James Hardie profit miss points to housing slump; collapse in housing materials demand across Australasia, US and Europe

Shares in the world’s leading building materials supplier rallied more than 8 per cent as investors looked beyond full-year earnings and dire predictions.

Shares in the world’s leading building materials supplier James Hardie rallied more than 8 per cent as investors looked beyond full-year earnings that missed expectations and dire predictions of prolonged weakness in the housing market, to take courage from the company’s strengthening profit margins in the US, its biggest market.

Unveiling its full-year results and fourth quarter update on Tuesday, James Hardie revealed a deteriorating housing construction slump across Australia, New Zealand, Europe and North America had punched an earnings hole in its accounts.

The full-year profit missed annual earnings expectations from analysts while the trading update provided little optimism for James Hardie across its key regions of Australasia, Europe and the US. Such is the dramatic retreat in housing that in North America, its biggest and most important market, the housing materials group has forecast its so-called addressable market in that region could shrink by as much as 19 per cent this year.

However, despite these setbacks the market took a ‘glass half full’ view as shares in James Hardie rallied strongly helped by analysts who welcomed news that margins in the US for the housing materials provider had remained strong and were 29 per cent in the fourth quarter. Hopes that margins would remain above 25 per cent in 2024 in the US, its largest market, buoyed investors.

“We think the key positive is USA margin remaining above 25 per cent in all volume scenarios,” said UBS analyst Lee Power.

James Hardie shares rose $2.81, or 8.27 per cent, to close at $36.80 – a 12 month high.

In November, James Hardie had warned the market that the outlook for housing across its key regions was looking uncertain and that it would have to once again lower its full-year guidance, with the company’s results released on Tuesday revealing no widespread improvement in macroeconomic and industry conditions.

At its flagship North American fibre cement arm, sales for the fourth quarter crashed 6 per cent with volumes down 14 per cent as the slowdown in the US housing market ate away at its sales and earnings. Although earnings margins were better, and sat at 29 per cent in the quarter.

It was much the same in the Asia Pacific region, where its fibre cement business witnessed a 10 per cent decline in volumes due to a slowdown in Australia and New Zealand. In Europe, its building products business suffered a 12 per cent collapse in volumes for the fourth quarter.

James Hardie has warned of worsening housing conditions.

James Hardie, the world’s largest manufacturer of fibre cement, said on Tuesday that global net sales had risen to a record $US3.771bn ($A5.61bn), up 4 per cent. But annual adjusted income fell 2 per cent to $605.5m with net profit up 12 per cent to $512m.

The earnings missed analyst expectations, with EBIT of $US779.8m undershooting analyst forecasts of earnings around $US790m, but also came after James Hardie had lowered its earnings guidance last year as it faced a sustained and quickly deteriorating housing sector in its key regions.

In its outlook provided with its fiscal 2023 earnings results, James Hardie said the markets it participates in, globally, were still very uncertain. In its largest market, North America, it expected its addressable market to decrease between 14 per cent and 19 per cent in fiscal year 2024 versus fiscal year 2023.

For the first quarter of fiscal year 2024, James Hardie expects adjusted net income to be in the range of US$145mto US$165m. This is against adjusted net income of $US154.3m in the first quarter of 2023.

Recently appointed James Hardie chief executive Aaron Erter said the team executed successfully and closed out fiscal year 2023 delivering record net sales globally and in all three regions in local currency for the full year. Although his team is smaller, with Mr Erter earlier this year cutting his global workforce by around 6 per cent as he looked to counter weakening demand and higher costs.

Speaking to managing through dynamic market conditions, Mr Erter said the group is “controlling what we can control”.

“This is about being agile and adaptive to respond to significant changes in market conditions, while remaining thoughtful and focused on where we can accelerate our competitive advantages. We remain focused on continued strong execution of our strategy to drive profitable share gain.

“I believe our fourth quarter results are a proof point that we are effectively managing through this cycle. We have a superior value proposition with the right products and solutions that our customers are seeking, which allows us to continue to deliver differentiated results. We are homeowner focused, customer and contractor driven, providing the entire value chain with world-class products and services.”

But there was continued weakness in its fourth quarter performance, reflecting the difficult market conditions in each region.

Global net sales in the fourth quarter fell 5 per cent to $US917.8m, as EBIT slid 17 per cent to $US187.5m. North America fibre cement sales declined 6 per cent to US$651.5 million. Volumes declined 14 per cent, adversely impacted by the slowdown in the housing market, which was partially offset by Price/Mix growth of 8 per cent.

Asia Pacific fibre cement net sales increased 2 per cent to $204.6m. Price/mix growth of 12 per cent, was partially offset by a 10 per cent decline in volumes due to the slowdown in the Australia and New Zealand housing markets. EBIT increased 12 per cent to $59.1m.

In Europe for the fourth quarter, building products net sales rose 2 per cent to €117.8m ($190.83). Price/mix growth of 14 per cent was partially offset by a 12 per cent decline in volumes, driven by the slowdown in the housing market.