Welcome to the James Hardie Fiscal First Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Joe Ahlersmeyer, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining today's call. Please note that on today's call management will be referring to non-GAAP financial measures and making forward-looking statements. You can refer to several related cautionary notes on Page 2 for more information. 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. Now, please turn to Page 3, where you will find the agenda for today's call. I am joined by Aaron Erter, Chief Executive Officer of James Hardie; and Rachel Wilson, our Chief Financial Officer. Aaron will share key messages for the quarter and discuss our strategy before handing it over to Rachel, who will go through our results in more depth, detail our outlook and guidance and provide an update on our financial position and capital allocation framework. Then Aaron will return to summarize and close out our prepared remarks. At that time, we will move to Q&A. I'm now pleased to hand the call over to our Chief Executive Officer, Mr. Aaron Erter.

Thanks, Joe. Before I begin, I would like to take the opportunity to thank all our employees around the world who work to safely deliver the highest quality products, solutions and services to our customers. Our employees truly represent the very best in our industry, and I am proud of their ongoing contributions to James Hardie's success. Now, let's begin on Page 4. The collective effort and focus of our teams enabled a solid start to the year. I believe, our results continue to serve as proof points that we are driving profitable share gain through this dynamic and uncertain market environment and that our superior value proposition is helping our customers grow and achieve success. This is of particular importance and is especially appreciated by our business partners in what has been a challenging market. Our operational focus starts with executing our strategy and delivering on our commitments. As I will discuss in a moment, we have strong conviction in our strategy to be homeowner focused, customer and contractor driven. But it starts with our people, and I believe, we have the best team in the industry. We are well positioned to win in the marketplace and drive consistent value for our stakeholders. In the quarter, business conditions remained challenging. We anticipate that our markets will contract low single-digits to mid-single-digits for the fiscal year and that the second quarter will be particularly challenging. But as an organization, we're being proactive and are positioning ourselves for when markets transition to recovery. Our people are managing decisively through the current environment, relentlessly pursuing outperformance versus our end markets. We continue to deliver robust profitability while simultaneously investing to scale for growth and gain share through our efforts across the value chain. This is a deliberate choice that will enable us…

Thank you, Aaron. Please turn to Page 9. As Aaron noted, our collective effort and focus has led to a solid start in FY '25, and our consolidated financial results were consistent with our expectations. In each of our regions, we are focused on driving profitable growth, and our results continue to demonstrate that we have the right strategy. Our North America teams delivered first quarter results in line with our volume and margin guidance. And regionally, we are responding to softer markets by actioning plans to win against competitive cladding materials and positioning our business to outperform the market. At our Investor Day, we discussed the investments we are making to scale our business and accelerate profitable share gain and these investments remain essential to sustaining our outperformance as markets transition to recovery. Funding these types of investments, especially during cyclically weaker markets, means focusing even more intently on delivering our value proposition to our customers and prioritizing investments and rationalizing expenses to defend our strong margins. In Asia Pacific and Europe, our teams demonstrated a strong commitment to driving outperformance in top markets, delivering first quarter results consistent with our expectations. In Asia Pacific, we are executing well on our strategies to defend and grow share. And in Europe, our growth in high-value products is encouraging. Across all 3 regions, our results and strategies demonstrate a commitment to delivering profitable growth. Ultimately, our first quarter results demonstrate how our strong margin delivery leads to substantial cash generation. This supports our growth aspirations while maintaining the strength and flexibility of our balance sheet. Please turn to Page 10 for the financial highlights of our fiscal first quarter. Total net sales grew 4% to just under $1 billion. We achieved record first quarter adjusted EBITDA of $286 million, an increase…

