James Hardie Industries plc

Thank you for standing by. Welcome to the James Hardy third quarter fiscal year 2024 results briefing. Today's briefing is hosted by James Hardy CEO, Mr. Aaron Erder and CFO, Mrs. Rachel Wilson. After the briefing, we will open the lines to Q&A and then remind participants to limit your questions to one plus a follow-up. After the Q&A, I'll turn it back to Mr. Erder for closing remarks. I would now like to hand the conference over to James Hardy, CEO, Mr. Aaron Erder. Please go ahead, sir.

Thank you, operator. Good morning and good evening to everyone, and welcome to our third 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 remarks, 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. Joining me is our CFO, Rachel Wilson. For today's call, I will start by providing a strategy and operations update. Rachel 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 I share an update on our strategy and operations, 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 team's focus remains simple. working safely, partnering with our customers, investing in long-term growth, and driving profitable share gain. Our third quarter results continue to highlight how impactful that focus has been. For the third quarter, we achieved global net sales of $978.3 million, up 14% versus the prior corresponding period, with a record quarterly global adjusted net income of $179.9 million, up 39% versus the prior corresponding period. Both our global net sales and adjusted net income results were, again, supported by volumes in North America that have outperformed the market. Our third quarter North American volume of 766.5 million standard feet exceeded the top end of our guidance range, and we delivered that with a record 32.7% EBIT margin. The adjusted net income result was also supported by strong year-over-year financial results in our Asia Pacific region. In the EU, business performance improved year-over-year, and we are seeing momentum in growing our high-value products. For the first nine months of the year, we generated record operating cash flow of $749.5 million, up 73% year-over-year. Similar to last quarter, we have continued to accelerate our investment and long-term growth, supporting our marketing tentpoles, driving awareness and conversion in targeted regions to aid in sustaining profitable share gains. Rachel will share additional details in the financial section. While uncertainty continues to affect our end markets, our focus remains on partnering with our customers and controlling what we can control to outperform in the markets we participate. Now, please turn to page six in our global strategic framework. As I continue to emphasize, 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. I remain 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. We accelerate our strategic initiatives by establishing competitive advantages through our strategic enablers without compromising on our foundational imperatives. Today, I will discuss two specific components of our value proposition. Unrivaled support and localized manufacturing. Let us now turn to slide seven to discuss those components in greater detail. At James Hardie, we offer superior products and services to all participants in our value chain. Beyond the high performance of our product offerings, our unrivaled support and localized manufacturing are both key components of the superior value proposition that we offer our customers, builders, and contractors. Unrivaled support is about enhancing the experience for our value chain participants before and after the purchase of our products. Using our North America business, which is led by Sean Gadd, as an example, some of the ways we support value chain participants include, number one, our customer integration programs. This program enables our customers, in this case our distribution partners, to assess demand, manage stock and inventory positions, and ensure that they have the right products at the right place and at the right time. This program also helps our customers and our manufacturing teams plan more efficiently to ensure high levels of service while optimizing the use of working capital. Number two, dream builder events. Some of you will remember this as brand days from our investor day in 2022. At our dream builder events, we bring together key customers and contractors with our sales teams to learn more about how to market and sell James Hardy products. These interactive in-person events cover everything from initial home design decisions to the installation of James Hardy products, providing insights and engagement from the beginning to the end of the process. In effect, we are driving the number of contractors pitching James Hardy products in the home. We have doubled the amount of such events held in FY24 versus FY23. Number three, our Contractor Alliance Program, or CAP for short, is a membership program for our R&R contractors. The program offers tiered and tailored support and services to meet the varied needs of our contractors, regardless of size. Support includes the sharing of leads or referrals generated through the James Hardy website portal. Supplying our customers with high-quality leads is a key differentiator for James