James Hardie Industries plc (JHX) Q4 2024 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the James Hardie Q4 FY '24 Results Call. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Aaron Erter, CEO. Please go ahead.

Thank you, operator. Good morning and good evening to everyone, and welcome to our fourth quarter and total fiscal year 2024 results briefing. Turning to Page 2, 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 3, 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 team members around the world who remain focused on safely delivering the highest quality products, solutions and services to our customer partners. Our James Hardie team truly represent the very best in our industry and consistently enable our superior value proposition. Let's start on Page 5 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 fourth quarter results continue to highlight how impactful that focus has been and is reflected in our full year results. For the full year, we achieved record global net sales of just under $4 billion, up 4% versus the prior corresponding period with record global adjusted net income of $708 million, up 17% 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. For the full year, North American volume was just over 3 billion standard feet, and we delivered that with a record 31.9% EBIT margin. The adjusted net income result was also supported by solid 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 12 months, we generated record operating cash flow of $914 million, up 50% year-over-year. We have continued to accelerate our investment in long-term growth, supporting our marketing tentpoles, driving awareness and conversion in targeted regions to aid in sustaining profitable share gain. We have done this in the face of a challenging and what has been uncertain markets around the globe. Rachel will share additional details regarding the quarterly results 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 6 and 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 3 regions remain focused on our 3 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 gains in all 3 regions. We accelerate our strategic initiatives by establishing competitive advantages through our strategic enablers without compromising on our foundational imperatives. Over the last few quarters, we have shared pieces of our value proposition that go beyond the product. This has included our marketing tentpoles, which helped drive demand, our unrivaled business support and our localized manufacturing, which improves our customer experience. Over the next 2 slides, I will show you how far James Hardie has come and pull together all the pieces that demonstrate clearly how we are driving long-term value creation. Let us now turn to Slide 7. In FY '24, our North American business continued to profitably take share. Our FY '24 volumes grew by 1% year-over-year against a market where in FY '24 major remodeling contracted by 11% in single-family new construction and calendar year '23 contracted by 6%. Our strong above-market growth in FY '24 was driven by, number one, our partnerships with the large builders who took considerable share during the year; and number two, our continued focus on driving material conversion in the repair and remodel space. Over the last 2-plus decades, James Hardie has built considerable awareness and goodwill with contractors and builders across the country with our superior siding solution. Since the year 2000, we have sold over 45 billion standard feet of product. This includes siding, Trim, Soffit as well as interior products. Within the same time frame and siding alone, we have sold over 28 billion standard feet of product. Conceptually, this is equivalent to fully cladding over 11 million homes. While this is an admirable achievement, there is more to be gained. Since joining James Hardie, just under 2 years ago, you have heard me talk about how we are a homeowner-focused, customer and contractor-driven. This focus is what will help to drive ongoing profitable share gain and further material conversion, resulting in more homes being clad with James Hardie products over the years to come. Turning to Slide 8 to discuss this in more detail. At James Hardie, we are investing in long-term value creation. Over the last 10 years, James Hardie has taken consistent market share. The U.S. Census reports fiber cement share of primary cladding of new homes at 23% in 2022, up from 16% in 2012, equivalent to just under 1% of share gain per year. To sustain and build on this growth, we continue to invest in demand creation. This investment occurs across the entire value chain and is aligned with our homeowner-focused, customer and contractor-driven mindset. We accomplished this by leveraging our marketing tentpoles, which include TV and sports sponsorships, influencer partnerships, in-store marketing at our retail partners as well as targeted marketing with our contractors. Demand creation ultimately drives increased awareness for James Hardie products and creates long-term demand across the value chain. Next, we have our innovative solutions. We have high-quality and differentiated product solutions that meet the needs of our customer partners and homeowners. In the Northeast and Midwest, which are R&R dominant, we have significant opportunity to penetrate with our ColorPlus portfolio of products. These products are engineered for extreme climate and offer superior durability, citing what James Hardie products delivers lasting beauty for the homeowner with minimal maintenance. In new construction, which dominates the southern parts of the U.S., we have opportunity for growth while defending existing share through our prime and sampling products. As I previously mentioned, we remain the predominant hard siding of choice for 24 of the top 25 large builders. We remain committed to these large builders as we expand our focus to grow with the rest of the top 200. Currently, we provide approximately 80% of the hard siding needs for the top 200 builders, and we are committed to further growing our share. Across both R&R and new construction, our products continue to offer superior design and curb appeal. Our end market presence for over 25 years has also made us a trusted brand. Both of these play a part in driving ongoing long-term value creation. Next, we have our unrivaled support. James Hardie products have a superior value proposition. That is visible from the street. For our customers and partners who use our products, the unrivaled support and localized manufacturing we provide directly benefits them each and every day. These benefits include customer integration that ensures the right products are delivered to the right place and at the right time. Interactive in-person events such as our Dream Builder program, which provides product education and training support. And finally, our Contractor Alliance program, which is about supporting our contractors with lead generation and co-branding, all in support of helping grow their businesses to drive long-term material conversion to James Hardie products. As an example, for every contractor's completed home that utilizes this co-branding or localized marketing, they can expect to generate, on average, an incremental 12 leads and an additional 2 more jobs sold. As I mentioned, James Hardie has owned more than 11 million homes in the U.S. Every home that is clad with James Hardie is a lasting mark on the residential streetscape. The long-lasting beauty of James Hardie products helps to further drive awareness of our product and channel future material conversion in neighborhoods across America. As we continue to invest in demand creation, offer the right products and solutions for our customer partners and provide unrivaled business support, this will drive a virtuous cycle of material conversion, profitable share gain and long-term value creation, resulting in more homes being clad in James Hardie products. Now, I would like to hand it over to Rachel to share more details about our fourth quarter results. Rachel?

