Thank you for standing by. Welcome to the James Hardie Third Quarter Fiscal Year 2024 Results Briefing. Today's briefing is hosted by James Hardie CEO, Mr. Aaron Erter and CFO, Mrs. Rachel Wilson. After the briefing, we will open the lines to Q&A. [Operator Instructions] After the Q&A, I'll turn it back to Mr. Erter for closing remarks. I would now like to hand the conference over to James Hardie CEO, Mr. Aaron Erter. Please go ahead, sir.

Thank you, operator. Good morning and good evening to everyone and welcome to our third quarter fiscal year 2024 results briefing. Turning to Page 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 US 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 employees around the world who remain focused on safely delivering the highest quality products, solutions, and services to our customer partners. Our employees truly represent the very best in our industry and consistently enable our superior value proposition. Let's start on Page 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 third quarter results continue to highlight how impactful that focus has been. For the third quarter, we achieved global net sales of $978.3 million, up 14% versus the prior corresponding period, with a record quarterly global adjusted net income of $179.9 million, up 39% versus the prior corresponding period. Both our global net sales and adjusted net income results were again supported by volumes in North America that has outperformed the market. Our…

Thank you, Aaron. Let's start on page 9 to discuss our global results for the third quarter. Our team has delivered a strong set of results in the third quarter compared to last year, with consistent and focused execution through the first nine months of our fiscal year. For the quarter, group net sales were up 14% year-over-year to $978.3 million. Adjusted net income increased 39% to $179.9 million. The global adjusted EBITDA margin was 28.7%, up 440 basis points and operating cash flow for the nine months was a record $749.5 million, up 73% year-over-year. Our team is focused on executing on our strategy, and these consistent results demonstrate the value of focused execution. Now, turning to slide 10. I'll detail our adjusted net income waterfall for the third quarter. As mentioned, adjusted net income increased 39% or $50.7 million year-over-year to $179.9 million and was in line with guidance provided in November. The year-over-year increase was primarily driven by strong EBIT growth in North America, which contributed $52.4 million to the increase in adjusted net income. The year-over-year increase was also supported by growth in APAC and EU, combined each regions contributed $12 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 investment, which includes corporate, increased 36% year-over-year to $156.3 million. This equates to 16% of revenue, up from 13.4% last year. Sequentially, global SG&A was up 2% compared to the second quarter of fiscal year 2024. The increase in investment primarily in our marketing 10-fold, reflects our continued focus on growing brand awareness and driving profitable share gains. In the last quarter, we've seen our James Hardie aided brand awareness inside an increase by 7%. Some of our key initiatives…

Thank you, Rachel. We have delivered a strong first nine months and another record quarterly result for adjusted net income. In addition, we have outperformed our end markets and volatile conditions. These results are proof points that we are accelerating through this cycle and taking share, all while we have increased our investment and long-term demand creation. Let's now move to page 16 to discuss our market outlook and guidance. For our largest market, North America, we are 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 5%. Multifamily new construction is forecasted to contract 21% and repair and remodel our largest end market is estimated to decline 2%. Using these external ranges along with our assumed market segment exposures, the implied range for a blended addressable market is down 4% to up 6% with an average of flat. It will come as a surprise to you to see these third-party forecasts for our end market have improved over the last quarter and is supported by declining interest rate expectations. Over the last 18 months, I have seen us execute on our strategy and increase our investment in long-term demand creation. Our business and team are now in a stronger position to capitalize on the expected return to growth in our end markets over the years ahead. We remain laser-focused on driving profitable share gain and are demonstrating this with our market outperformance. If you turn to page 17, we have again provided the volume sensitivity analysis for FY 2024. 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.…

Thank you. [Operator Instructions] The first question comes from Keith Chau with MST Marquee. Please go ahead.

Hi, Aaron. Hi, Rachel. First question on fourth quarter volume guidance, and I appreciate the comments you've provided us already, Rachel on that one. But usually, the -- sorry, the fourth quarter is typically roughly 4% higher than the third quarter even with the timing of price increases. So historically, prior to the price increase timing change, when price increases were 1st of April, the seasonal would be 3Q to 4Q was around 11%. Now that it's changed 1st of January as of 2021, the seasonal variation is now typically up 4% Q-on-Q. So notwithstanding the comments you've given on pull forward, Rachel. Just wondering if you can give us a sense of what magnitude the pull forward was this year, whether there were limitations or the same limitations on customers as there has been in prior years or whether there were any other issues impacting the volumes between third quarter and fourth quarter? Thank you.

