The James Hardie Industries plc (ASX: JHX) share price will be in the spotlight this morning after it unveiled a rise in earnings and sales despite the turmoil from the COVID-19 pandemic.
The building materials group demonstrated again why it's my top pick of the sector with CSR Limited (ASX: CSR) in second spot after it posted a better than expected result last week.
Expanding margins
But today belongs to James Hardie with management announcing a 17% increase in adjusted net operating profit of US$352.8 million for the year ended March 31, 2020.
Its adjusted earnings before interest and tax (EBIT) expanded by 20% to US$486.8 million while revenue increased 4% to US$2.61 billion.
This implies a much-improved margin that's helped by its Lean manufacturing initiative, while its US operations were a standout.
US driving growth despite COVID-19
"I am particularly pleased with the outstanding North America performance, as we continued to grow above market while delivering exceptional returns," said James Hardie chief executive Jack Truong.
"Underpinning our success in North America was 11% volume growth in the exterior business coupled with sustained volume growth of 5% in the interior business."
US construction activity was already showing signs of weakness before the coronavirus outbreak. The pandemic further impacted on the sector with sector peer Boral Limited (ASX: BLD) looking worse for wear from the fallout.
There's speculation that Boral may be forced to do a heavily discounted capital raising too, according to the Australian Financial Review.
Need for capital raising?
But there's little worry that James Hardie will need to intrusively tap shareholders on the shoulder. While the group cancelled its final dividend to shore up capital, its liquidity position improved significantly in the fourth quarter.
Its cash pile increased from US$464 million at 31 December 2019 to US$510 million at 31 March 2020 and US$578 million at the end of last month.
Off to a good start in FY21
Interestingly, James Hardie commented that March was a cracker month with double-digit sales growth in all of its regions even though COVID-19 was already creating havoc around the world.
"In the fourth quarter, our Asia Pacific segment delivered good financial returns with revenue up 2% and Adjusted EBIT growth of 4% in local currency at an Adjusted EBIT margin of 20.5%," added Dr Truong.
"Our Europe Building Products segment delivered strong revenue growth of 7% in Euros in the quarter, led by fiber cement growth of 50% and fiber gypsum growth of 3%."
Europe is clearly the Achilles' heel but at least its growing. The only downside to the results is the outlook.
Forecasting for more uncertainty
Management declined to offer any earnings guidance due to the volatility and uncertainty created by the global catastrophe.
James Hardie won't be alone in not providing any specifics but this will keep investors on their toes as we have not seen the worst of the economic recession.
The only figures that management were willing to put in the open was its North America segment Adjusted EBIT margin. This is expected to range between 22% and 27% for FY21 compared with 25.3% in the March quarter.
Given the wide range, that doesn't say very much in my view.
