James Hardie Industries plc (JHX) Q3 2026 Earnings Report, Transcript and Summary

Welcome to the James Hardie Fiscal Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Chris Russell, Senior Vice President of Global Strategy, Corporate Development and Investor Relations. Please go ahead.

Thank you, operator, and thank you to everyone for joining today's call. I am joined today by Aaron Erter, Chief Executive Officer of James Hardie; Ryan Lada, Chief Financial Officer of James Hardie; and Jon Skelly, President and General Manager of James Hardie North America Building Products. 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 2 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 AZEK combination. I am truly grateful for their dedication, and I'm proud to work alongside them each and every day. With me on today's call is Ryan Lada, our new Chief Financial Officer. Many of you know Ryan from his prior role as CFO at AZEK. 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 Jon Skelly, President and General Manager, James Hardie North America Building Products Group; Jon along with John Madson, 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 discipline. 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 reaccelerating organic growth in fiber cement and expanding margins across our portfolio through disciplined 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 AZEK 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 Hardie and AZEK to better serve our customers and create long-term value for our shareholders. Now let's look at the results for Siding & Trim in the quarter. Current market conditions remain mixed due to the category's exposure to the new construction end market and the Southern region. Organic net sales in the legacy James Hardie 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 & 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 Hardie operating system to improve performance and return to margin expansion in FY '27. On January 15, we made the difficult decision to close 2 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 FY '27. Looking ahead to fiscal '27, these actions not only strengthen our cost position but also allow us to have the right capacity in 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 & Trim segment in FY '27 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-focused revenue opportunity in competitive wood and wood-look siding alone. We believe the combination with AZEK positively impacts our ability to compete and win in these regions. Enabled by the combination, James Hardie now has long-standing 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 AZEK acquisition, we continue to see meaningful opportunities with custom and local homebuilders. We believe this underpenetrated segment represents an incremental $750 million opportunity for continued growth in the new home construction end 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 TimberHue, a new product that we will showcase at the International Builders Show that combines a natural wood look with the 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 & 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 & 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 and 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 conversion. Given the highly complementary nature of James Hardie 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 Hardie's traditional strength has been the West and South, where we have had success penetrating the market and have strong coverage in selling locations in the region. At the moment, our fiber cement business has more than doubled the selling locations than TimberTech in the South. We believe, over time, there is a strong opportunity to place TimberTech products in the locations currently carrying James Hardie 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 4 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 DR&A 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 are 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 FY '27 in just a couple of 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 FY '26 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 Hardie 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 FY '27. Just to give you an idea of some of these, a large national one-step dealer has committed to choosing AZEK as their exclusive PVC trim brand, drawn by the combination with James Hardie 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 Hardie 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 Hardie 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 in cross-selling across the One Hardie portfolio. Over the past few weeks, we hosted national contractor summits for both TimberTech and James Hardie. One piece of feedback from these meetings is that contractors are increasingly looking to consolidate their portfolios under the One Hardie brands. One such example is Rick James of RPS Remodeling, a long-time James Hardie siding partner, who recently transitioned as 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 FY '27, 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 AZEK 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 $0.24. 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 onetime integration costs, which will step down significantly in fiscal year 2027. Cash generation of our core businesses remain strong, and with capital spending projected at modest levels, we expect free cash flow to accelerate in years ahead. Turning to our Siding & Trim segment. Net sales were up 10%, including $81 million from the AZEK acquisition. Siding & 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 Hardie 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 & Accessories, net sales were up 2% compared to the quarter ended December 31, 2024, prior to the AZEK acquisition by James Hardie. Sell-through was up mid-single digits, consistent with the business performance in the 2 most recent quarters. Adjusted EBITDA was $49 million, resulting in a 25.1% adjusted EBITDA margin. The Deck, Rail & Accessories margin outlook remains strong, with upside from material formulation, recycling initiatives, improved absorption across the manufacturing network and the application of the Hardie operating system across the manufacturing base. Turning to Australia and New Zealand. Net sales were up 7% in both U.S. 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 & Trim net sales guidance to a range of $2.953 billion to $2.998 billion, reflecting our outperformance in the third quarter. For Siding & Trim adjusted EBITDA, we are modestly raising our guidance range to $939 million to $962 million. At the midpoint, this implies a full year organic net sales decline of approximately 6% and an adjusted EBITDA margin of 31.9%. For Deck, Rail & Accessories, we have also increased our net sales and adjusted EBITDA guidance for the post-close 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 up low 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 & Accessories adjusted EBITDA of $219 million 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 paydown. Our capital expenditures outlook remains unchanged at approximately $400 million for full year '26, including $75 million for AZEK 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 AZEK acquisition and the midpoint of our updated guidance, full year '26 net leverage stands at approximately 3x. We remain committed to reducing leverage below 2x within 2 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 FY '27, 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 DR&A, 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 FY '27. As highlighted earlier in the call, we also expect to return to organic growth in our Siding & Trim segment and fiber cement siding in particular. Our 4 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 siding 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 FY '27 revenue synergy target exiting the year at $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 FY '26. We've already surpassed our FY '26 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 FY '27 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 Builders 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.

