James Hardie Industries plc

Thank you for standing by and welcome to the James Hardie third quarter fiscal year 2023 results briefing. Today's briefing is hosted by James Hardie, CEO Aaron Erta and CFO Jason Miele. After the briefing we will open the lines to Q&A. I will remind participants to limit your questions to one plus a follow-up. After the Q&A I'll turn it back to Mr Erta for closing remarks. I would now like to hand the conference over to James Hardy, CEO. Mr. Aaron Erter, please go ahead.

Thank you, operator. Good morning and good evening to everyone. I'm Aaron Erter, CEO of James Hardy, and I would like to welcome all of you to our third quarter fiscal year 2023 briefing. Turning to page two, you will see our standard cautionary note on forward-looking statements. Please note that the presentation today does contain forward-looking statements and the use of non-GAAP financial information. For today's call, our CFO, Jason Mealy, will start by discussing our third quarter fiscal year 23 financial results, and I will follow up with him on a strategic and operational update. We will then open it up for questions. While Jason will spend his time discussing our current fiscal year results, I will spend the majority of my time looking forward and explaining how we intend to continue to drive differentiated results into the future. Before I hand it off to Jason, I would like to take this opportunity to thank all of our employees around the world who remain focused on safely delivering the highest quality products and services to our customer partners Despite the significant headwinds we are facing in all three of our operating regions, our employees truly represent the very best in our industry, and I feel fortunate to work with them. With that, I will hand it off to Jason to discuss our third quarter financial results. Jason? Thank you, Aaron.

Let's start on page five to discuss our global results for the fiscal year 2023 third quarter and year-to-date nine months. In the third quarter, group net sales decreased 4% to $860.8 million. Global volume was down 11% due to the deceleration of the housing markets we participate around the world. However, in every region, our teams continue to deliver strong price mix growth, leading to group net sales down only 4%. In each region, our teams continue to drive strong product mix while executing strategic price increases leading to price-mix growth of 10% in North America, 6% in Asia-Pac, and 14% in Europe. In regards to earnings, global adjusted EBIT decreased 19% to $165.4 million, and global adjusted net income decreased 16% to $129.2 million. Every region's earnings continue to be negatively impacted by inflation. Nine months' year-to-date results were much stronger, buoyed by the stronger markets in the early months of the financial year. For the first nine months, global net sales increased 8% to $2.9 billion, and adjusted global net income increased 4% to $459.3 million. Both are records for the first nine months of the fiscal year. As you are aware, The housing markets we participate in have decelerated during our current fiscal year, and inflation continues to pressure margins. For the full year of FY23, we are estimating inflation to be between a 160 to a 170 million U.S. dollar headwind globally. As we adapt to the changing market conditions, and as Aaron will discuss further, we are making adjustments to our global workforce by balancing our manufacturing networks and reducing SG&A headcount. In total, we reduced our headcount by approximately 6% globally. We incurred restructuring costs of $6 million in the third quarter and will incur approximately $2.5 million in the fourth quarter. Globally, it has certainly been a challenging year with significant inflation and decelerating housing markets. Nonetheless, we are confident that the full year FY23 will produce a record for net sales with strong earnings and strong margins. Let's move to page six to discuss the North American results. In the third quarter, North American net sales were flat at $645.4 million. Volume growth declined by 10%, which was fully offset by strong price mix growth of 10%. The strong price mix in the quarter was underpinned by color plus volume growth of 18% in the third quarter. The volume decline of 10% was driven primarily by the rapidly decelerating single-family new construction market and also lower repair and remodel market activity. In the third quarter, the team delivered a robust bottom-line outcome with EBIT of $174.1 million at an EBIT margin of 27%. For the nine months year to date, net sales increased 15%, driven by strong price mix growth of 13%, and EBIT increased 8% at 27.1% EBIT margin. Let's move now to page seven to discuss the Asia-Pacific results. Asia-Pac's third quarter net sales were 171.2 million Australian dollars, a decrease of 13%. The APAC business continued to drive high-value product penetration, leading to price mix growth of 6% in the quarter. The 19% decline in volumes was disappointing, was primarily driven by continued market weakness in Australia and New Zealand combined with inventory reductions from key customers in both countries. Third quarter EBIT was 42.3 million Australian dollars with a margin of 24.7% driven by the volume decrease and inflationary pressures. Turning now to page eight, let's discuss the European results. The third quarter results in Europe remained very consistent with the first half. Volume was down 10% while the team drove strong price mix growth of 14%, leading to a net sales increase of 4% to 101.2 million euros. Third quarter EBIT declined to 1.5 million euros at an EBIT margin of 1.5%. The margin result was significantly lower than the first half EBIT margin of 7.4%, primarily due to restructuring actions taken in the third quarter. The restructuring charges led to a 350 basis point reduction in the Europe EBIT margin. Turning now to page nine to discuss capital allocation and guidance. Starting with capital allocation, our framework we introduced in November remains unchanged. Our first focus is investing in organic growth. Second is maintaining a flexible balance sheet, and third is to deploy excess capital to shareholders via a share buyback. Late in the third quarter, we began executing on the share buyback program, and during the quarter, we purchased 1.6 million shares for total consideration of 31.2 million US dollars. We intend to continue with the share buyback program when our trading window reopens. Regarding guidance, we have adjusted the fiscal year 2023 adjusted net income guidance range to 600 and 620 million US dollars. We have lowered the guidance range for four primary reasons. Number one, North American volumes in the second half will be lower than we expected three months ago. APAC volumes will also be lower than previously expected, three, persistent inflation, and four, the impact of restructuring charges in the second half. Regarding North American volumes, in November, we stated we expected our second half volumes to be down 5% to 8%, and we now expect that figure to be down 11% to 12%. This change was driven by the continued rapid deceleration of the U.S. housing market. regards to APAC volumes, the underlying housing market continued to decelerate faster than we anticipated and there was significant channel destocking. Fiscal year 2023 was certainly a challenging year with full year inflation estimated to be a headwind between 160 to 170 million US dollars and housing markets decelerating rapidly. That said, we expect full year fiscal year 23 global net sales to be a record and our adjusted net income to be the second highest ever achieved by James Hardy. I will now hand it back over to Aaron.