Yes. Keith, I'll start with this, and then Rachel can jump in. Hey, just as we said before, I mean, let's start with Q3. Less anyone should forget, we had a very strong Q3 result in North America, with volumes up 9% year-over-year, which exceeded the top end of the guidance. And our guidance for North America Q4 at the midpoint implies another 9% year-over-year growth. If you think about this, this strong expected growth is really against a mixed backdrop for us, where we have R&R still down year-over-year, while new construction is recovering. The pattern of our Q3 to Q4 seasonality really needs to incorporate the impact of the change in timing of our North American price increase in calendar year 2021, which would be our fiscal year 2022 from March to January. This as well as the mix backdrop is reflected in the volume guidance range. We are performing strongly in our driving profitable share gain. This is reflected in our PDG performance over the last nine months and in our results, which set forth new financial records for us. I think the other thing to note is, importantly, we're partnering with our customers and investing in long-term demand creation. The other thing when you think about the backdrop we were in over those time periods is we were in periods of an allocation as it relates to what customers could purchase. If we think about where we're at right now, we're able to supply what our customers need, and that's what we did and part of what we saw in our Q3 results.

Okay. That makes sense. And my follow-up question is just related to the margin guidance. So, let's just say, the midpoint of guidance, your volumes are flat quarter-on-quarter, but your margin guidance is 30% to 32%, which is below the outcome on the same volume outcome as in the third quarter. So given you've got price increases going up, costs going into the fourth quarter are probably flat to down, it surprised me that your margin guidance is only 30% to 32%, So just any clarity on that would be useful? And I appreciate your comments ratio expecting costs to go up in FY 2025.

Keith, I'll hand it over to Rachel, but one of the things you said is us were going down. So that's not necessarily the case. So Rachel, do you want to give some color there?

Yes. So one of the things I highlighted last quarter and emphasize again this quarter is that we are expecting particularly cement cost in Q4 to go up for us. That has to do with the timing of some of our contracts which we've talked about range coming to kind of 12 months to 18 months depending on the contract, but we marked Q4 for you. The other thing to point out is this is a reminder, North America EBIT margin last year was 29%. And -- and as we think about this year, move down from the margins all the way down to net income, the other point we should bring up is that the tax rate is expected to go up 120 basis points between Q3 and Q4. That alone is worth about $3 million drag to net income. So those are really the key factors between those raw material costs and then -- and the tax rate.

Okay. Thank you. Thanks, Rachel.

Yep.

Thank you, Keith.

The next question comes from Peter Steyn with Macquarie. Please go ahead.

Good evening, Aaron and Rachel. Thanks very much for your time. Just wanted to focus a little bit on your R&R positioning. Aaron, interesting comment about brand awareness benefits, but clearly, a lot of SG&A going in, doubled your number of Dream Days or Dream Builder events. Could you give us a sense of qualitatively what is making you excited about your positioning? How convinced are you that you can get the return on this investment?

Yeah, sure Pete. Look, I think for everyone on the call just to remember, R&R is our largest opportunity as a company. If you think about the opportunity in North America, we get really excited when we talk about the 40 million homes that are 40 years old or older, right? So we have this pin pointed down to zip codes as far as what our opportunity is out there. Now, you know what is the good news is even though R&R has been down we're seeing the outlook become more optimistic out there from an R&R perspective, but we still are seeing you know high single-digit depressed market out there. But for R&R to improve, right, we really state a few things. Home prices need to go up, which we're starting to see more and more of that. We're starting to see consumer sentiment, or we need to see consumer sentiment go up, so we're seeing that more positive with inflation falling. And then contractor sentiment, it's improving gradually as we talk to our contractors out there. And then the other piece is really big box transit transactions. We're still not seeing year-over-year growth. But look, we know this is going to come back. The question is when. You know, a lot of outside experts would say this would be in the back half of next year for us, which we are optimistic about and we feel like we're in a very good position. I talk so much about our long-term growth. Well, it's investing in our brand, which Rachel talked about some of the brand awareness numbers. And by the way, 7 points when we think over a couple quarters is very, very strong results. So it shows that we're really spending our marketing efficiently. But also, it's having people on the ground and focused on our R&R business. So this can be everyone from training, our contractors out there, and then really bring them into the James Hardie fold. We talk a lot about our contractor alliance program. I mentioned the success we're having in that. So you put all these together, Pete, it's really exciting as this starts to get some tailwind behind it. And we are very optimistic as we think into the back half of the year that we're going to be able to take advantage of that.

