James Hardie said its adjusted first-quarter net profit fell to $US50.1 million ($53.8 million) from $US52 million as tougher competition, higher costs and problems at it manufacturing plants weighed on the building products group.
Revenue for the three months ended June 30 rose 12 per cent on the year-prior period to $US416.8 million as housing construction activity gains momentum in the United States and Australia.
But the company admitted it had severely overestimated the strength and speed of the recovery in the US, where it generates about 80 per cent of its revenue.
James Hardie’s shares took a battering, sliding 7.8 per cent at $12.91 in mid-morning trading. James Hardie’s reported net profit including asbestos charges for the quarter plummeted 80 per cent.
Chief executive Louis Gries said the company had forecast US housing starts would rise by 15 per cent to 18 per cent on last year, but it now just looks like an increase of between 6 per cent and 8 per cent.
“Housing is running softer than forecast. We are not planning for a big catch-up in housing starts … We are not expecting the market to spike or really start accelerating,” he said.
In anticipation of strong demand, James Hardie has been bringing new plants and production capacity online and expects to spend $US200 million a year over the next three years on capital expenditures.
Mr Gries said management had not handled the ramp-up of several new plants at once adequately, and he is not satisfied with the company’s efficiency in the quarter.
“We have a lot [of capacity] coming on and we’ve missed some things that we wouldn’t normally miss. All of our plants haven’t run at the same level of efficiency and unit cost that we are used to,” Mr Gries said.
“I’m not happy with the result. It’s not a terrible result. But it’s not what we normally would’ve done with this volume.”
The company, which supplies trim, siding, lining and other building products, took an axe to analyst forecasts for its full-year profit.
Adjusted net operating profit, which excludes charges relating to James Hardie’s asbestos liabilities, is expected to be between US$205 million and US$235 million for the year ending March 2015. Analysts’ forecasts were for profit to reach between $US226 million and $US261 million.
Input costs for silica, gas and pulp as well as poorer plant performance at a recently recommissioned factory at Fontana in California offset price increases and weighed on gross margins.
For a building products company, James Hardie has some of the best margins in the business, but its margin slipped to 21.2 per cent from 21.4 per cent.
Mr Gries said James Hardie will do better next quarter but it is factoring in a significantly slower recovery in the US.
Net profit after tax, including asbestos charges, came in at $US28.9 million for the quarter, sliding some 80 per cent from $US142.2 million in the year-ago period.
Asbestos adjustments reflect large non-cash impacts relating to changes in the US dollar and Australian dollar exchange rate. The underlying profit number gives a better indication of the company’s performance.
Adjusted group earnings before interest and tax rose five per cent to $US72 million.
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