James Hardie Industries plc

Welcome to the James Hardie Fiscal Third Quarter 2026 Earnings Conference Call. After prepared remarks by management, there will be an opportunity

Before we begin the call, please note that during prepared remarks and Q&A, we may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on slide two for more information. Forward-looking statements made during today's conference call and in the earnings materials speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements. Also, unless otherwise indicated, our materials and comments refer to figures in U.S. dollars, and any comparisons made are to the corresponding period in the prior fiscal year. With that opening, I'm pleased to hand the call to Aaron for some opening remarks.

Thanks, Chris. Hello, everyone, and thanks for joining us today. Before I begin, I would like to take a moment to thank our employees around the world who work every day to safely deliver the highest quality products, solutions, and services to our customers. This team has done an incredible job navigating a period of significant change and excitement with the AZAC combination. I am truly grateful for their dedication and am proud to work alongside them each and every day. With me on today's call is Ryan Latta, our new Chief Financial Officer. Many of you know Ryan from his prior role as CFO at AZAC. He brings extensive financial and operating experience and a strong understanding of the building products landscape. I'm excited to have Ryan alongside me as we lead the business forward. Also joining me today is John Skelly, President and General Manager, James Hardy North America Building Products Group. John, along with John Mattson, our new chief sales officer, have stepped into expanded roles recently. Each leader brings an impressive track record of driving sustainable sales growth, and each have deep knowledge of our industry. And each one of them has already contributed meaningfully to the commercial synergies that I will speak about on today's call. I am confident in their leadership to deliver on our commitment of outperforming the market over the long term. Let's start with our results. We delivered a solid quarter, exceeding our guidance and making good progress across the business. Execution was disciplined, commercial momentum improved, and our teams continued to advance the strategic priorities that matter most for long-term value creation. That said, we are not satisfied. We have higher expectations for ourselves, and our ambition is to deliver stronger, more consistent performance over time. That ambition is what's driving the actions we are taking across the business. On the commercial front, we are focused on re-accelerating organic growth in fiber cement and expanding margins across our portfolio through discipline execution, innovation, and operational excellence. The manufacturing optimization actions we implemented in mid-January were an important step in aligning our footprint and cost structure with our long-term growth and margin objectives. Finally, our combination with ASAC continues to build momentum and is already generating meaningful commercial opportunities. We are confident this combination will be a significant contributor to accelerated top-line growth in the years ahead as we bring together the best of James Hardy and AZAC to better serve our customers and create long-term value for our shareholders. Now, let's look at the results for Siding and Trim in the quarter. Current market conditions remain mixed due to the category's exposure to the new construction in-market in the southern region. Organic net sales in the legacy James Hardy North America fiber cement business declined 2% in the quarter, driven by lower volumes partly offset by higher average net sales price. Single-family exteriors volumes were down high single digits, multifamily was up high single digits, and interiors were down double digits in the quarter. Siding and trim adjusted EBITDA was $269 million in the quarter, with adjusted EBITDA margin of 34.1%, a nearly 500 basis point sequential improvement largely reflecting price mix favorability. As I mentioned in the opening, we are taking actions through the application of the Hardy Operating System to improve performance and return to margin expansion in FY27. On January 15th, we made the difficult decision to close two of our older, less efficient plants and transfer more production volume to some of our newer, advanced plants. This decision, along with actions we took to balance our footprint, will focus production on fewer manufacturing lines. These actions will create annual cost savings of $25 million beginning in the first quarter of FY27. Looking ahead to fiscal 27, these actions not only strengthen our cost position, but also allow us to have the right capacity and the right locations to execute against our significant material conversion opportunities. From a market perspective, while new home market demand is still uncertain, we have seen stable demand trends in line with expectations we outlined in November. In repair and remodel, we have seen demand stabilize at the current low levels. And while we expect organic net sales to decline modestly in the fiscal fourth quarter, we are focused on driving organic growth in the siding and trim segment and FY27 and beyond. Our overarching strategic focus is increasing our penetration in both the new home and the repair and remodel end markets. which is over $10 billion in which we have a significant material conversion runway. Going forward, we believe growth in this segment will be enabled by a few core strategies. First, in the repair and remodel end market, we believe a significant opportunity exists for additional revenue growth in the Northeast and Midwest regions, where we believe there is a nearly $1 billion repair and remodel focus revenue opportunity in competitive wood and wood look siding alone. We believe the combination with Azac positively impacts our ability to compete and win in these regions. Enabled by the combination, James Hardie now has longstanding relationships with independent lumberyards in the region, a large and talented sales force and the best collective product portfolio to drive material conversion. And while repair and remodel remains our focus, particularly given the synergies from the AZAC acquisition, we continue to see meaningful opportunities with custom and local home builders. We believe this under-penetrated segment represents an incremental $750 million opportunity for continued growth in the new home construction and market. We also see additional opportunities to drive growth through product innovation. Our R&D and product management organizations are focused on product innovation where we see opportunity to introduce resilient and beautiful products to drive material conversion. One example of our product development is Timber Hue, a new product that we will showcase at the International Builders Show that combines a natural wood look with a durability and performance of James Hardie's fiber cement. Our innovation mindset is not only in our products, but also in the installation techniques of our products. We have