Thank you, Aaron. Let's start on Page 10 to discuss our global results for the fourth quarter. Our team has delivered a strong set of results in the fourth quarter compared to last year with consistent and focused execution through fiscal year 2024. For the quarter, group net sales were up 9% to just over $1 billion, adjusted net income increased 19% to $174.2 million, the global adjusted EBITDA margin was 27.9%, up 250 basis points and operating cash flow for FY '24 was a record $914.2 million, up 50%. Our team is focused on executing on our strategy and these consistent results demonstrate the value of focused execution. Now, turning to Slide 11, I'll detail our adjusted net income waterfall for the fourth quarter. As mentioned, adjusted net income increased 19% or $28 million year-over-year to $174.2 million and was in line with guidance provided in February. The increase was primarily driven by strong EBIT growth in North America, which contributed $35.9 million to the increase in adjusted net income. The increase was also supported by growth in EU, which contributed $3.6 million to the increase in adjusted net income. During the quarter and as part of our ongoing marketing investments to drive long-term growth, global SG&A, including corporate, increased 24% to $164.2 million. This equates to 16.3% of revenues, up from 14.5% last year. Sequentially, global SG&A was up 5% compared to the third quarter of fiscal year 2024. The increase in investment primarily in our marketing tentpoles reflects our continued focus on growing brand awareness and driving profitable share gain. In Q4 year-over-year, we saw our homeowner leads up 22% nationally and our high-opportunity R&R markets or epicenter markets, up over 2x. General corporate SG&A expenses decreased modestly year-over-year. Higher employee costs, stock compensation expenses and professional fees offset prior year New Zealand weather tightness expenses and general corporate SG&A expenses were flat sequentially. Our FY '25 full year estimated adjusted tax rate range is 23.5% to 24.5%. This compares to the FY '24 full year tax rate of 23%. We are proud of our global teams for the way they've executed in a challenging market and we will remain focused on consistent execution to similarly deliver in fiscal 2025. Let's now move to Page 12 to discuss the North American results. Beginning with the top line results. For the quarter, North America net sales of $735.2 million was up 13% versus the prior corresponding period and our average net sales price was up 4%. Volume of 766.3 million standard feet, increased 9% year-over-year and was in line with our guidance range. During the quarter, overall housing end markets remain mixed. Industry experts have highlighted that major project R&R continues to be under pressure, estimating the segment decline 11% year-over-year in Q4, while single-family new construction was up double digits in the December quarter. As a reminder, we use a 1-quarter lag methodology as applied to single-family new construction starts to better align the data to the timing of our reported sales. Similar to the third quarter, our strategic initiative to partner with big builders helped drive strong volume growth in the South Central region in areas such as Texas, which is new construction dominant. In addition, we continue to see strong growth in the West. These regions outperformed our total North American volume growth. Our key R&R markets in the North were down single digits year-over-year. This compares favorably to major project R&R, which was down low double digits. And importantly, our exterior cladding volume was up low double digits. Additionally, we have continued to succeed in growing our presence in the multifamily sector, which accounts for approximately 15% of our new construction exposure, up from 10%. Now, turning to margins. The North American EBIT margin improved by 270 basis points versus the prior corresponding period to 31.7%, and similar to volume was in line with our guidance range. EBIT dollars in the fourth quarter were up 23% to $233 million versus the prior corresponding period. EBIT benefited from a higher average net sales price as well as lower input costs. Compared to last year, pulp prices and cost savings, including plant improvements, more than offset the year-over-year increase in cement and freight costs. Sequentially, we saw cement costs increase low double digits, in line with expectations in February. Additionally, we incurred approximately $3 million of startup ramp-up costs related to Prattville sheet machine 3 and our ColorPlus finishing capacity project in Westfield. During the quarter, SG&A increased 46% year-over-year, off a low base in the prior year. Our SG&A investment remains focused on our marketing tentpoles to drive long-term demand creation. As a percentage of sales, SG&A increased 2 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 fourth quarter. Let's now turn to Page 13 to discuss the Asia Pacific results. Similar to North America, it was a robust fourth quarter for our Asia Pacific segment. Net sales improved 5% versus the prior corresponding period to AUD 215.2 million. The net sales improvement was driven by a 9% increase in our average net sales price, partially offset by a 4% decrease in volumes. During the December quarter, Australian housing activity weakened with dwelling approvals falling 10% year-over-year. In calendar year '23, dwelling approvals were down 14% versus calendar year '22. During our Q4, the best-performing region was New Zealand. EBIT declined 1% to AUD 58.6 million. The result was driven by higher cash cost that was impacted by mix and partially offset by a higher average net sales price. SG&A increased 43% year-over-year as we continue to invest in long-term demand creation. As a percentage of sales, SG&A increased 3 percentage points. The APAC EBIT margin declined by 170 basis points versus the prior corresponding period to 27.2%. 