Investors Show Faith In Hardie
The Age
Tuesday November 20, 2007
MORE share buybacks and a 140% lift in dividend have pushed James Hardie shares to their highest this month, despite the building materials company revealing a 32% slump in second-quarter earnings because of the crash in the US housing market.
According to a Bloomberg survey of economists, US housing starts have fallen to a 14-year low, signalling that the housing recession in the world's biggest economy is far from over. US housing starts figures will be released this week.James Hardie shares closed at $6.67, up 35? or 5.5 per cent. Shares in Boral - which last month warned that US housing downturn would shave $43 million from its expected earnings - also rose, up 11? to $6.75.Investors jumped on board and maintained the faith, despite James Hardie revealing that net operating profit for its second quarter ending September 30, excluding asbestos compensation costs, had slumped from $US68.3 million to $US46.5 million as US builders reduced orders for fibre-cement. Second-quarter net sales of USA Fibre Cement were down 9% and sales volume was down 11 per cent. Net operating profit for the half-year, excluding asbestos, fell 12 per cent to $US115.1 million, down from $US131.1 million. The company in its outlook statement said conditions in the US, where it makes more than 80% of its money, were not about to get better. Residential construction would remain weak until at least the end of this fiscal year, and the large backlog of new houses for sale and indicators of future activity, such as housing permits and builder confidence, all seemed to suggest a recovery was not likely soon.James Hardie has readjusted its budget and it is now forecasting US housing starts will rise at an annual rate of 1.1 million, down from its assumption of 1.3 million starts. Rob Patterson, head of funds manager Argo Investments, said the market had probably expected a worse result. "It's probably what I would call a relief rally, the relief that it wasn't worse," he said. James Hardie chief executive Louis Gries said the company was still performing well in the circumstances and was making the necessary adjustments to get through the bad period. At the end of last month, the company had announced it was suspending production at its fibre-cement operation in Blandon, Pennsylvania, as it was the least cost-efficient of 10 manufacturing plants in the US. Despite the further deterioration in US market conditions in the second quarter, earnings before interest and tax were down only 2%, excluding asbestos, Mr Gries said. "Sales in our USA Fibre Cement business were again affected by the downturn in US housing activity, but it continued to take market share," Mr Gries said. "The outlook for North America is for further weakness at least through the remainder of this fiscal year." James Hardie has announced a US12? interim dividend, to be paid on December 18. This is well up on last year's US5?.KEY POINTS ? Shares climb, despite a 32% slump in second-quarter earnings.? James Hardie warns that conditions in the US are not about to get better.
© 2007 The Age