worked closely with our contractors and installers to understand and develop installation innovation, helping to reduce the overall installed cost of our products. Through installation techniques such as score and snap and the trim over method, we believe we can increase contractor efficiency by approximately 30%. For those of you who will be in Orlando at the International Builders Show, we will have the opportunity to showcase these innovative installation methods in our booth at the show. Now, let's turn to deck rail and accessories. Performance remains strong in our DR&A business, with TimberTech continuing to outperform the broader market by executing against our proven growth playbook. This performance is supported by multiple levers with material conversion underpinning everything that we do. The most recent data suggests the decking market is approximately 25% converted to composite materials. As a reminder, at this point in the conversion curve, every 100 basis points of material conversion equates to approximately 400 basis points of composite decking growth. We've had sustained material conversion momentum, which gives us confidence in the long-term runway, particularly as homeowners and professionals increasingly prioritize materials that offer superior durability, fire resistance, and performance. Wood conversion is driven by downstream-focused sales activity at the contractor level. with the continued education of contractors on the benefits of our resilient and aesthetically differentiated products relative to inferior substrates. Similar to our siding and trim segment, new product development represents another important growth lever, supported by our ability to design and successfully launch innovations that enhance the TimberTech portfolio for both consumers and pros. Recent new product introductions such as the TimberTech Advantage Rail and Impression Privacy Screen provide contractors and homeowners with advancements in functionality, aesthetics, and ease of installation. Consistent with the past, channel expansion remains a key focus as we continue to broaden TimberTech's presence across distribution and retail to further accelerate market conversions. Given the highly complementary nature of James Hardy and TimberTech's geographic footprints and customer bases, we see significant opportunities to facilitate channel expansion through our existing relationships. An example here may be helpful. James Hardy's traditional strength has been the West and South, where we have had success penetrating the market and have strong coverage and selling locations in the regions. At the moment, our fiber cement business has more than double the selling locations than TimberTech in the South. We believe over time there's a strong opportunity to place TimberTech products in the locations currently carrying James Hardy fiber cement. All of our sales and commercial initiatives are supported by a strong in-house marketing organization. By executing a consistent marketing playbook over the past four years, TimberTech has delivered meaningful progress across key brand health and commercial metrics, including strong gains in awareness and consideration. These results reflect increased brand visibility, broader channel presence, and effective engagement with both the homeowner and the pro. Our focus going forward is strengthening preference and deepening relationships with contractors. With this group, we believe we have outpaced the competition to become the leader in awareness, positioning us to convert that advantage into sustained share growth over time. Taken together, these efforts give us confidence in our ability to drive 500 to 700 basis points of growth above the market, consistent with TimberTech's historical track record. We delivered on this commitment in the most recent quarter with mid-single-digit sell-through growth, outperforming the broader market that declined at a low single-digit rate. Despite continued market softness, we remain confident that our strategic growth initiatives with customers and contractors will support continued market outperformance and low to mid-single-digit sell-through growth in the fourth quarter. As I close the DRNA update, I wanted to share the progress from the seasonal early buy shelf space negotiation period with Key Channel Partners, which wrapped up in recent weeks. As in prior years, we were focused on reinforcing customer relationships and securing appropriate seasonal inventory positioning. We believe these discussions have further expanded our market presence, positioning us well as we move into the primary decking selling season in the spring. Turning to the integration with AZEK. We're executing with discipline and urgency across all areas of the integration with a clear focus on our people and our customers. As we move into FY27 in just a couple months, we have established a clear organizational structure aligned around common goals and we have a specialized downstream customer-focused sales organization designed to deepen relationships, accelerate material conversion, and drive sustainable growth. We also continue to move quickly on cost synergy realization. We've already surpassed our FY26 cost synergy goal, and our progress to date increases our confidence in hitting our $125 million cost synergy target. On the commercial synergy front, customer feedback on the combined offering from the one James Hardy team has been very positive. We have seen a growing number of recent wins across the businesses that we expect to translate into meaningful revenue synergies as we move through FY27. Just to give you an idea of some of these, a large national one-step dealer has committed to choosing AZAK as their exclusive PVC trim brand, drawn by the combination with James Hardy and the strong loyalty of contractors to our combined portfolio. Another example of our momentum is a recently secured expansion of a relationship with a scaled distributor of exterior building materials that positions James Hardy as a primary hard siding and trim brand, and TimberTech as its primary composite decking brand across North America. This partner has agreed to focus national marketing on the One Hardy suite of brands and products. Most importantly, these commitments are reinforced by coordinated go-to-market efforts, targeted hyper-local marketing support, and training to drive material conversion. We're also seeing strong momentum and cross-selling across the One Hardy portfolio Over the past few weeks, we hosted national contractor summits for both TimberTech and James Hardy. One piece of feedback from these meetings is that contractors are increasingly looking to consolidate their portfolios under the One Hardy brands. One such example is Rick James of RPS Remodeling, a longtime James Hardy siding partner who recently transitioned his company's decking offering from a competitive product to TimberTech. The positive momentum from these proof points gives us confidence in our ability to deliver $125 million in annualized commercial synergy run rate exiting FY27, in line with our public commitment at the deal close. I will now turn it over to Ryan to run through the financials. Ryan?

