The James Hardie Industries plc (ASX: JHX) share price is falling heavily today.
In morning trade, the building products company's shares are down 11% to $28.49.
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Why is the James Hardie share price falling?
Investors have been selling down the James Hardie share price today after the release of the company's half year update.
For the six months ended 30 September, the company reported a 14% increase in sales to US$1,998.5 million and a 22% jump in net profit to US$330.5 million.
While strong on paper, its sales and profit growth has slowed from 19% and 34%, respectively, during the first quarter.
Nevertheless, James Hardie's CEO, Aaron Erter, was pleased with the second quarter. He said:
I am proud to report that the James Hardie team has continued to deliver strong execution of our global strategy that produced record Q2 results. The team's performance is reflected in strong Price/Mix growth in all three regions, including North America Price/Mix growth of +14%, Asia Pacific Price/Mix growth of +11% and Europe Price/Mix growth of +12%.
However, the company notes that over the past 45 days, it has seen a significant change to the outlook of housing market activity for the second half. As a result, management has downgraded its guidance for FY 2023. It explained:
Based on the challenging macro-economic conditions, and housing market uncertainty, management has adjusted the fiscal year 2023 Adjusted Net Income guidance range. The updated 2023 Adjusted Net Income guidance range is US$650 million to US$710 million, changed from the prior range of US$730 million and US$780 million, due to a decline in volume expectations. The comparable prior year Adjusted Net Income for fiscal year 2022 was US$620.7 million.
Share buyback announced but dividend scrapped
This morning James Hardie also announced a major share buyback. However, it will come at the expense of its dividend.
As part of its continued focus on deploying excess capital to shareholders, the company announced the replacement of its unfranked dividend with an on-market share buyback program to acquire up to US$200 million (A$309 million) of shares.
James Hardie CFO, Jason Miele, explained why the company is scrapping its dividend. He said:
Today we adjusted our Capital Allocation Framework to better match who we are: a growth company. The number one and primary focus of our Capital Allocation Framework is to invest in organic growth; our 5-year average Adjusted ROCE of 36% is proof that investing in our growth should be our number one use of capital.
Returning excess capital to shareholders via a share buyback rather than a dividend provides a growth company the optimal flexibility to ensure investment in organic growth is prioritized while maintaining financial strength and flexibility through cycles. Through these cycles we will target an average leverage ratio below 2.0x. Finally, today, we announce the replacement of our unfranked ordinary dividend with a share buyback program, which was approved by our Board of Directors for an amount up to US$200 million from today through 31 October 2023.