Hardy. High-quality leads benefit both new contractors just starting out with James Hardie and long-term contractors alike. Contractors value these leads as they are real currency for the success of their businesses. Program members also have access to local sales support, technical training on using our products, and installation support. All of these help our contractors improve the quality and efficiency of installing our products and ultimately assist in lowering the on-the-wall costs for their customers, increasing the overall value they provide homeowners. And finally, program members have access to co-branded marketing materials like job site marketing kits and curated social media packages, which ensure our collective messaging is aligned and impactful. These materials boost the contractor's local presence in the community with the intention of increasing awareness for the contractor as well as driving James Hardy's presence in their neighborhood. As an example, for every contractor's completed home that utilizes this localized marketing, they can expect to generate, on average, an incremental 12 leads and an additional two more jobs sold. Our unrivaled support is part of our homeowner-focused, customer and contractor-driven mindset. We are investing in our customers and contractors to help grow their businesses, which will help drive ongoing material conversion towards James Hardie fiber cement. Localized manufacturing is another part of our superior value proposition for customers, builders, and contractors. We are physically close to our customers, We operate 10 manufacturing sites across the U.S., enabling a local presence to support our customers' changing needs and differentiating us from our competition. In FY23, approximately 70% of our products were delivered within 500 miles of one of our plants. This enables us to provide our customers and partners with reliable and responsive customer support services. limiting exposure to the risks inherent in extended supply chains. Our plants are conveniently located near key sources of raw materials. In FY23, approximately 80% of our raw materials were sourced within 150 miles of our plants. This close proximity provides our plants with efficient sourcing, which helps to minimize freight costs and the carbon footprint of our supply chains. Finally, we invest in and support the communities within which we operate. In FY23, we contributed $1.85 billion in incremental growth and economic activity through capital expenditure at our plants, investing in our employees and local ecosystems and across our supplier base. The benefits of our localized manufacturing are long-lasting. And through our capital allocation framework, we remain focused on investing and enhancing our localized offering. In short, our unrivaled support and localized manufacturing benefit all of our value chain participants, our customers, our builders, and our contractors. These benefits are part of the superior value proposition that differentiates James Hardie over other building materials providers and supports our growth aspirations by providing our partners with benefits that extend beyond the product. Now, I would like to hand it over to Rachel to share more details about our third quarter results. Rachel?

Thank you, Aaron. Let's start on page nine to discuss our global results for the third quarter. Our team has delivered a strong set of results in the third quarter compared to last year. with consistent and focused execution for the first nine months of our fiscal year. For the quarter, grouping of sales were up 14% year-over-year to $978.3 million. Adjusted net income increased 39% to $179.9 million. The global adjusted EBITDA margin was 28.7%, up 440 basis points, and operating cash flow for the nine months was a record $749.5 million, of 73% year-over-year. Our team is focused on executing on our strategy, and these consistent results demonstrate the value of focused execution. Now, turning to slide 10, I'll detail our adjusted net income waterfall for the third quarter. As mentioned, adjusted net income increased 39% or $50.7 million year-over-year to $179.9 million and was in line with guidance provided in November. The year-over-year increase was primarily driven by strong EBIT growth in North America, which contributed $52.4 million to the increase in adjusted net income. The year-over-year increase was also supported by growth in APAC and EU. Combined, these two regions contributed $12 million to the increase in adjusted net income. During the quarter, and as part of our ongoing marketing investment to drive long-term growth, global SG&A investment, which includes corporate, increased 36% year-over-year to $156.3 million. This equates to 16% of revenue, up from 13.4% last year. Sequentially, global STNA was up 2% compared to the second quarter of fiscal year 2024. The increase in investment, primarily in our marketing tentpole, reflects our continued focus on growing brand awareness and driving profitable share gains. In the last quarter, we've seen our gain party aided brand awareness inside an increase Some of our key initiatives include increased marketing through advertising, sponsorships, and trade marketing to drive consideration and