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 delivered 5% net sales growth by driving profitable share gain. Our Asia Pacific team has continued to partner with our customers to deliver a robust fiscal year. We'll now turn to Page 14 to discuss the European results. Our European team had a solid fourth 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 29% year-over-year in the 3 months to January 2024. European net sales were flat at EUR 118 million, primarily related to a 5% increase in ASP 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, while high-value products were up mid single digits. We are pleased to see that high-value products are becoming a larger part of our overall mix. On a combined basis, overall European volumes declined 9%, which while significant represent a lower decline than the overall European market. Similar to our other geographies, SG&A increased 14% year-over-year. As a percentage of sales, SG&A increased 3 percentage points. In the EU, these investments included creating dedicated sales teams to commercialize our panel portfolio across Europe and driving market initiatives. EBIT improved year-over-year to EUR 12.1 million, driven by a higher average net sales price. In addition, reduced volumes were partially offset by lower raw material costs, including paper and energy. EBIT margin improved by 360 basis points versus the prior corresponding period to 10.3%. We expect to deliver 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 opportunity. Finally, on April 1, we've adjusted our transfer pricing on the intercompany sale of product from the U.S. to Europe. This impact will be reflected in the EU segment in FY '25 with the offsetting value fully accruing to North America with thus no impact on a consolidated basis. Turning to Page 15 to discuss cash flow, liquidity, capital allocation and capital expenditures. Our robust operating cash flows reflect our strong margins, which [dampen] superior value proposition that we offer our customers, builders and contractors. In FY '24, our operating cash flow was $914.2 million. This record cash flow result was driven by strong financial results in all 3 regions and a working capital improvement of $31.1 million. We continue to maintain a strong liquidity position with a Q4 net leverage ratio of 0.67x and liquidity of $958.2 million. We are stewards of investor capital. Our capital allocation framework is 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 Q4, we repurchased 1.9 million shares for $75 million at an average per share price of USD 39.42. For FY '24, we repurchased 8.7 million shares for $271.4 million at an average price of $31.42. As we look to Q1 FY '25, we plan to continue to repurchase shares under our USD 250 million buyback program. Over the last 12 months, our superior cash flow has allowed us to fund the buyback while maintaining balance sheet flexibility. Regarding capital expenditures, our FY '24 spend totaled $449.3 million, with an additional $75 million in CapEx incurred but not yet paid. In FY '25, we are continuing to invest to prepare for future demand, and we are expecting CapEx of between $500 million to $550 million. 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 Hardie Operating System initiatives. I'll discuss our long-term growth and capacity in more detail in a few slides. We have robust operating cash flows, substantial liquidity and a flexible balance sheet, which enables us to invest in profitable growth. Turning now to Page 16 to discuss our progress on HOS initiatives. The Hardie Operating System or HOS, is about improving how we get work done at James Hardie. This requires continued investments in critical company-wide initiatives that will support consistent delivery of operational savings year-over-year. In FY '25, we'll be making investments to accelerate strategic opportunities and enable future cost savings. These investments are reflected within our guidance. This is an important step in our company's growth as these investments will enhance our foundation for efficient scaling. This time last year, we set out a series of cumulative saving targets over the period FY '24 to FY '26 versus the base level from FY '23. We've made significant progress on these targets over the year. In our first full year, we have realized USD 31 million in global HMOS savings against the 3-year target of $100 million. This was driven by less unplanned machine downtime and improved rolled throughput yield, which is a defect-free measure ultimately helping reduce product reject costs. Across procurement and R&D value improvements, we have realized USD 52 million in savings against the 3-year target of $60 million. This was achieved by improved management of indirect spend, R&D value improvements and supply chain optimization. We now expect to surpass our initial goal. And finally, we've realized $31.1 million improvement in working capital. We expect progress to continue, particularly given the Q4 seasonality of accounts receivable. Our global teams have made significant progress on our targets. These savings are helping to fuel our growth by supporting the financial means to continue to invest in profitable share gain. Turning now to Page 17 to discuss the outlook for long-term capacity. As Aaron mentioned at the beginning of the call, we are focused on driving long-term value creation. To support future demand, we have capacity additions at various stages of development to meet our expectations for profitable share gain. Starting with North America and Prattville, we are on track for commissioning sheet machine 3 in Q1. The combinations of sheet machine 3 and 4 will add 600 million standard feet and bring total nameplate capacity at Prattville to 1.2 billion standard feet. The expansion of the Prattville site enables us to better serve the growing demand for both new construction and R&R from a key central location in the U.S. At Westfield, we are on track to commence production at our dedicated ColorPlus facility in Q1. This site will allow us to better serve the R&R markets in the Northeast, which is a key focus area for us. Finally, in FY '24, we purchased land in Missouri for greenfield future site. The Crystal City site plays a key role in our long-term planning to meet our expectations for continued material conversion and profitable share gain. In Europe, our Orejo Brownfield site in Spain is set to add 252 million standard feet to take nameplate capacity up to 527 million standard feet. This site will improve our overall manufacturing cost position. Similar to North America, in FY '24, we purchased land in Europe as part of our long-term capacity planning process. We remain excited about the opportunities ahead for our high-value product offerings. At James Hardie, we've grown our market share consistently over the last decade as illustrated on Slides 7 and 8. To meet expected demand, we fund capacity and keep development at various stages to flexibly meet profitable share gain. This includes optimizing existing capacity with HOS, including HMOS improvements as well as balancing Brownfield and Greenfield capacity development. I'll now turn it back over to Aaron.

