James Hardie Industries plc. (JHX)

Get JHX Alerts
*Delayed - data as of Jul. 10, 2014  -  Find a broker to begin trading JHX now
Exchange: NYSE
Industry: Capital Goods
Community Rating:
Symbol List Views
FlashQuotes InfoQuotes
Stock Details
Summary Quote Real-Time Quote After Hours Quote Pre-market Quote Historical Quote Option Chain
Basic Chart Interactive Chart
Company Headlines Press Releases Market Stream
Analyst Research Guru Analysis Stock Report Competitors Stock Consultant Stock Comparison
Call Transcripts Annual Report Income Statement Revenue/EPS SEC Filings Short Interest Dividend History
Ownership Summary Institutional Holdings Insiders
(SEC Form 4)
 Save stocks for next time

James Hardie Industries (JHX)

Q3 2013 Earnings Call

February 26, 2013 6:30 pm ET


Louis Gries - Chief Executive Officer, Executive General Manager of U.S.A, Executive Director and Member of Financial Statements Disclosure Committee

Russell Chenu - Chief Financial Officer and Member of Financial Statements Disclosure Committee


Emily Behncke - Deutsche Bank AG, Research Division

Keith Chau - JP Morgan Chase & Co, Research Division

Andrew Johnston - CLSA Asia-Pacific Markets, Research Division

Simon Thackray - Nomura Securities Co. Ltd., Research Division

Guy X. Bunce - Citigroup Inc, Research Division

Liam Farlow - Macquarie Research



Thank you for standing by, and welcome to the James Hardie Third Quarter 2013 Results Briefing. [Operator Instructions] I must advise you that this conference is being recorded today, the 27th of February, 2013. I would now like to hand the conference over to your first speaker today, Louis Gries, Chief Executive of James Hardie Industries. Please go ahead, Mr. Gries.

Louis Gries

All right, thank you. Hi, everybody. We're going to do -- Russell and are in Chicago this afternoon, so I've been told that everyone has the presentation, so we'll try and make sure we refer to what slide we're on and we'll take the same approach as we normally do. I'll kind of do a quick business overview. Russell will go through the financials and we'll come back for questions, so you can drill down on specific areas.

So on the cover page, Q3 fiscal year '13 management presentation; the second page, the disclaimer; the third page, telling you what I just said; the fourth page, introducing me, I guess; and the fifth page is the first page of the presentation.

So as you can see, a very flat result, very similar to the full 9-month result, so we'll go through that in some detail, as I flip through the rest of the slides. But the $28.8 million obviously is the relevant number compared to the $28 million last year and $113 million and $109 million, so about a 3% improvement, but for all practical purposes, flat.

Slide #6, so U.S. and Europe Fibre Cement. Okay, so the flat result obviously is only surprising because of the good volume growth. So we did have a stronger quarter on volume in the third quarter than we had in the first half. The EBIT, down a bit. Price started to flatten out, which we've been kind of indicating that although we are down 2% in the previous comps, the first quarter and the second, we saw that the price should start flattening out and start increasing in future quarters. That's without a price increase, and it is driven a lot by mix. So price is part of the story, a big part of the story actually.

The other part of the story is the spending, which we've talked about. Mostly cost-- costs we're intentionally put into the business, and then there's another component to the cost, which is more of a unit cost, where, despite having some favorable raw material input costs relative to last year, we are bringing up capacity in several places. And the new capacity comes up a bit less efficiency, basically it goes through a curve that usually takes 6 to 8 months. And so we're seeing that at a couple of facilities. We just started, not that it's affecting the third quarter result, we just started our bare waxing [ph] #1 line, which had been mothballed. So we'll be dealing with that for the next 4 or 5 months as well.