Right. A quick follow-up. So as much as you mentioned that the market is down high single digits. In Q3, you outperformed your expectations from a volume point of view. Could you give us a sense of whether that was R&R driven, or was that new construction driven? Just that we understand some of the exit rates coming into this calendar year?

Yeah, Pete, good question here. So, look, I think when -- it's the same story that we had last quarter we're really seeing new construction really help us as we think about it. It's been very strong for us. I'll just give you some data points here. If you look at the south, we would call the Texas region, we're seeing considerable strength there. And that's really a new construction market. We benchmark the north being more of an R&R market for us. We're still down call it mid-single digits there. So new construction really is carrying the day for us right now.

Thanks very much, Aaron. Appreciate that.

Thanks, Pete.

The next question comes from Simon Thackray with Jefferies. Please go ahead.

Thanks. Hi, Aaron. Hi, Rachel. Thanks for taking the questions. Aaron given your experience in the big box channel, I just wanted to explore with you, your views on Depot in particular, but I presume those will follow in trying to capture more of the contractor market and that contractor pro-market. How do you see that playing out between your existing channel partnerships and whether Depot provides an incremental opportunity for Hardie, or is it a potential threat to some of your traditional channel partners?

Yeah. Look Simon it's a really good question. I would say this, the Home Depot and Lowes are excellent partners of ours. And a couple of things, number one, there's a lot of R&R foot traffic that play goes through there. So as we think about the exposure to homeowners that's a plus for us. You hear a lot of noise in the background. And then the other thing if we think about the Pro market, I would say that Depot and Lowe's are uniquely equipped to service certain segments of our contractor base, some of the smaller contractors, homebuilders out there. So we're working with them and our business continues to grow with them and we see them as a very important partners as we move forward.

Thanks Aaron. And then Rachel maybe one for you. At the half we talked to or laid out the cost out working capital improve the targets for between $24 million and $26 million, $100 million for HMR, $60 million in procurement and R&D, and $100 million in working capital. I guess noted in this third quarter there's no specific update on that. But could you give us a view on how that has started and which is moving faster or slower and what kind of benefits we're seeing in the programs?

I'm happy to. I'm not going to deny that the working capital improvement is $121.2 million, so obviously very nice progress on that. But what's interesting in this quarter in particular is that improvement has been driven while you're seeing our inventory levels actually going up. So that shows some of the strength of how we are getting there. But again, as I cautioned before, and I'll caution again, that is a long-term target, and this can go up and down, particularly as we start to continue to keep building inventory. But again, it's very good control here as we think about our working capital turnover ratios.

Just on HMOS and procurement and R&D?

Yes. So -- working capital. Sorry, there's a lot of background noise. But driving the working capital, yes, you are investing in inventory. But as we look at our accounts receivables, as we look at our accounts payable, there's nice discipline in what's been happening there. So overall, the progress in that does reflect having that central procurement group, having that cost discipline throughout the organization and really kind of moving to an emphasis on this and more controls around that. So again, some of this should retract as we build inventory, but overall strong performance.

And Simon, I would just add -- as we get through our year end, we'll report on what our cost savings and our progress there. But needless to say, to Rachel's point, we're making really good progress there.

That's excellent. Thank you, both. Appreciate that.

Thank you.

The next question comes from Matthew McKellar with RBC Capital Markets. Please go ahead.

Hi. Thanks for taking my question. You talked about third-party projections for R&R, and how that market is a bit soft right now. But from what you're seeing in your own business, are there any differences in outlook for R&R by region in North America, that you call it?

Yes. Matthew, it's a very good question. You know, I would say for us, the largest opportunity would be in the Northeast, in the Midwest. And I think that as we think about those projections, they would be right in line with that.

Okay. Thanks for that. And one more for me. Are you content with continuing to allocate capital to a share buyback or roughly the current run rates? Or are your priority shifting at all with the strength in the share price here?

Hey, Matthew, it's Rachel. This is one where we feel very strongly that with our current performance with our margins, we had our revenue growth with, but we've been able to return on capital employed. You know we look at some of the multiples of some of our North American peers and say there's room, okay? And that we have been performing to that point. So again, we have a $250 million program. We've executed $75 million of it. And we will, as we said, first prioritize investing in organic growth. And then, of course, with excess capital, we want to make sure we are good stewards of capital, and we'll be returning to shareholders.