Thank you, Rachel. We have delivered record results in FY '24 in a difficult operating environment. In addition, we have continued to outperform our end markets. These results are proof points that we are accelerating and taking share, all while we have increased our investment and long-term demand creation. Let's now move to Page 19 to discuss our market outlook and guidance. For our largest market, North America, we are again providing the calendar year 2024 market outlook data from several external data providers. The average estimate for single-family new construction is for growth of 7%. Multifamily new construction is forecasted to contract 21%. In Repair and Remodel, our largest end market, is estimated to decline 4%. Using these external ranges along with our assumed market segment exposures, the implied range for our blended addressable market is down 6% to up 3%, implying an average 2% decline. This compares to the flat outlook that was forecasted in February. It won't come as a surprise to you to see that these third-party forecasts for R&R have weakened throughout the quarter, led by a deferral and interest rate cut expectations. That said, since joining James Hardie, I have seen us execute our strategy at a high level and increase our investment in long-term demand creation. Our business and team remain in a strong position to capitalize on the expected return to growth in the R&R segments over the years ahead. We remain laser-focused on driving profitable share gain and are demonstrating this with market outperformance. If you turn to Page 20, we have again provided the volume sensitivity analysis for FY '25. This sensitivity analysis was prepared in the same manner as last quarter, which assumes our current range of expectations for raw material costs and freight rates while continuing to invest in growth as currently planned. These volumes are simply to provide context to our EBIT margin sensitivity in North America and should not be construed as volume guidance beyond Q1 fiscal year 2025. Regardless of how markets fluctuate, we remain focused on outperforming our end markets. Now please turn to Page 21. Today, we are providing 2 sets of guidance; Q1 fiscal year 2025 and full year guidance for 2025. For Q1, we are providing 3 points of guidance. First, we expect North America volumes to be in the range of 745 million to 775 million standard feet. Second, we expect North America EBIT margin to be in the range of 30% to 32%. And lastly, we expect global adjusted net income to be in the range of $155 million to $175 million. Now turning to Page 22. For fiscal year 2025, we are providing 3 points of guidance. First, we expect North America volumes to be in the range of 2,950 million standard feet to 3,150 million standard feet. Second, we expect North America EBIT margin to be in the range of 29% to 31%. And lastly, we expect global adjusted net income to be in the range of $630 million to $700 million. In FY '25, we remain homeowner-focused, customer and contractor-driven. This strategy will enable us to deliver long-term profitable share gain and material conversion. To action this, we are focused on customer partnerships. This is about investing in and working with our customers to activate our value proposition to help profitably grow their businesses. Demand creation. This is about investing in targeted marketing to drive awareness of James Hardie solutions across the value chain. This includes homeowner marketing and investing in programs and events that support our contractors to grow their businesses. Regarding our expectations for PDG were above-market growth. We continue to expect strong PDG in FY '25 of at least 4%. As a reminder, PDG should be looked at on a rolling 12-month view and not quarterly. FY '24 was a very strong year for profitable share gain. In FY '25, we will continue to closely partner with the entire value chain to drive further profitable share gain. As you know, we have key agreements with the top 24 of 25 homebuilders across the U.S. to meet their hard siding needs. These agreements have remained unchanged. In addition, over the last 12 months, we have deepened our relationships with the top 200 homebuilders. We are growing awareness and demand with these builders by meeting their needs with the right product solutions. Finally, investing for growth. You heard Rachel speak earlier about our ongoing investments in HOS initiatives to support the business' long-term growth. This investment is inclusive of preparing our business for scalable growth to meet our expectations for further material conversion. As I mentioned earlier, our team is energized and focused on driving profitable share gains and we are positioned to deliver another strong financial result in fiscal year 2025. Finally, please move to Page 23. We at James Hardie are a global growth company. Over the last 10 years to FY '24, we have grown global net sales with an annual compound growth rate of 10%. This is a testament to the value proposition that our products bring to our customers and partners. Our global operating cash flow over the last 3 years to FY '24 has expanded by 3x relative to that of FY '14. We have a highly profitable business and that allows for focused investment in organic growth opportunities. Our global adjusted return on capital employed over the last 3 years to FY '24 has averaged 45%. Our profitable returns and investments continue to showcase the power of investing in organic growth. Finally, our global adjusted net income over the last 10 years has grown with an annual compound growth rate of 14%, which has exceeded our sales growth rate. I am really proud of our team's ongoing ability to drive profitable share gain and execute consistently, delivering a strong fourth quarter result and demonstrating operational momentum as we head into FY '25. We are homeowner-focused, customer- and contractor-driven. Finally, I look forward to seeing a lot of you at our Investor Day next month, where we will show you our value proposition in the field and articulate our longer-term ambitions. With that, I would like the operator to open the line up for questions.

