Capacity Constraints

James Hardie Industries recently posted FY17 net profit of $248.6 million, some 1.7% below Ord Minnett’s estimate, and a touch below the mid-point of management’s guidance range of $245–255 million.

 

Earnings before interest and tax (EBIT) were 2.9% below our projection. The EBIT miss was larger for the fourth quarter in isolation (12.1% below our expectations).

 

We believe FY17 may well be a year to forget for James Hardie as top-line growth was held back by capacity constraints, while myriad issues combined to weigh heavily on EBIT margins for the North American fibre-cement (NAFC) division.

 

We forecast a recovery to take hold from the second-quarter of the current year, although we maintain our Hold recommendation on James Hardie and cut our target price to $18.70 from $19.25.

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