Great. Thanks. That's all for me. I'll turn it back.

Thanks.

The next question comes from Shaurya Visen with Bank of America. Please go ahead.

Hi, Aaron. Hi, Rachel. Thanks for taking my questions. Aaron, congrats on a very solid quarter. I just wanted to get some sense for FY 2024 -- calendar year 2024, right? And I appreciate you won't give us explicit guidance. But if I just look at your presentation where you say that it's expected that your end market will be flat for calendar year 2024. Now if you look at for this year, right, calendar year 2023, your volumes were largely be flat, whereas the market is down anywhere between 5% to 6%. I’m just curious to get your thoughts on whether you think you'll be able to continue with those market share gains in the next year? And then I have a follow-up to Rachel. Thanks.

Yes. Hey, Thank you for the compliment there Shaurya. If we look to next year, of course, we're not going to give any type of guidance as we move forward. And we are focused on profitable share gain. If you look at PDG, I think you have to have a full year look, right? And we're always hungry for more, but as you think about moving forward, it gets tougher and tougher to get after that type of PDG growth that we're seeing this year. We still expect, and I'm not going to give any projections to take profitable share gain, but it gets tougher and tougher year-over-year.

It’s quite helpful. And just a follow-up here. I think Pete asked that question. So, for your first nine months, right, your North America volumes are down 2%, could you just give us a sense of the breakdown between a repair and remodel and new construction within that? I'm guessing repair and remodel is quite weak, but could you just share some rough numbers with us?

Yes, Shaurya, we don't necessarily do that as far as the breakout. We just directionally would say 65/35 R&R to new construction. Now, I will put the caveat on that, this year, it may have shifted a little more directionally towards new construction.

Sorry. Aaron, I was just trying to get the growth numbers. So, look, what I'm saying is like 2% up on volumes, right? What's the growth been that good for R&R and new construction?

Yes. We don't give that in breakout, Shaurya

Thanks. Just one quick one for Rachel. Rachel, just your comments on the input costs, right? And sort of I note that you point that for the third quarter, pulp and freight were soft. Could you just share like some numbers with us and for those four key cost items for the third quarter on a year-on-year basis, is that easier for you?

Yes, I talked about our input costs for COGS, roughly 15% of our COGS are cement, freight, pulp and labor. Above those particularly for this year, pulp and freight have been tailwinds for us. As we look to next year, we have been citing that cement we expect to be increasing and your most forecast or expected pulp to also become a headwind for next year.

Great. Thanks Rachel. Thank you.

Sure.

Thank you.

The next question comes from Lisa Huynh with JPMorgan. Please go ahead.

Hi, morning, Aaron. Morning, Rachel. Hi, I just had a question around 4Q volume guidance. I appreciate the color around the lack of seasonality given the price rises. Just can you talk about feedback that you've had from your customers to date? And the extent that this guidance could potentially be just conservative, given we've seen rates come off over January, there's been a strong pickup from the US homebuilders. And just any color from the R&R space.

Yes, Lisa, it’s a good question, and I think you're asking us a little bit to speculate here because we do feel very comfortable with the guidance that we gave. I would just say this, all the reasons that I mentioned before for R&R to improve have to be in place, right? And a big part of that is interest rates. So, that's going to really give some tailwind, which we don't expect to be more towards the back half of the year. I would say this in conversations with our homebuilder partners, they're optimistic. This is the larger homebuilders, but we're starting to see some optimism from some of the smaller homebuilders call it the top 200 out there. So, there is still demand out there for homes. And as I said before what they're able to do is buy down rates and they have land so they're building. So, I expect to still see some strength within the new construction area. And if you think about that and this is why it starts to get really exciting and hence why we keep investing in long-term growth initiatives, you get an interest rate cut and then you start to see repair and remodel accelerate as well. Now, I'm not talking about Q4 necessarily but as we look to our next year.

Great. That's helpful. Thank you Aaron. And just on around the comment about COGS rising in FY 2025. I mean is there anything around the purchasing of pulp, Rachel, that would suggest you would say a different kind of headwind than the RISI prices that we all kind of look at.

Yes, I mean if you look at the pulp index, that's probably a good indication for how we would be experiencing it.

Okay. Great, that's helpful. Thanks. Thanks a lot. I’ll leave there.

