James Hardie Industries plc

Thank you for standing by, and welcome to the James Hardy First Quarter Fiscal Year 2024 Results Briefing. Today's briefing is hosted by James Hardy, CEO, Mr. Aaron Erta, and CFO, Mr. Jason Mealy. After the briefing, we will open up the lines to Q&A, and I remind participants to limit your questions to one plus a follow-up. After the Q&A, I'll turn back to Mr. Erta for any closing remarks. I'd now like to hand the conference over to James Hardy, CEO. Mr. Aranurta, please go ahead, sir.

Thank you, operator. Good morning and good evening to everyone, and welcome to our first quarter fiscal year 2024 results 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. Also, except where we explicitly state otherwise during our prepared marks, all references to monetary amounts should be assumed to be in U.S. dollars. Moving to page three, you will see our agenda for today. As always, I'm joined by our CFO, Jason Mealy. For today's call, I will start by providing a strategy and operations update. Jason will then discuss our financial results and I will return to discuss our outlook, guidance, and provide a brief closing. We will then open it up for questions. Before we begin, 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, solutions, and services to our customer partners. Our employees truly represent the very best in our industry. and consistently enable our superior value proposition. Let's start on page five with a brief business update. Our teams remain laser focused on partnering with our customers, managing decisively, and controlling what we can control. Our first quarter results highlight how impactful that focus has been. In Q1, our adjusted net income increased 13% to $174.5 million, which was above the top end of our guidance range. This was driven by higher than expected volumes in North America. Our North America volume of 748 million standard feet was a 5% beat to the top end of our volume guidance, and we delivered that at a record 31.3% EBIT margin, which is in line with the volume sensitivity analysis we provided you in May. Jason will unpack this a bit more in the financial section. The net income result was also supported by strong results in our Asia-Pac and European regions. And importantly, we generated operating cash flow of over a quarter of a billion dollars. While markets remain uncertain, our focus remains on partnering with our customers and controlling what we can control to deliver differentiated results. Now, please turn to page six in our global strategic framework. At the heart of our global strategy, we are homeowner-focused, customer and contractor-driven. With that in mind, all three regions remain focused on our three key strategic initiatives. Number one, profitably grow and take share where we have the right to win. Number two, bring our customers high-value, differentiated solutions. And number three, connect and influence all the participants in the customer value chain. We accelerate our strategic initiatives by establishing competitive advantages through our strategic enablers. And both our strategic initiatives and strategic enablers build upon our foundational imperatives. I am confident in our team and our strategy. Combined, they position us to execute at a high level and drive profitable share gain in all three regions. Today, I want to spend some time discussing all three of our strategic initiatives in a bit more detail, using our North American business as an example. Let us now turn to slide seven to discuss these initiatives, profitably grow and take share where we have the right to win, and bring our customers high-value differentiated solutions. When we look at the United States geographically, we believe we have the right to win across the entire country. Internally, we break the country into eight geographic regions, which we discuss in detail in our September 2022 Investor Day. From a market segment perspective, we have chosen to focus on repair and remodel, single-family new construction, and multi-family new construction. We believe that our value proposition provides us the right to win in all of these market segments, and we endeavor to drive profitable share gain in all three market segments, each and every day. We do this through bringing our customers high-valued, differentiated solutions. Our teams ensure we are leveraging the entirety of our superior value proposition to provide our customer partners the right solutions for their geographic region and market segments. Some examples of how we bring this to life. Repair and remodel is a large opportunity for our continued growth. As we have mentioned many times, the US has an aging home inventory with over 40 million homes over 40 years old. Specifically, in the Northeast, Midwest, and Carolinas, we have a significant opportunity to penetrate R&R for those regions. Our ColorPlus portfolio of products is the right solution for our customer and contractor partners to profitably grow together. Shifting to new construction for a moment, we have a significant opportunity to grow profitably together with our customer partners across the entire nation. That said, currently the South represents our largest new construction opportunity. The South is a prime product market for us, and as we discussed at length in February, We partnered closely with our customers, including the big builders, to provide them with Simplank, which we believe was the right