James Hardie Q3 FY2026 Earnings Call - Integration Momentum: Synergies on Track as Company Lays Groundwork for FY2027 Margin Recovery

Aaron Erter, CEO, James Hardie: North America Building Products Group. John, along with Jon Mattson, 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 disciplined, 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 re-accelerating 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 and 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 and 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 2027.

On January fifteenth, we made the difficult decision to close two 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 2027. Looking ahead to fiscal 2027, these actions not only strengthen our cost position, but also allow us to have the right capacity and 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 and Trim segment in FY 2027 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 lumber yards 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 home builders. We believe this under-penetrated 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, and accessories.

Performance remains strong in our R&R 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 and 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 in 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 and selling locations in the region. At the moment, our fiber cement business has more than double the selling locations than TimberTech in the South. We believe over time, there’s 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 four 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 500-700 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 and 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’re 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 2027 in just a couple 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 2026 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 2027. 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 and 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 longtime James Hardie Siding partner, who recently transitioned his 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 2027, in line with our public commitment at the deal close. I will now turn it over to Ryan to run through the financials. Ryan?

Ryan, CFO, James Hardie: 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 2026 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 one-time integration costs, which will step down significantly in fiscal year 2027. Cash generation of our core businesses remains strong, and with capital spending projected at modest levels, we expect free cash flow to accelerate in years ahead. Turning to our siding and trim segment, net sales were up 10%, including $81 million from the AZEK acquisition. Siding and 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 points 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 cost 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 and 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 two most recent quarters. Adjusted EBITDA was $49 million, resulting in a 25.1% adjusted EBITDA margin. The deck rail and 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. 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 and trim net sales guidance to a range of $2.953 billion-$2.998 billion, reflecting our outperformance in the third quarter. For siding and trim Adjusted EBITDA, we are modestly raising our guidance range to $939 million-$962 million. At the midpoints, this implies a full year Organic Net Sales decline of approximately 6% and an Adjusted EBITDA margin of 31.9%. For deck rail and accessories, we have also increased our net sales and Adjusted EBITDA guidance for the post-close period of fiscal year 2026 to account for the outperformance in 3Q. We expect net sales of $787 million-$800 million, which assumes sell-through upload 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, and accessories adjusted EBITDA of $219 million-$224 million. For the total company, we now expect full year 2026 adjusted EBITDA of $1.232 billion-$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 2026, including $75 million for AZEK investments. Over the long term, we expect CapEx across our North America businesses to run 6%-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 2026 net leverage stands at approximately 3x. We remain committed to reducing leverage below 2x within two years post-close as we grow EBITDA, generate cash, and pay down debt. With that, I’ll turn the call back to Aaron.

Aaron Erter, CEO, James Hardie: Thanks, Ryan. Looking ahead to FY 2027, 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 North America, 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 2027. As highlighted earlier in the call, we also expect to return to organic growth in our siding and trim segment, and fiber cement siding in particular. Our four 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 3, 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 2027 revenue synergy target, exiting the year at a $125 million run rate, consistent with our public commitment at the time of the deal announcement. On cost synergies, we have executed well in FY 2026. We’ve already surpassed our FY 2026 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.

... 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: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from the line of Keith Hughes with Truist. I’m-

Keith Hughes, Analyst, Truist: Uh-

Operator: Your line is open. Go ahead.

Keith Hughes, Analyst, Truist: A lot of regional variation of late in some of the siding sales. Could you give us an update on that, and specifically, what you think your expectations are near term and how that could change as we get into calendar 2026? Hello?

Aaron Erter, CEO, James Hardie: Keith, let me take it from there, and then if... Hey, so Keith, I think with, you know, 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, you know, the greatest softness out there, given their scale and our exposure to these markets. You’re aware of all the data on permits, starts, you know, permits 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, with 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 price 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, you know, 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, you know, 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, you know, best practice from AZEK, we are seeing some optimism, you know, in with our contractors. So all in all, you know, 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 and 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, you know, lost 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, you know, the script, but we continued 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 at appropriate levels. Hopefully, that answered the question, Keith, because you got cut off a little bit.

