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James Hardie (ASX:JHX) share price jumps 5% on quarterly result

The James Hardie Industries Plc (ASX: JHX) share price is climbing today in response to the company’s first-quarter FY21 results. At the time of writing, James Hardie shares have jumped more than 5% to $31.76.

James Hardie is an industrial building materials company headquartered in Ireland that was founded in 1888. It manufactures fibre cement building products for external cladding, interior lining, flooring and eaves.

The key points

  • Net sales from operating activities of US$626.3 million, down 5% from US$656.8 million achieved in 1Q20;
  • Adjusted net operating profit of US$89.3 million, in line with the prior corresponding period (pcp);
  • Net profit after tax of US$9.4 million, down 89% from US$86.5 million in 1Q20; and
  • Operating cash flow of US$189.2 million, up US$49 million or 35% compared to the pcp.

Management attributed the reduction in net sales to the impact of COVID-19, which resulted in lower sales in the Asia Pacific and Europe segments.

Meanwhile, adjusted net operating profit excludes (amongst other things) a US$63.7 million asbestos-related adjustment. According to the report, asbestos adjustments primarily reflect the non-cash foreign exchange re-measurement impact on asbestos-related balance sheet items, driven by movements in the AUD/USD exchange rate.

Additionally, management said its strong operating cash flow performance was due to the success of working capital initiatives implemented at the onset of COVID-19. These initiatives include a reduction in inventory and the improvement in accounts payable and accounts receivables balances.

In terms of liquidity, James Hardie’s cash position increased from US$144.4 million as at 31 March 2020 to US$197.8 million as at 30 June 2020. Combined with US$495.3 million of available borrowing capacity, the company had US$693.1 million of liquidity at the end of the period.

Segment results

Net sales for James Hardie’s North America fibre cement segment was flat for the quarter, coming in at US$451.8 million. The company said an increase in exteriors volume of 1% was offset by a decrease in interiors volume of 11%. Gross margin improved by one percentage point due to a slightly higher average net sales price and lower production and distribution costs.

Turning to the Asia Pacific fibre cement segment, which comprises Australia, New Zealand and the Philippines, net sales fell 15% to US$91.3 million. The Asia Pacific segment was unfavourably impacted by lower volumes, which decreased 18% compared to the pcp. Although the average net selling price increased by 10%, it wasn’t enough to offset higher production and distribution costs, resulting in a one percentage point reduction in gross margin.

Finally, the European building products segment delivered net sales of US$10.1 million for fibre cement and US$73.1 million for fiber gypsum. This represents a decrease of 19% and 12%, respectively, on the pcp. Overall, volume decreased 9%, primarily driven by a weakened market due to COVID-19 that included government-imposed shutdowns in the UK and France, two of the company’s largest markets in Europe.

Outlook & guidance

Despite the uncertainties of COVID-19 on the new construction and repair and remodel building markets, James Hardie has provided limited guidance for the following quarter and the full year.

For Q2 FY21, management expects North America exteriors volume to grow by between 7% and 11%. Additionally, the adjusted EBIT margin for the North America segment is expected to land between 27% and 29%.

Looking to the full-year, management expects FY21 adjusted net operating profit in the range of US$330 million to US$390 million. The comparable figure in FY20 was US$352.8 million, so the midpoint of this guidance range represents 2% growth.

In line with the company’s capital management strategy, ordinary dividend payments will continue to be suspended until further notice. If dividends are what you’re after, be sure to bookmark our ASX dividend shares page for the latest in ASX dividend news and ideas.

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Disclosure: At the time of publishing, Cathryn does not have a financial or commercial interest in any of the companies mentioned.

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