product solution to help them compete and accelerate growth. Speaking of partnering with new construction and strong customer partnerships, you would have seen last week that we announced an exclusive national relationship with D.R. Horton, the largest home builder in the United States. This agreement makes us D.R. Horton's exclusive hard-siding provider nationally. This three-plus year agreement is a testament to our focus on the customer and providing them the right products at the right time to drive growth together. It is our team's responsibility to ensure we offer the right solutions to our customer, builder, and contractor partners to enable profitable growth. The right solution varies by geographic region and market segment. There will be periods of time where different geographies and different market segments grow at different rates. And those differences in underlying growth rates will naturally change our product mix. What we are focused on is ensuring we outperform in each geographic region and each market segment by leveraging our product portfolio and superior value proposition. I'm aware that in recent years, product mix was highlighted as a top priority. But today, I want to be clear. We are laser focused on profitable share gains. and taking share where we have the right to win. We will no longer be going into the details of product mix, such as what percentage of our mix is Simplank, what percentage is ColorPlus, et cetera. We drive strong margins in all geographic regions and in all market segments with all of our products. We believe we have the right value proposition and set of solutions to win in every geographic region and in all three market segments we target in the U.S. I believe the EBIT margins of 29% in Q4, 31.3% in Q1, while our SEM point mix was increasing, is proof positive to that point. Let's now turn to slide 8 to discuss how we connect and influence all the participants in the value chain and how we are focused on solidifying James Hardy as the brand of choice in building products. In recent years, we have used the audience category we call Christine to describe the target homeowner for James Hardy. However, based on detailed studies we have performed, we know our opportunity goes well beyond Christine. There are numerous types of homeowners we are focused on, and we believe we have the right to win with all of them. Our product teams are focused on connecting and influencing our value chain participants. We do this through tools and resources that enable them to easily connect with James Hardy. We also do this through marketing to all value chain participants to effectively ensure they know our superior value proposition. When we do all these things collectively, we become the brand of choice. We have numerous marketing tools that enable our value chain to be successful. I like to refer to these as tent poles, which you can see at the bottom of the slide. Starting with sponsorships such as the Magnolia Network and HGTV Dream Home that help drive awareness across the country. Cause marketing. This includes collaborating with community-based organizations such as Habitat for Humanity, where we work together to build a better future for all. Homeowner marketing. This includes our in-store retail presence to ensure we capture the DIY homeowner and foot traffic and brand awareness retail provides. Homeowner marketing also includes our collaborations with influencers, most notably our partnership with Chip and Joanna Games. Trade marketing. We have specific marketing directed at and supporting our trade professionals, the contractors and installers. Lastly, marketing. local marketing. We have specific campaigns targeted to specific regions to address the needs and thoughts of the value chain participants in that local area. As an example, we recently launched our Texas Tough marketing campaign. This campaign highlights the durability of our products and the fact they are locally made in our two Texas facilities. Our team continues to make great strides in helping James Hardy become the brand of choice and in connecting and influencing our value chain. This will further enhance our ability to drive profitable share gain over the long term. Now, let's turn to slide nine. We've returned to driving profitable share gain as a top strategic initiative. Let's take a look at how impactful this has been to James Hardy over the long term. The chart on the left is external data from the US Census, which measures external cladding share in single-family new construction. Over the past 10 years, the share of fiber cement as a primary cladding in new construction has increased 7%, reaching 23% share of the market in 2022. This demonstrates our ability to consistently drive share gain. On the right is our North American adjusted EBIT dollars over the past 10 years. What this data shows is that over those 10 years, our adjusted EBIT dollars have grown at an outstanding CAGR of 13%. And our adjusted EBIT margin for this 10-year period was 26%. These results are outstanding across the 10-year period and demonstrate proven long-term profitable share gain. What excites me most is that we have refined our strategy to be homeowner-focused, customer- and contractor-driven. As we continue to accelerate this strategy, I believe this will only bolster the long-term profitable growth metrics you see here. With that, I'll now turn it over to Jason to discuss our financial results.