Additionally, in this quarter, we had kind of -- well, we had a write-off, so it won't go to one-off, because we had an issue, West Coast manufacturing, where they just didn't handle an inventory situation, as well as they should have and resulted in a write-off of about $2.5 million, so not a good performance in our part there, and that does also kind of had some impact on the flatness of the EBIT. But still, we're using most of our incremental dollars. We're getting off the extra volume with either loss in price, especially the first half or increased cost, which is gone right through the year. And now that we're starting up more capacity, we do have some inefficiencies in unit costs.

So Slide 7, which shows you the 9-month result in the U.S. Same story, volume up 13%; average price, down for the 9 months, just over 1% and the EBIT also down just about 1%.

We lost 2.2 points on the EBIT margin. Obviously, a higher revenue than last year without the additional EBIT dollars to go along with it, so it reduces the EBIT margin by 2.2 points.

Go to Slide 8, and we've been talking about getting the business ready for market share growth. I think the first thing to keep in mind or to remind you of is our business did well going into the downturn for a couple of reasons. One, we kind of anticipated it and planned for the lower levels of forecast at housing starts rather than the average or the high numbers. Figuring that, we could add back easier than we could take off. So it was one thing we did well.

Secondly, we did get gains in manufacturing at that time, which were important. And the third thing is, we did take cost out pretty much across the board, because it's -- our belief was we had a lot of money in the business for top line growth. Top line growth wasn't going to happen for several years, so pull those resources out and put them in when we get back to market recovery. So I'm not saying exactly like it's a hugely detailed plan, but conceptually, we're doing what we planned on doing. And I do think we get the added benefit at not only having those costs in during the downturn, but we also have the added benefit, so the resources are going in where we need them now rather than where they were before the downturn because our product mix and our market mix has changed quite a bit.

So the resources we're putting in now, as you can see from the slide, the biggest bump in resources were from a percentage basis, not from a total headcount, obviously. But it's in that supply-chain area to support all the work we've done with job packs for ColorPlus. But you can see manufacturing is up 7%; marketing -- this is mainly field sales, up 9%; supply chain, 29%; and R&D, also up. Now the R&D spending is on the core fibre cement projects, but the change there, is we're now starting to spend on non-fibre cement. So we have opened the lab in the Chicago area where the R&D is. We're ready to fibre cement, but it's not kind of Fibre Cement platform type work. Most of that spending right now is around coatings for Fibre Cement, but we also have some technologies we're working on that are complementary to Fibre Cement.

We kind of give you an indication, I guess, it's on a later slide that we've been putting resources in the business pretty aggressively, not crazy aggressive, but pretty aggressively. And the top line or the volume line has grown, but the volume line or at least the revenue line has grown at a slower rate than the cost we're putting in the business. We see that kind of changing as we go forward. Not sure exactly what quarter it'll change, but we're at the point now where a lot of what we have in for kind of Phase 1 market development, a lot of what we need is in or will be in very shortly. And if we continue to grow the top line, better than the market index, which we are. And then if the market index continues to improve, so you got a pretty strong top line growth, together with slowing down of the cost adds in the business, we see the kind of relationship more like you're going to want it, which is revenue growing faster than cost and profits growing faster than revenues.

So anyway, we also indicated here this is kind of the first step of the capacity. I said we started up, Waxahachie 1. There wasn't a big capital spend on Waxahachie 1, and 4 or 5 of cement plant, I guess $34 million for Fontana is not big either, but it is a reengineered plant now. This was the first plant in the U.S., it's one of our smaller scale plants and California is more of a HardieBacker market than a siding market. Basically it's a stucco market, so we do sell siding in California, but it's not a dominant share in the market. So we've configured Fontana now with a 5-foot sheet machine in place of where we had a 4-foot sheet machine. So we can now take -- make the full mix of flat sheets. So the shipping radius on that plant will shrink, which will make it a lot more competitive. We also put in automated HardieBacker equipment, so we reduced the lines on manual labor than it had when it shut down. We also have density modification in the plant now, so it can make the G2 product as well.

Read the rest of this transcript for free on seekingalpha.com