The next question comes from Daniel Kang with CLSA. Please go ahead.

Good morning, Aaron, Rachel. I just had a question on multifamily. So, the outlook from the industry forecast is on Slide 16, looks very wide, minus 45% to plus 3%. Just wondering if you can comment on what you're seeing in your own business, and perhaps comment on the strategic progress with looking to penetrate this market segment?

Yes, Daniel, I would just say this, and I'll let Rachel jump in with some of the data here. If we think about multifamily, this is an area when we had supply problems that we would put the foot on the gas and take it off again, right? And as we were ramping up this year we did have some allocation as it relates to multifamily. We're normalized now on allocation. Also this is a business that we believe in. We have a full up and dedicated team around multifamily as well. And as we think about that allocation it's really a bid-based type of business. So, we didn't necessarily see that we were hurting any of our customers out there. So, again, a focus for us as we move forward, but I also think there's going to be some headwinds as it relates to the multi-families look to the future. Rachel do you want to provide some data?

Yes. As a reminder, as we think about our split, as Aaron talked about, 35% new construction, but only 10% of that is -- within that is multifamily. So, it is a smaller piece for us. As Aaron said, the one that is a bid-based model and so one that we feel that we are ready to take advantage of as markets keep turning.

Thanks for the color. Just my follow-up just in regards to Prattville 3 and just CapEx outlook. How are you planning to ramp up Prattville 3? I guess, can you give some color in terms of CapEx into FY 2025-2026?

Yes, Daniel, really good question. How we're trying to ramp it up is very carefully and prescriptively. I think we have a very, very experienced team and our best people on Prattville. So if we look at Prattville, it's going to be critical to our success next year and into the future. So like I said, we have our best people on Prattville. If you think about the capacity that that's going to give us. If we look at sheet machine number three, it's going to give us roughly 300 million standard feet additional capacity. And you heard me talk about as we think forward, right, and what gets you really excited is the prospect of R&R to take off again, we're going to need all of that. And that's going to help us as we move forward. In regards to FY 2025 CapEx, Rachel can take you through that.

Yes. The first thing is we've got brownfield capacity in all three regions, and we have greenfield capacity, both in the United States as well as in Europe. So we have a lot of options in front of us. We've talked about our need to complete Prattville number four in the next year, a continuing expansion in our Orejo facility in Spain. And then that we will be further investing in the U.S. So those are some of the primary areas that you can expect to see us employ CapEx in 2025.

Thank you, both.

The next question comes from Lee Power with UBS. Please go ahead.

Hi, Aaron. Hi, Rachel. Obviously, really strong gross margins. You're obviously taking the opportunity to invest in marketing. And then some of those comments around high-quality leads, like it seems your comments on the call are quite conservative around that flowing through to a higher PDG number. Like is there something that you think is a sweet spot in terms of marketing spend and PDG. And are you willing to talk to what that is?

Yes. So if we talk about leads, right, really, really important, but usually, if we think about the time line of converting leads into sales, it's a rather long lead time. It's roughly 18 months lead. So as we think forward, there's some time that we're going to see sales from that. As far as PDG, we're not going to give any forward look on that right now. But as I said before, the higher PDG you achieve the tougher it gets year-over-year. And then it's also dependent on the market you're going to enter in as well. So we'll leave it at that.

Okay. Thanks. And then just a follow-up. Like if you look at capacity utilization, I think it was 89% in the U.S., it was 89% in FY 2023. Can you give us an idea of kind of where you're sitting now? And then just the economics around sending volumes further a field than that 500 miles, if you need to, given you've got obviously Prattville ramping up kind of in the near term and just the ability to kind of send that further a field, if you need to into other markets?

Yes. Lee, so as far as capacity utilization, we don't give that number. I would just say this, if we think forward over the next three years, we have the capacity we need to handle our growth projections. And with that said, we're constantly evaluating new capacity adds that we need to make. So we're doing that right now. On top of that, Rachel talked a little bit about HOS and our HMOS that's going to help us just get more efficient, right, to be able to add capacity in our existing model as well. So I would just say this, we have the capacity we need to satisfy growth expectations. And you know, Lee, I think your other piece was, go ahead, Lee.

No, sorry, I was just going to -- I think you're getting to it just the economics about sending things further a field than kind of that 500 miles lease obviously send most of the product.

Yeah, Rachel, why don't you take that one?