Thank you, Aaron. Let's start on page 11 to discuss our global results for the first quarter. We have started fiscal year 2024 strong with an excellent set of results, including a beat to our adjusted net income guidance. Group net sales were $954.3 million. This result was supported by higher average net sales price in all three regions. Adjusted net income increased 13% to $174.5 million. Global adjusted EBITDA margin was a record 29.2%. And operating cash flow was an outstanding $252.3 million. Globally, our teams are executing our strategy with a focus on controlling what we can control. In an uncertain and unsettled market, it was important to start the year strong, and our teams did just that, delivering our best-ever first quarter results for both adjusted net income and operating cash flow. Turning to slide 12, we will remain focused on the global result, specifically adjusted net income. We have added a new slide to summarize the adjusted net income result versus the prior corresponding period. Adjusted net income increased $20.2 million to $174.5 million, an increase of 13%. The improved result was primarily driven by strong EBIT growth in North America and APAC, which combined to contribute $29.9 million increase to adjusted net income. The largest headwind to adjusted net income was a $7.5 million increase in general corporate costs, driven primarily by the increase in stock compensation expenses. Our adjusted effective tax rate was 22.9%, which is our best estimate of the full year FY24 rate. Overall, an excellent bottom line result. As I mentioned earlier, adjusted net income of $174.5 million is our strongest first quarter ever. Our global team is excited that we have gotten off to a strong start to the year and are focused on delivering a strong second quarter to maintain our momentum. Let's now move to Phase 13 to discuss the North America results. Starting with the top-line results, North American net sales decreased 6% to $694.8 million versus the prior corresponding period. Our average net sales price was up 3%, which helped offset a decrease in volumes of 9%. Volume at 748 million standard feet exceeded our guidance. As Aaron mentioned earlier, this was the primary reason for the beat to adjusted net income guidance. Our team's focus on profitable share gain combined with stronger than expected market conditions led to the strong volume outcome. As we discussed on our February 2023 results briefing, our team was taking strong action to drive share gain with the largest builders in the U.S. This proactive partnering with these builders early in the calendar year to ensure we provided them the right solutions to drive their business is resulting in strong profitable share growth. We believe these actions directly impacted our first quarter volume results. In the second half of the quarter, May 15th through June 30th, our order rate surged higher, exceeding the daily order rate experienced in the first half of the quarter. This surge in order rate exceeded our expectations that underpinned our volume guidance. EBIT margin improved by 540 basis points versus the prior corresponding period to a record 31.3%. This margin was in line with the volume sensitivity analysis we provided in May. EBIT dollars in the first quarter were up 13% to a record $217.6 million. EBIT improved $25.8 million versus the prior corresponding period, primarily due to higher price and lower freight costs. These improvements were partially offset by the decrease in volumes of 76 million standard feet. By managing decisively and partnering with our customers, the North American team delivered an excellent first quarter result with strong volumes, record EBIT, and record EBIT margin. Let's now move to page 14 to discuss the Asia-Pacific results. Similar to North America, it was a strong start to FY24 for our Asia-Pacific segment. Net sales improved 5% versus the prior corresponding period to a record $209.7 million. The net sales improvement was driven by higher average net sales price, partially offset by a volume decline of 8%, which is primarily due to our New Zealand business. EBIT improved 35%. to a record 69.5 million Australian dollars driven by improved net sales with relatively flat cost of goods sold per unit and lower SG&A. EBIT margin improved by 750 basis points versus the prior corresponding period to a record 33.1%. Similar to North America, our Asia Pacific team has partnered with our customers and managed decisively to deliver an excellent first quarter. While we expect margins to remain strong based on the uncertain markets and increased investments and growth, we expect 33.1% margin to be the high point for the fiscal year. Please turn to page 15 to discuss the European results. Our European team had a solid start to the year despite an unsettled market. Starting with the top line, net sales of 109.7 million euros was down 1%. A higher average net sales price of 478 euros almost entirely offset an 18% decline in volumes driven by lower housing market activity. First quarter EBIT and EBIT margin were down 5% and 50 basis points respectively versus the prior corresponding period to 10.8 million euros and 9.8% respectively. However, the EBIT and EBIT margin represent solid sequential improvements The European team is laser-focused on driving profitable share gain in FY24. Turning now to page 16 to discuss liquidity, cash flow, capital allocation, and capital expenditures. We continue to maintain a strong liquidity position with our leverage ratio of 0.85 times and liquidity of $580.7 million. We expect our continued robust operating cash flows will ensure we maintain the strong liquidity position. In the first quarter of FY24, our operating cash flow was $252.3 million. This outstanding cash flow result was driven by the strong financial results of all three regions and a working capital improvement of $51.8 million. Regarding our payments to the AICF, In fiscal year 24, we will pay 137.5 million Australian dollars to the AICF. This compares to our payment of 158.8 million Australian dollars in fiscal year 2023. Our capital allocation framework remains unchanged. First and foremost, we invest in our organic growth. We maintain a flexible balance sheet, and when prudent, we deploy excess capital to our shareholders. Since our announcement of our share buyback program in November of 2022, we have repurchased 5.8 million shares for total consideration of 127.4 million U.S. dollars. This reduction in our outstanding shares has helped our diluted earnings per share grow 14%, outpacing the growth in adjusted net income. Regarding capital expenditures, during the quarter, capital expenditures totaled $125.6 million. We expect to spend approximately $550 million on capital expenditures in FY24, and we remain committed to keeping supply ahead of demand. We have robust operating cash flows, substantial liquidity, and a flexible balance sheet, which enable us to continue to invest in profitable growth. Finally, today we are announcing that we are canceling our plans to build a greenfield site in Victoria, Australia. I will now hand it over to Aaron to discuss this decision further. Please turn to page 17.