James Hardie Industries PLC (JHX) 2025 Q1 法說會逐字稿

Welcome to the James Hardie fiscal first-quarter 2025 earnings conference call.

(Operator Instructions) I would now like to hand the call over to Joe Ahlersmeyer, Vice President of Investor Relations.

Please go ahead.

Thank you, operator.

Hello, everyone, and thank you for joining today's call.

Please note that on today's call, management will be referring to non-GAAP financial measures and making forward-looking statements.

You can refer to several related cautionary notes on page 2 for more information.

Also, unless otherwise indicated, our materials and comments refer to figures in US dollars and any comparisons made are to the corresponding period in the prior fiscal year.

Now please turn to page 3, where you will find the agenda for today's call.

I'm joined by Aaron Erter, Chief Executive Officer of James Hardie; and Rachel Wilson, our Chief Financial Officer.

Aaron will share key messages for the quarter and discuss our strategy before handing it over to Rachel, who will go through our results in more depth, detail our outlook and guidance, and provide an update on our financial position and capital allocation framework.

Then Aaron will return to summarize and close out our prepared remarks.

At that time, we will move to Q&A.

I'm now pleased to hand the call over to our Chief Executive Officer, Mr. Aaron Erter.

Thanks, Joe. Before I begin, I would like to take the opportunity to thank all our employees around the world who work to safely deliver the highest quality products, solutions and services to our customers.

Our employees truly represent the very best in our industry, and I am proud of their ongoing contributions to James Hardie success.

Now let's begin on page 4.

The collective effort and focus of our teams enabled a solid start to the year.

I believe our results continue to serve as proof points that we are driving profitable share gain through this dynamic and uncertain market environment and that our superior value proposition is helping our customers grow and achieve success.

This is of particular importance and is especially appreciated by our business partners in what has been a challenging market.

Our operational focus starts with executing our strategy and delivering on our commitments.

As I will discuss in a moment, we have strong conviction in our strategy to be homeowner focused, customer and contractor driven.

But it starts with our people and I believe we have the best team in the industry.

We are well positioned to win in the marketplace and drive consistent value for our stakeholders.

In the quarter, business conditions remain challenging.

We anticipate that our markets will contract low single digits to mid-single digits for the fiscal year and that the second quarter will be particularly challenging.

But as an organization, we're being proactive in our positioning ourselves for when markets transition to recovery.

Our people are managing decisively through the current environment, relentlessly pursuing outperformance versus our end markets.

We continue to deliver robust profitability while simultaneously investing to scale for growth and gain share through our efforts across the value chain.

This is a deliberate choice that will enable us to maintain our position of strength and accelerate our profitable share gain to generate sustained double digit top line growth and even stronger margins over the long term.

We delivered a solid start to the year, we surpassed our bottom line expectations, and delivered on each of our first quarter commitments by achieving all three of our guidance metrics.

North America volumes rose slightly in the quarter and were within the range we committed to in May, despite headwinds in certain important geographic markets.

We acted to offset these pockets of softness through targeted cost savings and delivered a 31.2% North America EBIT margin, just above the midpoint of our guidance.

We are investing and we will continue to invest prescriptively and strategically across the value chain, as the underlying fundamentals speak to the opportunity for sustainable growth, even as we anticipate our markets will remain challenging in the coming quarter and for the remainder of the fiscal year.

Finally, we achieved total adjusted net income of $178 million, which surpassed our expectations driven by robust operating results across each of our regions.

In addition to delivering on our Q1 commitments in North America, I am proud of how our teams in Asia Pacific have performed while contending with softer markets.

With strong execution against our strategic priorities to defend and grow share, along with the strong profitability we have continued to demonstrate in our core markets, I remain very optimistic about the future of our APAC business.

And in Europe, our teams delivered record sales, driving strong growth in our high value products, with these sales up low double digits in the quarter.

The foundation we are building today will serve as a solid platform for profitable growth in the years to come.

And I look forward to sharing our continued progress along the way.

Our near term playbook is working as we navigate the current environment.

And I have confidence in our team's ability to continue to win in the market by delivering on our strong customer value proposition.

This confidence underpins our ongoing commitment to outperform our end markets and enables us to reaffirm our full year guidance.

Please turn to slide 5.

During the quarter, we hosted an Investor Day where we brought our value proposition to life, and showed you firsthand what it means to be homeowner focused, customer and contractor driven.

We have been doing this in one form or another for many years.

The enhancement in the strategy today versus those of the past is that our approach has become a holistic effort by our teams across the entire value chain.

Importantly, we are doing it the right way and not sacrificing on our foundational imperatives.

Zero harm and the Hardie operating system are our commitments to putting world class safety at the forefront of all that we do and continually improving how we get work done across the company.

As a testament to this commitment, we recently celebrated five years without a lost time incident at our manufacturing plant in Orejo, Spain.

Nothing is more important than the safety of our workforce.

So to each of our team members who share in this achievement, I say thank you.

Sustainability is foundational at James Hardie.

Each of our employees plays a role in putting sustainability into action, and this cross functional collaboration is driving progress toward meeting our ambitious commitments.

That's why I'm so proud of our teams for recently earning James Hardie recognition by Green Builder Media as a 2024 Ego Leader, a distinction that honors the most forward thinking manufacturers in the industry.

Next week, we will publish our FY24 sustainability report, which I encourage everyone to read to learn more about how we're building a culture of sustainability and making progress against our ambitious goals.

And of course, when it comes to our people, I believe we have the best talent in the industry.

Day in and day out, I see the drive, talent, commitment, and passion, as we work towards our purpose of building a better future for all.

And it's even better when those outside our organization agree.

Recently, two of our leaders, Kelly Pehler and Justine Simmons were recognized by HBS Dealer as top women and hardware and building supply, the industry's premier award for celebrating the impact of women and recognizing female leaders who possess the traits of business excellence and the potential to make a difference in their companies and communities.

