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James Hardie cautious on US market

AAP logoAAP 11/08/2016 Prashant Mehra

Building materials supplier James Hardie says its profit growth will not be as strong as the market expects in 2016/17, given uncertain conditions in its main market of the US.

The company says it expects to make a profit of between $US260 million and $US290 million in the year to March 2017, about four per cent lower than analyst expectations.

James Hardie made a net profit of $US244 million in 2015/16.

"Management cautions that although US housing activity has been improving, market conditions remain somewhat uncertain and some input costs remain volatile," chief executive Louis Gries said.

James Hardie makes fibre cement building products such as wallboards and sidings, and has been seeing irregular growth and rising costs in the US market, where the majority of its earnings are made.

Its cautious outlook was underscored by its financial performance in the first quarter of 2016/17, the three months to June, which showed softer margins in its North American fibre cements division.

Despite sales for the key division jumping 15 per cent from the same period a year earlier, margins slipped to 25.5 per cent, from 28.2 per cent.

The decline was due to extra staff and pricing pressures, James Hardie said.

Overall, the company's net profit of $US87.1 million in the quarter was up 45 per cent from a year ago, driven by higher sales and a $US20.6 million foreign exchange benefit on revaluation of asbestos-related balance sheet items.

James Hardie said it expects steady growth in the US housing market in 2016/17, assuming new construction starts of between approximately 1.2 million and 1.3 million.

Within its international business, which contributes a fifth of revenue, the company reported strong volume growth and higher prices in Australia, and higher volumes in New Zealand and Europe. However, sales delined in the Phillipines during the quarter.

"We consider this a soft quarter primarily due to the softer margin performance," RBC Capital Markets analyst Andrew Scott said in a note issued after the release of the company's results.

"It appears that higher selling, general and admin expenses, and further plant ramp-up costs will be a feature over the medium term, which may prompt some moderation of the market's margin expectations," he added.

James Hardies shares gained 17 cents, or 0.8 per cent, to $21.33.

US SALES BOLSTER JAMES HARDIE

* First quarter net profit up 45 pct to $US87.1m

* Sales up 12 pct to $US477.7m

* Asbestos Injuries Compensation Fund claims received up 11 pct to154

* Average claim settlement up 4 pct to $A224,000

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