Thanks, Aaron. I will start with our third quarter consolidated results. Total net sales grew 30% to $1.24 billion, which included $275 million of acquired ASIC sales. Our organic sales increased by 1%, and adjusted EBITDA was $330 million, with a 26.6% adjusted EBITDA margin. Adjusted general, corporate, and unallocated R&D costs totaled $47.1 million in the quarter. As a reminder, nearly half of the P&L benefit from full year 26 cost synergies resides in corporate expense for the year. Our adjusted effective tax rate was 17.3%. We now expect our full year tax rate to be slightly lower than our prior guide at around 19%. Adjusted net interest was $68 million and weighted average diluted share count was approximately 583 million. We anticipate these items will remain consistent in the fourth quarter. Adjusted net income was $142 million, and adjusted diluted earnings per share was 24 cents. Year-to-date, free cash flow was $261 million, which includes the benefit of completed land sale in Australia. However, cash flow remains negatively impacted by one-time integration costs, which will step down significantly in fiscal year 2027. Cash generation of our core businesses remains strong, and with capital spending projected at modest levels, we expect free cashflow to accelerate in years ahead. Turning to our siding and trim segment, net sales were up 10%, including $81 million from the ASIC acquisition. Siding and trim organic net sales were down 2% as lower volumes were partially offset by a mid single digit increase in ASP. Adjusted EBITDA was $269 million, with adjusted EBITDA margin of 34.1%, down just 70 basis points year over year. This decline was largely due to a 100 basis point impact from reallocating $9 million of R&D costs to the segment. Excluding this allocation, adjusted EBITDA margin would have increased year over year. The key drivers of the comparable change in margins were positive price, mix, and ongoing HOS savings. These were partially offset by lower volumes, unfavorable absorption, and inflation in freight and raw materials. We are employing the Hardy operating system to optimize the business cost structure through network optimization, cost synergies, and structural efficiency improvements. We expect the recently announced site closures and optimization initiatives to generate annualized cost savings of approximately $25 million beginning in the first quarter of fiscal year 2027. These cost savings will be driven by reduced fixed costs and improved utilization across the remaining manufacturing network. These cost savings are also incremental to any cost synergy savings related to the AZEK acquisition. Together, these actions will position the business for margin recovery and stronger performance going forward. For deck rail and accessories, net sales were up 2% compared to the quarter ended December 31st, 2024, prior to the AZAC acquisition by James Hardy. Sell-through was up mid-single digits, consistent with the business performance in the two most recent quarters. Adjusted EBITDA was $49 million, resulting in a 25.1% adjusted EBITDA margin. The deck rail and accessories margin outlook remained strong, with upside from material formulation, recycling initiatives, improved absorption across the manufacturing network, and the application of the Hardy operating system across the manufacturing base. Turning to Australia and New Zealand, net sales were up 7% in both US and Australian dollars due to 1% growth in volume and a 6% rise in ASP. Adjusted EBITDA was up 4% to $41 million, with adjusted EBITDA margin of 32.6%, down 90 basis points due to unfavorable production cost absorption and the R&D allocations. And in Europe, net sales were up 13%, or 3% in euros, driven by strong fiber gypsum volume and a modest decline in average net sales price. EBITDA margin was up 240 basis points to 12.7%, driven by volume leverage, lower gypsum and paper costs, and solid manufacturing efficiency. Turning to our full year outlook, we are increasing our siding and trim net sales guidance to a range of 2.953 billion to 2.998 billion, reflecting our outperformance in the third quarter. For siding and trim adjusted EBITDA, we are modestly raising our guidance range to 939 million to $962 million. At the midpoints, this implies a full-year organic net sales decline of approximately 6% and an adjusted EBITDA margin of 31.9%. For deck rail and accessories, we have also increased our net sales and adjusted EBITDA guidance for the post-closed period of fiscal year 26 to account for the outperformance in 3Q. We expect net sales of 787 million to 800 million, which assumes sell through upload to mid single digits. This is consistent with recent quarters and above prior expectations reflecting continued success in driving material conversion through our core strategies. Based on these demand expectations, we expect deck rail and accessories adjusted EBITDA of 219 to $224 million. For the total company, we now expect full year 26 adjusted EBITDA of $1.232 billion to $1.263 billion. We are confident in our long-term cash generation. We expect it to accelerate as integration costs wind down and interest expense declines with debt pay down. Our capital expenditures outlook remains unchanged at approximately $400 million for full year 26, including $75 million for ASEC investments. Over the long term, we expect CapEx across our North America businesses to run 6% to 7% of combined North America sales. We continue to expect at least $200 million in free cash flow for the year. Our net debt ended the quarter at $4.3 billion. Pro forma, for the ASIC acquisition and the midpoint of our updated guidance, full year 26 net leverage stands at approximately three times. We remain committed to reducing leverage below two times, within two years post-close, as we grow EBITDA, generate cash, and pay down debt. With that, I'll turn the call back to Aaron.