Kelly and Justine were selected from over 600 nominees.

Kelly's leadership, cross-functional collaboration and commitment to her team earned her recognition as an honoree for business excellence, and Justine's accomplishments as a results driven and inspirational people leader earned her spot as a rising star honoree.

I couldn't agree more with these selections, and I'm honored to have Kelly and Justine on the James Hardie team.

Put simply, everything you see on this slide is our blueprint by which together we move James Hardie forward.

I remain confident in our team and our strategy.

Together, they position us to execute at a high level and drive profitable share gain in all three regions.

Please turn to slide 6.

Our regional leaders detailed at our Investor Day how their priorities align that James Hardie's three strategic initiatives.

As a reminder, those overall strategic initiatives are first, to profitably grow and take share where we have the right to win.

Second, to bring our customers high value differentiated solutions.

And third and finally, to connect and influence all participants in the customer value chain.

I will now briefly summarize each region's aligned strategic priorities.

In North America, led by Sean Gadd, our first two strategic priorities aligned to the vast opportunities within our repair and remodel and new construction end markets.

Within repair and remodel, we know we can go and win against vinyl and wood, driving material conversion by leveraging our superior product offering.

But by building an ecosystem across the value chain, we can leverage the access that our products provide to create additional value with our customer and contractor partners.

Efforts like dream builder events, amplify our messaging to our customers to get incremental contractors to appreciate the overall value proposition and buy into our contractor alliance program.

For new construction, it is about bolstering our share with our national homebuilder partners and extending our reach across all scaled homebuilders.

We continue to integrate deeper with our existing customers as we demonstrate our unrivaled business support and the dependability that comes along with our strategically located network of manufacturing plants throughout the US, a clear competitive advantage.

Customer integration is taking the form of delivering the value that our homebuilder partners seek by setting goals and objectives that align with our customers' efforts around design, growth targets, and efficiency.

In recognition of our unrivaled business support, this year we were once again recognized as a national preferred partner by David Weekley Homes, representing our 17th award in 20 years.

Meritage Homes, the fifth largest builder in the country, elected to deepen their strong relationship with James Hardie by signing a national hard siding and trim exclusive agreement extending to all divisions nationwide.

This agreement expands our partnership, creating a new position for James Hardie products in several divisions and sets the standard on every new Meritage Home build across the country, a win that will influence what defines a beautiful home in these communities for decades to come.

And with our third strategic priority, we are accelerating profitable share gains through targeted marketing efforts to each participant across the value chain.

This means driving brand awareness and building an ecosystem that allows us to be the partner and product of choice.

Our marketing investments are vital accelerators of our market share and our leading indicators give us confidence that we are investing in the right things.

We will continue to employ a prescriptive test-and-learn approach that allows us to adapt rapidly and iteratively, adjusting as needed, by capitalizing on what is clearly working.

We remain encouraged by the leading indicators we previously shared with you at Investor Day around brand awareness, website traffic, qualified leads, and increases in our contractor alliance program.

Regarding our Asia Pacific region, led by John Arneil, our teams are defending and growing market share with both builders and homeowners with an emphasis on leveraging our right to win and customer integration.

The material conversion opportunity is significant in our efforts to change the way homeowners remodel and builders build, position us to accelerate growth in fiber cements category share.

Finally, we continue to innovate to compete and win against brick and masonry.

The concept of right to win is integral to where our efforts and resources should be focused to drive future value.

And that is why today we announced our intention to exit the Philippines market.

We conducted a thorough review and ultimately determined that operating in the Philippines was not consistent with our value creation strategy.

This was a very difficult decision, but it is the right decision for James Hardie.

Turning to Europe, led by Christian Claus , our team is laser focused on driving profitable growth through increased sales of high value products.

Within fiber cement, we continue to build a foundation for growth, concentrating our demand creation efforts with decision makers, namely architects and specifiers.

Within fiber gypsum, increasing our product penetration using innovative solutions like Therm25, remains a key opportunity for us to further drive our value proposition with customers.

The collective focus on high value products, along with our efforts to drive efficiencies across our business, underpins our plans to improve the profitability of this business significantly in the coming years.

In Germany, we were recognized for our exceptional and consistent focus on our customers, receiving the German customer award, which considers transparency, customer feedback and additional traits that align to our core organizational values.

I am proud to say that our team achieved the highest score ever for a winner of this award, demonstrating a real commitment to being customer-driven.

Turning to slide 7, I'll summarize how our strategy builds upon its own momentum to drive long-term value creation.

Starting with demand creation, we have prescriptive test-and-learn marketing programs.

Leading indicators tell us that these are working.

With respect to innovative solutions, we have the right products for the right customer at the right time.

Turning to unrivaled support, we are bringing value to our customers, but increasingly, we are harnessing the power of our customers to be our best salespeople, which means having not just hundreds but thousands of feet on the street.

And finally, what has been our heritage and what I believe our team is best in the industry at delivering material conversion, one home one neighborhood, one region at a time.

And with the scale, we've achieved today and the support we have built around our teams, we believe we can accelerate material conversion.

Each individual component of this cycle is perpetuated and amplified by the others, illustrating how together they form a flywheel for long term value creation.

Now turning to slide 8, this is where I will share how our strategy and value creation flywheel translate to our aspirations for long term performance.

We've talked about our track record of material conversion, which has led to more than 11 million homes in North America to be glad with James Hardie.

It took us years to do this, to scale the business.

And while this is a tremendous achievement for our organization, we accomplished this overwhelmingly through our superior product.

We continue to have what we truly believe is the best product in the market.

But what excites me most is that we pulled together the best pieces of our strategies to address each individual member of the value chain and have moved to a holistic approach that is embodied in our strategy of being homeowner focused customer and contractor driven.

