James Hardie Industries' (ASX: JHX) major product is fibre cement used for cladding homes and other buildings. It is used extensively in America and this is where the bulk of the company's revenues and profits are generated.
The company held its annual general meeting recently in Dublin, Ireland where the company is now domiciled.
First quarter underlying operating profit was $43.8, an 11% increase compared to 2011. Chief executive Louis Gries said, "Our US and European segment delivered improved operating earnings, reflecting a step-up in sales volume in the US….the Australian business delivered a solid, though lower, contribution to group earnings".
James Hardie has finally settled a long running taxation dispute resulting in a favourable accounting adjustment of $485m. The company continues to contribute 35% of free cash flow each year into a fund for asbestos compensation and various liabilities relating to this are carried on the balance sheet, which means that some accounting adjustments have to be made to when presenting underlying operating results.
The chairman re-iterated that dividend payments have been resumed and that these were expected to continue with further distributions in the near term. A 38c dividend was paid in July. A share buyback program was established in May to buy back up to 5% of issued capital although purchases have not yet commenced.
The company said that, although the US housing market remains subdued, industry data during the quarter suggests signs of improvement in builder confidence and increased interest among potential homebuyers. It quoted the U.S. Census bureau figures showing that single family housing starts, a key driver of sales, increased 23% in the quarter.
Despite these signs, James Hardie forecast full year underlying operating profit of between $140-$160m down from $156-$177m and cautioned that housing market conditions remain uncertain.
Adelaide Brighton Ltd (ASX: ABC), Boral (ASX: BLD), Brickworks (ASX: BKW), CSR (ASX: CSR) and Fletcher Building (ASX: FBU ) all provide materials such as bricks, concrete, plasterboard, tiles and are impacted by similar market issues as James Hardie.
Foolish takeaway
James Hardie has popular products with good margins and is well positioned if and when U.S., European and Australian housing construction recovers. However the strong Australian dollar continues to be a drag on results for local investors.
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Motley Fool contributor Tony Reardon doesn't own shares in any company mentioned in this article. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
