James Hardie poised for U.S. growth
James Hardie, with most of its sales in the United States, reported a net profit of $29.3 million for the 2001/02 year, with a dramatic jump in fourth quarter profit to $15.2 million from $300,000 a year ago built on its key U.S. fibre cement business.
Following a year of restructuring, bedding down its Cemplank acquisition and selling its poor gypsum business, James Hardie chief executive Peter Macdonald said the company was in an impregnable position in the United States, poised for rapid growth.
"It would be very hard to make money competing with our business model.We believe we have a sustainable competitive advantage," Macdonald said. Analysts' annual profit forecasts had ranged between $24 million and $30 million, down from $38.2 million a year ago after a raft of one-off charges taken earlier in the year. The $91 million capital return was also within their forecast range.
James Hardie's U.S. fibre cement arm delivered 30 percent growth in revenue and volume in the fourth quarter, half from Cemplank, topping forecasts of 10 to 15 percent volume growth.
And the company said its stronger fourth quarter performance had carried into the new financial year, underpinned by continuing buoyant conditions in the U.S. housing market.
"We are targeting strong volume, revenue and EBIT (earnings before interest and tax) growth in the U.S. this year," Macdonald told analysts and reporters. NO MARGIN CONCERN
Analysts said they were not concerned with a slight easing in margins in U.S. fibre cement, which had been expected after the company bought Cemplank, whose products sold at cheaper prices.
"I am comfortable for prices to ease while they get volume growth in the (U.S.) northeast market because you need to have strong market share before you gain some pricing power," said Merrill Lynch analyst Simon Archer.
Investors initially applauded the fourth quarter result and capital return, sending James Hardie shares up 2.9 percent in early trade to A$6.20. The shares later eased to trade up 0.5 percent at A$6.05, in line with the broader market, but they were up 62 percent from a low of A$3.70 hit last September after the air attacks on the United States, trading on a high earnings multiple of around 33. The company, which recently sold its troubled gypsum business for $345 million, planned to use part of the proceeds to make a U.S. 20 cents a share capital return, pay a U.S. 5 cents a share dividend after the sale was completed, and cut debt.
It planned to use the remaining $67 million in cash for acquisitions, but did not plan to make any purchases which would make it miss its new, more conservative, gearing target of 40 percent in terms of net debt to debt plus equity.
"We have some very attractive potentials around the world, and we have the funds to go after those," Macdonald said, adding that the company was not looking to buy any companies in the fiercely competitive Chilean market.