[Operator Instructions] Your first question comes from Keith Chau from MST.

First question and perhaps the obvious one, I just want to work out your comments around market share growth for FY '25 against the guidance that you provided. So Aaron, you talked about delivering strong PDG for FY '25. There's a comment in the presentation of plan to outperform the market, which frankly is not quite as explicit as Hardie is typically is. But you're guiding to an addressable market of down 2%. At the midpoint of guidance, your volumes are flat. So effectively, the PDG is 2%. When the company has invested heavily in SG&A, this discussion about homeowner leads up 22%. And in your performance scorecard is a target of PDG of 400 basis points. And I take your point about not looking at a quarterly PDG. So, let's just work on full year numbers and effectively assume it's 2% based on the guidance. So, can you just help me square up how that all works? Because it just seems as though your comments on PDG is certainly more bullish than what the implied quantitative guidance is.

Yes, absolutely. Yes, Keith, absolutely. And we'll walk you through it, and Rachel and I will tag team this. Obviously, one of the things that we did that you'll all notice, which is new for us under this leadership team has provided full year guidance. One of the things I'm proud of is the new process that we put in over a year ago and seeing the track record that we've had over the last year, we feel very confident in giving full year guidance here. Also, as you know, PDG and you just mentioned that it's best looked upon for a full year standpoint. Obviously, the last 12 months, if you look at our PDG growth in North America, it was high single digits. So, a really large bar for us to cross here from a PDG standpoint. I think part of it is the range here and where it's loaded. I'll have Rachel walk you through that and then I'll get back on and give you a few other comments here. Rachel, you want to walk Keith through it.

Absolutely. So, as we pointed out in that slide, while you point to the 2%, minus 2% of the average, the range right now is pretty broad, right? It's minus 6% to plus 3%. And when you really dig into, particularly in R&R, where it becomes more positive on a quarterly basis, it's in the back part of the year. And as we talk about our epicenter R&R market, guess what, steady winter, right? So that's something that we are taking into account as we think about our guidance range. Volume is our largest factor for revenue and margin and it is a broad range. We are trying to narrow that. So, rather than go all the way from the minus 6% to the plus 3%, you've noted correctly from flat point, it's really minus 3% to plus 3%. We are expecting raw material headwinds, which are working to offset the cost and pricing and we continue to invest in the business. That's demand creation initiatives and HOS investments to enhance that scalability. And finally, look, we're early in the year. So, our unknowns around this broader macro and raw materials outlook are with us. We're forecasting net sales growth in all divisions with positive price in all regions. Margins remain strong and we do have a 4% North America PDG outlook with continued investment. So, we have some confidence around the momentum of our business. I'll turn it back to Aaron.

Yes. No, I think you hit most of it Rachel. And look, Keith, I mean, the obvious here is we just came off what is a record FY '24. So, we do have a lot of positive momentum. We continue to expect to take share. As I mentioned, we do feel strongly of having 4% PDG growth. That's after a year of 8% PDG growth.

Sorry, and so my follow-up then is, if you're still expecting 4% PDG growth, is the midpoint of your guidance range relevant based on where the midpoint of your addressable market expectation is? Because if you square up the two headline ranges, the implied PDG for the full year is 2%. And I take your point, you came off high PDG last year, depending on how you square off it's probably high single digits to low double digits. But in the prior year, PDG was low. So, you kind of -- you've got 2 years to square off. So, just help me understand, is the midpoint of guidance relevant or not based on your expectations for PDG of 4% and your addressable market change of negative 2%?