That is what will allow us to more than double our presence across Americas housing from 11 million to 25 million homes over the next decade.

And as we do that, we can aspire to drive peer leading financial results in our North America business that includes double digit top line growth and 500 basis points of adjusted EBITDA margin expansion.

All together, we believe achieving these goals would enable us to triple our North American segment adjusted EBITDA.

Now I would like to hand it over to Rachel to share more details about our first quarter results.

Rachel?

Thank you, Aaron.

Please turn to page 9.

As Aaron noted, our collective effort and focus has led to a solid start in FY25, and our consolidated financial results were consistent with our expectations.

In each of our regions, we are focused on driving profitable growth, and our results continue to demonstrate that we have the right strategy.

Our North America teams delivered first quarter results in line with our volume and margin guidance.

And regionally, we are responding to softer markets by actioning plans to win against competitive cladding materials and positioning our business to outperform the market.

At our Investor Day, we discussed the investments we are making to scale our business and accelerate profitable share gain, and these investments remain essential to sustaining our outperformance as markets transition to recovery.

Funding these types of investments, especially during cyclically weaker markets, we are focusing even more intently on delivering our value proposition to our customers and prioritizing investments and rationalizing expenses to defend our strong margins.

In Asia Pacific and Europe, our teams demonstrated a strong commitment to driving outperformance in tough markets, delivering first quarter results consistent with our expectations.

In Asia Pacific, we are executing well on our strategies to defend and grow share.

And in Europe, our growth in high value products is encouraging.

Across all three regions, our results and strategies demonstrated commitment to delivering profitable growth.

Ultimately, our first quarter results demonstrate how our strong margin delivery leads to substantial cash generation.

This supports our growth aspirations while maintaining the strength and flexibility of our balance sheet.

Please turn to page 10 for the financial highlights of our fiscal first quarter.

Total net sales grew 4% to just under $1 billion.

We achieved record first quarter adjusted EBITDA of $286 million, an increase of 2% versus the same quarter of fiscal 2024.

And finally, adjusted net income was $158 million, modestly ahead of our expectations.

We continued to execute on our share repurchase program in the quarter, buying back $75 million of our stock and increasing our authorization to $300 million.

We exhibited strong sales due in the quarter and achieving results within our guidance, generating solid cash flows and maintaining balance sheet strength and flexibility and deploying excess capital to shareholders.

Let's move to slide 11.

Prior to a detailed review of segment performance, we have provided a year-over-year adjusted EBITDA bridge.

Ultimately, we believe this cash focused metric draws a more direct connection between our operational performance in the quarter and our cash generation.

EBITDA also aligns to our capital allocation framework, which addresses our investment priorities and disciplined deployment of cash.

In the quarter, we delivered record total adjusted EBITDA of $286 million, an increase of $7 million or 2% growth versus the prior year.

North America contributed $13 million overall adjusted EBITDA growth primarily through mid-single digit sales growth.

Our segment EBITDA includes the impact of a non-cash asset impairment charge of $4 million related to manufacturing equipment no longer needed to support growth in one product line.

Also, as expected, we incurred start-up costs in the quarter associated with recent capacity additions coming online.

These start-up costs will continue into the second quarter and step up modestly.

Even still our profitability improved year over year, despite further headwinds from ongoing inflation in categories like labor, freight, and cement.

Importantly, we also continue to invest to scale the organization and position ourselves for future outperformance, incurring these costs in advance of anticipated volume growth.

Europe also contributed positively to overall growth, adding $1 million driven by higher volume and average net sales price, while Asia Pacific reduced overall adjusted EBITDA by $5 million as higher average net sales price was more than offset by the impact of softer market volumes.

Research and development and corporate costs were mostly in line with the prior year on a percentage of sales basis including a non-cash benefit from lower stock compensation, primarily related to movements in our stock price in the first quarter.

Please turn to slide 12, where I will provide more details on first quarter results within our North American segment.

North American net sales grew 5% in the quarter, primarily driven by a 4% rise in average net sales price.

We implemented our annual price increase effective January 2024 at the beginning of our Q4.

Our fiscal first quarter reflected the full benefit of this price increase, consistent with our prior expectations.

Volumes rose slightly to 751 million standard feet, driven by low single digit growth in our exteriors business.

Volume growth across much of the country was offset by market wide softness of new construction in the south.

Builders came into the year expecting strong growth, but persistent affordability challenges have led to more modest home buying demand.

Builders have responded by slowing the pace of starts to manage our inventory of unsold homes and have maintained this pace of production.

The structural foundations for new construction growth are highly attractive.

We continue to deepen our relationships with scaled homebuilders as our expanded agreement with Meritage demonstrates, while executing against our material conversion strategy.

EBIT margin was 31.2%, down 10 basis points versus the prior year, but above the midpoint of our guidance.

This includes $36 million of depreciation expense, which incorporates our new ColorPlus finishing capacity in Massachusetts, which came online in the quarter.

Importantly, we did not begin to recognize depreciation for our new capacity in Prattville during the fiscal first quarter, but had begun to do so during our fiscal second quarter.

North America EBITDA grew 5% to $263 million, with EBITDA margin increasing 10 basis points to 36.1%.

The benefits of annual price increase in savings from cost initiatives were partially offset by unfavorable labor, freight, cement and startup costs, as well as the $4 million manufacturing asset impairment charge.

We are proactively responding with surgical reductions and spend to align to the current environment and market outlook.

We are prioritizing investments into the contractor, customers, and our product innovation, while reducing spend in areas such as the development of new marketing collateral and [TNE] Overall, the team continues to execute well as North America contends the dynamic market.

Turning to page 13, to discuss the Asia Pacific results.

Sales decreased 2% in Australian dollars, primarily due to a 9% decrease in volumes, partially offset by 7% growth in average net sales price.