Peter Stein, Analyst, Macquarie: ... Oh, that’s very, that’s very complete. Can you hear me now, by the way?

Aaron Erter, CEO, James Hardie: All right. Yes.

Peter Stein, Analyst, Macquarie: Yeah. Okay, great. Just wanna, one quick follow-up on, costs. Are you seeing any potential inflation coming in any of the siding, siding inputs as we head into the new year?

Ryan, CFO, James Hardie: Yeah, this is Ryan. Hey, Keith, it’s Ryan. Yeah, we have a, you know, modest expectation of inflation on the fiber cement side. You know, not 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.

Aaron Erter, CEO, James Hardie: Okay. Thanks, Keith. All right, next, next question.

Operator: Your next question comes-

Aaron Erter, CEO, James Hardie: Do we have another op?

Operator: Yeah, your next question comes from the line of Daniel Kang from CLSA. Your line is open. Please go ahead.

Aaron Erter, CEO, James Hardie: Hey, Daniel.

Speaker 2: Good morning, everyone. Good morning. And just wondering in terms of, I guess as we enter your, 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.

Aaron Erter, CEO, James Hardie: Yeah, Daniel, I would say... Look, we executed our price increases. They’ve been effective since January first out there. That is on the fiber cement side, and that would be on the deck, rail, and accessories and the PVC trim side as well. We talked a little bit about the increases. You know, we see some benefits from price and mix, particularly from the fiber cement side. So look, the way we price is we’re doing it, you know, for value, and it’s been accepted well from all our customers out there.

Speaker 2: Thanks, Aaron. And you also spoke about, I guess, the early wins from Commercial Synergies. Is this going to feature much in at the FY 2026 year?

Aaron Erter, CEO, James Hardie: Yeah, Daniel, good question here. As we look at sales synergies, you know, we’ll see many of those start to hit the P&L as we get into FY 2027. 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 2027, but we have line of sight to our $125 million target of revenue synergies as we exit FY 2027. So we feel very confident of that.

Operator: Your next question comes from the line of Ryan Merkel of William Blair. Please go ahead.

Ryan Merkel, Analyst, William Blair: Hey, everyone. Thanks for the question. My first one is on the 4Q guide. Are you assuming that siding and trim, the volumes are gonna be down in a similar range as 3Q? And then on the margins, you know, you had a nice beat in 3Q. Why not flow that through in 4Q? Is there a reason?

Aaron Erter, CEO, James Hardie: Yeah. I’ll let Ryan go through the guide. But if we look at our siding and trim volume, one of the things I think that you’ll remember is we are facing a comp from, you know, an inventory build that we saw in Q4 last year. But Ryan, if you wanna walk through some of that.

Ryan, CFO, James Hardie: Yeah. 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 is the main driver of the dilution from 3Q. But yeah, that, that’s the biggest thing as we enter the season, is just increased marketing expense as we get into the year-end here.

Aaron Erter, CEO, James Hardie: Yeah. And Ryan, to get more specific on that, these are, you know, 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.

Ryan Merkel, Analyst, William Blair: Okay. Yeah, 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?

Aaron Erter, CEO, James Hardie: Yeah, Ryan, I’m gonna turn it over to John Skelley, who runs our North American business, who has been a big architect of getting some of these Commercial Synergies. John, do you wanna take it?

Ryan, CFO, James Hardie: Yeah. So, so Ryan, obviously, can’t say too much at this point, but, I think I’ll just attach it to what Aaron said earlier around, you know, our confidence, you know, to deliver against the exit synergy rate for fiscal 2027, right? So, I think the customer has welcomed, you know, the opportunity to consolidate with the market-leading brands, and, you know, what we’re able to do from a downstream sales and execution standpoint to help them grow their business. So, we’re... That’s what’s given us the confidence.

Operator: Your next question comes from the line of Peter Stein from Macquarie. Your line is open. Please go ahead.

Peter Stein, Analyst, Macquarie: Hi, Aaron, gents. Thanks very much for the opportunity. I actually just wanted 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.