Thanks, Ryan. Looking ahead to FY27, while we are not guiding at this time, our expectation and goal is to return to both organic revenue growth and adjusted EBITDA margin expansion. In DRNA, TimberTech has demonstrated the ability to consistently outgrow the underlying market through our well-defined and repeatable growth playbook. We expect that this will continue in FY27. As highlighted earlier in the call, we also expect to return to organic growth in our siting and trim segment, and fiber cement siting in particular. Our four key strategies for returning to growth include, number one, a focus on the $1 billion repair and remodel opportunity in the Midwest and Northeast. Number two, a deeper focus on penetrating into the $750 million remaining in wood and wood look siting and new construction. Number three, a focus on new product innovation. And finally, continuing to introduce new and innovative installation techniques to drive efficiency for our contractors. Additionally, on growth relative to commercial synergies, We are encouraged by the early commercial wins, which give us confidence in our ability to realize our FY27 revenue synergy target, exiting the year at a $125 million run rate, consistent with our public commitment at the time of the deal announcement. And on cost synergies, we have executed well in FY26. We've already surpassed our FY26 cost synergy goal, and our progress to date increases our confidence in hitting our $125 million cost synergy target. We will give additional details on fiscal 2027 guidance during our year-end conference call in May. To close, we are executing against our clear long-term strategy focused on material conversion from wood and other inferior materials. We are well positioned to capture that opportunity through the breadth of our combined portfolio and our downstream engagement with contractors and customers. As we look ahead to FY27 and beyond, we are confident in our ability to continue outperforming the market, expand margins, and translate our strategy and execution into consistent long-term value creation for our shareholders. And coming up next week, we will be exhibiting at the International Builder Show, where we plan to highlight the breadth and potential of our combined product portfolio and demonstrate how our complementary offerings across siding, trim, decking, and accessories deliver differentiated solutions for our customers and reinforce the value proposition of the combined company. For those of you planning to be in attendance, we look forward to seeing you at the show. With that, operator, please open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from the line of Keith Hughes with Truist. Your line is open. Go ahead.

A lot of regional variation of late in some of the siding sales. Give us an update on that and specifically what you think your expectations are near term, how that could change as we get into calendar 26.

Keith, let me take it from there. So, Keith, I think with Truist, As we look at what went on, it's pretty consistent with what we said in November. I'll start out a little bit with new construction. New construction activity, it's challenging across most of our regions, with Texas, the West, and the Southeast showing the greatest softness out there, given their scale and our exposure to these markets. You're aware of all the data on permits, starts, you know, permits down 9% year over year. And then if we look year to date of starts down 7%. Look, I'll start out with Texas because Texas is so significant for us and for the country. It's about 26% of national closings out there. So what we're seeing in Texas is builders for the most part have been tightly managing inventory. After significant volume declines in Q3, we have seen some signs of normalization early in the calendar year. The recent weather has created short-term production delays, and we're seeing most builders remain conservative. Pacing starts to sales. If I look in the southeast, I look at the Carolinas, demand remains soft there with Q3 volumes down year over year. Inventory in key markets like Orlando, Jacksonville, Tampa, and Atlanta remain elevated. The Carolinas and Tennessee continue to benefit from strong migration trends, and we're seeing healthier starts there. In the west, starts are slow. Builders across the southwest and mountain states, they're overbuilt in inventory right now. The Midwest activity is comparatively resilient. We're seeing areas like Minneapolis, we're seeing Chicago, Ohio, Pittsburgh due to more affordable price points. And we're seeing strong performance in higher price bands as well. Some easing in contractor backlog is creating momentum as the season progresses. So look, overall in new construction, it's soft across many of the key regions. inventory levels are elevated but you know the good news is consumer sentiment is stabilized and it's supported by pinup demand and we're seeing modest relief in mortgage rates as we we move to repair and remodel you know we would say that that is stabilizing it's choppy but stabilizing we're not seeing it getting any worse which is good we're seeing sentiment improving across all our regions West South Midwest and Northeast particularly where there's aging housing stock, which makes a lot of sense. And if we look at our contractor surveys that we brought in this best practice from ASAC, we are seeing some optimism with our contractors. So all in all, I would say new construction continues to be a challenge, but not unexpected from what we talked about a little bit in November. And then if we look at repair and remodel, we would say stabilizing. Last thing before I talk just briefly on decor and accessories is we look at our inventory levels. Inventory exiting our third quarter was seasonally appropriate. Over the last weeks, I would say that we've seen a little bit of a tick up with our dealer inventory because some of the weather disruptions um out there as we've seen you know lost building days and production out there with our customers but all in all if we look at our channel inventory uh very healthy versus last year drna uh i won't spend a lot of time on it because we went through it in you know the script but we continued out from the market sell through was broadly consistent at mid single digits only uh modest regional variation, and we're seeing stable trends with our contractors and inventories that are appropriate for us. Hopefully that answered the question, Keith, because you got cut off a little bit.

Oh, that's very complete. Can you hear me now, by the way? All right. Yes. Yeah, okay, great. Just one quick follow-up on costs. Are you seeing any potential inflation coming in any of the siting inputs as we head into the new year?

Yeah, this is Ryan. We have a modest expectation of inflation on the fiber cement side. Nothing drastic at this point. Just given where pulp and things are, the majority of it is kind of playing towards the back half of 2027 at this point. Okay. Thanks, Keith.

Your next question comes from the line of Daniel Kang from CLSA. Your line is open. Please go ahead.

Hey, Daniel. Good morning, everyone. Good morning. And just wondering in terms of, I guess as we enter your final quarter, we're midway through it at the moment, end markets are still soft, but just wondering if you can talk about how your recent price increases have been accepted by your customers and how you're seeing, I guess, the all-important spring selling season

yeah daniel i would say look we we executed our price increases that they've been effective since uh january 1st out there that is on the the fiber cement side and that would be on the the deck brown accessories and the pvc trim side as well we talked a little bit about the increases you know we see some benefits from price and mix particularly from the fiber cement side so look we uh The way we price is we're doing it, you know, for value, and it's been accepted well from all our customers out there.