conversion across the value chain. General corporate SG&A expenses increased primarily due to higher stock compensation expense, mainly a higher share price, as well as higher employee costs, and was partially offset by lower New Zealand weather tightness expense. Our FY24 full-year estimated adjusted tax rate is now updated to 22.8%. This compares to the FY23 full-year tax rate of 20.1% and is higher than FY24, reflecting our geographic mix. We are proud of our global teams for the way they've executed in a challenging market. We remain focused on consistent execution to similarly deliver in the fourth quarter. Let's now move to page 11 to discuss the North American results. Beginning with the top-line results, North American net sales of $727 million, with up 13% versus the prior corresponding period, and our average net sales price was up 3%. Volume of 766.5 million standard feet exceeded the top end of our guidance range. During the quarter, overall housing and markets improved as mortgage rates eased. However, major projects R&R remained down high single digits while single family new construction was up 7% in the September quarter. As a reminder, we use a one-quarter lag methodology as applied to single-family new construction macro data to better align the data to the timing of our reported sales. Our quarterly volume increase of 9% year-over-year is against a mixed-end market. Q3 volumes exceeded guidance and historical trends in part due to customers fully buying the amounts permissible prior to the January 1st price increase. When thinking about seasonality, it's noteworthy that in October 2020, we moved our annual price increase to calendar year-end versus our fiscal year-end, based on customer feedback to better align this to their fiscal year end. Given this movement, and disregarding 2021 to 2022 due to supply allocations, we now expect a more even North American volume distribution between Q3 and Q4. The 9% Q3 volume increase and expected 9% Q4 volume increase at the guidance midpoint highlights the success we are having. We are converting share against other competitive materials, This reflects James Hardy's superior value proposition, as outlined by Aaron in his opening remarks, and our material conversion advantage in building products. Similar to the second quarter, our strategic initiative to partner with big builders helped drive continued volume growth in the South Central region, which is new construction dominant. This region outperformed our total North American volume. In addition, our volumes in the Northwest have continued to remain strong as our execution focus has enabled us to take share. We are committed to serving both the new construction and R&R segments and continue to invest in the larger R&R market. Now turning to margins. The North American EVEN margin improved by 570 basis points versus the prior corresponding period to a record 32.7%, and similar to volume, we're just above the top end of our guidance range. EVA dollars in the third quarter were up 37% to a record $237.8 million versus the prior corresponding period. EBIT benefit is from a higher average net sales price, as well as lower input costs, specifically pulse and freight. Looking to Q4, and as noted last quarter, we expect cement to remain a key headwind for our North American margins, given timing of our supply contracts and strong demand for cement globally. We additionally anticipate higher pull prices, as well as an increase in our startup ramp-up costs for Prattville Line 3. For the full year calendar 2024, Some of our key input costs, as just mentioned, cement and pulp, are expected to markedly increase. During the quarter, SG&A investment increased 40% year-over-year off of a low base in the prior year. This investment is focused on a marketing temple to drive long-term demand creation. As a percentage of sales, SG&A investment increased two percentage points. Despite housing market volatility, we are encouraged by our relative share performance. By partnering with our customers, the North American team delivered a strong third quarter result with record EBIT and EBIT margins. Let's now turn to page 12 to discuss the Asia-Pacific results. Similar to North America, it was a strong third quarter for our Asia-Pacific segment. Net sales improved 21% versus the prior corresponding period to $206.3 million. The net sales improvement was driven by a 14% increase in our average net sales price and supported by a 6% increase in volume. Volume growth was driven by recovery in New Zealand, as well as APAC-focused strategies that have resulted in new customer acquisitions and successful co-creation with builders. EBIT improved 34% to $56.7 million. The result was driven by a higher average net sales price, which more than offset an increase in cost of goods sold per unit. Despite both pulse and trade costs being lower in the quarter versus last year, cost increased modestly due to a higher price mix of sales. SG&A investment increased 22% year-over-year as we continue to invest in long-term demand creation. As a percentage of sales, SG&A investment was largely unchanged year-over-year. The APAC EBIT margin improved by 280 basis points versus the prior corresponding period to 27.5%. Given our