James Hardie’s upside surprise

James Hardie has surprised the market today with better-than-expected second quarter numbers which have pushed the first half numbers well ahead of expectations.

Net operating profit excluding charges for the second quarter came in at $56.3 million versus the medium estimates of $50.1 million, taking first half 2014 NPAT to $108.3 million. Considering the company gave FY14 guidance of $165 to $194 million in late August, NPAT actuals have now reached 61% of the midpoint of FY14 guidance.

This has led JHX to upgrade FY net earnings to $180-$195 million compared to the medium analyst estimations of $171.2 million prior to the results. The jump in profit guidance has seen the stock pop 13.7% in early trade, and with an 8 cent unfranked dividend 2 cents above the street view, JHX has rewarded investors for their service to the company; taking it to a record all-time high.  

The major drivers were the US and Europe, with fibre cement volumes, price and margins well ahead of expectations. Earnings increased 25% to US$67.3 million on the corresponding period, volumes were 21% ahead of the same period last year with the average price per sheet coming in at $658, up 4%, at a margin of 22.5%; also a 4% improvement.

Asia Pacific also registered solid numbers as demand from residential housing picks up; seeing sales volumes up 5% on the corresponding period with earnings jumping 4% to A$22.1 million.

This is a very solid result; JHX offer exposure to housing markets in Europe, the US, Australia and New Zealand and all are showing sustained growth. FX tailwinds, coupled with increasing consumer confidence and demand are all upside risk for the stock, and it’s well positioned to take advantage of a possible economic upswing.

Trading

A massive break away gap has now occurred and volumes are very strong on the back of this result. However, I am mindful of such a large gap and the possibility of it waning in the afterglow.

I would want to see a small contraction from the intraday high before entering the trade; JHX is well positioned to take advantage of USD and EUR moves, however this may be a little longer than originally expected with the Fed holding the line. I would suspect profit taking to occur in the interim.

James Hardie share price

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