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James Hardie Industries plc reported fourth-quarter 2013 adjusted earnings of 6.9 cents per share, a decrease of 12.6% from the prior year quarter’s earnings of 7.9 cents per share. The results missed the Zacks Consensus Estimate of 36 cents.

On a reported basis, earnings plunged 114% and recorded a loss of 15.8 cents per share in the fourth-quarter compared to a profit of $1.098 per share. Earnings in the reported quarter include asbestos, asset impairments, ASIC expenses, New Zealand product liability expenses and tax adjustments.

On a reported basis, earnings for full-year 2013 were 10.3 cents per share compared with $1.38 posted in 2012.

Operational Updates

Revenues in the reported quarter increased 5.7% year over year to $326.8 million. However, the results fell short of the Zacks Consensus Estimate of $359 million. The growth was mainly driven by an increase in sales volume in both the USA and Europe segments and the Asia Pacific Fibre Cement segment.

Revenues for the full year increased 6.8% to roughly $1,321.3 million from $1,237.5 million in 2012. The results also missed the Zacks Consensus Estimate of $1,354 million.

Cost of sales increased 5.3% to $225 million in the fourth quarter from $213 million in the year-ago quarter. Gross profit improved 6.5% year over year to $101.8 million. Consequently, gross margin expanded 25 basis points (bps) to 31.1% in the quarter.

Selling, general and administrative expenses excluding New Zealand product liability expenses went up 27% year over year to $58 million. Adjusted operating loss was $69.5 million in the fourth quarter compared with an operating profit of $480.7 million in the prior-year quarter.

Financial Update

Net operating cash flow decreased nearly four-fold year-over-year to $109.3 million as of 31 Mar 2013.

For the year ended 31 Mar 2013, net capital expenditures increased to $59.7 million, compared to $35.5 million in the prior year. The increase in capital expenditures is driven by investments made to fund facility upgrades and refurbishments of idled equipment in anticipation of a continuing recovery in the U.S. housing market.


James Hardie expects that improvement in the U.S. operating environment reflects a sustainable recovery in housing market. According to National Association of Home Builders (NAHB), growth of the repair and remodel market will be slower than the new housing market in the financial year 2014. In anticipation of the ongoing recovery, the company is investing in capacity expansions by re-commissioning idled facilities, as well as funding market and organizational development.

The company anticipates that EBIT margin for the full year 2014 will increase as the growth in sales revenue exceeds spending on organizational initiatives. These gains are expected to result in an EBIT margin above 20% in the USA and Europe Fibre Cement segment.

The operating environment in Australia is likely to remain subdued and the company is not anticipating any substantial increase in net sales. However, the strong upward trends in the New Zealand construction market are expected to continue. The Philippines operating environment is likely to remain robust and the business is expected to contribute improved operating earnings over the next twelve months.

Based in Dublin-Ireland, James Hardie manufactures fibre cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand and the Philippines. These products are used in a number of markets, including new residential construction, manufactured housing and repair and remodeling and a variety of commercial and industrial applications.

James Hardie currently retains a short-term Zacks Rank #2 (Buy).

Peer Performance

PGT, Inc. (PGTI - Snapshot Report) posted first-quarter 2013 adjusted earnings of 6 cents per share compared with the prior-year loss of a penny per share. The results were ahead of the Zacks Consensus Estimate of 3 cents. Armstrong World Industries, Inc. (AWI - Analyst Report) reported first-quarter 2013 adjusted earnings of 22 cents per share, declining 55% from the prior year quarter’s earnings, missing the Zacks Consensus Estimate of 39 cents.

However, Headwaters Incorporated (HW - Snapshot Report) reported a loss from continuing operations of 14 cents per share in second-quarter 2013 compared to the prior-year loss of 30 cents a share. The loss per share was wider than the Zacks Consensus Estimate of a loss per share of 10 cents.

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