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James Hardie Earnings Lag Estimates

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James Hardie Industries plc reported first-quarter fiscal 2014 (ended Jun 30, 2013) adjusted earnings of 11.7 cents per share, up 17% from the prior-year quarter’s earnings of 10 cents per share. The results missed the Zacks Consensus Estimate of 60 cents.

On a reported basis, earnings more than doubled to 32.1 cents per share from 15.6 cents in the year-ago quarter. Earnings in the reported quarter include asbestos, asset impairments, ASIC expenses, New Zealand product liability expenses and tax adjustments.

Operational Updates

Revenues in the reported quarter increased 10% year over year to $372 million. However, the results fell short of the Zacks Consensus Estimate of $396 million. The growth was mainly driven by enhanced sales volume and higher sales price in the USA and Europe Fibre Cement and the Asia Pacific Fibre Cement segments. The segments were aided by increased activity in both new construction as well as repair and remodel markets.

Cost of sales rose 6.9% to $246 million from $230 million in the year-ago quarter. Gross profit improved 15% year over year to $126 million. Consequently, gross margin expanded 150 basis points (bps) to 33.9% year over year.

Selling, general and administrative expenses excluding New Zealand product liability expenses increased 23.9% year over year to $54.9 million. Operating profit increased to $142.2 million from $68.5 million in the prior-year quarter. Operating margin rose around two-fold to 38% from the year-ago quarter.

Financial Update

Net operating cash flow jumped about 58% year over year to $78.2 million in the quarter, reflecting higher earnings and favorable working capital movements.

For the year ended Jun 30, 2013, net capital expenditures increased to $25.7 million from $14.9 million in the prior year. The increase in capital expenditures was due to investments made to fund facility upgrades and refurbishments of idled equipment in anticipation of continued recovery in the U.S. housing market.


James Hardie expects that improvement in the U.S. operating environment reflects sustainable recovery in the housing market and improving house values. 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.

James Hardie anticipates that EBIT margins for full-year 2014 will increase as organisational expenditure is expected to remain flat. 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 New Zealand business is expected to deliver improved results supported by a stronger local housing market with an increase in housing starts activity. The Phillippines business continues to experience steady growth in the core market segment and expected to deliver consistent 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, repair and remodeling and a variety of commercial and industrial applications.

One of James Hardie’s peers Aegion Corporation (AEGN - Free Report) reported second-quarter 2013 adjusted earnings from continuing operations of 47 cents per share, up 57% from 30 cents in the year-earlier quarter. The results surpassed the Zacks Consensus Estimate of 38 cents.

James Hardie currently retains a Zacks Rank #3 (Hold).

Other stocks in the same industry with a favorable Zacks Rank include CaesarStone Sdot-Yam Ltd. (CSTE - Free Report) with a Zacks Rank #1 (Strong Buy) and Masco Corporation (MAS - Free Report) with a Zacks Rank #2 (Buy).

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