Lower volumes were mostly driven by weak market demand in Australia.

The Australian market continues to be challenged by housing affordability and negative consumer sentiment arising from persistently high inflation and elevated interest rates.

Despite this backdrop, we continue to work with our homebuilder partners, identifying consumer needs and collaborating on new product developments, each of which better positions us to gain profitable share as markets transition to recovery.

We remain focused on winning category share and will continue to do so even amidst a challenging backdrop.

Encouragingly, we have seen a modest improvement in orders from homebuilder customers that will take time for these early green shoots to translate to higher production and sales.

Asia Pacific EBIT margin was 30.4%, which includes depreciation and amortization expense of $5 million.

EBITDA declined 9% to $46 million and EBITDA margin decreased 210 basis points to 34% as a benefit of higher average net sales price from favorable price and mix was offset by lower market volumes and our continued investments across the customer value chain.

Similar to North America, we are pleased with the team's execution as they contend with dynamic and uncertain markets.

Turning to page 14 to discuss the European results.

Net sales reached record levels and increased 8% in euros, with sales growth in both fiber gypsum and fiber cement products.

We delivered 7% higher volumes, even as our markets remained challenged, with the impact of higher rates continuing to impact demand for our products in key countries such as the UK and France.

These geographies are especially important for growth in high value products, including our fiber cement plank offering in the UK and our panels business in France.

We are making progress, but the market environment has been an impediment to what we see as a full growth potential for the segment.

In Germany, our largest European market, we are optimistic that market demand is beginning to bottom.

Finally, on our top line performance, we are encouraged by the result of innovative new products such as Therm25 flooring.

Our initial launch has demonstrated the value this product brings to our customers, which we highlighted at our Investor Day.

To accelerate this performance, we've initiated a grassroots training campaign, which will enable us to reach 3,000 installers throughout fiscal 2025.

EBIT margin was 9.6%, inclusive of $7 million depreciation and amortization expense.

Segment EBITDA grew 5% to $20 million and EBITDA margin decreased 20 basis points to 15.5% as the benefits of volume leverage were more than offset by the unfavorable impact of higher freight and paper costs.

The focus for the EU team is execution on growing high value products.

The strategic emphasis will support the longer term margin expansion opportunity.

As we previously shared on April 1, we adjusted our transfer pricing on the inter-company sale product from the US to Europe.

This impact for the full fiscal year, which as we said, is approximately 200 basis points to Europe EBIT margin will be reflected in the EU segment in FY25 with the offsetting value fully accruing to North America.

And thus, there is no impact on a consolidated basis.

This impact became effective April 1, but given the time it takes for the new higher cost inventory to work through to Europe's cost of sales, only a limited impact was felt in Europe's P&L during the quarter.

Now turning to page 15, I'll provide our latest expectations on our end markets in North America.

Starting with repair and remodel, the outlook for repair and remodel spending remains weak with higher ticket discretionary projects feeling more pressure than other categories.

High borrowing costs remain the primary challenge to affordability, enthusiasm for home improvement, which has contributed to homeowners deferring projects.

In the near term, we continue to anticipate softness for remodeling activity, and our expectation is that market volumes could decline mid to high single digits this fiscal year.

When we spoke to you in May, we shared that external data providers expected R&R to decline approximately low to mid-single digits in calendar year 2024.

Turning to new construction, the first quarter was relatively choppy as single-family homebuilders contended with high rates, rising inventories and soft traffic.

Housing starts decelerated and then fell sequentially and homebuilder sentiment weaken throughout the quarter with survey participants citing softness in current traffic and sales.

We believe it is prudent to moderate our view on new construction and assume that the softening in 1Q remains with us further into the year.

We now expect volume growth for our products and single-family new construction to grow low to mid-single digits compared with to the external forecast, which calls for high single-digit growth for calendar year 2024 from our May call.

For multifamily, we still anticipate significant decline in activity, mostly in line with the prior external forecast.

Taken together with the overall market volumes declining low to mid-single digits.

I cannot stress enough our commitment to outperforming any market environment, which is why we are reaffirming our expectation of delivering four points of market outperformance as measured by primary demand growth or PDG, supporting our full year North American volume expectations.

As we mentioned at our recent Investor Day, we remain bullish on the long term prospects for repair and remodel as record home equity levels and rapidly aging housing stock should drive resetting activity for years to come.

We remain similarly optimistic about the long-term prospects for new construction given relatively lower levels of homebuilding over the last decade and the outlook for growth in households in line with long term trends.

These structural underpinnings make it even more necessary to position ourselves now to sustain our outperformance as markets transition to recovery.

Please turn to page 16.

We are reaffirming our fiscal 2025 financial guidance.

This is enabled by our solid start to the year and the actions we are taking to both accelerate our share gain and protect our strong margins.

On the previous slide, I detailed our expectations for our end markets, which remain challenging.

Our base case expectations are unchanged.

Markets will remain challenging as we move through our fiscal year.

That said, our updated forecast for North American volume in FY25 continues to be within the range we provided on our fourth quarter call, 2.95 billion to 3.15 billion standard feet, which represents roughly flat volume versus fiscal 2024 plus or minus 3%.

As a reminder, this incorporates 4 points of market outperformance or PDG as detailed on the previous slide.

We expect North American EBIT margin for the full year to be between 29% and 31%, unchanged from our prior expectations, with a range directionally corresponding to the volume range.

We continue to prioritize the right expenses, those that are necessary to scale the company for the future and accelerate our share gains as markets transition to recovery.

We also continue to expect our total adjusted net income to fall within the range we provided in May, $630 million to $700 million.

And our plans for capital expenditures are also unchanged for the expected spend between $500 million and $550 million for this fiscal year.

Our ability to reaffirm our fiscal year guidance demonstrates our organizational focus and commitment to controlling the controllable and resource prioritization.

