introduced by sacked CEO Jack Truong are continuing to deliver for James Hardie.

James Hardie will pay a second-half dividend of US30c.

Chief financial officer Jason Miele highlighted the strong cash flow generation in the past two fiscal years, boosted by a $US757.2m contribution in FY22.

“Our strong cash flow generation the past two fiscal years, totalling over $US1.5bn, has enabled us to redeem senior unsecured notes, declare dividends totalling $US623m, including a second half dividend of US30c per share announced today, and contribute over $US400m to the Asbestos Injuries Compensation Fund during this two year period, while also announcing a significant global capacity expansion plan,” Mr Miele said.

Over the next four years, James Hardie expects to invest between $US1.6bn and $US1.8bn in capital expenditures across its North America, Asia Pacific and Europe operations.

James Hardie interim chief executive Harold Wiens said the team “has continued to deliver strong execution of our global strategy”.

“The focus on a high value product mix combined with the execution of LEAN, has enabled us to absorb high input cost pressures and invest significantly in marketing, innovation and talent.”

An actuarial report by KPMG for the AICF shows asbestos-related claims received were 2 per cent higher than prior year with specific mesothelioma claims increasing by 3 per cent.

AICF was formed in 2006 to implement and administer the agreement between James Hardie and the NSW government which sees the company commit to funding the trust to pay compensation awarded against former entities Amaca, Amaba and ABN 60.

James Hardie paid $US248.5m ($328.2m) in fiscal 2022 and expects to pay $US117m ($157.5m) in FY23.

From February 2007 to the end of March, James Hardie has paid $1.89bn to the fund.

Equity research firm Macquarie described the result as “another solid print”.

“While volumes generally slowed in 4Q FY22 versus the rate of growth for the full year, it is notable that price/mix traction improved across all regions as the company drives its sales focus up the value curve,” Macquarie said in a note to clients.

“Management continued to express confidence in the R&R (repair and remodelling) market and its execution in that context. JHX has moved to raise a mid-year price increase, which will see margins improve as the year progresses.”

Macquarie has an outperform rating on James Hardie with a target price of $57.25.

Shares are trading 3.4 per cent lower at $37.52 at 1pm AEST.