Q3 is seasonally weaker, this was a strong margin outcome relative to prior Q3 performances. Our Asia-Pacific team has continued to partner with our customers to deliver a strong third quarter. The Australian housing market remains challenged as the industry digests housing market affordability issues and a double-digit decline in building approvals. Despite this backdrop, our teams are focused on driving profitable share gains. We will now turn to page 13 to discuss the European results. Our European team had a solid third quarter as the team continues to execute well in a challenging market environment. The European market has declined double digits. As an example, German building permits were down 15% year-over-year in the three months to November. European net sales increased 8% to €109.3 million. The increase was primarily related to an 18% increase in ASP, as well as a €4.2 million favorable show-up related to customer rebate estimates. The growth in ASP was due to our strategic price increases and growth in high-value products. We continue to see our product mix shift towards our higher-value fiber cement offerings. We are working closely with our customers to provide products that are geared to both multifamily and single-family homes. During the quarter, our fiber gypsum volumes were down low double digits, whereas we experienced double-digit growth in our high-value products. We see strong opportunities ahead for our high-value products, and recently were recognized by the German Design Council with an award in the category of Excellent Product Design, Building, and Elements. Let's recognize our latest innovation, the Hardy Architectural Panel Collection. The Architectural Panel Collection has been developed in conjunction with European architects to specifically meet the design preferences of our European customers. While our high-value products are growing off of a small base, they're becoming a larger part of the overall mix, namely with panel opportunities. On a combined basis, overall volumes declined 10%, which, while significant, represents a lower decline than the overall European market. EBIT improved year-over-year to 7.1 million euros, driven by a higher average net sales price, which more than offset a higher cost of goods sold due to lower volumes and increased costs of gypsum and energy. Similar to other geographies, STNA investments increased 30% year-over-year. As a percentage of sales, STNA investment increased 3.5 percentage points. In the EU, these investments included creating dedicated sales teams to commercialize our panel portfolio across Europe and driving market initiatives. such as a series of events for architects in major European cities like Paris and London, as well as further advertising activities on major social media platforms to generate more leads. EBIT margin improved by 500 basis points versus the prior corresponding period to 6.5%. We remain confident in delivering mid to high single-digit EBIT margins near term, and the focus for the EU team is execution on growing high-value products. This strategic emphasis will support the longer-term margin expansion opportunities. Turn now to page 14 to discuss cash flow, liquidity, capital allocation, and capital expenditures. Our robust operating cash flows reflect our strong margins, which stem from the superior value proposition that we offer our customers, builders, and contractors. In the nine months of FY24, our operating cash flow was $749.5 million. This record cash flow result was driven by strong financial results in all three regions, and a working capital improvement of $121 million. We continue to maintain a strong liquidity position with a Q3 net leverage ratio of 0.65 times and liquidity of over $1 billion. We are stewards of investor capital. Our capital allocation framework is the first and foremost to invest in organic growth. We do this while maintaining a flexible balance sheet and deploying excess capital to our shareholders. During Q3, we were purchased 2.4 million shares for $75 million at an average per share price of US $32.11. For the nine-month period, we repurchased 6.7 million shares for $196.3 million at an average price of $29.14. As we look to Q4, we plan to continue to repurchase shares under our US $250 million buyback program. Regarding capital expenditures, for the first nine months, capital expenditures totaled $328.2 million. We expect to spend approximately $515 million on capital expenditures in FY24, and we remain committed to keeping capacity ahead of supply. In Q4, we expect to complete prep bill sheet machine number three. In over a 12-month period, we expect to incur startup ramp-up costs of approximately $10 million. Looking into calendar year 24, we are continuing to invest to prepare for future demand, and we are expecting CapEx to increase year over year. Key investments include early works for brown and greenfield capacity additions in North America, and proven initiatives globally to unlock existing capacity, as well as investments in the hardy operating system initiatives. We have robust operating cash flows, substantial liquidity, and a flexible balance sheet, which enables us to invest in profitable growth. I'll now turn it back over to Aaron.