Thank you, Rachel. Please turn to Slide 18. We delivered a solid start to the 2025 fiscal year with strong results in the first quarter. We are driving profitable share gain and executing consistently on our strategy. This positions us well to deliver on our commitments for the year and will position us to drive performance toward our long-term financial aspirations when markets transition to recovery. At James Hardie, we have been and are a growth company. The legacy principles that got us here are clear. We established the foundations and moats that afforded us our leading position in the market, and we did this primarily through a focus on our superior product performance. We have been customer and contractor focused and drove efficiency in our operations through a focus on manufacturing scale and productivity. The result of our past efforts, strong growth in sales and profits, high returns and significant cash flow generation, this established our track record of growth. Now on Slide 19, as we look ahead, we believe the future of James Hardie as a growth company is now even more compelling with 3 primary pillars for shareholder value creation: First, we have the right strategy, one where our success perpetuates, driving even greater success; second, we have bold aspirations and a talented team that delights in pursuing and achieving challenging goals; and third, our financial profile is attractive and will only continue to improve as we work towards achieving our longer-term aspirational targets. With that, operator, please open the line for questions.

Our first question comes from the line of Matthew McKellar with RBC Capital Markets.

Let me first, just -- [indiscernible] me out a little bit, what are the 2 or 3 things you need to get right in the new construction space in North America over the next year to deepen your relationships with homebuilders and ensure that you're setting up the business for above-market growth over the long-term as markets improve?

Yes. Matt, great question. Look, I think that we are getting it right with homebuilders. We've talked before about our success with the large homebuilders, whether that be the top 25 or the top 200, and it's really making sure we bring value to them. So that's understanding the needs that they have for each of the markets that they participate in. I think the Meritage recent announcement is really key and an example of what we're doing and the value we're bringing, not to speak to Meritage, but they have really aggressive growth plans in the future. And I think it's symbolic that they picked us, right, because we're there to be able to service them around the country, right? If you think about our local manufacturing, you think about the support. The list goes on and on with the value proposition that we're able to bring them.

And as a second question, at the Investor Day, you talked about wanting to accelerate material conversion and growing R&R in the Northeast and Midwest specifically. Is there anything incremental you can share with us today that gives you confidence that homeowner interest in James Hardie product in those regions specifically is increasing or that your base of contractors ready to serve increased demand for James Hardie siding is growing, even if you're not seeing it in the volumes today?

Yes, Matt, another great question. You’re 2 for 2 here. I think as we look at the challenges with R&R, we’ve talked a lot about the percentage of our business, that is it represents almost 2/3 of the business. But what we look at right now, obviously, is how do we set ourselves up for future growth and long-term material conversion opportunities. There’s a tremendous amount of vinyl when you think about the Midwest, you think about the Northeast, where you’ve illustrated that and brought it to light in our Investor Day. So what we like to talk about is some of the investments we’re making. So as the markets start to come back, we’re going to be there. We’re going to help homeowners. We’re going to help contractors to really accelerate that conversion. So from a contractor standpoint, we’re focusing on our contractor alliance program, so bringing them the support that they need. If we think about the journey for the homeowners, they decide to reside their homes, how do we make that journey shorter and easier for them. And that’s a lot of what – the branding that we’re bringing. So I look at a combination of all these things. We’ve talked about it before. We talked about in our Investor Day, some of the leading indicators that we look at and all of those are pointing the right way for us. So I’m very pleased with our progress.

Our next question comes from the line of Lee Power with UBS.

Aaron, just if we think about volumes were flat the first quarter, the second quarter has declined, and it's probably a bigger 2H Q than we would usually see. I get that the market volume slide that you've given is probably slightly softer than it was last time. Can you maybe chat a little bit about the trends that you've actually seen in the 2Q to date? Is it as simple as just the end market demands continuing to slow? Or is there something else that's going on that explains that?

Yes. Lee, so I think probably what you're getting at is a little bit of seasonality with our volumes, if you look at it from a traditional standpoint. What our guide points to is really it reflects what we're seeing in the marketplace right now. And Rachel mentioned that as she was going through her presentation on the opening remarks. Near term in Q2, we have seen R&R. We have seen single family new construction softening a little bit. So that really reflects the guidance range that we put out there for Q2.