As we look to the second quarter, our markets remain challenging.

And while we have identified actions sufficient to offset incremental weakness across our fiscal year, it will take time to recognize these offsets.

With this context, our guidance for the coming quarter includes second quarter North American volumes within the range of 705 million to 735 million standard feet, down mid to high single digits versus the prior year.

Second quarter North American EBIT margin in the range of 27.5% to 29.5% and total adjusted net income between $135 million and $155 million.

Please turn to page 17 where I will discuss our cash generation and review our capital allocation priorities.

It all starts with our strong margins, driving cash generation, the primary source of our available investment dollars.

In the quarter, we fully covered $130 million of CapEx spend and $75 million of share repurchase through our strong cash generation.

We generated solid EBITDA, which we view as a measure to assess our cash generation abilities.

Despite the challenges in our end markets, we expect to generate sufficient cash flow to fund our internal growth needs this year.

As markets transition to recovery, we expect to be even more cash generative.

As we grow our cash flows, we will diligently follow our capital allocation priorities, which as a reminder, are first and foremost, to invest for organic growth while maintaining a strong and flexible balance sheet.

Once we've achieved our two primary priorities, we look to deploy excess capital to shareholders.

And finally, consideration of inorganic growth also sits within the full range of our capital allocation levers.

Coming back to our two core priorities, investing for organic growth and maintaining a flexible balance sheet, we continue to execute on our pipeline of approved expansion actions.

This fiscal year, we expect to complete our expansion of sheet machines 3 and 4 and continue work on the ColorPlus finishing line in our Prattville, Alabama facility, continue our brownfield expansion in Orejo, Spain, begin work on our brownfield expansion in Cleburne, Texas, and advanced the planning of our Crystal City, Missouri greenfield project.

Our financial position is strong.

We have nearly $1 billion of total liquidity between our cash balance and available capacity on our revolver despite investing $130 million in CapEx in Q1 and continuing to execute on our share repurchase program.

Our leverage ratio improved in the quarter to 0.66 times the 15th straight quarter at or below 1 times.

Now moving to deploying excess capital, we deployed $75 million in the quarter to share repurchase a continuation of our commitment to returning cash to shareholders.

In total we have repurchased $225 million of James Hardie stock as part of this program.

In June, the Board of Directors approved a $50 million increase in this program to $300 million.

And finally, our approach to capital allocation is holistic and includes evaluating potential opportunities that may create value for our shareholders.

In assessing the merits of potential inorganic opportunities, we have established three clear criteria.

First, the opportunity must accelerate our current strategy.

Second, it must enhance our value proposition to our customers.

And finally, it must be financially attractive and create clear financial value for shareholders over the long term.

We view diligence stewardship of investor capital as an essential part of our overall success and effectiveness as a management team and believe we have the right framework in place to enhance shareholder returns through capital allocation.

And with that, I'll turn it back over to Aaron.

Thank you, Rachel.

Please turn to slide 18, we delivered a solid start to the 2025 fiscal year with strong results in the first quarter.

We are driving profitable share gain and executing consistently on our strategy.

This positions us well to deliver on our commitments for the year and will position us to drive performance toward our long term financial aspirations when markets transition to recovery.

At James Hardie, we have been and are a growth company.

The legacy principles that got us here are clear.

We established the foundations and moats that afforded us our leading position in the market, and we did this primarily through a focus on our superior product performance.

We have been customer and contractor focused and drove efficiency in our operations through a focus on manufacturing scale and productivity.

As a result of our past efforts, strong growth in sales and profits, high returns and significant cash flow generation, this established our track record of growth.

Now on slide 19 as we look ahead, we believe the future of James Hardie as a growth company is now even more compelling with three primary pillars for shareholder value creation.

First, we have the right strategy, one, where our success perpetuates driving even greater success.

Second, we have bold aspirations and a talented team that delights and pursuing and achieving challenging goals.

And third, our financial profile is attractive and will only continue to improve as we work towards achieving our longer term aspirational targets.

But with that, operator, please open the line for questions.

Matthew McKellar, RBC Capital Markets.

Great.

Thanks very much.

I mean, first, zooming out a little bit.

What are the two or three things you need to get right in the new construction space in North America over the next year to deepen your relationship with homebuilders and ensure that you're setting up the business for above market growth over the long term as markets improve?

Yeah.

Hey, Matt, great question.

Look, I think that we are getting it right with homebuilders.

We've talked before about our success with the large homebuilders, whether that be the top 25 or the top 200, and it's really making sure we bring value to them.

So that's understanding the needs that they have for each of the markets that they participate in.

I think the Meritage recent announcement is really key and an example of what we're doing and the value we're bringing.

Not speak to Meritage, but they have really aggressive growth plans in the future.

And I think it's symbolic that they picked us right, because we're there to be able to service them around the country, right.

If you think about our local manufacturing, you think about the support, the list goes on and on with the value proposition that we're able to bring them.

Great.

Very helpful.

Thank you.

And as a second question at the Investor Day, you talked about wanting to accelerate material conversion and growing R&R in the northeast and midwest specifically, is there anything incremental you can share with us today that gives you confidence that homeowner interest in James Hardie product in those regions, specifically is increasing or that your base of contractors ready to serve increased demand for James Hardie siding is growing, even if you don't see it in the volumes today.

Yeah, Matt, another great question.

You're two for two here.

Hey, I think you know, as we look at the challenges with R&R, we've talked a lot about the percentage of our business that is it represents almost two-thirds of the business.

But what we look at right now, obviously is how do we set ourselves up for future growth and long term material conversion opportunities.

There's a tremendous amount of vinyl when you think about the midwest, you think about the Northeast, we illustrated that and brought it to life in our Investor Day.

So what we like to talk about is some of the investments we're making.

So as the markets start to come back, we're going to be there and we're going to help homeowners.

