James Hardie Industries Plc Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Safety and Resilience: Teams kept safe during severe weather events, showing resilience in recovering operations with a commitment to zero harm.
• Segment Strategies:
  • North America: Outperforming end-markets, aligning spending to the market, and investing in recovery.
  • Asia Pacific: Driving share gains, finding efficiencies, and ceasing manufacturing in the Philippines to focus on stronger markets.
  • Europe: Challenged markets, but high-value products performing well in the early stages of recovery in the UK.
• Strategic Focus: Homeowner-focused, customer and contractor-driven approach; sustainability initiatives; strong talent; and a flywheel strategy to create long-term value.

Segment Performance

• North America: Net sales declined 5% in the quarter, primarily due to a 7% volume decline. EBIT margin was 29.0%, down 270 basis points vs prior year. Adjusted EBITDA decreased by $26 million due to lower volumes and raw material headwinds.
• Asia Pacific: Net sales rose 1% in US dollars but decreased 2% in Australian dollars. Adjusted EBITDA grew 11% to $54 million, with a margin of 36.5% due to geographic mix and sales growth in Australia and New Zealand. Impacted by the cessation of manufacturing in the Philippines.
• Europe: Net sales were roughly even with prior year but down 1% in euros. Fiber gypsum saw low-single-digit declines, while fiber cement had high-single-digit growth. EBIT margin was 7.5%, down 220 basis points due to a rebate true-up in the prior year.

Guidance

• Reaffirmed North American volumes to be at least 2.95 billion standard feet for FY '25.
• Raised the low-end of North American EBIT margin guidance to 29.3% and adjusted net income guidance range to $635 million.
• FY '25 capital expenditures expected to be $420-$440 million vs previous range of $500-$550 million due to CapEx timing.
• A new $300 million share repurchase program was approved by the Board.

Risks

• Severe weather events impacting operations and volumes.
• Raw material cost headwinds, including ongoing pulp and cement cost pressures.
• Challenging market conditions in some regions affecting financial performance.

Question and Answer

Q: Planning assumptions for FY '26, particularly around price increases?

A: Still working with customers on price increases; target mid-single-digit increase annually, but details are premature.

Q: Cost assumptions and SG&A control?

A: SG&A controlled, focusing on investing for long-term growth while clutching where needed. Raw material assumptions largely unchanged, with pulp costs still a headwind.

Q: HOS savings and procurement?

A: HOS savings from manufacturing efficiency and spending control. Procurement centralized, achieving significant savings in raw materials and other areas.

Q: Volume rebound from rebuild effort?

A: Focus on material conversion, not using weather as an excuse. Expecting volume improvement but not relying on weather.

Q: FY '26 EBITDA growth vs NPAT?

A: EBITDA focus as it aligns with cash flow and peer comparisons; NPAT guidance to be provided later with proper assumptions.

Q: Volume seasonality and FY '26 planning?

A: Q3 volumes expected higher than Q2 due to a price increase in January and customer buying. FY '26 planning includes growth in CapEx, marketing, and people investment.

Q: Margin expectations in the second half?

A: Raw material headwinds and volume improvement expected to impact margins, but focused on consistent margins.

Q: CapEx delay at Prattville?

A: Delay due to lower-than-expected volumes, but ready to accelerate if conditions change.

Q: Capital expenditure vs competitors?

A: Focus on controlling levers, uniquely positioned to handle recovery, confident in capacity buildup.

Q: Consumer sentiment and R&R outlook?

A: Factors like election certainty, Fed rate cuts, home equity, and aging housing stock support R&R recovery.