Yes. Keith, what I would say to that, it’s early in the year, it’s a range. And as Rachel said, a large part of that, which, again, you look at PDG from a full year standpoint is loaded into the back half of the year.

Your next question comes from Lee Power from UBS.

Aaron, Rachel, just kind of continuing on from Keith's point around PDG. So, can you, Aaron, can you maybe talk a little bit about competition trends in the market? And maybe if we focus on the 24 of the top 25 large builders as an example. I think you mentioned today, 80% committed to growing share around this time last year. I think you were talking to north of 85%. I get they're very hard numbers to calculate. But can you maybe use that as an example and if there's any sort of changing trends around competition in that space?

Yes. Lee, it actually is morning here. We're here in Sydney. So, we're right here with you. I would say this, we have more share than we did last year as we started out the year. It continues to grow with the large builders. We've talked traditionally about the top 25. Over the last couple of quarters, I think I've introduced talking about the top 200. So, if we look at the top 200, we've grown from 131 contracts out there to 141 out there. So, we continue to grow and take share with these large builders. We talk a lot about SG&A and the investment there. Some of the investments that we've made are focusing on these top 200 builders. So, we've seen some good return early on when you think about some of these numbers here. The other thing I would say, when we talk about share, we've mentioned Trim is a large opportunity for us. So, if I look just the last 12 months and the progress we've made and what is our epicenter of focus market as it relates to R&R, the North, we've taken 1% share versus PVC out there in Trim. So, we're seeing some good share gains out there with large builders, one of our focus areas in Trim, obviously still in R&R, but that is a depressed market out there right now.

And just maybe as a follow-up, just any change in thinking about the timing of demand creation? Like homeowner leads up 22%, as you mentioned, marketing spend is elevated. I just be interested in your thoughts around kind of when that should flow through?

Yes. Lee, I know you’re asking when is R&R going to recover, right? Look, I think we all had some expectations, a lot of us in the industry that we were going to have interest rate cuts. We talked about it in the spring months ago, now it’s further out if it happens at all in this calendar year. We really look at 4 things as it relates to R&R recovery. We look at existing home prices. So, they’re recovering, right? Prices are good, that’s positive for R&R. Consumer confidence, it’s recovering. That’s good for R&R. Contractor confidence, I would say it’s stable. It’s in positive territory, but not necessarily improving yet. And then I think you’re all aware, and you follow this as well as you look at big-box transactions. Look, it’s in decline, and it’s been in decline, I think, for almost 8 quarters now. So that’s not good for R&R. It seems to correlate with some of those big box transactions. You heard one of the largest out there talk about larger transactions being down above the fleet. So – but what I would say, and this is why we continue to invest, right? We’ve talked about all the older homes in the U.S. We talk about people staying in their homes longer. These are all variables that put together make us very optimistic for the long-term growth and the prospect of material conversion from vinyl or other substrates to James Hardie.

Your next question comes from Harry Saunders from E&P.

Firstly, just wondering on the margin guidance for the full year, 29% to 31%. Just trying to square that with your quarterly average -- the quarterly averages. That implies your -- I guess, your guidance volume midpoint of 763 quarterly implied that's -- that should be more like 30% to 32%. So, just trying to square that, please?

Thanks, Harry. A few factors here as we think about margin for the year. I'll start by talking about Aaron's emphasis on continued strategic investment that is around HOS, that is around demand creation. But also in raw materials, I've talked about it in the past, we do expect raw material costs to be higher in FY '25. As you know, our 4 primary input costs are pulp, cement, freight and labor, together, they represent about 50% of our variable COGS. And 6 of our top 8 inputs, we do forecast to increase mid-single to double-digit year-over-year. So that's some of the headwinds we are expecting to face. Additionally, as you work yourself down the income statement, I did talk about the tax rate moving from 23% and we gave you a range of 23.5% to 24.5% at the midpoint of 24%, just to give you a feel for that. If you apply that to last year, it'd be worth about $9 million to net income. So, those are some of the factors that we're weighing as we go down. But again, we feel very confident about where we're positioned right now and our PDG position in the market.

And my follow-up, just I wanted to confirm, there's no lag in the R&R end market. So, your calendar year '24 end market guidance could be a little different to your FY '25 for R&R?

Yes. I think a factor here, Harry, is to probably talk about is when you look at [indiscernible] and how has this changed, right, relative to where we were when we were looking at it in February. Yes, the higher interest rates were longer, but also it’s the shape of the quarters. And so what’s important here is in the front half of the year, if there is anything, even more negative. And in the back half of the year, where we were expecting that positive inflection, it’s now pushed out. And as you think about our markets and their geographic location, that’s actually fairly significant for us. So, when you just take that average of minus 2%, you got to think about the shape of when is that recovery expected to happen. And for us in our epicenter markets like we take advantage of it.

Your next question comes from Andrew Scott from Morgan Stanley.

