James Hardie Industries (ASX: JHX) has released its results for the fourth quarter and the full year. The results were far from spectacular, however, the announcement of a US13 cent per share (cps) ordinary dividend plus a US24 cps special dividend shows that the board has confidence in the company’s future and is certainly a bonus for shareholders.
One of the difficulties with analysing James Hardie’s results is determining what should be treated as ongoing expenses and what can legitimately be excluded to give a clear picture of true “operating earnings”. Given the recurring and real nature of asbestos liabilities and product liabilities, investors need to be wary of blindly following management’s assessment of the excludability of these items. However on management’s numbers, the company saw a fall of 7% in “operating EBIT” on the back of a 7% increase in net sales.
The declaration of a special dividend is in stark contrast to construction material supplier CSR (ASX: CSR), which was forced to slash its full-year 2013 dividend from 13 cps to just 5.1 cps. USA-focussed James Hardie and NZ-focussed Fletcher Building (ASX: FBU) have certainly been the best performers compared with their domestic-focussed peers over the past 12 months, with their share prices both climbing around 45%. In contrast CSR, Boral (ASX: BLD) and Brickworks (ASX: BKW) have all performed in line with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) returning about 25%.
At first glance the results may not seem that inspiring, but there is a good case for viewing James Hardie’s earnings as well placed for future growth. Firstly, it has exposure to the US housing market which is already showing signs of recovery with single-family home starts up 28% in the March quarter. Secondly, the company’s exposure to a US dollar creates a potential tailwind for investors if the Australian dollar continues to weaken. Thirdly, lower interest rates in Australia should eventually start to weave their magic and kick-start the domestic housing market, which James Hardie also has significant exposure too.
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