Thanks, Aaron. And you also spoke about, I guess, the early wins in commercial synergies. Is this going to feature much in the FY26 year?

Yeah, Daniel, good question here. As we look at sales synergies, you know, we'll see – Many of those start to hit the P&L as we get into FY27. Right now, a lot of these are being executed as far as the specifics around them, and we are making good progress. What I can say, and we're not giving guidance for FY27, but we have line of sight to our $125 million target of revenue synergies as we exit FY27. So we feel very confident of that.

Your next question comes from the line of Ryan Mercall of William Blair. Please go ahead.

Hey, everyone. Thanks for the question. My first one is on the 4Q guide. Are you assuming that siding and trim, the volumes are going to be down in a similar range as 3Q? And then on the margins, you know, you have nice beat in 3Q. Why not flow that through in 4Q? Is there a reason?

Yeah, I'll let Ryan go through the guide, but if we look at our siting and trim volume, one of the things I think that you'll remember is we are facing a comp from, you know, an inventory build that we saw in Q4 last year. But, Ryan, if you want to walk through some of that.

Yeah, I think the guide reflects exactly what Aaron just hit on. And then from a margin perspective, we have a step up in marketing activity really in our fourth quarter that is the main driver of the dilution from 3Q. But yeah, that's the biggest thing as we enter the season is just increased marketing expense as we get into the high year end here. Yeah.

And Ryan, to get more specific on that, these are things like contractor events. We had them on the legacy Azac side. We had them on the legacy James Hardy side. And then also we have an upcoming sales meeting. So Some of those expenses that you see really reflect that.

Okay. Yeah, that makes sense. And then my follow-up, the large distributor committing to One Hardy, that sounds pretty interesting. My question is, do you have more of those in the pipeline?

Yeah, Ryan, I'm going to turn it over to John Skelly, who runs our North American business, who has been a big architect. John, do you want to take it?

Yeah. So Ryan, obviously can't say too much at this point, but I think I'll just attach it to what Aaron said earlier around our confidence to deliver against the exit synergy rate for fiscal 27. So I think the customer has welcomed the opportunity to consolidate with the market leading brands and what we're able to do from a downstream sales and So that's what's given us the confidence.

Your next question comes from the line of Peter Stein from Macquarie. Your line is open. Please go ahead.

Hi, Erin. Thanks very much for the opportunity. I actually just wanted to bring together that very conversation together with Working Capital. Your inventory relative to pro forma, you kind of went to 75 days from perhaps around the 71 in the prior comparative period. What I'm curious about is what the training will be as you execute commercial synergies, as you gain more position with some of the one-step space. Do you believe that you can reduce the volatility that you've historically seen in the decking businesses, inventory profile in particular, and then across the business, what your expectation would be for improved efficiencies on that investment?

Brad, do you want to handle that one?

Yeah, yeah. I would say as you think about the commercial strategies we're going after, there is a little bit of build on our internal balance sheet to be able to satisfy those if those come to fruition. So I think we had a little bit on the prior question, but there is phasing and timing a rollout into the season. So we would expect that that normalizes our inventory and our balance sheet would also come down. But yeah, the real build is driven by that, nothing else intentionally.

And would there be network redesign benefits that flow over the medium term as well? That's probably more where I'm getting at.

Yeah, nothing major contemplated in that. I think, you know, with the optimization of our footprint here that was announced last month, it's really a rebalance of the inventory through that and, you know, the corresponding freight to fulfill the customer demand.

Your next question comes from the line of Tim Woese from Baird. Your line is open. Please go ahead.

Hey, guys. Good afternoon. Hi. Maybe just on fiber cement and kind of the pricing contribution in the quarter, it was a pretty healthy step up sequentially. And it sounds like it's mix related. So I'm just curious if you could kind of flesh out the drivers of the mix improvement. And if you're expecting that to kind of continue, you know, in the kind of near to intermediate term there.

Yeah, Tim, so I think roughly price accounted for about a little over 4%. Mix was a little over 1% there. So as we sell more color plus, we're going to see the benefits from mix. I think part of this, too, as you look at some of the – as I open up and I talk about new construction and some of the products that really are attributable to new construction, we saw some less of that. So that's some of the mixed benefit that you're seeing out there, Tim.

Okay. Okay, that's helpful. And then I guess as you're talking about kind of new kind of R&R installation methods, you're talking about – you know, going after maybe some smaller, more kind of custom builders. Are there any sort of larger, chunkier investments that you need to make? Or I guess, is your go-to-market strategy kind of change that requires, you know, some larger, any sort of larger upfront cost to kind of accelerate that?