We're going to help contractors to really accelerate that conversion.

So from a contractor standpoint, we're focusing on our contractor alliance program, so bringing them the support that they need.

If we think about the journey for the homeowners, they decide to resize their help their homes, how do we make that journey shorter and easier for them, and that's a lot of what the branding that we're bringing.

So I look at a combination of all these things.

We've talked about it before, we talked about in our Investor Day, some of the leading indicators that we look at and all of those are pointing the right way for us.

So I'm very pleased with our progress.

Lee Power, UBS.

Hi Aaron, hi Rachel.

Aaron, just if we think about volumes so far the first quarter, second quarter has declines in it's probably bigger to H2 than we would usually see.

I guess the market volume slide that you've given is probably slightly softer than it was last time.

Can you maybe chat a little bit about the trends that you've actually seen in the 2Q to date?

Is it as simple as just an end market demand continuing to slow or is there something else that's going on that explains that?

Yeah, Lee, so I think probably what you're getting at is a little bit of seasonality with our volumes if you look at it from a traditional standpoint.

What our guide points to us really reflects what we're seeing in the marketplace right now.

And Rachel mentioned that she was going through a presentation on the opening remarks, near term in Q2, we have seen R&R, we have seen single-family new construction softening a little bit.

So that really reflects the guidance range that we've put out there for Q2.

Okay.

Thank you.

And then Rachel, maybe I'd just be interested to hear how you're thinking about input costs, like the FY25 guide unchanged.

Like have your assumptions around input costs of the business changed.

And maybe remind us of what you're kind of thinking into them the back half?

Yeah.

So I've pointed out consistently that cement pulls into a lesser degree freight, also labor, our input cost that we expect to be unfavorable year over year and to the headwinds, we are expecting that to increase as a headwind as we go into Q2.

But importantly, as we think about what we've been able to do with our cost savings and with ASP being up in all regions, we are positioned to work against some of those raw material headwinds.

Keith Chau, MST Marquee.

Hi Rachel, hi Aaron.

First question for Rachel.

So in your prepared remarks, Rachel, you talked about some weakness in the south, particularly with homebuilders.

Sounds like there is a channel impact in the second quarter as homebuilders align to what you're seeing for underlying sales and perhaps reducing inventory levels.

But can you give us a bit more detail and clarity around that dynamic?

And have you tried to quantify what the potential impact could be in the second half?

Because ultimately, if you look at the volume guidance for the full year, it does assume an acceleration of growth into the second half.

So underlying it seems like there's not too much of an issue but certainly for the second quarter there is.

So can you give us a sense of what you think that potential impact is with what the home builders are trying to do with their starts, please?

Sure.

So I'll start with the second quarter, and you have heard on the public builder calls, they have cited affordability pressures continuing to impact demand and traffic levels, and that has caused some of the builders to moderate their start pace and manage our inventory.

So we are seeing that reflecting that in our second quarter.

But as we think about the second half of the year and in total, first of all, we only have one quarter complete under our belts.

So let's start there.

I think we're really proud of the team that they did do what they said they would do and delivered and set us up.

There's a lot of uncertainty in the markets right now, and there's a wide range of estimates out there unless we expect those near term challenges, as I said, in Q2.

But as you think about our annual guidance, that really that range does continue to reflect the breadth of that uncertainty.

And we do recognize as soon as we get there, there's a lot of pent-up demand in new construction R&R when those markets transition to recovery when they're deployed to get there.

And my follow-up question to Aaron.

So Aaron given the what we're seeing the uncertainties in the market at the moment.

There's obviously a lot of discussion on SG&A at the last result call.

But I'm trying to understand how you're thinking about SG&A now.

Is the foot still on pedal or do you need to depress the clutch, giving your expectations of the volume profile into the rest of the FY25 and beyond?

Yeah, Keith, a good question here.

Look we've always said that we've set up our SG&A to have the ability to pedal and clutch if we need to.

I think the key here is to make sure that we're not hurting any of our long term strategic initiatives.

So we do have some clutch efforts in place.

Let me give you an example of what those would be.

So as we think to Q2, we were scheduled to do production on a new television commercial.

That's something that the team we decided we could clutch on.

Where I won't clutch on is making sure we're investing in our customer.

So if we think about the contractor alliance program, that's something that we're full steam ahead on.

So this really what is about prioritization.

We're not going to hurt ourselves from a long term standpoint.

We don't manage the business quarter to quarter.

We manage the business for the long term, which we have a lot of confidence as I expressed in Investor Day, that there's going to be a long term opportunity for us to really accelerate rate growth through material conversion.

We need to make sure we're investing in the right things.

Andrew Scott, Morgan Stanley.

Thank you.

Good morning.

Rachel, just a quick one on the North American margin guidance.

I just wanted to be clear.

Is the range you've given there, is that in your view consistent with the just the low volume sensitivity or is there anything else playing out, bringing that margin down for the second quarter?

It is a lower volume of that is consistent with that.

We also pointed out we do feel raw materials are going to be particularly hard in Q2.

Okay, thank you.

And just the exit of the Philippines, thoughts on what that does to the margin for the Asia Pacific region?

Yeah, I can answer that.

If we think from a long term standpoint, our Asia Pacific margins will increase as we exit the Philippines.

Look just to talk about this, this was a decision we didn't take lightly.

As we looked at our business, we've looked at all the segments, we've looked at all the geographies.

And we need to focus on our first strategic and tenant.

This focus on areas where we have a right to win, and we're going to be able to create long term value, and that's why we made the decision to exit.

Harry Saunders, E&P.

Morning, guys.

Just a question perhaps asking a different way, given that softer guidance for the second quarter volumes and you're looking at the midpoint of your full year guidance, does assume a step-up in the second half.

