James Hardie shares soar on earnings beat, but warns of US housing weakness

James Hardie shares have spiked on better-than-expected earnings but it says the housing slump in the US could cause the market to fall by as much as 18 per cent.

James Hardie shares have soared on the back of better-than-expected earnings, as the company warns the outlook for the housing and construction sectors remain uncertain, with its largest market, the US, set to shrink by as much as 18 per cent this year.

Its shares rallied 15 per cent on the release of its latest earnings performance to $47.18 after first quarter earning came in almost 20 per cent ahead of analyst expectations. Top line sales were around 4 per cent better at a group level, driven by costs, with strong margin beats across all segments, analysts said.

It was a strong rebound for the former market darling and blue-chip stalwart of many investor’s portfolios.

James Hardie shares had been beaten up of late with profit warnings and a deteriorating outlook for the housing industry - which its large portfolio of building products such as fibre cement and cladding sells into - slashing its sales and earnings.

This saw its share price collapse by 50 per cent over 2022 but the better than expected sales and profits from the first quarter helped take back some of those losses with James Hardie shares ending up $5.86, or 14.38 per cent, at $46.62.

Announcing its first quarter results on Tuesday, James Hardie said it expected its addressable market in the US to decrease between 5 per cent and 18 per cent in 2023 from last year.

The company – known for its housing materials and the world’s largest seller of fibre cement as well as a leading provider of fibre gypsum and cement-bonded boards in Europe – said its guidance for the second quarter of fiscal year 2024 was adjusted net income to be in the range of $US170m ($258.4m) to $US190m.

Chief executive Aaron Erter said there was a slowdown in the renovation market, with that activity a key driver for James Hardie, while housing activity in general was more anaemic.

“People are sitting on the sidelines and waiting,” he told investors.

James Hardie warns the housing slump in the US could see the market fall.

Meanwhile, its North American volumes are expected to come in between 740m to 770m standard feet, and its earnings margin to be in the range of 30 per cent to 32 per cent for the full year.

James Hardie is looking to spend a total of approximately $US550m in capital expenditure.

It has been a troubling time for James Hardie as its sales and earnings have retreated along with the downturn in global housing construction and sliding consumer spending.

In November, James Hardie was forced to lower its profit guidance as it has begun to see a “significant change” to the Australian housing markets outlook, with labour shortages and unfavourable weather conditions constraining activity despite backlogs.

The company said last year its customers had also asked to lower inventory levels amid a “period of market uncertainty”.

However, James Hardie shares in May 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.

On Tuesday, James Hardie reported global net sales of $US954.3m, down 5 per cent, as adjusted earnings for the quarter rose 12 per cent to $US279.1m. Adjusted net income was $174.5m, up 13 per cent. Net profit for the quarter was down 3 per cent to $US157.8.

Mr Erter said the company had focused on what it could control in the current uncertain economic times.

“This focus has enabled us to start the year strong, delivering our best ever first quarter results for both adjusted net Income and operating cash flow,” he said.

“I believe our last two quarterly results are proof points that we are accelerating through this cycle. We have a superior value proposition with the right products and solutions that help our customers grow profitably. Our team is focused on maintaining our momentum to deliver strong financial results again in the second quarter, as highlighted by our guidance range provided today.

“We are homeowner focused, customer and contractor driven, providing the entire value chain with world-class products and services.”

At its flagship North American fibre cement division, net sales fell 6 per cent to $US694.8m as average net sales prices rose 3 per cent, but volumes fell 9 per cent.

In Asia Pacific, its fibre cement business reported a 5 per cent rise in net sales to a record $209.7m as sales prices rose 12 per cent and volumes fell 8 per cent. In Europe, sales fell 1 per cent to €109.7m.

Analysts were upbeat about the quarterly performance, its quality and outlook.

“We think the key positives are USA margin outlook and also improved volume outlook,” said UBS analyst Lee Power.

“We see the result as a strong positive with increased upside scenarios and James Hardie clearly taking advantage of an improving USA market,” he said.