And then, Rachel, maybe I'd just be interested to hear how you're thinking about input costs, like the FY '25 guide unchanged? Like have your assumptions around input costs for the business changed? And maybe remind us of what you're kind of thinking into the back half?

Yes. So I’ve pointed out consistently that cement, pulp and to a lesser degree freight, the labor, our input costs that we expect to be unfavorable year-over-year into the headwinds. We are expecting that to increase as a headwind as we go into Q2. But importantly, as we think about what we’ve been able to do with our cost savings and with ASP being up in all regions, we are positioned to work against some of those raw material headwinds.

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

First question for Rachel. So in your prepared remarks, Rachel, you talked about some weakness in the sales, particularly with homebuilders. It sounds like there is a channel impact in the second quarter as homebuilding aligned to what we're seeing for underlying sales and perhaps reducing the inventory levels, but can you give us a bit more detail and clarity around that dynamic? And have you tried to quantify what the potential impact could be in the second half? Because ultimately, if you look at your volume guidance for the full year, it does assume an acceleration of growth into the second half. So underlying, it seems like there's not too much of an issue, but certainly for the second quarter there is. So can you give us a sense of what you think that potential impact is with what the homebuilders are trying to do with their starts, please?

Sure. So I'll start with the second quarter. And -- as you have heard on the public builder calls, they have cited affordability pressures continuing to impact demand and traffic levels, and that has caused some of the builders to moderate their start pace and manage their inventory. So we are seeing that and reflecting that in our second quarter. But as we think about the second half of the year and in total -- first of all, we only have one quarter completed under our belt. So let's start there. I think we're really proud of the team that they did do what they said they would do and delivered and set us up. There's a lot of uncertainty in the markets right now, and there's a wide range of estimates out there. And look, we expect those near-term challenges, as I said, in Q2. But as you think about our annual guidance, that -- really that range does continue to reflect the breadth of that uncertainty. And then, as we do recognize as soon as we get there, there's a lot of pent-up demand in new construction and R&R, so when those markets transition to recovery when they're deployed to get there.

And my follow-up question to Aaron. So Aaron, given the -- what we're seeing, the uncertainties in the market at the moment, there's obviously a lot of discussion on SG&A at the last result call. But I'm keen to understand how you're thinking about SG&A now? Is the foot still on the pedal or do you need to press the clutch given your expectations of the volume profile into the rest of FY '25 and beyond?

Yes, Keith, a good question here. Look, we’ve always said that we’ve set up our SG&A to have the ability to pedal and clutch if we need to. I think the key here is to make sure that we’re not hurting any of our long-term strategic initiatives. So we do have some clutch efforts in place. Let me give you an example of what those would be. So as we think to Q2, we were scheduled to do production on a new television commercial. That’s something that the team, we decided we could clutch on. What I won’t clutch on is making sure we’re investing in our customer. So if we think about the contractor alliance program, that’s something that we’re full steam ahead on. So this really is about prioritization. We’re not going to hurt ourselves from a long-term standpoint. We don’t manage the business quarter-to-quarter. We manage the business for the long-term, which we have a lot of confidence, as I expressed in Investor Day, that there’s going to be a long-term opportunity for us to really accelerate rate growth through material conversion. And we need to make sure we’re investing in the right things.

Our next question comes from the line of Andrew Scott with Morgan Stanley.

Rachel, just a quick one on the North American margin guidance. Just want to be clear, is -- the range you've given there, is that in your view consistent with just the lower volume sensitivity? Or is there anything else playing out bringing that margin down for the second quarter?

It is the lower volume that is consistent with that. We also pointed that we do feel raw materials are going to be particularly hard in Q2.

And just the exit of the Philippines, the thoughts on what that does to the margin for the Asia Pacific region?

