James Hardie Industries plc (ADR) (NYSE:JHX) is gearing up for long term growth, in expectation of a continued recovery in the US housing market. We have analyzed some key parameters that indicate that company has started taking steps to
increase its organizational potential. These steps are backed by their belief of sustained market recovery, which will positively impact their business segment. This can also be affirmed by the company’s increased expenses in the following heads – Research and Development, Sales and Marketing and additional human resources in various departments.
Increased R&D Expenses, What Does it Mean?
Research and development costs were 43% higher for Q3 FY 2013 at $6.3 million, compared to $4.4 million in the same period last year and 30% higher for the nine month period at $17.6 million compared to $13.5 million in the same period last year. The increase in this cost was due to:
(1) Investment in R&D projects within the USA and Europe and Asia Pacific Fibre Cement segments.
(2) New set-up of R&D facility in Chicago during Q3 FY 2013. The company is also focusing on the non-fibre cement segment.
There was an increase in sales and marketing expenses for three main purposes: promotions, tradeshows and advertising.
As compared to March 2012, there has been an increase in headcount in the Manufacturing dept. by 7%, Marketing, Sales and General and Administrative by 9%, Supply Chain by 29% and R&D by 13%. The company had reduced resources during the slump period, and there is an increase in the same as they foresee further market recovery.
The company is also going to incur capital expenditures in order to increase production capacity. The Board has approved $34 million to increase production capacity at the Fontana, California plant. Fontana was the company’s first plant in the US, which was closed in Dec. 2008. It is a reengineered plant and os expected to re-open in early 2014.
The company may also incur capital expenditure in Australia as they are assessing its existing production capacity to address production capacity needs in the medium term. Other than the US, New Zealand market continues to improve. The Philippines business continues to perform well and is expected to contribute steady earnings in the future.
We feel increased expenses in R&D and Marketing & Sales, addition of human resources, and allocation of capital expenditure to increase production capacity are four main indicators of the company’s aggressive stance. So, if one wants to place his bet on the cement industry, James Hardie Industries plc (ADR) (NYSE:JHX) is definitely worth a look. The company is moving swiftly in order to benefit from favorable market conditions.
The article The Housing Market Recovery, a Boon to Cement Industry originally appeared on Fool.com and is written by Sujata Dutta.
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