Yeah, I mean the first thing is having 10 manufacturing facilities across the US creates a very nice strategic moat, right? So not only is this an advantage in terms of how we serve our customers, how responsive we can be, but also by the way, it supports our ESG initiatives. As we think about, you about, is that far enough? Can we be the flexibility to serve from another facility? Ultimately, we do. The good news, though, is that given our footprint and given the region, it's not one facility, it's 10, right, across the U.S., we do have a really good way to reach our end markets.

Excellent. Thank you. Appreciate the color.

Thanks, Lee.

Thank you.

The next question comes from Brook Campbell-Crawford with Barrenjoey. Please go ahead.

Yes, thanks for taking my question. Do you mind providing some color or some commentary just around your growth cutbacks and your expected return on that capital, bearing in mind I think your group return on capital employed is 40% over the last three years. I think you noted that in the presentation. So how should we think about this significant amount of growth cutbacks going into the business? Is 40% the number we should think about, or is it a different range? I guess noting the new plans, I presume will be pretty efficient and low cost relative to your average? Thanks.

Thank you, Brook. The first comment is, what drives a strong return on capital employee? By the way, it starts with also having strong margins, right? And discipline in your CapEx expense. So at the heart of, how we've been doing on some of our return on capital is the strong margins and that is another reason why it's very important for us to continue to invest in growth and keep our capacity ahead of demand. So that is something we are committed to. In terms of you know what is that right number we are trying to very efficiently build that is correct but there's also really those investments through cost as we think about how do we manufacture more efficiently and that is also a piece of how we gain productivity. So we'll be working on both of those aspects to try to maintain that performance.

Okay. That's great. And then just for the fourth quarter FY 2024, you had the January price increase. Do you mind just providing some commentary on what we should expect for ASP in North America in the fourth quarter versus the third quarter? Should we simply just use a sort of a mid-single digit step up there in price? Or any reasons why that might not be such a great idea when it comes to forecasting the fourth quarter ASP in North America? Thanks.

Yeah, Brook, I would say this. I mean, obviously, North America, you know, we announced price increase in October of the calendar year 2023, which was implemented in January 1st. And then the other regions, you know, there's different timings for that. But what we've always stated is our average sales price would be positive, right? So I think, that's the right type of directional information that I would provide right now. Yeah.

Okay. Thanks.

Thanks, Brook.

The next question comes from Sam Seow with Citi. Please go ahead.

Good morning, guys. Thanks for taking my question. Just a question on the margins, the 32.7% looks like a record to me and it's not lost on me winter and probably you had a lower mix of high-value products than when you last reported a couple of years ago. So going forward just thinking, how should we think about the margin upside in a more normalized SG&A spend environment? I mean it looks like SG&A was up 40% there in North America. And if I back out the extra $21 million to $22 million, it looks like margins could have been 35% plus. But yes just any color around the upside there?

Yeah. Sam thanks for the questions. You said it right. I mean margins at 32.7% in North America was outstanding. The team did a really great job. I think you mentioned the SG&A I mean really Q2 to Q3 sequentially it was flat from an SG&A standpoint. I think your question is how should you think about margins moving forward, I would just say this as we look at North America for the near-term, I think we're at our peak from a margin standpoint. The reason I say this is we're going to continually invest in long-term growth initiatives. The other thing and Rachel mentioned this is the headwinds that we're going to face as it relates to input costs. Now we're going to be able to cancel some of those as it relates to some of our cost savings. But we are going to see more headwinds as it relates to raw materials out there. So long-term, we believe we will get to accretive margins. But more short-term, near*term this is going to be the high point for us.

Got it. And then just as a quick follow-up. I mean, I came to understand obviously anything quantitative you can provide, just so one we can measure the SG&A is being utilized efficiently. Two, I mean in terms of the SG&A, it was elevated in Australia and Europe where I guess margins were in our target for any thoughts there? And then I guess to your point on input costs, do you expect SG&A going forward to be correlated to gross margins?

Yeah. So SG&A, the way I look at this, and I think you're looking at a percentage to sales. I look at this as what's needed to support our growth initiatives. So if you think about what we're after, it's profitable share gain for us, long-term profitable share gain. And we've invested in people. We invested in marketing. I think the question is how do you know it's working? And I would just use this year-to-date as a proof point, it is working for us. I talked about leads being more longer term. So we'll have to wait there. But if I think about the people investment we've made, our investment and our customers, it's working for us and we'll continue to invest where we think we need to really push that profitable share gain.