Yes, I can answer that. If we think from a long-term standpoint, our Asia Pacific margin will increase as we exit the Philippines. Look, just to talk about this, this was a decision we didn’t take lightly. As we looked at our business, we’ve looked at all the segments, we’ve looked at all the geographies, and we need to focus on our first strategic tenet, is focus on areas where we have the right to win and we’re going to be able to create long-term value, and that’s why we made the decision to exit.

Our next question comes from the line of Harry Saunders with E&P.

Just a question, perhaps asking a different way. Given that softer guidance for the second quarter volumes and looking at the midpoint of your full year, guidance does assume a step-up in the second half. So I guess what gives you confidence to that midpoint of sort of improvement presumably in markets versus the first half?

Yes. Harry, I'll start out, and just reiterating, we're confident in the range. I don't know that we should talk to a lot of hypotheticals out there. This is all about our team's ability to go out there and outperform the market. So that gives us confidence in the range.

Look, part of our job here, as Aaron pointed out, we've got to control the controllables and we really prioritize, and with the right spend and the right investments. And if you look at the 3 points of guidance, there's a lot -- 2 points of those are very much the control the controllables. And on the volume point, look, if the market stays as it is, that was clearly -- if it stays weak and there's no improvement, that would give us towards the lower part of the range and obviously reach the higher part of the range. We have to do around the [800 million, which we've done before. So again, there's a big breadth in that range, and we're confident that's in the range.

And my follow-up would be just, can you give us a sense of how your internal view of R&R across FY '25 has changed over the last 3 months? I appreciate you gave us external previously. And perhaps what does the cadence of R&R comp performance look like through the balance of the year?

Yes. Look -- Rachael, go ahead.

Yes. Look, for R&R, we always want to go back to – there’s 4 factors we think about, right? So first one that we always talk about is consumer confidence. And right now it has moderated a little bit given some of the geopolitical instability and frankly, uncertainty around some of the rates, or contract or sentiment, while it’s positive, it basically has remained flat, same level since June. We look at existing home equity prices, and we are encouraged. We are seeing higher prices there. And for the big box transactions, unfortunately, they’ve been calling negativity for 8 or 9 straight quarters of decline, particularly for the larger part. So as we think about those 4 areas, our own assessment would be that it is probably softer than when we spoke in May. In May externally, remember it was low to mid, and now some of the pundits are really talking about mid-single-digit to high single-digit decline and particularly with a little bit of a weaker half to 2H. So again, that’s a bit of the external view and also our internal view.

Our next question comes from the line of Brook Campbell-Crawford with Barrenjoey.

Just, I guess, back to seasonality. I know you've invested a lot in sort of people and systems over the last while, Aaron, you've talked how that's really helping the business. So just, I guess, at this stage, what's your view around seasonality between 3Q and 4Q? Are you still expecting a pretty even outcome like what you were suggesting in May? Or is there some factors there to call out?

Yes. Brook, I think if we look at the seasonality of our business over the last few years, who can really say there's been much of seasonality, right? It's been so much uncertainty. I'd like to say that the markets have been a little lumpy, if you will. So look, as I mentioned before, really, our guide reflects what we're seeing in the marketplace. And we've given the 2Q guide, we're confident in what our range is for the entire year. So we're going to keep it at that. I don't know, as I said before, that we want to talk about any types of other further hypotheticals out there.

And obviously, exiting the Philippines, did you do a broader sort of assessment of your business and any other aspects of the group that perhaps you're considering noncore at this point?

Yes, Brook. So as I mentioned before, as we developed our strategy, we did a really comprehensive review of our geographies, our business segments, products, you name it. And the Philippines that – we came to the conclusion, as I said before, that we couldn’t see any long-term value creation there. It’s been a nice business for us. We have a great team there. But if I think about resources, right, and where we have the right to win and we’re going to get our greatest return, I felt that we could take those resources and put them elsewhere.

Our next question comes from the line of Peter Steyn with Macquarie.