Yeah, Tim, the biggest investment that we could make there, and we have already made, is going to be in our sales force. Right. So, you know, I'll let John talk a little bit more around it. But as we move forward and we think about what our sales team is going to look like, it's going to be focused more from a downstream standpoint. So we are going to be focused on contractors out there and really converting them. We'll have a dedicated team on that. We'll also have specialists from a fiber cement, deck brown accessory standpoint. that aids them, and then we'll have folks that are, you know, focused on, you know, our customers, like our dealer partners there. So that investment has already been made. Certainly training is a big part of it. But as far as any big one-time cost, I would say we made it, you know, as we think about the acquisition of ASEC. Bringing the two together is going to help us really accelerate that. But, John, anything else you want to add there? That's right. I mean, we can leverage that again.

was much more repair model driven, right? So it was a much larger piece of the business. And so, you know, the downstream team has the relationships, you know, within the dealer channel with custom builders and with a lot of, you know, the pull through opportunities on the R&R side and then conversely, you know, James, sorry, opportunity with the new build side. So legacy ASAC relationships can be leveraged to help pull through more on the repair model side of fiber cement and vice versa. We can work together to pull through more decking and railing accessories through into the new builder channel.

Your next question comes from the line of Keith Chow from MST Marquee. Your line is open. Please go ahead.

Hi, Aaron and Ryan. Thanks for taking my questions. The first one, just to follow up on the 4Q guide, I want to try and think about it sequentially. So revenue is expected to be broadly flat. I think, Ryan, as you said before, inflation, there is some, but not too much. And sequentially, there should at least be a pulp benefit, a price increase benefit, and you should be starting to get the benefit of the capacity reduction. Yes, I understand there needs to be an investment on the marketing side, but it seems unlikely that investment in marketing is going to be overwhelmed by some of the sequential positives. So maybe, Ryan, if you can help me understand the magnitude of marketing investment in the fourth quarter relative to the third and how much that actually steps up, just so I can get an understanding of why the margin should deteriorate quarter on quarter, please.

Yeah, I think there's a few things, right? So, from a marketing step up, I don't think we're going to quantify the actual dollars, but it is significant impact over Q3. I think the second thing with the announced plant closures, the impact of that really is delayed until year 27. So, we will not feel any benefit of that in the quarter as we go through the wind-down activities and the delay on the balance sheet. I think the third thing, right, I mean, ASEC from a Q3 perspective, that's ASEC's historically low production and shipment perspective. So there are some delayed costs on the balance sheet that roll off in our financial year Q4. So that's a little bit of the impact you feel on the margin perspective. So those are kind of the three things. You're not getting the savings. You have a little bit of balance sheet lag rolling off. And then there is incremental marketing and sales efforts in the quarter.

Okay. Thanks, Ryan. Then my follow-up question just relates to some of those questions. So I'm just trying to understand, particularly for the Fontana, California closure, where will that region be supplied now from which part of the network? And if it's from the south, when the south eventually ramps up again, what's the plan to keep supply in the south of the west going, particularly in the California region? Thank you.

Yeah, Keith, I think I got all of that. How are we going to supply the west? Look, obviously this was a difficult decision for us to make, but also we feel confident in our ability to be able to supply the whole network. And that includes when we think about the growth that we're contemplating and also the revenue synergies as well. Look, over the last few years, we spent well over a billion dollars, you know, in more efficient, modernized plants and, you know, really adding to our facilities. So we feel very confident in what we're doing. If we think about, you know, the plants that we closed down that were very limited as to what they could make, you know, if we look at Somerville, for instance, they could make plank. And that was it. Fontana, we could make plank, panel, and backer. So rest assured, if we think about California, you know, we're going to be able to supply product from Tacoma, too. in Northern California, Southern California, Cleburne, and Wax. And look, we've taken into account the freight costs there as well. And the contribution that we're going to see next year, that is contemplated the freight in there as well. So we feel very, as much as a tough decision, it was the right decision for us to make as we move forward.

Your next question comes from the line of Philip Ng from Jefferies. Your line is now open. Please go ahead.

Hey, guys. Congrats on a really strong quarter. Progress is very encouraging. And, Ryan, welcome back. Good to have you back in the fold. I guess to kind of kick things off, a question for you, Aaron. I know you guys aren't guiding for 2017 yet, but pretty encouraging to hear you're expecting organic growth to be growing in 2017. Do you need a little help from the market or these are largely James Hardy specific initiatives? I'm particularly interested in your siding and trend business, right? I mean, you highlighted some of the challenges in new construction. So what gives you the conviction, I guess, for that piece of business to kind of re-accelerate? I know there's some talk of new products getting pushed out. You're seeing some of that. Are you seeing placement with dealers, penetration wins with builders? Just kind of give us a little more color on your conviction level. your signing business is going to reaccelerate?

Yeah, Phil, good question here. Look, when we say we believe that we're going to have organic growth, that's, you know, considering if there's no worsening of the market here, then where we're at right now, right? That's the caveat I would put on this, you know, severe worsening of the market. Number one, why we have the conviction as a team, right? This is a new James Hardie. So as we think about our sales team and the way that John is going to structure this team and really get after the contractor, we have a lot of confidence there. The other thing is we look at the commercial synergies that we're going to be able to generate. We look at the plans on how we grow fiber cement. We talked a little bit about the four key areas that we're going to really drive. All of those give us convictions. The other thing is we think about this past year and what we're combing against, you know, we have some opportunity, we believe. So all of those things together, Phil, give us a lot of confidence and be able to provide organic growth in fiber cement again.

