US housing warning sparks worst James Hardie rout since 1973

[SYDNEY] A downbeat outlook on the US housing market from James Hardie Industries sent shares of the building materials producer tumbling the most in five decades, the latest sign of caution around a pillar of the world’s largest economy.

The company’s stock tumbled 28 per cent in Australia, the most since November 1973, after its quarterly profit sank and it warned demand for repairs and new construction in North America remains challenging. Its US-listed shares plunged as much as 37 per cent.

“Uncertainty is a common thread throughout conversations with customer and contractor partners,” chief executive officer Aaron Erter said. Homeowners are deferring large-ticket remodelling projects, and affordability remains the key impediment to improvement in single-family new construction, he added.

Difficult economic conditions continue to weigh on American homebuyers, with the real estate market recently recording its slowest spring selling season in more than a dozen years. US luxury builder Toll Brothers on Tuesday (Aug 19) also reported quarterly orders that missed analysts’ estimates.

The weak housing sector has attracted attention from US President Donald Trump, who’s been pushing for the Federal Reserve to cut interest rates in part to make mortgages more affordable.

“This is a tough quarter to swallow,” William Blair & Co analyst Ryan Merkel wrote in a note. “Big picture, North America volumes down 15 per cent in the quarter was much worse than we thought and brings into question share loss and business model cyclicality.”

The result set a “conservative bar” as single-family new construction caused a big miss and guidance cut, he wrote.

James Hardie’s adjusted net operating profit dropped 29 per cent year on year to US$126.9 million for the three months ending June. Net sales in its North American fibre cement business decreased 12 per cent during the quarter as key markets such as Texas, Florida and Georgia grapple with cost barriers and elevated housing inventory. The firm gets about 70 per cent of its revenue from North America, according to data compiled by Bloomberg.

James Hardie’s stock has also been pressured by the company’s US$8.75 billion acquisition of home-decking provider AZEK in March. The deal amounted to a major bet on the durability of the US housing market and consumer spending.

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Meanwhile, home-improvement retailers Lowe’s and Home Depot showed sales holding up better, with consumers spending on essentials and opening their wallets for good deals.

Home Depot said this week that comparable sales growth accelerated in the US during the latest quarter, after a weak couple of years in which consumers deferred spending on big-ticket projects. Lowe’s shares gained after earnings beat estimates and the home-improvement supplier said that it agreed to buy Foundation Building Materials. BLOOMBERG