May I just ask you around PDG for the year and perhaps early into next year? Just your perspective of how some of your additional contracts -- So Meritage, I'm thinking about Horton last year. How those are coming through for you annualizing, accelerating some of your performance and perhaps contributing to better outcomes relative to market? Just how to think about that?

Yes. Pete, look, we think we're on track to hit what we stated as our goal for North America, 4% PDG. Look, we're one quarter into the year. And as I've said before, it's best to look at PDG on an annual basis. So certainly, as we think about wins like with the Meritage and as we continue to get more and more wins, that's going to certainly help our cause.

And if I may, just a very quick follow-up on that. Rachel, inventory up $30 million in the quarter, probably not atypical for this time of the year. But anything to think about there, perhaps a little bit more going into the channel associated with some of this?

Absolutely. So I think one of the things we really look at is what’s our service level associated with that inventory. And we want to make sure that it’s investment to our customers and to delivering well. And we do feel that, that was an appropriate investment, that we had the right level of inventory to maintain those high levels of service and standards that we have put ourselves accountable to.

Our next question comes from the line of Daniel Kang with CLSA.

Congrats on the record result in Q1. Firstly, can you discuss, I guess, the competitive landscape with regards to other substrates in the quarter? Have you noticed any increase in competitive intensity? How do you see that impacting the pricing outlook?

Daniel, great question there. Look, as we've talked before, and I think we've talked over the last 2 years, the competitive environment is as severe as ever, right? Particularly when you have tough markets, everyone is doing everything they can to get every piece of board out there -- to take every piece of board. What we do believe is, look, we continue to outperform the markets we participate in. And just a reminder for everyone, we're in large R&R, new construction, working with large builders and multifamily. The reason I say this, it's difficult given this market context to compare kind of like-for-like with our competition. That's why I think it's really good to look at our share gains over a longer period of time. And if you do so in exterior cladding, I think you will see that we consistently have profitable share gain out there.

My follow-up is, with market expectations of rate cuts rising over recent weeks, I'm just wondering if that is factored into your broader guidance for a recovery in the second half from, I guess, the near-term softness that you're witnessing for 2Q?

Yes, Daniel, it’s very encouraging as we see this, right, and we hope to see more. But it’s still early days. And the guidance that we put out there is reflected, what we said from the beginning of the year. I think, actually, if you go back and listen to our May call, we’re about exactly where we said we would be.

Our next question comes from the line of Sam Seow with Citi.

Look, clearly, a lot of questions on guidance, but I just want to clarify, so we can look at the volume guidance in clear light. Can you perhaps talk to the interior growth assumption in your 2Q guide and also what you expect from interiors in the second half?

Yes. So we talked about how exteriors were up low single-digits and interiors were down, but my anticipation mid-single-digits. And so, that is the trend that we are seeing right now. And as we said, I think on the exteriors and where it goes, we are into the hypothetical and speculation, as Aaron pointed out, but we feel very comfortable with the breadth of our range incorporating those eventualities.

And then I guess, given the emerging difference between large and small projects, I'm sure you've looked into the average side of the -- average Hardie project in the funding source. So just wondering if you could share with us any inflow or details on the, I guess, the average dollar size of a remodel and the funding source or any additional detail there?

Yes. I’ll go back to the question before, it’s a little bit on the mortgage rates coming down a little bit and how do you feel about that. Obviously, that’s a nice leading indicator. But for R&R, the things that have to come down are the rates that help with – we’re getting a HELOC or credit. So those are really some of the elements that we’re waiting. And I did mention those 4 factors that we look at for R&R. So right now, we are seeing that, for R&R, we do feel still constrained. I think there is a lot of pent-up demand. We know we’ve got the strong fundamentals waiting there. But again, financing, particularly for these larger sized projects are an important element, and that piece is not yet in play.

Our next question comes from the line of Niraj Shah with Goldman Sachs.

Firstly, just on start-up costs. I think they were about $4 million in the first quarter. Just curious, and apologies if I missed it, but what is embedded on that front for the second quarter and then for the full year?