Speaker 4: ... What I’m curious about is what the trending will be as you execute Commercial Synergies, as you gain more position with some of the one-step space. Do you believe that you can reduce the volatility that you’ve historically seen in the decking businesses, inventory profile in particular, and then across the business, what your expectation would be for improved efficiencies on that investment?

Aaron Erter, CEO, James Hardie: Ryan, you wanna handle that one?

Ryan, CFO, James Hardie: Yeah. Yeah, I would say, as you think about, you know, the commercial synergies we’re going after, you know, 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 yeah, the real build is driven by that, nothing else intentionally.

Speaker 4: Would there be network redesign benefits that flow over the medium term as well? That’s probably more where I’m getting at.

Ryan, CFO, James Hardie: Yeah, no, nothing major contemplated in that. I think, you know, with the optimization of our footprint here that was announced last month, it’s really a rebalance of the inventory through that and, you know, the corresponding freight to fulfill the customer demand.

Operator: Your next question comes-

Speaker 4: Thanks, Peter.

Operator: Your next question comes from the line of Tim Wojs from Baird. Your line is open. Please go ahead.

Tim Wojs, Analyst, Baird: Hey, guys. Good afternoon. Maybe just on fiber cement and kind of the pricing contribution in the quarter, is it... It was a pretty, you know, healthy step up sequentially, and it sounds like it’s mix related. So I’m just curious if you could kinda flesh out the drivers of the mix improvement, and if you’re expecting that to kinda continue, you know, in the kinda near to intermediate term there.

Aaron Erter, CEO, James Hardie: Yeah, Tim. So I think roughly, you know, price accounted for about 4, a little over 4%. Mix was a little over 1% there. So as we sell more Color Plus, you know, we’re gonna see the benefits from mix. I think part of this too is, as you look at some of the, as I opened up and I talk about new construction and some of the products that, you know, really are attributable to new construction, we sell some less of that. So that’s some of the mix benefit that you’re seeing out there, Tim.

Tim Wojs, Analyst, Baird: Okay. Okay, that’s helpful. And then I guess as you know, you’re talking about kind of new kinda R&R installation methods, you’re talking about you know, going after maybe some smaller, more kinda custom builders. Are there any sort of larger, chunkier investments that you need to make? Or I guess, does your go-to-market strategy kinda change that requires you know, some larger, any sort of larger upfront cost to kind of accelerate that?

Aaron Erter, CEO, James Hardie: Yeah, Tim, the biggest investment that we could make there, and we have already made, is gonna be in our sales force, right? So, you know, I’ll let John talk a little bit more around it, but as we move forward and we think about what our sales team’s gonna look like, it’s gonna be focused more from a downstream standpoint. So we’re gonna be focused on contractors out there and really converting them. We’ll have dedicated team on that. We’ll also have specialists from a fiber cement, deck rail, and accessory standpoint that aids them, and then we’ll have folks that are, you know, 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 one-time cost, I would say we made it, you know, as we think about the, the acquisition of AZEK. Bringing the two together is gonna help us really accelerate that. But John, anything else you wanna add there?

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

You know, we can, we can work together to pull through more decking, railing, accessories through into the new builder channel.

Operator: Your next question comes from the line of Keith Chow from MST Marquee. Your line is open. Please go ahead.

Speaker 4: Hi, Aaron and Ryan. Thanks for taking my questions. The first one, just to follow up on the 4Q guide. I, I wanna 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, I understand there needs to be an investment on the marketing side, but it seems unlikely that, you know, that investment in marketing is gonna be overwhelmed by some of the sequential positives.

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?

Ryan, CFO, James Hardie: Yeah, yeah, I think, I think there’s a few things, right? So from a marketing step up, I don’t think we’re gonna quantify the actual dollars, but it is significant impact over Q3. I think the second thing with the announced plant closures, the impact of that really is delayed till full year 2027. So we will not feel 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 three 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.