In your prepared comments, you talked about your arrangements with the big builders. And if I'm not mistaken, you said they are unchanged. We obviously saw a little while ago, your competitor LP announced a supply arrangement with Lennar. They're a long-standing customer. I think I'm right in saying when you're only providing sampling to 2 players, they were one of them. Can I just clarify there that you don't believe you've lost any volume and your arrangement with Lennar has not changed?

So Andrew, I'm not here to talk about our competitors. I do respect them. But our relationship, as I said, is unchanged. There's nothing new. Across the top 25 builders, we have relationships and we have an average of 80% share with the top 24.

And maybe just in light of that, but also your push to increasing your share with the top 200 and the big builders, can you talk to us about that 4% to 5% price increase that was announced January 1. Do you think we should expect that to be delivered on the new housing segment? Or is this given the push into that segment? Is it more likely that that's diluted there and we only see it come through on the R&R side?

Yes. I think what matters is we're going to have a positive average sale price, right? I think that's the key thing, Andrew. It doesn't matter where it comes from. We're going to have positive average sales price this year.

Well, Aaron, I mean positive is quite different to 4% to 5%. It sounds like you're suggesting substantially less than the full 4% to 5% dropping through?

We roughly have 4% price, Andrew.

Your next question comes from Brook Campbell-Crawford from Barrenjoey.

If you just look at the first quarter FY '25 volume guidance in North America, at the midpoint, it's basically the same, slightly lower than what you've delivered in the March quarter. And the March quarter would have had a pretty light January, I think, because there is pull forward of volume into December and January had some adverse weather, I think, in places like Texas. So, I'm just surprised you're not expecting a seasonal uplift or better volume in the June quarter versus March. And so can you provide a few comments around that, maybe what we're missing here?

I'll give it to Rachel here. You want to take it.

Yes. Brook, a few points. You're right. It's flat sequentially March Q to June Q. But as a reminder, this is up 2% year-over-year. I mean, I've had a pretty chilly start to the year. So, we feel excited about where we are and we think that's reflective of the environment we're in.

And my follow-up, just around Australia, can you just provide some comments on what you're seeing there in the forward expectations or what your customers are telling you here on demand? Because I guess it looks like that's going to be a drag on earnings in FY '25, given the market softening. So, can you provide some maybe comments on volumes or margin expectations for the APAC region in FY '25?

Yes. Brook, what I would say about Australia, it's a very challenging market right now. I think our volumes are projected to be roughly down 5%. But I will say this, we're having success from a pricing standpoint. I think our average sales price is up roughly 9% in Australia. It was in the fourth quarter. So, very challenging right now in the Australian market. I would almost characterize it as being, call it, a year ago what the U.S. faced. But look, our team continues to go out there and take share and have success with the value proposition that we're offering our customers out there.

Your next question comes from Daniel Kang from CLSA.

I just wanted to delve a little deeper on PDG. Your comment on 4% for the FY '25 year, it's still a great number to be positive, but it's a deceleration from the high single digits levels for FY '24, which you quoted. Can you just comment on what you're seeing in terms of, I guess, the competitive landscape to other substrates? Are you seeing an intensification from other materials?

Yes. What I'd say, Daniel, really good question. Look, as we look at PDG, I mean, we equate 4% to 1% market share gain. It is a very competitive market out there. But I think more than anything, it's the macro right now versus the competitive marketplace out there.

Yes, I got it.

Yes. And then, Daniel, I mean, just look, once again, in any market, we have to outperform and we put forth what we think is going to be a challenging market environment, particularly in R&R, which is our largest segment. But we feel pretty confident that we're going to be able to go out there and attain that 4% PDG.

And maybe one for Rachel, in terms of raw material and just general costs -- general inflation trends. Can you just provide some color on what you're seeing there?

Yes. I mean, look, we talked about how our largest costs are pulp, cement, freight and labor. And I mean, I’d like to just pick up a paper and you know what’s happening with pulp right now. Cement has been continuously up, but we did have a bunch of contracts come up in Q4, which we talked about. So, when you think those 2 in particular, and then I did mention that 6 of our top 8 input costs, we are expecting to increase mid to single and double digits year-over-year. So, this is why we’re really pushing here on costs and really making sure that our programs are tight and also being very disciplined about pricing as we are expecting these headwinds.

Your next question comes from Shaurya Visen from Bank of America.

Aaron, a question for you. Just some thoughts on your strategy given the competitive landscape. And I know you've previously spoken about it. But I'm just curious, just given your biggest competitor is now suggesting that they're focused on targeting the bigger builders that traditionally has been your market. So, 2 questions on that. Firstly, do you think the market is large enough for both of you? And secondly, do you expect pricing pressures as you two compete? Any thoughts around that?