[Operator Instructions] Our first question comes from the line of Keith Hughes with Truist.

A lot of regional variation of late in some of the siding sales. Can you 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. Then -- so Keith, I think with -- as we have our -- 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. So 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 permit starts. Permit's 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 when 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 the higher-priced 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 the good news is consumer sentiment has stabilized, and it's supported by pent-up demand, and we're seeing modest relief in mortgage rates. As we move to repair and remodel, we would say that, that is stabilizing. It's choppy, but it's 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 AZEK, we are seeing some optimism in -- 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 Deck, Rail & 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 out there as we've seen loss building days and production out there with our customers. But all in all, if we look at our channel inventory, very healthy versus last year. DR&A, I won't spend a lot of time on it because we went through it in the script, but we continue to outperform the market. Sell-through was broadly consistent at mid-single digits, only modest regional variation, and we're seeing stable trends with our contractors and inventories are appropriate levels. Hopefully, that answered the question, Keith, because you got cut off a little bit.

No, that's very complete. Can you hear me now, by the way?

Yes.

Yes. Okay. Great. Just one quick follow-up on costs. Are you seeing any potential inflation coming in any of the siding inputs as we head into the new year?

Yes, this is Ryan. Keith, it's Ryan. Yes, 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.

Your next question comes from the line of Daniel Kang from CLSA.

Just wondering in terms of -- I guess, as we enter your final quarter, we're midway through it. At the moment, market -- end markets are still soft. But just wondering if you could 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.

Yes, Daniel, I would say, look, we executed our price increases. They've been effective since January 1 out there. That is on the fiber cement side, and that would be on the Deck, Rail & Accessories and the PVC trim side as well. We talked a little bit about the increases. We see some benefits from price and mix, particularly from the fiber cement side. So look, we -- the way we price is we're doing it for value, and it's been accepted well from all our customers out there.

And you also spoke about, I guess, the early wins in commercial synergies. Is this going to feature much in the FY '26 year?

Yes, Daniel, good question here. As we look at sales synergies, we'll see many of those start to hit the P&L as we get into FY '27. 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 FY '27, but we have line of sight to our $125 million target of revenue synergies as we exit FY '27. So we feel very confident of that.

Your next question comes from the line of Ryan Merkel of William Blair.

My first one is on the 4Q guide. Are you assuming that Siding & Trim, the volumes are going to be down in a similar range as 3Q? And then on the margins, you had a nice beat in 3Q. Why not flow that through in 4Q? Is there a reason?

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

Yes, 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, that is the main driver of the dilution from 3Q. But yes, that's the biggest thing as we enter the season, is just increased marketing expense as we get into the year-end here.

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

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

Yes, Ryan, I'm going to turn it over to Jon Skelly, who runs our North American business, who has been a big architect of getting some of these commercial synergy wins. Jon, do you want to take it?

Yes. So Ryan, obviously, you 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, right? So I think the customer has welcomed the opportunity to consolidate with the market-leading brands and what we've been able to do from a downstream sales and execution standpoint to help them grow their business. So we're -- that's what's giving us the confidence.

Your next question comes from the line of Peter Steyn from Macquarie.

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

Ryan, do you want to handle that one?