Speaker 4: Okay. Thanks, Ryan. Then my follow-up question just relates to some of those capacity reconfigurations. So I’m just trying to understand, particularly for the Fontana, CA, closure, where will that region be supplied now, from which part of the network? And, you know, if it’s from the South, when the South eventually ramps up again, what’s the plan to keep supplying the South of the West going, particularly in the California region? Thank you.

Aaron Erter, CEO, James Hardie: Yeah, Keith, I think I got all of that. How are we gonna 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’ve spent well over $1 billion, you know, in more efficient, modernized plants and, you know, really adding to our facilities. So we feel very confident in what we’re doing. If we think about, you know, the plants that we closed down that were very limited as to what they could make. You know, if we look at Somerville, 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, you know, we’re gonna be able to supply product from Tacoma, too, in Northern California. Southern California, Cleburne and Wax. And look, we’ve taken into account, the freight costs there as well, and the, the contribution that we’re gonna see next year, that is contemplated, the, 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.

Operator: Your next question comes from the line of Philip Ng from Jefferies. Your line is now open. Please go ahead.

Speaker 7: Hey, guys. Congrats on a really strong quarter. The progress is very encouraging. And, Ryan, welcome back. Good to have you back in the fold. I guess to kind of kick things off, a question for you, Aaron. I know you guys aren’t guiding for 2027 yet, but pretty encouraging to hear you’re expecting organic growth to be growing in 2027. Do you need a little help from the market, or these are largely James Hardie specific initiatives? I’m particularly interested in your siding and trim business, right? I mean, you highlighted some of the challenges in new construction. So what gives you the conviction, I guess, for that piece of business to reaccelerate? I know there was some talk of new products getting pushed out.

You’re seeing some of that, or 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 siding business is gonna reaccelerate.

Aaron Erter, CEO, James Hardie: Yeah, Phil, good question here. Look, it—when we say we believe that we’re gonna have organic growth, that’s, you know, 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, you know, severe worsening of the market. Number one, why we have the conviction is the team, right? This is a new James Hardie. So as we think about our sales team and the way that John is gonna 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 gonna be able to generate. We look at the plans on how we grow fiber cement.

We talked a little bit about the four key areas that we’re gonna really drive. All of those give us conviction. The other thing is we think about this past year and what we’re comping against, you know, 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.

Speaker 7: Okay, helpful. You guys gave us great examples on wins with dealers and distributors. Didn’t hear you talk too much about big box. I believe there’s a line review for decking. Any color if there 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, you know, increasing penetration, whether it’s on the retail or pro channel, particularly in railing as well? Thank you.

Aaron Erter, CEO, James Hardie: Yeah. Look, I’ll start out and I’ll have John chime in here. All our customers are very important to us, and we talked about a number of the buckets that we believe are gonna be opportunities for us, and we certainly see retail as being an opportunity. And we are making good progress, you know, 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, you know, getting single after single with our retail partners and, you know, just building upon that. So we have a lot of confidence that’s gonna happen. Nothing major to announce right now, but John, you wanna take that?

Ryan, CFO, James Hardie: Yeah. Yeah, nothing major to announce is, is correct, but we continue to, you know, expand our positions there. So, even without line reviews, you know, we continue to broaden our stocking store base, continue to amplify our special order business, and continue to make your retail and that channel expansion we regularly talk about a bigger part of the business.

Operator: Your next question comes from the line of Sam Seow from Citi. Your line is open now, please go ahead.

Sam Seow, Analyst, Citi: Oh, hi there. Thanks for taking the question. You had a pretty solid margin improvement there sequentially in siding. I just wanted to maybe, if you could talk about the contribution of raw materials. You know, 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? Thanks.

Aaron Erter, CEO, James Hardie: Yeah. Hey, 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 wanna dive into that?

Ryan, CFO, James Hardie: Yeah. Yeah, I would say if you think about kinda 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 two 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 stepped into the third quarter, and then there was some cost action just to mitigate there. Then 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 Q2, that will actually carry into Q4 as well.