Previously, we talked about the full year being about $10 million, but we did not give specific quarterly guidance on the start-up ramp up costs.

But the second quarter is expected to accelerate versus the first quarter?

Yes, we did say that. Yes.

Our next question comes from the line of Shaurya Visen with Bank of America.

I'm just trying to ask a question that the billion [indiscernible] guidance in a slightly different way, and I appreciate if you can't give us more color. Look, I'm just looking at the midpoint of your full year guide and sort of take the second quarter midpoint, it sort of implies second half volumes to increase like 3%. And if you think about what we've done at the first quarter, flat volumes, your second quarter implies [indiscernible] 7%. I'm just trying to think what gives you the confidence that you'll have such a sharp pickup? And especially considering, Rachel, your comments that second quarter commentary from homebuilders has been very weak, given affordability concerns. And last one, just on PDG, I know you don't like speaking to it every quarter, but could you give us a sense if that number was around the 4% number for this quarter?

Yes. There’s a lot of questions there. Let me see if I got all of them there. But good questions. Look, I would just say again and reiterate, we’re confident in the range that we have. I don’t want to talk any type of further hypotheticals. As we think about the range from a high-end standpoint, if things stay weak, we would have to do $800 million-plus, which we have done before. But we are confident in the range that we have. And look, from a PDG standpoint, I’m going to stick with what I’ve said for the last, call it, 8 calls, is, we’re not going to talk about PDG from a quarterly standpoint. It’s best to look at that from an annual basis, and we’ll stick with that.

Our next question comes from the line of Kai Erman with Jefferies.

Just a follow-up on what Shaurya just asked. But in terms of your guided North American volumes in the second quarter and thinking about traditional seasonality, could you please step through what you've assumed for market conditions in third quarter and fourth quarter '25, if you guys are assuming a material recovery there to hit your full year guidance?

Yes, happy to take that, Kai. If you kind of look at the low end, again, there’s the 3 points of guidance as a reminder, right? It’s not just volume, you also have margin and you have net income. And obviously, 2 of those are a lot more controllable than the top line. But it was a lot of focus on the call right now on the volumes in particular because of the uncertainty in the environment and the confluence of what rate cuts will come, when will they come, when will the pent-up demand transition. On the low end of our volume guidance range, basically, we can have the same pace, the same types of quarters and that would hit us towards the lower end of our guidance range of volume. On the high end, as Aaron pointed out, it implies doing about $800 million plus, and we have done that before. So again, that would be where are the macros and what is the environment we are in.

And today's final question comes from the line of Al Harvey with JPMorgan.

Just looking at the organic growth piece on Slide 17, I was just wondering if you'd be willing to indicate exactly what works going on at Cleburne and the planning for Crystal City in 2025? And just to confirm whether or not that falls within the $500 million to $550 million CapEx range?

Yes. I'll start out. So we do have some preliminary planning that should be in the guidance we gave for the Cleburne brownfield, and we do have activity that's going on in Crystal City as well there, Al.

Yes. There is a large -- a large piece of that end is the Cleburne brownfield. That's correct.

Just going to have a follow-up there. Just -- maybe just in that context, I wonder if you could just kind of step out more broadly CapEx plans in North America and how you're thinking about getting the '25/'35 over there over the next decade or so?

Yes. We actually detailed that in our investor presentations during the roadshow. So I can give a follow-up there with Joe to go through the detail of that, but we have a build as to what capacity would be required to reach that volume and thus, how would we plan for it. So we'll have that covered for you, and they can direct you to that slide.

Look, I just want to end the call with saying thank you to all our team mates around the world for focusing on working safely while providing solutions to our customer partners. Look, in summary, hopefully, what – the takeaway here is our plan is working by our Q1 results and we are positioned to continue to accelerate growth and material conversion as the markets transition to recovery. Thank you all for the time. Appreciate it.

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