Okay. I appreciate the color. And then can I squeeze one more? And then you just talked about the profitable share gain. Could you maybe perhaps talk about where -- I mean the PDG look quite strong there. Can you maybe talk about where that's coming from new R&R, large or small homebuilder? Thanks.

Yeah. Sam and we'll let just squeeze one more in here. But as far as our share gain, we talked about this before this is coming from new construction. And who's benefiting in new construction, who's really driving that? That's the large builders out there. We've gone through a lot of color around those top 25 builders and the great relationships we have with them. But that's really who's driving that right now.

Got it. Appreciate the color. Thanks. [indiscernible]

Sure. Thank you.

The next question comes from Rohan Gallagher with Jarden Group. Please go ahead.

Hi. Aaron, Rachel, James, good evening. And good morning everyone, most questions have been answered, but a quick line ratio CapEx guidance has been reduced from $550 million to $515. Any -- can you sort of unpack that one please in terms of any reduced projects or more efficiencies.

Yeah. We are on time with our biggest project here, which is, the Prattville line range. So I think we feel quite good about how we're landing for FY 2024. We also have that color plus line and it's also into the trial base. So we feel good that it is not necessarily that we're not accomplishing our budgets. It's more that we are able to trim that budget and land but to land with a slightly reduced guy here. So it's more efficiency.

Fantastic. Thank you. Conscious of -- Aaron conscious of the balance sheet just in terms of where you're at -- at the moment could you just cover philosophically at a high-level any conscious of inorganic growth opportunities is not your priority? What you'd be looking for in terms of principles for M&A?

Rohan, it's a good question. What we talked about before as far as -- when we think about capital allocation its organic growth first. And I think we've demonstrated that that is still our focus area. I would just say this from an M&A perspective. This has not been something in recent years James Hardie, has talked about. We are looking at it, right? There's nothing in the works around M&A, but I think we would be remiss if we didn't look at it. And it really needs to do a couple of things right? It needs to help accelerate our current strategy. Then it has to enhance the value proposition that we can bring to our customers.

Thanks Aaron. Thank you.

Thanks, Rohan.

The next question comes from Harry Saunders with E&P. Please go ahead.

Good evening and Rachel, thanks for taking my questions. Firstly, just wondering if you could give us any idea of what your PDG actually was, approximately for the first nine months of the year. And appreciate you sort of said that was driven by new construction but like was any of that from the R&R end-market? Thanks.

Yeah Harry, I think we answered that before. As far as -- look PDG is best to give a look at from a full year standpoint. But we're tracking really well from a PDG standpoint.

Great. Thank you. And just related to…

Yeah.

… that on PDG for FY 2025 I appreciate your sort of LTIP targets of 4% PDG. Could you just confirm whether that's sort of an average over or three years? Or are you still sort of aiming for that 4% each year?

Yeah. Harry, that's an average over the three years. One of the things I think that everyone has to remember when we set those targets back in call it March of last year is the environment we were in, , right? You think about a recession, climbing interest rates, very, very difficult environment, a lot of uncertainty, which even though the environment and the outlook has gotten better, there's still a lot of uncertainty as we move forward. But those are an average over three years, Harry.

Got it. Thank you. And just wondering as well on R&R, the weakness in calendar 2024, could you just talk through what you see as the main drivers behind that market, it's being off a couple of percent on average across your different forecasts? And perhaps how does that look in the first half next year versus the second half? Thanks.

Yeah. Look, I think that as we talk about R&R, the entire market really last year underestimated the impact that interest rates, higher interest rates would have on R&R. You had a lot of resets being deferred. Consumers lacking confidence, the list goes on and on. As I mentioned before, we really look at three or four things for the conditions for R&R to improve. One, our home price is rising. Number two, consumer sentiment, contractor sentiment and then really those big box transactions. So three out of the four have just started to improve, but we still need to see more of that I think for the R&R business to improve. And I think that's why the projection is more of the back half of the year, Harry.

Okay. Got it. Thank you.

Thanks.

There are no further questions at this time. I'll now hand it back to Mr. Erter for closing remarks. Please go ahead.

All right. Hey, thank you, everyone, and thank you, operator. Just again, want to thank our team across the world for making James Hardie the homeowner-focused, customer- and contractor-driven company. I appreciate everything you do, and thank you.

This concludes our conference for today. Thank you for participating. You may now disconnect.