So I guess what gives you confidence to that midpoint of sort of improvement presumably in end markets versus the first half?

Yeah, hey Harry, I'll start out and just reiterating, we're confident in the range.

I don't know that we should talk to a lot of hypotheticals out there.

This is all about our team's ability to go out there and outperform the market.

So that gives us confidence in the range.

And look, part of our job here is Aaron pointed out, we've got to control the controllables and we really prioritize in the right spend in the right investments.

And if you look at the three points of guidance, there's a lot two point to those are very much the control the controllables.

And on the volume point, and look, if the market stays as it is, that was clearly if it stays weak, there's no improvement, that would give us towards the lower part of the range and obviously to reach the higher part of the range we had to do around the [800], which we've done before.

So again, there's a big breadth in that range and we're confident enough in the range.

Got it.

Thank you.

And my follow-up would be just can you give us a sense of how your internal view of R&R across FY25 has changed over the last three months.

Appreciate you gave us external previously and perhaps what does the cadence of our comp performance look like through the balance of the year?

Thanks.

Yeah, look, Rachel, go ahead.

Yeah, look for R&R, we always want to go back to -- there's four factors we think about right.

So first one we always talk about is consumer confidence.

And right now, it has moderated a little bit given some of the geopolitical instability and frankly, uncertainty around some of the rates.

For contractor sentiment, well, it's positive, it basically remained flat same level since June.

We look at existing home equity prices and we are encouraged, we are seeing higher prices there.

And from the big box transactions, unfortunately they've been calling negativity for eight or nine straight quarters of decline, particularly for the larger part.

So as we think about those four areas, our own assessment would be that it is probably a tad softer than when we spoke in May and May externally, number was low to mid, and now some of the pundits are really talking about mid-single digit to high single digit decline and particularly with a little bit of a weaker to 2H.

So again, that's a bit of the external view and also our internal lens.

Brook Campbell-Crawford, Barrenjoey.

Yeah, good evening.

Thanks for taking my question.

Just I guess back to seasonality, I know you've invested a lot in sort of people and systems over the last while R&R you've talked to how that's really helping the business.

Is that just I guess at this stage, what's your view around seasonality between 3Q and 4Q?

Are you still expecting a pretty even outcome like what you are suggesting in May or is there some factors there to call it?

Yeah, Brook.

I think if we look at, you know, the seasonality of our business over the last few years, who can really say there's been much of seasonality, right?

It's been so much uncertainty to I like to say that the markets have been a little lumpy.

If you will, so look, as I mentioned before, really our guide reflects what we're seeing in the marketplace.

And we given the 2Q guide, we're confident in what our range is for the entire year.

So we're going to keep it at that.

I don't know as I said before that, we want to talk about any types of other further hypotheticals out there.

Yeah.

Okay.

Sounds good.

And obviously, exiting of the Philippines, did you do a broader sort of assessment of your business, and any other aspects of the Group that are perhaps you're considering non-core at this point?

Yeah, Brook.

So as I mentioned before, as we developed our strategy, we did a really comprehensive review of our geographies, our business segments, products, you name it.

And the Philippines that we came to that conclusion and I said before that we couldn't see any long term value creation there.

It's been a nice business for us.

We have a great team there.

But if I think about resources, right, and where we have the right to win, and we're going to get our greatest return, I felt that we could take those resources and put them elsewhere.

Peter Steyn, Macquarie.

Hi, Aaron and Rachel.

Thank you very much for your time.

May just ask you around PDG for the year end, perhaps early into next year, just your perspective of how some of your additional contracts of Meritage, I'm thinking about [Houghton] last year.

How those are coming through for you annualizing, accelerating some of your performance and perhaps contributing to a better outcome relative to market?

Just how to think about that.

Yeah, Pete, look, we think we're on track to hit what we stated as our goal for North America, 4% PDG.

Look, we're one quarter into the year.

And as I've said before, it's best to look at PDG on an annual basis.

So certainly as we think about wins like with Meritage and as we continue to get more and more wins, that's going to certainly help our costs.

Yeah.

And if I may just a very quick follow-up on that.

Rachel, inventory up $30 million in the quarter and probably not atypical for this time of the year, but anything to think about there, perhaps a little bit more going into the channel associated with some of this?

Absolutely, (inaudible) one of the things we really look at is what's our service level associated with that inventory.

And we want to make sure that it's investment to our customers and to delivering well.

And we do feel that that was an appropriate investment that we had the right level of inventory to maintain at high levels of service and standards that we have put ourselves countable to.

Daniel Kang, CLSA.

Good morning, everyone.

Congrats on the record result in Q1.

Firstly, can you discuss the, I guess, the competitive landscape with regards to other substrates in the quarter.

Have you noticed any increase in competitive intensity?

How do you see that impacting the pricing outlook?

Hey Daniel, great question there.

Look, as we've talked before, and I think we've talked over the last two years, the competitive environment is severe as ever, right?

Particularly when you have tough markets, everyone is doing everything they can to get it every piece of board out there to take every piece of board.

What we do believe is, look, we continue to outperform the markets we participate in.

And just a reminder for everyone, we're in large R&R, new construction, working with large builders and multifamily.

The reason I say this, it's difficult given this market context to compare kind of like-for-like with our competition.

That's why I think it's really good to look at our share gains over a longer period of time.

And if you do so in the exterior cladding, I think you will see that we consistently have profitable share gains out there.

Thanks, Aaron, for sure.

My follow-up is with market expectations of rate cuts rising over recent weeks, just wondering if that is factored into your broader guidance for recovery in the second half from the, I guess, the near term softness that you're witnessing for 2Q?

Yeah, Daniel, I -- it's very encouraging as we see this rate and we hope to see more, but it's still early days.

And the guidance that we put out there is reflected in what we said from the beginning of the year.

I think actually if you go back and listen to our May call, we're about exactly where we said we would be.

