Reporting Season

James Hardie downgrades FY23 forecast

By Market Index
Tue 16 Aug 22, 1:50pm (AEDT)
Trees in strong headwinds
Source: Unsplash

Key Points

  • James Hardie posts a first quarter profit surge of 34% to US$163.1m
  • Net income guidance range had been adjusted to US$730m – US$780m, from the previous range of US$740m- US$820m
  • UBS believes James Hardie will be able to drive margin recovery throughout FY23

Despite James Hardie (ASX: JXH) posting a first quarter (ending June) FY23 profit surge of 34% to US$163.1m, following a 19% jump in net sales to a little over US$1bn, the market was fixated on the scalpel the building products group took to its previous full year guidance.

Revelations that the net income guidance range had been adjusted to US$730m – US$780m, from the previous range of US$740m- US$820m saw the share price -1.09% lower at noon today. The comparable figure is US$620.7m.

At the midpoint, guidance has been downgraded by around 5%, and implies growth of 22% over FY22.

The FY23 guidance downgrade, pulls the company's forecast in line with consensus.

Downturn

Management attributes downward guidance to ongoing inflationary pressures globally, lowered expectations regarding Europe segment earnings, a strengthening US dollar on the translation of its APAC and Europe earnings and housing market uncertainty.

In light of lower-than-expected sales, the group has cut its capex plan by 29% for FY23.

Highlights within today’s quarterly result included:

  • Sales grew 28% in the North American business to US$740.1m

  • Asia Pacific registered a 9% gain to $200.1m

  • Europe sales increased 7% to EUR110.8m

  • Global adjusted earnings (EBIT) increased 15% to US$208.4m, with an adjusted earnings EBIT) margin of 20.8%.

  • Global net sales up 19% to US$1bn for the quarter ending 30 June

  • Adjusted net income up 15% to US$154.3m for the quarter

Outlook

James Hardie's interim CEO Harold Wiens told investors that the current macro-economic environment is not only creating uncertainty for the housing markets in all three regions the group does business, but it is also putting pressure on FY23 results due to increased input and freight costs.

"… we are confident we will be able to deliver growth above market and strong returns in fiscal year 2023 and that is reflected in our updated guidance, which at its midpoint represents 22 per cent growth versus the prior year,” Wiens said.

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James Hardie share price over 12 months.

 

What brokers think

James Hardie is down -29.26% over one year, and year-to-date has fallen from $56.20 to $36.01.

 

Consensus is Strong Buy.

 

Based on Morningstar’s fair value of $41.09 the stock appears to be undervalued.

 

Based on the six brokers covering James Hardie (as reported on by FN Arena) the stock is currently trading with 37.7% upside to the target price of $50.28.

 

While lower FY23 guidance was largely expected by Citi, the broker maintains a Buy rating and target of $44.30.

 

Citi expects the improved US earnings (EBI) margin - due to US freight rates having moved sharply lower in recent weeks – to support the overall margin outlook.

 

While the group’s strong performance was dragged lower by higher costs, UBS believing James Hardie will be able to drive margin recovery throughout FY23.

 

The broker retains a Buy rating a target of $53 and is forecasting a full year FY23 EPS of 233.43 cents.

 

James Hardie’s Q1 performance fell short of Ord Minnett’s expectations, with net profit missing the broker's forecast by -7%.

 

The broker maintains a Buy rating and target price $52.00.

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