Yes. Thank you for the question. Look, I'd say number one, and you hear me talk about this a lot. We're going to focus on what we can control. So, I can't control what any competitors are doing out there. Look, our main competitor in my mind, is other substrates. So that is a very large total addressable market out there and we feel very, very confident in our ability to go and have material conversion. Look, I would just say this in reference to pricing, and I've said this before, we're not a commodity. We are not a commodity. So, this like-to-like whomever or whatever it may be, becomes a little bit irrelevant, right, when you think about the value proposition that we're offering to our customer partners. So yes, it's a competitive marketplace, but I feel very confident in our ability to go out and win. If you look at the results from last year, the type of PDG growth we had, we feel like in any market, we're going to be able to go out and take share.

Rachel, a quick one for you. Just North America, look at your ASP increase for the quarter, which is 4%. Could you give us a sense of the price and the mix within that?

Our ASP has been 4%, correct, on a year-over-year on a Q4 basis. As we are looking ahead, this is a market where Aaron was saying where is Trim going to be, right? And what is the size of some of this. So, we are thinking about mix and R&R, as you know, from a gross margin perspective, does have a higher and the color has a higher gross margin even if we aren’t equal on an EBIT basis. So again, while mix will be a factor, we are expecting positive ASP as discussed and really feel confident that we will end up.

Your next question comes from Simon Thackray from Jefferies.

Rachel, just a quick one actually, we're going through a pretty decent period of investment as reflected in the CapEx and the D&A is going to have to move up as we've seen sequentially each quarter in '24. I think it would be helpful just to understand the impact on the EBIT margins on the [normal] cash side by getting some guidance on FY '25 group D&A because you've kindly done for CapEx. Would that be possible?

Yes. We've not provided that guidance at the D&A level, but we have given you guidance about what we have coming on for CapEx, how much we're going to spend. And also, we have quite detailed on our property, plants and equipment in the 20-F. So that should be one that can be projected.

So, then maybe just on SG&A expectations either in dollar terms or percentage terms then to '25, given that the group cash spend in the fourth quarter was approaching 12% of revenues. So that would be helpful. Are we to assume we're going to maintain at that level or adjust? Or is it up or down from the fourth quarter run rate?

Yes. Simon, what I've always said is we're going to invest in the business what we need to for long-term growth. I would say if you have to look at it, though, as far as just modeling purposes, it's going to be similar as what you've seen before. That's what I would give with this.

Can I just be cheeky and sneak in one just to understand something on Page 12. You've made the comment there, actually, that the exterior volume is up low double digits, but total volume is up 9% in Q4. What's -- how do I reconciliate that? Sorry, if it's obvious, but I don't quite understand that exterior volume is up low double digits, but sales volume is up 9%.

Yes. I think that interiors would be down significantly more. That's where you're getting that. And it goes to reason when you think about what we talked about from some of the big boxes and some of their transactions, I think it correlates pretty well with that, Simon.

Look, this is an emphasis of how are we doing in the marketplace. So, there’s PDG, but also there’s a mix of products and just to emphasize that an exterior volume, we are continuing to be very strong here, being up low double digits.

Your next question comes from Sam Seow from Citi.

Maybe just following on from Simon there. Aaron, when you took over, SG&A or since you took over, SG&A has probably increased $200 million. And if I annualize that fourth quarter number, it's getting close to $650 million. Just wondering, is there any flexibility in that? Could you bring that down to manage profitability? Or as you think about FY '25, is that fourth quarter exit rate largely what spend might look like irrespective of market conditions?

Yes. Sam, look, a good question. We talked a lot about pedal and clutch, right? So, when we see the need to be able to do that, we can clutch spend particularly a lot of the marketing spend. But look, as I've said before, we're investing in long-term growth. We've talked about the opportunities that we see out there in R&R from a long-term standpoint. And we need to be ready, whether that be people, whether that be investment, what we're doing in CapEx, whether that be demand generation. We feel strongly with our strategy that we need to continue to invest in these areas. It's some of these, but it's also areas we've talked about HOS and some investments that we're doing today to ensure scalability but also cost savings in the future, systems, tools, processes, those types of things, Sam. So we are focused on that. Yes, we can clutch. But for the long-term viability of the business, we believe that these investments we're making right now are the right investments.

So maybe just following on from that. The profitable share gain, the high single-digit is impressive, but largely driven by new housing implying the PDG in R&R piece is a fair bit lower. So my question is basically, is that right? And then after these heavy SG&A investment, what would be a realistic target for PDG in R&R specifically?

Yes. Sam, really simply, we don’t talk PDG by segment. As I said before, we’re targeting 4% PDG growth for the year and that’s what we’re focused on.

That does conclude our time for questions. I'll now hand back to Mr. Aaron for closing remarks.

All right. Thank you, operator. Appreciate everyone’s time here. Thank you, and thank you to all the James Hardie employees around the world for a great FY ‘24 and looking forward to a positive FY ‘25. Thank you, all.

That does conclude our conference for today. Thank you for participating. You may now disconnect.