James Hardie suspends dividends, cuts jobs

James Hardie has suspended payouts until further notice and will cut 375 jobs globally, as COVID-19 hits building supplies demand.

James Hardie cladding on this home.

James Hardie Industries warned it will suspend dividend payments and cut nearly 400 and close several plants around the world as it battles a sharp drop in demand for construction materials.

However in a quarterly update James Hardie said it has ample liquidity to ride out the economic storm caused by coronavirus.

James Hardie lowered the upper end of its previously issued financial 2020 earnings guidance, narrowing the range to $US350m-$US355m, from $US350m-$US370m previously.

It also noted unplanned costs caused by mandatory operational shutdowns in Spain, New Zealand and the Philippines had hurt the outlook. A $US90m non-cash impairment charge relating factory closures has also added to the growing incurred costs.

Investors responded positively to the update which confirmed North American revenue was still on target for double digit growth. James Hardie shares closed up 4.9 per cent at $21.82.

James Hardie has not been immune to the construction slowdown, putting the commissioning of its new US manufacturing site in Alabama on hold until at least the 2022 financial year.

Capital expenditure for the coming financial year has also been reduced by more than half, setting a range between $US80m to $US95m. Its historic annual average capital expenditure budget is approximately $US240m.

Its dividend suspension contrasts with rival Brickworks which this week said it would increase its dividend by 5 per cent to 20c a share.

Despite the downturn, rental income from its property trust had provided a reliable source of funds to ensure a payout could be made to shareholders, Brickworks said.

James Hardie chief executive Jack Truong said cost cutting measures including permanent closures to manufacturing sites in Australia, New Zealand and the US occurred to ensure the company’s financial safety.

“These decisions are always extremely difficult,” Dr Truong said.

“Our leadership team took this action with considerable thoughtfulness, with the strategic objective of preserving and enhancing the global organisation’s competitiveness over the long term.”

Some 375 jobs will be cut from its global operations, with a planned closure of its permanent formwork business based in Cooroy, Queensland set for the middle of 2020.

It also aims to close fibre cement manufacturing in New Zealand, consolidating operations to its two Australian sites in New South Wales and Queensland.

Demand and supply measures in the North American market has prompted it to permanently close its South Carolina manufacturing plant, while lower short-term demand caused by shutdowns to the European economy has prompted it to temporarily close its German plant in Siglingen.

“Our relentless focus on these actions will help ensure strong liquidity and financial flexibility as we navigate through this crisis,” James Hardie chief financial officer Jason Miele said.

It also noted its annual contribution to the Asbestos Injuries Compensation Fund will be paid quarterly, rather than one lump sum payment in July

Royal Bank of Canada analysts indicated the dividend deferral is likely to weigh on near-term investor expectations, with the brokerage initially predicting the company would retain a capital expenditure budget of $US150m.

Brokerage Citi highlighted demand across the sector remains highly uncertain and would be likely to drag on estimated earnings for the financial year.

“Feedback from US home builders indicates sales have improved sequentially in recent weeks from April lows,” Citi analysts said. “However, the outlook for financial year 2021 estimates is still likely to see reduced demand.”

James Hardie is scheduled to release its financial year results on May 19.

Additional reporting Dow Jones Newswires