Okay, helpful. You guys gave us a great example from WINS with dealers and distributors. Didn't hear you talk too much about big box. I believe there's a line review for decking, any color there, an opportunity to pick up some placement there. I know AZAC made a big push on railing about a year ago. Any more color on increasing penetration, whether it's on the retail or pro channel, particularly in railing as well? Thank you.

Yeah, look, I'll start out and I'll have John chime in here. All our customers are very important to us, and we talked about a number of the buckets that we believe are going to be opportunities for us, and we certainly see retail as being an opportunity. And we are making good progress, you know, on the James Hardy side and also from a legacy TimberTech side. Look, as someone who has called on retail and big boxes for almost 30 years now, it doesn't happen overnight. So we're looking at, you know, getting single after single with, you know, our retail partners and, you know, just building upon that. So we have a lot of confidence that's going to happen. Nothing major to announce right now. But John, you want to take that?

Yeah, not the major to announce is correct, but we continue to expand our positions there. So even without line reviews, we continue to broaden our stocking store base, continue to amplify our special order business, and continue to make retail and that channel expansion we regularly talk about a bigger part of the business.

Your next question comes from the line of Sam Su from Citi. Your line is open now. Please go ahead.

Hi, guys. Thanks for taking the question. You had a pretty solid margin improvement there, sequentially inciting. I just wanted to maybe ask if you could talk about the contribution of raw materials. You know, was it positive sequentially in the third quarter there? And then as we think about the fourth quarter, should that raw material benefit be sequentially higher again? Thanks.

Yeah, hey, Sam, good question. I'll turn it over to Ryan here in a second, but just to walk through it, I mean, if we think about the sequential improvement, it was really built from a high-level standpoint. We think about volume, we think about ASP, we think about our manufacturing costs, and we think about SG&A, right? So from a raw standpoint, Ryan, do you just want to dive into that?

Yeah, yeah, I would say if you think about kind of how we look at it, roughly 40% of it was contributed from price mix. About 20% came from manufacturing costs, and that was raw material costs. So we did see a step down. The first two quarters of the year, we did see inflation on raws on the fiber cement side. We actually saw a modest deflation year over year as we stepped into the third quarter. And then there was some cost action just to mitigate there. And the other 40% basically came from SG&A management on the cost side. And to your question on the raw material inflation that we saw, that will actually carry into 4Q as well.

Awesome. Awesome. Hey, and then just quickly on your guide to free cash flow, year-to-date, it looks like your free cash flow is about $260,000-odd, but you're guiding to $200,000 for the full year. Just want to understand if that's conservative or something we're missing there. Thank you.

Yeah, yeah. I think the big thing there, right, is, yeah, we're at $260,000 year-to-date after three-quarters. The biggest thing is just timing of AR and things as we get into the year end here. So there might be a little bit of conservatism there, but we were holding that flat at the 200. We know we'll hit that and then kind of wind down on integration and deal costs this quarter as well. So wanted to leave ample room for that. But we expect from full year 27 Q1 on, we should see a nice ramp up as those integration and deal costs minimize. Yeah.

And if we look at FY27, all else equal, I mean, we'll have ASAC cash flow quarter, right, you know, the other quarter, you know, plus lack of transaction costs and fewer integration costs, as you mentioned. Okay.

Your next question comes from the line of Matthew Booley from Barclays. Your line is open. Please go ahead.

Good evening, everyone. Thank you for taking the questions. So the score and snap and the new install techniques, it sounds like more to be seen at the Builder Show next week. I think I heard you say that contractor efficiency is better by 30%. So in the past, you guys have talked about some of the early returns here. I'm curious if there's any update, maybe sort of outline as you've been undergoing the strategy, what you're doing to incentivize or motivate contractors to kind of play along here. Thank you.

Yeah. Hey, Matt, good question. I mean, look, this is all part of, you know, how we win in fiber cement and in particular how we believe that we're going to win in you know, around R&R. It's a big part of it. And, you know, we touched on innovation. We do believe that these new installation techniques are innovative, and we spent years on this. So, we're wheeling this out, you know, methodically across the country. So, as we think about this is supported by, you know, our statement essentials collection, and that is really targeted you know, on competing against vinyl out there. So this installation technique, plus that product that's readily available, we believe is going to help decrease the differential versus vinyl and for our contractors to be able to go out and win more jobs out there. So we launched this, you know, in April of 25, when we think about the statement essentials collection in the East, in the Midwest, and then in the Midwest Central area. We launched in January this year. I'm not going to give you the full rollout because I don't necessarily want our competition to hear this. But as we look through what will be, you know, call it as we get into our Q1 of FY27, we're going to have the majority of the statement essentials collection wheeled out. I talked about our sales force and how we're going to have a dedicated team focused on our contractors. That's going to be wheeled out April 1st as well. So they go in tandem with each other, and then it's going to be supported, you know, at the local level by marketing and training. So that's the plan right now. We will update you on these calls on our progress and how we're doing. You know, I think a big part of it is just seeing our Color Plus number grow, and particularly for these regions. So that's where we're at, Matt.

Okay, perfect. No, thank you for that, Aaron. Second one, I just wanted to drill down into that marketing investment in Q4. Just to be clear, was that mainly due to the trade shows and contractor events, as you alluded to, or was there also a step up perhaps related to what we're hearing in decking, of course, where there is a little bit more of a marketing event going on across the board? Thank you.

yeah matt good question here this was related to trade shows this was related to our sales meeting and this was related to contractor events not any type of major step up from a marketing standpoint at all and you know some of those costs that we have there because we have dual expenses we expect to be you know one time and not reflected as we move forward okay next call

Your next call comes from the line of Brooke Campbell Crawford from Barney Joey. Your line is open. Please go ahead.

