UPDATE 3-James Hardie Q4 hit by US home slump; shares drop

(Adds CEO comments)

By Sonali Paul

MELBOURNE, May 22 (Reuters) - Building materials group James Hardie Industries NV (JHX.AX) posted a bigger-than-expected 61 percent drop in fourth-quarter profit, hit by a slump in U.S. home building, knocking its shares down more than 10 percent.

The company, which makes most of its earnings in the United States, warned that construction work there was unlikely to grow given an overhang of unsold homes, a weaker economy, poor consumer sentiment and tighter credit.

Chief Executive Louis Gries said the group was outperforming its peers, which include USG Corp (USG.N), but its earnings would fall in the year to March 2009, which is what analysts expect.

"We're down on last year and we'll probably be down this year," Gries told reporters.

Gries said the fourth quarter was disappointing because the normal seasonal pick up in U.S. home building expected in March had not come through. He said he expected housing starts to be down until at least this time next year.

Three analysts said the most disappointing aspect of the fourth quarter was a slide in earnings margins in the U.S. fibre cement business to 21.6 percent, which the company had previously been able to hold above 25 percent.

"Now you've seen the big crunch come through. So there's the question does it go further down from here," said Akshay Chopra, an analyst with fund manager Karara Capital.

January-March net operating profit, excluding costs related to plant closure and compensation payments to victims of asbestos-related diseases, fell to $20.1 million from $51.4 million a year earlier.

James Hardie shares slumped 10.5 percent to A$5.40, a 4-month low, by 0329 GMT in a broader market .AXJO down 0.7 percent.

COST CUTTING

The company is focusing on cutting costs and increasing the market share of fibre cement against other home siding materials to cope with the housing downturn.

After closing a fibre cement plant last October in Blandon, Pennsylvania, it decided to close its U.S. Hardie Pipe business on Thursday, booking a A$25.4 million writedown on the value of its pipe plant in Florida. It also wrote down $13.2 million in the quarter for buildings and machinery in the United States.

As a result, it booked a net operating loss of $146.9 million for the quarter, against a year-earlier profit of $103.1 million.

Its U.S. fibre cement sales fell 20 percent as volumes fell, and its U.S. earnings before interest and tax fell 41 percent to $50.3 million due to higher energy and pulp costs.

Gries said the group's annual profit of $167.9 million, down 20 percent, was not too bad in a challenging year, but added that quarter-on-quarter profit had fallen steadily during the year.

"It's the trend that's more concerning than the actual full year result," Gries told analysts and reporters.

He expected higher oil costs to continue to hurt it on its freight bill and saw pulp costs remaining high as long as the U.S. dollar remained weak, as pulp was priced in U.S. dollars.

The company was once Australia's top maker of asbestos products. After several years of negotiations, it made the first top-up payment of A$184 million ($177 million) last year into a fund for compensating victims of asbestos-related diseases.

It expected future annual payments to be between $100-$110 million.

Hardie is in the process of deciding whether to move its headquarters from the Netherlands in 2010, as the tax rate there is no longer much lower than anywhere else. ($1=A$1.04) (Reporting by Sonali Paul; Editing by Ian Geoghegan)