Yes. Yes. I would say, as you think about the commercial synergies we're going after, there is a little bit of build on our internal balance sheet to be able to satisfy those as those come to fruition. So I think we hit a little bit on the prior question, but there is phasing and timing of rollout into the season. So we would expect as that normalizes, our inventory and our balance sheet would also come down. But yes, 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.

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

Your next question comes from the line of Tim Wojs from Baird.

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 in the kind of near to intermediate term there.

Yes, Tim, so I think, roughly, price accounted for about 4% -- a little over 4%. Mix was a little over 1% there. So as we sell more ColorPlus, we're going to see the benefits from mix. I think part of this, too, as you look at some of the -- as I opened 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 mix 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 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, does your go-to-market strategy kind of change that requires some larger -- any sort of larger upfront costs to kind of accelerate that?

Yes. Tim, the biggest investment that we could make there and we have already made is going to be in our sales force, right? So I'll let Jon 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, rail and accessories standpoint that aids them, and then we'll have folks that are focused on 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 onetime cost, I would say we made it as we think about the acquisition of AZEK. Bringing the 2 together is going to help us really accelerate that. But Jon anything else you want to add there?

That's right. I mean we can leverage that existing investment, Tim. And so as you recall, historical TimberTech and AZEK was much more repair and remodel-driven, right? So it was a much larger piece of the business. And so the downstream team has the relationships within the dealer channel with custom builders and with a lot of pull-through opportunities on the R&R side. And then conversely, James Hardie has a lot of that opportunity with the new build side. So legacy AZEK relationships can be leveraged to help pull through more on the repair and remodel side of fiber cement. And then vice versa, we can work together to pull through more decking, railing, accessories through into the vendor channel.

Your next question comes from the line of Keith Chau from MST Marquee.

The first one, just a follow-up on the 4Q guidance. I wanted 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. So yes, I understand there needs to be an investment on the marketing side, but it seems unlikely that, 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.

Yes. 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 a significant impact over Q3. I think the second thing with the announced plant closures, the impact of that really is delayed to full year '27. So we will not see 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, AZEK from a Q3 perspective, that's AZEK'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 3 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. My follow-up question just relates to some of those capacity reconfiguration. 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 or the West going, particularly in the California region?

Yes, Keith, I think I got all of that and 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 $1 billion in more efficient, modernized plants and really adding to our facilities. So we feel very confident in what we're doing. If we think about the plants that we closed down, they were very limited as to what they could make. If we look at Summerville, 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, we're going to be able to supply product from Tacoma 2 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 has 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.

Congrats on a really strong quarter. Progress is very encouraging. And Ryan, welcome back. Good to have you back in the fold. I guess, kind of kick things off, a question for you, Aaron. I know you guys aren't guiding for '27 yet, but pretty encouraging to hear you're expecting organic growth to be growing in '27. Do you need a little help from the market? Or these are largely James Hardie-specific initiatives? I'm particularly interested in your Siding & Trim business, right? I mean you highlighted some of the challenges in new construction. So what are -- what gives you the conviction, I guess, for that piece of business to kind of reaccelerate? I know there's some talk of new products getting pushed out. Are you 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 why your signing business is going to reaccelerate.

Yes, Phil, good question here. Look, when we say we believe that we're going to have organic growth, that's considering if there's no worsening of the market here than where we're at right now, right? That's the caveat I would put on this, 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 Jon 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 4 key areas that we're going to really drive. All those give us conviction. The other thing is we think about this past year and what we're comping against. 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 great examples of wins with dealers and distributors. I didn't hear you talk too much about big box. I believe there's a line review for decking. Any color there on an opportunity to pick up some placement there? I know AZEK 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?

Yes. Look, I'll start out and I'll have Jon 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 on the James Hardie 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 getting single after single with our retail partners and just building upon that. So we have a lot of confidence that's going to happen. Nothing major to announce right now. But Jon, do you want to take that?

Yes. Nothing 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 business.

Your next question comes from the line of Sam Seow from Citi.

You had a pretty solid margin improvement there sequentially in siding. I just wanted to maybe ask if you could talk about the contribution of raw materials. 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?

Yes. 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, you just want to dive into that?