Yeah, thanks for taking the question. Just one on the outlook here for F427. You're talking about lots of great activity and initiatives you have going on in the U.S. at the moment, which is good to hear. Just wanted to understand, do you think the business is capable of growing volume at that kind of 4% above market and then deliver synergies on top of it? Or do you more think of these initiatives, you know, so synergies effectively helping to deliver on the 4%? I'm just trying to understand if we should expect both or just sort of 4% above market as a total target.

Yeah, bro. Good question. Look, we're not giving guidance. I think what you're referring to when we talk about 4% is that has been our PDG target. Right. And, you know, obviously this year we are not at that rate. And there's many different reasons for that. But, you know, as we think about the inventory build, we think about, you know, some of the magnitude of new construction that we've seen in areas that we're really tied to, like Texas. As we get into next year, we expect to get back on that train of 4% PDG growth. We talked about some of the initiatives that we have to be able to do that. Um, and that would be our, our base. And then, you know, our expectation is synergies are going to be on top of that. So, uh, that's our aspiration, uh, not given guidance, but you know, that that's what we're aiming to do.

Sure. That that's helpful. And just one quick follow up on, on the fourth quarter. Uh, if we just look at Isaac, I guess, you know, you outperform your guidance in the third quarter. If you look at the growth rate, the first three quarters look to be about 9% growth year over year relative to the prior period for ASIC EBITDA. And then the fourth quarter guidance implies, my number is EBITDA falls like 4% year over year. So really quite material change in the direction of growth there in ASIC. So do you mind just giving a couple of comments on why that might happen?

Yeah. Look, we don't see a Zach slowing at all. You know, I think it's appropriate from what we see from a seasonal standpoint. So it's reflective with that. Any of you guys want to jump in?

Yeah, I would say it was back to a little bit of a similar point earlier. As we end the calendar year, our Q3 year was the slowest quarter from a production and sales perspective. So that creates a headwind going into 4Q. So that's really only a modest change on that you're going to feel on the margin side there. And then, you know, it's a higher activity from an SG&A investment at that period as we head on with the trade shows and different things like that.

All right. Thank you. I'll pass it on.

Your next question comes from the line of Trevor Allenson from Wolf. Your line is unmuted. Please go ahead.

Good evening. Thank you for taking my question. I want to follow up on your comments on some early wins regarding the revenue synergies. You've had a chance to go through a winner-buy period here now with a combined portfolio. Do you think you're getting some of these wins more quickly than you had originally anticipated? And then I think about the synergies between sodding and trim and decking. Is there one side of the business where you'd expect the commercial synergies to come through either sooner or more meaningful in fiscal 2017?

Yeah, Trevor, I'll take the last first, and then I'll hand it over to John. Look, we believe that we see opportunity from a commercial synergy standpoint across all our businesses, you know, DRNA, you know, fiber cement, and then from an exterior trim standpoint. So we do see opportunities across the board. But, John, do you want to take as far as our presence?

Yeah, I mean, again, I think, you know, as we highlighted in the prepared remarks, right, you know, this is a consistent part of our growth algorithm, right, is, you know, going in early by and expanding our shelf positions and our presence, you know, across all the dealer channels. Obviously, now... So I think we've been able to create a lot of energy and excitement at the customer with an expanded portfolio of the leading brands. And so I think that's been resonating with customers. And again, I'll connect that back to the confidence we have about delivering on our commitments around that synergy capture.

Okay. That makes sense. Thanks for that. Second is on your approach to deciding pricing here and what's still a weaker demand environment and one where affordability is still a big factor for the home builders. You guys clearly produce a value-add product, but I would think you'd still need to be aware of your pricing spread versus vinyl. So with that in mind, can you talk about your expectations for realization on your pricing, pricing you put in place at the beginning of the year, and are there any concerns about some elasticity-driven volume headwinds as a result?

Yeah, Trevor, good question. Look, we price strategically and we price for value. And look, our pricing is not necessarily, you know, as we look at home builders and we understand their needs, you know, it may be different when we think about repair and remodel. So we price accordingly. And we do not believe that we're losing any type of volume because our pricing is

There are no further questions at this time. I'll now turn the call back to Aaron Erder, CEO, for closing remarks.

All right. Hey, thanks, everyone. Really appreciate it. I want to thank the James Hardy team. I want to thank our customers as well for their support. Look, I just end this by saying our integration is on schedule and we're executing on plan. You know, our cost and our commercial synergies are on track. As you heard here, and, you know, we'll talk more about it, we plan to get fiber cement back in growth mode in FY27. AZAC, you know, legacy AZAC business is on track. We see continued growth there. And look, we've set the business up, you know, for FY27 with some of the cost actions that we've taken. If you think about what we've done with the plants, the footprint optimization, SG&A, we continue to run the business with a focus on our hardy operating systems. You know, we look forward to ending the year strong and we look forward to FY27. So with that, thank you all. Appreciate the time here this evening.

This concludes today's call. Thank you all for attending. You may now disconnect.