Sam Seow, Citi.

Hey, guys, thanks for taking the question.

Look, clearly a lot of questions on guidance, but I just want to clarify.

So we can look at the volume guidance (inaudible) Can you perhaps talk to the interior growth assumption in your 2Q guide?

And also what you expect interiors in the second half?

Yeah.

So we talked about how exteriors were up low single digits and interiors were down as my implication mid-single digits.

And so that is the trends that we are seeing right now.

And as we said, I think on the exteriors and where it goes, we are into the hypotheticals and speculation, as Aaron pointed out, we feel very comfortable with the breadth of our range incorporating those venturalities.

Okay.

And then I guess given the emerging difference between large and small projects, I'm sure you've looked into the average size of the heart -- of average Hardie project in the funding source.

So yeah, just wondering if you could share with us any info or details on the, I guess, the average dollar size of a remodel and the funding source or any additional detail there?

Thank you.

Yeah, I'll go back to the question before it's a little bit on the mortgage rates coming down a little bit, and how do you feel about that.

Obviously, that's a nice leading indicator, but for R&R, the things that have to come down or the rates that help with what you're getting (inaudible) or credit.

So those are really some of the elements that we're waiting.

And I did mention those four factors that we look at for R&R.

So right now, we are seeing that for R&R, we do field still constrained.

I think there is a lot of pent-up demand.

We know we've got the strong fundamentals waiting there.

But again, financing particularly for these larger sized projects are an important element and that piece is not yet in play.

Niraj Shah, Goldman Sachs.

Hi, good evening.

Firstly, just on startup costs, I think they were about $4 million in the first quarter.

I'm just curious and apologies if I missed it, but what is embedded on that front for the second quarter and then for the full year?

Previously, we talked about the full year being about $10 million, but we did not give specific quarterly guidance on the start-up ramp-up costs.

Okay.

But the second quarter is expected to accelerate versus the first quarter?

Yes, we did say that.

All right.

Thanks.

Shaurya Visen, Bank of America.

Good morning Aaron.

Good morning Rachel.

I just playing off the question that the (inaudible) can you give us some guidance in a slightly different way, and I appreciate if you can't give us more color, but look at just looking at the midpoint of your full year guide, yeah, and sort of take the second quarter midpoint, it sort of implies second half volumes to increase like 3%.

And if you think about, you know, what we've done at the fourth quarter, flat volumes at your second quarter implies by

[7].

I'm just trying to think what gives you the confidence that we'll have such a sharp pickup and especially considering Rachel, your comments, that a second quarter commentary from homebuilders has been very weak given affordability concerns.

And last one just on PDG, I know you don't like speaking to it every quarter, but could you give us a sense if that number was around the 4% number for this quarter.

Thank you.

Yeah, there's a lot of questions there.

Let me see if I got all of them there, but good questions.

Look, I would just say again, I'd reiterate, we're confident in the range that we have.

I don't want to talk any type of further hypotheticals.

As we think about the range from a high end standpoint, if things stay weak, we would have to do [800] plus, which we have done before.

But we are confident in the range that we have said.

Look from a PDG standpoint, I'm going to stick with what I've said for the last, call it eight calls is we're not going to talk about PDG from a quarterly standpoint, it's best to look at that from an annual basis, and we'll stick with that.

Kai Erman, Jefferies.

Hi Aaron and Rachel, thank you for taking my question.

Just a follow up on what Shaurya just asked.

But in terms of your guided North American volumes in the second quarter and thinking about traditional seasonality, could you please step through what you've assumed for market conditions in third quarter and fourth quarter '25?

If you guys are assuming a material recovery there to hit your full year guidance?

Yeah, happy to take that Kai.

If you kind of look at the low end, again, there's the three points of guidance as reminder, right?

It's not just volume.

You also have margin, you had net income.

And obviously two of those are a lot more controllable than the top line.

But there's lots of focus on the call right now on the volumes, in particular, because of the uncertainty in the environment and the confluence of what rate cuts will come, when will they come, when will the pent-up demand transition.

On the low end of our volume guidance range, basically we can have the same pace, the same types of quarters, and that would hit us towards the lower end of our guidance range of volume.

On the high end, as Aaron pointed out, it implies doing about [800] plus, and we have done that before.

So again, that would be where are the macros and what is the environment we are in.

Perfect.

Thank you.

Al Harvey, JPMorgan.

Yeah morning Aaron and Rachel.

Just looking at the organic growth pace on slide 17.

I was just wondering if you could be willing to indicate exactly what works are going on at Cleburne and the planning for Crystal City in 2025.

And just confirm whether or not that falls within the $500 million to $550 million CapEx range?

Yeah, I'll start out.

So we do have some preliminary planning that should be in that the guidance we gave for the Cleburne brownfield, and we do have activity that's going on in Crystal City is well there out.

There is a large piece that is kind of Cleburne brownfields.

That's correct.

Yeah.

Okay.

Okay, hey, just -- go ahead now.

I'll just going to have a follow up there.

Just maybe just in that context, wondering if you could just kind of step out more broadly CapEx plans in North America and how you're thinking about getting the '25 by '35 over there, over the next decade or so?

Yeah, we actually detailed that in our investor presentations during the roadshow.

So I can you give a follow-up there with Joe to go through the detail of that.

But we have a build as to what capacity would be required to reach that volume.

And thus we have would be planned for it.

So we'll have that covered for you and they can move directly to slide.

Yeah, thank you Al.

Hey look, I just want to end the call with saying thank you to all our teammates around the world for focusing on working safely while providing solutions to our customer partners.

Look, in summary, hopefully what the takeaway here is, our plan is working by our Q1 results, and we are positioned to continue to accelerate growth and material conversion as the markets transition to recovery.

Thank you all for the time.

Appreciate it.

That does conclude our conference for today.

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