Sam Seow, Analyst, Citi: Awesome. Awesome. Hey, and then just quickly on your guide to free cash flow. Year to date, it looks like your free cash flow is about $260 million, but you’re guiding for $200 million for the full year. Just want to understand if that’s conservative or something we’re missing there. Thank you.

Ryan, CFO, James Hardie: Yeah. Yeah, I think the big thing there, right, is, yeah, yeah, we’re at 260 year to date after three 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. We know we’ll hit that and then kinda wind down on integration and deal costs this quarter as well. So wanted to leave ample room for that, but we expect from full year 2027 Q1 on, we should see a nice ramp up as those integration and deal costs minimize.

Aaron Erter, CEO, James Hardie: Yeah, and, and if we look at FY 27, all else equal, I mean, we’ll have AZEK cash flow quarter, right?

Ryan, CFO, James Hardie: Yeah.

Aaron Erter, CEO, James Hardie: You know, the other quarter, you know, plus lack of transaction costs and fewer integration costs, as you mentioned. Yeah. Okay.

Operator: Your next question comes from the line of Matthew Bouley from Barclays. Your line is open. Please go ahead.

Speaker 5: Good evening, everyone. Thank you for taking the questions. So the Score and Snap and the new install techniques sounds like more to be seen at the Builder’s 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 sorta outline as you’ve been undergoing the strategy, what you’re doing to incentivize or motivate contractors to kind of play along here. Thank you.

Aaron Erter, CEO, James Hardie: Yeah. Hey, Matt, good question. I mean, look, this is all part of, you know, how we win in fiber cement and, and in particular, how we believe that we’re gonna win, you know, around R&R. It’s, it’s a big part of it. And, you know, we touched on innovation. We do believe that these new installation techniques are innovative. We spent years on this. So we’re wheeling this out, you know, methodically, across the country. So as we think about this is supported by, you know, our our Statement Essentials collection, and that is really targeted, you know, on competing against vinyl out there. So this installation technique, plus that product that’s readily available, we believe is gonna 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, you know, in April of 2025, 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 gonna give you the full rollout because I don’t necessarily want our competition to hear this, but as we look through what will be, you know, call it, as we get into our Q1 of FY 2027, we’re gonna have the majority of the Statement Essentials collection rolled out. I talked about our sales force and how we’re gonna have a dedicated team focused on our contractors. That’s gonna be rolled out, April 1 as well. So they go in tandem with each other, and then it’s gonna be supported, you know, 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. You know, 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.

Speaker 5: Okay, perfect. No, thank you for that, Aaron. Second one, 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-?

Trevor Allinson, Analyst, Wolfe: ... you know, as you alluded to, or was there also a step up, you know, perhaps related to what we’re hearing in decking, of course, where there is a little bit more of a market-

Aaron Erter, CEO, James Hardie: Yeah-

Trevor Allinson, Analyst, Wolfe: - spend going on across your peers.

Aaron Erter, CEO, James Hardie: It, it was-

Trevor Allinson, Analyst, Wolfe: Thank you.

Aaron Erter, CEO, James Hardie: Yeah, 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. You know, some of those costs that we have there, because we have dual expenses, we expect to be, you know, one time and not reflected as we move forward.

Operator: Our next call... Your next call comes from the line of Brook Campbell-Crawford from Barrenjoey. Your line is open. Please go ahead.

Speaker 1: Yeah, thanks for taking the question. Listen, just one on the outlook here for FY 2027. You know, 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 how and 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, you know, 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. Thanks.

Aaron Erter, CEO, James Hardie: Yeah, Brook, good question. Look, we’re, we’re not giving guidance. I think what you’re referring to when we talk about 4% is, is that has been our PDG target, right? You know, obviously, this year we are, are not at that rate, and there’s many different reasons for that. You know, as we think about the inventory build, we think about, you know, 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, you know, our expectation is synergies are gonna be on top of that.

That’s our aspiration, not giving guidance, but you know, that’s what we’re aiming to do, Brook.