Yes. Yes, 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 2 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 step into the third quarter. And then there was some cost actions 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 in 3Q, that will actually carry into 4Q as well.

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

Yes. Yes, I think the big thing there, right, is, yes, we're at $260 million year-to-date after 3 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 million. We know we'll hit that and then kind of wind down on integration and deal costs this quarter as well. So I 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.

Yes. And if we look at FY '27, all else equal, I mean, we'll have AZEK cash flow quarter, right, the other quarter plus lack of transaction costs and fewer integration costs, as you mentioned. Yes. Okay.

Your next question comes from the line of Matthew Bouley from Barclays.

So the score and snap and the new install techniques, it sounds like more to be seen at the Builders 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.

Yes. Matt, good question. I mean, look, this is all part of how we win in fiber cement and in particular, how we believe that we're going to win around R&R. It's a big part of it. And 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 methodically across the country. So as we think about this is supported by our Statement Essentials Collection (sic) [ Statement Collection Essentials ], and that is really targeted 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 in April of '25 when we think about the Statement Essentials Collection in the East, in the Midwest and then in the Midwest, Central. 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 -- call it, as we get into our Q1 of FY '27, 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 1 as well. So they go in tandem with each other, and then it's going to be supported 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. I think a big part of it is just seeing our ColorPlus number grow and particularly for these regions. So that's where we're at, Matt.

Okay. Perfect. Second one, I just wanted to drill down into that marketing investments in Q4. Just to be clear, was that mainly due to the trade shows and contractor events and 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 market spend going on across [ the business ]?

Yes, 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 some of those costs that we have there because we have dual expenses, we expect to be onetime and not reflected as we move forward.

Your next call comes from the line of Brook Campbell-Crawford from Barney Joey (sic) [ Barrenjoey ].

Yes. Just one on the outlook here for FY '27. 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, Aaron, 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 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.

Yes, Brook, 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 obviously, this year, we are not at that rate, and there's many different reasons for that. But as we think about the inventory build, we think about 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've talked about some of the initiatives that we have to be able to do that, and that would be our base. And then our expectation is synergies are going to be on top of that. So that's our aspiration. Not giving guidance, but that's what we're aiming to do, Brook.

Sure. That's helpful. And just one quick follow-up on the fourth quarter. If we just look at AZEK, I guess, you outperformed your guidance in the third quarter. If you look at the growth rate, the first 3 quarters would look to be about 9% growth year-over-year relative to the prior period for AZEK EBITDA. And then the fourth quarter guidance implies, on my numbers, EBITDA falls like 4% year-over-year. So really quite a material change in the direction of growth there in AZEK. So do you mind just giving a couple of comments on why that might happen?

Yes. Look, we don't see AZEK slowing at all. I think it's appropriate from what we see from a seasonal standpoint. So it's reflected with that. Any of you guys want to -- do you want to jump in?

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

Your next question comes from the line of Trevor Allinson from Wolfe.

I want to follow up on your comments on some early wins regarding the revenue synergies. You've had a chance to go through the early buy period here now on the 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 siding 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 '27?

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

Yes. I mean, again, I think as we highlighted in the prepared remarks, right, this is a consistent part of our growth algorithm, right, is going to early buy and expanding our shelf position and presence across all the dealer channels. Obviously, now sales guys like to have good stuff to talk about. Now they more to talk about, right? 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.

Yes. That makes sense. And then second is on your approach to siding pricing here in what's still a weaker demand environment and one where affordability is still a big factor for the homebuilders. You guys clearly produce a value-add product, but I would think you 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 put in place at the beginning of the year? And are there any concerns about some elasticity-driven volume headwinds as a result?

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

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

All right. Hey, thanks, everyone. Really appreciate it. I want to thank the James Hardie team. I want to thank our customers as well for their support. Look, I'd just end this by saying our integration is on schedule, and we're executing on plan. Our cost and our commercial synergies are on track. As you heard here, and we'll talk more about it, we plan to get fiber cement back in growth mode in FY '27. AZEK, legacy AZEK business is on track. We see continued growth there. And look, we set the business up for FY '27 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 Hardie operating system. We look forward to ending the year strong and we look forward to FY '27. So with that, thank you all. I appreciate the time here this evening.

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