Product Innovation Supports James Hardie’s Earnings
- Leading global manufacturer of ‘in-demand’ fibre cement products, given their superior quality compared to competitor products
- Record first quarter sales up 35 percent to US$834 million and record first quarter net profit up 50 percent to US$134.2 millio
- Earnings guidance US$550-US$590 million, driven by organic growth, supported by higher volume sales
James Hardie (‘JHX’ or the ‘Company’) is the largest global manufacturer of fibre cement external cladding and internal lining products in North America and Asia-Pacific. Listed on the Australian and New York Stock Exchanges, the Company is headquartered in Ireland. The Company’s fibre cement products are water resistant, low maintenance and fire resistant. Importantly, in a carbon emission focused environment, these products are also lightweight. The products are predominantly used in residential construction, manufactured housing, repair and re-modelling and a variety of commercial and industrial applications.
North America is the Company’s largest and most strategically important market. JHX today has a 20 percent share of the fibre cement exterior cladding market in the US and this market share is growing steadily. The strategic importance of the North American market is that apart from being the largest in the world, housing stock in the US is ageing, in that 40 million homes are more than 40 years old. This supports consistent growth in the repair & remodel market as it takes market share from brick and timber products.
Another key driver of demand for the Company’s building products is the light-weight nature of fibre cement. This implies that it is likely to benefit from the ongoing introduction of carbon-reducing policies imposed on the building environment. This is in contrast to clay bricks, for example, which are susceptible to the negative impact of carbon-reducing policies that may restrict future demand, as the trend to lower carbon emissions gathers momentum.
First Quarter Results for FY22
The first quarter of the 2022 financial year, which covers the 3 months to June 21, was a record result in terms of sales and net income and was accompanied by higher earnings guidance. Global net sales for the quarter were up 35 percent to US$843 million on a slightly higher margin of 36.5 percent. The higher margin is attributable to a higher value product mix penetration with customers. The sales result was on the back of a 25 percent lift in volume globally. Net profit after tax for the quarter came in at US$121.4 million while adjusted net income was US$134.2 million, an increase of 50 percent. The adjustments relate to tax, restructuring and asbestos related expenses, in the form of contributions to the Asbestos Injuries Compensation Fund.
All regions experienced higher net sales with Europe up 37 percent, Asia Pacific up 33 percent and the larger US market up 28 percent.
Operating cash flow was US$184.1 million, down from US$189 million from the previous corresponding quarter. The more informative trailing 12 months cash flow was up 56 percent to US$781 million. The strong cash flow enables JHX to invest in organic growth while maintaining a conservative net leverage ratio of between 1-2 times.
Earnings guidance for the FY22 has been raised to US$550 – US$590 million, driven by organic growth, as the Company builds on its current 20 percent market share of the US fibre cement market. The key to understanding James Hardie’s future prospects is to appreciate its product innovation capability. In this current quarter JHX has commercialised 3 new cladding products for release around the world, in the form of its patented, textured cladding. The product is aesthetically pleasing and has superior durability over other forms of cladding.
JHX invest heavily in R & D to the point where its fibre cement cladding product is now in its seventh iteration of product innovation. JHX considers that its competitor products are equivalent to its second generation of product. Consistent organic earnings growth from volume-driven higher sales, on increasing margins, supported by continuous product innovation, points to continued earnings growth in the period ahead.