The share price of James Hardie Industries plc (ASX: JHX) jumped at the opening bell after management reported an acceleration in earnings growth and tipped further profit gains in FY19. The stock added 2.2% to $22.94 as investors cheered the 12% jump in adjusted group earnings before interest and tax (EBIT) to US$397.5 million for the 12 months ended 31 March 2018, as full year revenue increased 7% to US$2.05 billion. What is perhaps more notable is that earnings growth really fired up in the fourth quarter with EBIT surging 34% as the building materials supplier dusted itself off from…
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The share price of James Hardie Industries plc (ASX: JHX) jumped at the opening bell after management reported an acceleration in earnings growth and tipped further profit gains in FY19.
The stock added 2.2% to $22.94 as investors cheered the 12% jump in adjusted group earnings before interest and tax (EBIT) to US$397.5 million for the 12 months ended 31 March 2018, as full year revenue increased 7% to US$2.05 billion.
What is perhaps more notable is that earnings growth really fired up in the fourth quarter with EBIT surging 34% as the building materials supplier dusted itself off from a poor first half performance that was hampered by capacity constraints in its North American business.
“However, in the second half of the year we began to build momentum and exteriors volume for the second half of the year grew in-line with our market index,” said James Hardie’s chief executive Louis Gries.
“Additionally, we exited fiscal year 2018 with an EBIT margin at the top end of our target range and our manufacturing performance within expected levels, despite input costs which continue to increase.”
It also didn’t hurt that James Hardie upped its second half dividend by 2 US cents to US30 cents a share and it’s not only North America that is contributing to the improved results.
The company is experiencing strong demand for its products in Asia Pacific, including Australia, although the North American division accounts for roughly 80% of group EBIT and generates better margins.
On that front, management’s expectation of further growth in the US housing market in FY19 is good news for shareholders.
James Hardie is expecting similar year-on-year growth experienced in FY18 for the single family new construction and repair & remodel markets in the US.
The company expects new construction starts of around 1.2 million and 1.3 million in FY19 and is expecting EBIT margins on its US fibre cement business to remain at the top end of its 20%-25% range.
What could also be a small relief to those worried about the health of the housing market in Australia, James Hardie isn’t quite seeing any stress, at least not yet. The company is expecting trend growth along the eastern states of Australia for repair and remodel of detached homes.
James Hardie’s results also stand in contrast to fellow building supplies group Boral Limited (ASX: BLD), which has been impacted by bad weather in Texas.
Shares in James Hardie have outperformed the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) over the past 12 months with a gain of 15% compared to the 6% increase by the top 200 index.
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Motley Fool contributor Brendon Lau owns shares of Boral Limited. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.