Investors weren't pleased with the recent soft earnings report from James Hardie Industries plc (ASX:JHX). We did some digging and believe that things are better than they seem due to some encouraging factors.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.ASX:JHX Earnings and Revenue History August 26th 2025

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. James Hardie Industries expanded the number of shares on issue by 34% over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of James Hardie Industries' EPS by clicking here.

A Look At The Impact Of James Hardie Industries' Dilution On Its Earnings Per Share (EPS)

James Hardie Industries' net profit dropped by 34% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 35%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 34% in the same period. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, if James Hardie Industries' earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that James Hardie Industries' profit suffered from unusual items, which reduced profit by US$129m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect James Hardie Industries to produce a higher profit next year, all else being equal.

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Our Take On James Hardie Industries' Profit Performance

James Hardie Industries suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, we think it's very unlikely that James Hardie Industries' statutory profits make it seem much weaker than it is. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 4 warning signs for James Hardie Industries (1 is potentially serious) you should be familiar with.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or  this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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