James Hardie Industries plc. (JHX)

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James Hardie Industries (JHX)

Q1 2014 Earnings Call

August 12, 2013 1:00 am ET


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

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


Jason Harley Steed - JP Morgan Chase & Co, Research Division

Emily Behncke - Deutsche Bank AG, Research Division

Matthew McNee - Goldman Sachs & Partners Australia Pty Ltd, Research Division

Andrew Johnston - CLSA Limited, Research Division



Thank you for standing by, and welcome to the Q1 2014 James Hardie Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Monday, the 12th of August, 2013. I would now like to hand the conference over to your first speaker today, Mr. Louis Gries. Please go ahead.

Louis Gries

Thank you. Good morning from Dublin, and I appreciate everyone joining the call. We'll walk through this how we usually do. I'll take care of the business overview. Russell will come back, will take care of the financial presentation, and then we'll come back for Q&A, investors and analysts first and then any media questions at the end.

So if you flip through the slides to Slide #6, we'll start there. Obviously, the row we track is the net operating profit with the exclusions. This quarter, we did have a $4.6 million exclusion for Asia Pac Fibre Cement along with other normals. So the improvement on that line, 19%, good improvement, and we'll talk about how that was driven through both operating divisions.

We go to Slide #7, which starts the U.S. results, pretty much had things moving in the right direction across the board in the U.S. We had higher sales volume, tracking about with the market opportunity there on a quarterly basis. PDG was pretty significant, basically flat. When you look back 4 quarters, it's where we want it to be, and I -- when we look forward through the rest of the year, it's where we want it to be. But this particular quarter, if you calculate just for that, it's pretty flat.

Price was basically flat on last year, but a positive trend we're seeing in the business currently, and we expect it to continue. We did have higher input cost. It wasn't super significant, about $2.5 million or so, and that would be kind of across the board, full cement, energy, so pretty much everything a little bit.

The product mix, per that positive trend in pricing, is due to a positive trend also on the product mix, so that's part of it. We did have increased costs due to idle facilities, and that's mainly Fontana refurbishment costs, which are not capitalized, and then Somerville trials that we've done some preliminary works at Somerville anticipating that facility's startup.

It's not really production trials. We're -- it's production trials, but not for commissioning. It's more to see what our product mix can be out of that facility. It has been a siding plant, and we're looking at producing HardieBacker at that plant. So the upfront work there has been around our evaluation of that change.

We did have lower fixed costs basically due to utilization. And we had higher employment and marketing, higher than last year this time, but that's pretty flat at this point quarter-to-quarter, but it was higher than last year.

Slide #8 shows you results. Generally, the U.S. numbers are slightly better than the numbers you see here. Although Europe is small, Europe had a kind of an off quarter, both from a volume and EBIT standpoint, so it did impact it enough to where you could see it a little bit in the numbers. But these are the numbers for both U.S. and Europe, up 10% on sales, obviously, flat on price. So you get 10% on the volume as well. 18% on EBIT line, which is a good result, pulls us kind of at the lower third of our range, but we got a pretty positive trend month-to-month there. So our EBIT margin that we've been struggling to deliver is starting to come in range for us, and we, obviously, indicated we do think it'll be in the range for the full year, not just first couple of quarters.

Next slide, #9, kind of shows that graphically. Last year, same quarter, we just touched the range, never really got back into it. This year, like I said, we're kind of at the bottom third of the range, but we expect the trends in the business to continue and finishing the -- in the range for the full year.

Slide #10 really shows what I already described -- well, everyone knows the market's getting better, so we covered that some. Our price is pretty flat, so all 3 lines are actually lining up pretty close to the same slope because our PDG result, even on a rolling average, is in the mid-single digits. So we don't have the volume, kind of running significantly better than the market at this point. It is running better than the market, but not significantly better than the market.

Slide #8 (sic) [Slide #11] , just gives you the price. I mean, it's interesting to look at that graph. So we had a really good slope. If you went back further years, you had a really pretty good slopes running up at 2011, and then we had the production pricing that we experienced over the last couple of years. And we're starting on a new slope off of that. F '13 low is how I would anticipate the pricing going, a new positive slope, obviously.

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