James Hardie share price leaps 13% on record quarterly earnings

Sliding revenues aren't worrying investors of this building materials company. Higher margins is the money shot.

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The James Hardie Industries plc (ASX: JHX) share price is being catapulted on Tuesday morning after the building materials company released its FY23 first-quarter results.

In the opening moments of trading, shares in James Hardie are fetching $46.18, up 13.3%. For context, the S&P/ASX 200 Index (ASX: XJO) is trading 0.3% higher following a positive night across US equities.

James Hardie share price surges on sturdy results

  • Global net sales fell 5% year-on-year to US$954.3 million
  • Record global adjusted EBIT of US$234.2 million, up 12.4% year-on-year
  • Adjusted net income increased 13% to US$174.5 million
  • Adjusted diluted earnings per share (EPS) jumped 14% to 39 US cents per share
  • Operating cash flow increased 64% to US$252.3 million

In the first three months of FY24, James Hardie could not exceed the sales it achieved in the prior corresponding period. Instead, the fibre gypsum manufacturer experienced a 5% reduction as its North America operations dragged on reduced housing market activity.

Despite this, the company achieved record results in terms of its earnings and margins. A high-value product mix strategy primarily drove the global adjusted EBITDA margin of 29.2%. However, cost inflation impacted the North America fibre cement segment EBIT margin by 3.4%.

Conversely, Asia Pacific (APAC) and Europe segments saw strength in net sales — rising 12% and 22%, respectively. Although, both regions recorded declines in sales volumes.

What did James Hardie management say?

James Hardie chief financial officer, Jason Miele, spoke highly of the company's financial position, stating:

We continue to maintain a strong liquidity position, with our leverage ratio at 0.85x and US$580.7 million of liquidity. We improved our liquidity position by US$104.9 million since 31 March 2023, while also executing the next tranche of our share buyback program.

We expect our continued robust operating cash flows will ensure we maintain this strong liquidity position. Our capital allocation framework remains unchanged and matches who we are, a growth company. The number one and primary focus of our capital allocation framework is to invest in organic growth.

Furthermore, CEO Aaron Erter provided an optimistic view for the company's second quarter. Erter said:

I believe our last two quarterly results are proof points that we are accelerating through this cycle. We have a superior value proposition with the right products and solutions that help our customers grow profitably.

Our team is focused on maintaining our momentum to deliver strong financial results again in the second quarter, as highlighted by our guidance range provided today. We are homeowner-focused, customer and contractor driven, providing the entire value chain with world-class products and services.

What's next for James Hardie?

Speaking of guidance… the verdict doesn't appear so clear-cut. According to the release, estimates suggest a reduction in James Hardie's 2023 addressable market by somewhere between 5% to 18%.

However, management remains optimistic, forecasting adjusted net income between US$170 million and US$190 million, increasing sequentially. Likewise, North America volumes and EBIT margin are projected to hold steady, if not increase, in the next quarter.

James Hardie share price snapshot

An investment in James Hardie has outstripped the benchmark index in 2023. While the ASX 200 is up 5.3% year-to-date, the building materials manufacturer has surged a staggering 76% over the same time frame.

James Hardie shares currently trade on a price-to-earnings (P/E) ratio of around 23 times.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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