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The James Hardie share price on watch as it delivers its profit results

Brendon Lau
Looking through magnifying glass

The James Hardie Industries plc (ASX: JHX) share price is likely to extend its rally after the building materials supplier posted its first quarter earnings update this morning.

The JHX share price has jumped by around 25% since the start of the calendar year when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained 18%.

In contrast, fellow building supply companies have delivered a mixed bag of performance with the Adelaide Brighton Ltd. (ASX: ABC) share price slumping over 20%, the Boral Limited (ASX: BLD) share price gaining 4% and the CSR Limited (ASX: CSR) share price surging 43%.

Few signs of weakness

There were worries that parts of James Hardie’s divisions will also be under stress given the patchy conditions in the US and Australian housing construction markets, but sceptics will have a difficult time finding the holes in James Hardie’s results.

Management also indicated that adjusted net operating profit (NOPAT) for FY20 (ending in March 2020) would range between US$325  million and US$365  million compared to the consensus forecast range of US$328 million to US$360 million.

The group posted a 13% jump in NOPAT compared to the same time last year to US$90.2 million, while adjusted earnings before interest and tax (EBIT) increased 16% to US$124.4 million.

Sales inched up 1% to US$656.8 million in the June quarter, which implied strong margins as management managed to squeeze more out of its operations in the face of lacklustre market demand.

All regions reporting growth

What’s pleasing is that all regions performed well. Volume of its North American fibre cement segment increased 4% in a down market, while its Asia Pacific and European operations also showed positive momentum.

“Our Asia Pacific Fiber Cement segment delivered solid financial results despite a contracting Australia housing market,” said James Hardie’s chief executive Jack Truong.

“Our Australian and Philippines businesses led the way in gaining volume growth above their underlying market growth. Our EBIT margins were in the middle of our target range and continued to be impacted by input cost inflation.

“Our Europe Building Products segment delivered strong revenue growth in Euros of 7% for the quarter. While starting from a low base, we have begun to deliver fiber cement penetration, with fiber cement revenue growth of 37%for the quarter.”

Truong added that the group’s European business is on track to deliver full year EBIT margin accretion for fiscal year 2020.

James Hardie expects modest growth in the US housing market in FY20 but warned that the Australian market is set to contract by high-single digits, although management expects the weakness to be offset by market share gains.

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Motley Fool contributor Brendon Lau owns shares of Boral Limited and James Hardie Industries plc. Connect with him on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019