Speaker 1: Sure, that, that’s helpful. And just one quick follow-up on the fourth quarter. If we just look at AZEK, I guess, you know, you outperformed your guidance in the third quarter. If you look at the growth rate, the first three quarters look to be about 9% growth year-over-year, relative to the prior period for AZEK EBITDA. And then the fourth quarter guidance implies, my number is, EBITDA falls like 4% year-over-year. So really, quite 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?

Aaron Erter, CEO, James Hardie: Yeah. But look, we don’t see AZEK slowing at all. You know, I think it’s appropriate from what we see from a seasonal standpoint, so it’s reflected with that. Any of you guys wanna jump in?

Ryan, CFO, James Hardie: Yeah. Yeah, I would, I would say it was spat back to a little bit of that similar point earlier. Our... As we end the calendar year, our Q3 year was the slowest quarter from a production and sales perspective, so that creates a headwind going into Q4. So that’s really only a modest change on that you’re gonna feel on the margin side there. And then, you know, 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.

Speaker 1: All right. Thank you. I’ll pass it on.

Ryan, CFO, James Hardie: Thank you.

Operator: Your next question comes from the line of Trevor Allinson from Wolfe. Your line is unmuted.

Trevor Allinson, Analyst, Wolfe: Good evening. Thank you.

Operator: Please go ahead.

Trevor Allinson, Analyst, Wolfe: Good evening, and thank you for taking my questions. I want to follow up on your comments on some early wins regarding the revenue synergies. You’ve had a chance to go through one buy period here now with a combined portfolio. Do you think you’re getting some of these wins more quickly than you had originally anticipated? And then, as you 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 2027?

Aaron Erter, CEO, James Hardie: Yeah, Trevor, I’ll, I’ll take the last first, and then I’ll hand it over to John. Look, we, we believe that we’re—we see opportunity from a commercial synergy standpoint across all our, our businesses, you know, R&R and AZEK, you know, fiber cement, and then from a, a exterior trim standpoint. So we do see opportunities across the board. But, John, do you want to take as far as—

Ryan, CFO, James Hardie: Yeah

Aaron Erter, CEO, James Hardie: ... our presence?

Ryan, CFO, James Hardie: Yeah, and again, I, I think, you know, and as we highlighted in the prepared remarks, right, you know, this is a consistent part of our growth algorithm, right? Is, you know, going into early buy and expanding our shelf positions and our presence, you know, across, across all the dealer channels. Obviously now, sales guys like to have good stuff to talk about. Now they have more to talk about, right? So I think, you know, we’ve been able to create a lot of energy and excitement, you know, at the customer with a expanded portfolio of, 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.

Trevor Allinson, Analyst, Wolfe: Okay, yeah, makes sense. Thanks for that. And then second is on your approach to the siding pricing here and what’s still a weaker demand environment, and one where affordability is still a big factor for the home builders. And you guys clearly produce a value-add product, but I would think you’d 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, pricing put in place at the beginning of the year? And are there any concerns about some elasticity-driven volume headwinds as a result? Thanks.

Aaron Erter, CEO, James Hardie: Yeah. Yeah, Trevor, good question. Look, we price strategically, and we price for value. And look, our pricing is not necessarily... You know, as we look at homeowners, when we understand their needs, you know, it may be different when we think about repair and remodel. So we price accordingly, and we do not believe that we’re losing any type of volume because our pricing.

Operator: There are no further-

Aaron Erter, CEO, James Hardie: Okay. Sorry, go ahead

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

Aaron Erter, CEO, James Hardie: All right. Hey, thanks, everyone. Really appreciate it. Wanna thank the James Hardie team. I wanna thank our customers as well for the support. Look, I just end this by saying our integration is on schedule, and we’re executing on plan. You know, our cost and our commercial synergies are on track. As you heard here, and you know, we’ll talk more about it, we plan to get fiber cement back in growth mode in FY 2027. AZEK, you know, legacy AZEK business is on track. We see continued growth there. And look, we’ve set the business up, you know, for FY 2027 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.

You know, we look forward to ending the year strong, and we look forward to FY 2027. So with that, thank you all. Appreciate the time here this evening.

Operator: This concludes today’s call. Thank you all for attending. You may now disconnect.