James Hardie rides construction boom, lifts profit guidance

Building materials titan James Hardie says the home renovation boom can withstand interest rate rises and borrowers have the capacity to pay more for mortgage repayments.

Interim chief executive Harold Wiens said the company saw strong growth in the US, Europe and Asia Pacific.

James Hardie says the home renovation boom can withstand interest rate increases and borrowers have the capacity to pay more for mortgage repayments due to soaring property values.

The building materials firm lifted its full-year profit guidance by 7 per cent on Monday as it rides the pandemic-fuelled construction boom. It believes the obsession with home remodelling will not end, even when interest rates begin to rise – which some bank economists predict could be as early as August.

James Hardie North American president Sean Gadd said the US homeowner wealth had never been higher, with home equity averaging $US302,000 ($425,700) per property.

Mr Gadd said even if interest rates rose 100 basis points, that would only cost homeowners an extra $US25 a month on average, based on those taking out a $US50,000, 10-year home equity loan to complete renovations.

“We do not believe this is a deterrent to homeowners deciding to remodel their homes,” Mr Gadd said, adding there were 44 million homes in the US that were more than 40 years old and primed for renovation.

“There has been a lot of focus from markets around interest rates in the past few weeks,” he said. “We believe the remodel segment has more resilience to interest rate changes than other segments.”

The assessment comes after James Hardie sacked its chief executive Jack Truong last month, alleging he created a “hostile” work environment. Mr Truong has denied this claim, saying he was “blindsided by the termination” and “unequivocally” rejected the assertions from James Hardie chairman Michael Hammes.

Regardless, the company is pursuing Mr Truong’s strategy of making fibro cement cladding sexy, hitting up influencers on Instagram and launching an advertising blitz. The company has struck a brand partnership with US home renovation influencers Chip and Joanna Gaines, who have 23.8 million followers on social media, as well as TV presence on Magnolia Network – a joint venture between the pair and Discovery.

While the Gaines have a strong following, it has not been without controversy. Magnolia suspended the show Home Work from its network following complaints from homeowners, featured on the program, about the quality of work the series’ contractors performed.

Magnolia reinstated the show last month after an investigation found no “ill or malicious intent” from the show’s hosts, Andy and Candis Meredith, according to US media reports.

The company now expects to deliver full-year net income between $US620m and $US630m, compared to previous guidance of $US580m-$US600m.

Its revenue jumped 22 per cent to $US900m in the three months to December 31 – while Mr Truong was still in charge. Meanwhile, net income leapt 25 per cent to $US154.1m.

Interim CEO Harold Wiens said the company had recorded “strong growth” across North America, Europe and the Asia-Pacific.

“The James Hardie team has continued to execute well on our stated global strategy. This is reflected in strong price-mix growth in all three regions, including North America price-mix growth of 12 per cent, Europe price-mix growth of 13 per cent and Asia-Pacific price-mix growth of 11 per cent,” Mr Wiens said.

“The team’s success in delivering high-value products, 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.”

RBC Capital Markets analysts said: “The company continues to execute driving high-value product penetration with significant investment in marketing, innovation and talent capability.”

It has an outperform rating and a $73 a share price target.

James Hardie shares rose 1 per cent to $48.60 on Monday. They have risen 19 per cent in the past 12 months.