Keith Chau

Keith Chau sought clarification on the expected sequential margin deterioration in the fourth quarter, given anticipated benefits from pulp, price increases, and capacity reduction. He also asked about the supply strategy for the West region, particularly California, following the Fontana plant closure.

Answer

CFO Ryan Lada explained that significant marketing investment, delayed benefits from plant closures until FY 2027, and the roll-off of delayed balance sheet costs from AZEK's historically low Q3 production contribute to the 4Q margin outlook. CEO Aaron Erter affirmed confidence in supplying the entire network, including the West, from more efficient, modernized plants like Tacoma, Cleburne, and Wax, having accounted for freight costs.

Keith Chau sought to understand the sequential Q4 guide, specifically why margins are expected to deteriorate despite flat revenue, pulp benefits, price increases, and capacity reduction benefits, asking for the magnitude of marketing investment. He also asked about the supply strategy for the West region following the Fontana, CA, plant closure.

Answer

COO Ryan Kilcullen explained that Q4 margin impact is due to significant marketing step-up, delayed benefits from plant closures until FY2027, and delayed costs from AZEK's historically low Q3 production rolling off in Q4. CEO Aaron Erter stated that the West region will be supplied from Tacoma, Cleburne, and Waxahachie, with freight costs contemplated in the expected FY2027 contribution, confident in the network's ability to supply growth and synergies.

Keith Chau asked about the sequential assumptions for Siding and Trim from Q3 to Q4, noting that despite expected seasonal demand improvement, a January 1st price increase, and favorable raw materials, margins were guided down in Q4. He sought clarification on any factors influencing this for the FY2027 entry run rate. He also followed up on the revenue generation from the 'On-the-wall cost' pilot programs.

Answer

CEO Aaron Erter stated expectations for high single-digit volume declines in Siding and Trim in the back half, with roughly 3% price realization. VP of Investor Relations Joe Ahlersmeyer clarified that first-half decrementals for NAFC (excluding R&D) were over 80%, while second-half decrementals are under 50%, implying 32-33% adjusted EBITDA margins in the back half for NAFC (including R&D allocation) as a good baseline. Aaron Erter explained that in a defined Central Northeast pilot area, ColorPlus volume increased close to 20% over six months, shrinking the price differential versus vinyl and increasing the total addressable market.

Keith Cho asked about the sequential assumptions for siding and trim margins in the third and fourth quarters, given soft but stable demand, seasonal improvement, a January 1st price increase, and favorable raw materials, questioning why margins might be guided down in Q4.

Answer

CEO Aaron Erter and Joe Ahlersmeyer, VP of Investor Relations, explained that the outlook for siding and trim includes high single-digit volume declines and approximately 3% price realization in the back half. Joe highlighted that first-half decrementals were over 80%, while second-half decrementals for North America Fiber Cement (NAFC), excluding R&D, are projected under 50%, implying 32%-33% adjusted EBITDA margins for NAFC in the back half, consistent with ASIC exteriors. Keith Cho also inquired about the current revenue generation from pilot programs aimed at reducing on-the-wall costs. CEO Aaron Erter stated that in a defined Central Northeast pilot area, ColorPlus volume increased close to 20% over a six-month period, which helps shrink the price differential against vinyl jobs and expands the total addressable market.

Keith Chau from MST Financial requested a quantification of the inventory destocking impact on Q1 volumes and asked about its expected persistence into the second quarter. He also sought commentary on James Hardie's competitive standing in the market.

Answer

CEO Aaron Erter described a timeline where customers shifted from preparing for growth in March to a defensive inventory posture by July due to a softening environment. He stated that, inventory aside, the company performed in line with the market, down mid-single digits, and expects destocking to continue in Q2 and Q3. Regarding competition, Mr. Erter asserted that James Hardie is holding its own in the segments it participates in, citing its strong position with large homebuilders and in key metro areas, and noted that direct comparisons are difficult due to different market exposures.

Keith Chau of MST Marquee questioned the state of the sales channel, asking about inventory levels and the potential risk of destocking given the soft end-market demand and a weaker-than-expected selling season.

Answer

CEO Aaron Erter stated that, in general, channel inventory levels are normal. While acknowledging the softness in R&R and challenges for homebuilders, he stressed that James Hardie's focus remains on winning share through its differentiated value proposition, regardless of the market environment.

Keith Chau of MST Marquee asked about the drivers of the expected high single-digit raw material inflation for FY26 and questioned how the company ensures that cost savings from the Hardie Operating System (HOS) are retained long-term.

Answer

CFO Rachel Wilson identified cement, alumina, and resins as the primary drivers for FY26 inflation, stating that HOS savings are fully expected to offset these increases. CEO Aaron Erter emphasized that HOS is not a one-time initiative but a permanent part of the company's culture, ensuring that efficiency gains are sustained regardless of market conditions.

Keith Chau of MST Marquee sought clarity on the dynamics of homebuilder channel sales impacting the Q2 outlook and questioned how the company is managing SG&A spending amidst market uncertainty.

Answer

CFO Rachel Wilson confirmed that public builders are moderating their start pace due to affordability pressures, which is reflected in the Q2 guidance. CEO Aaron Erter explained the 'pedal and clutch' approach to SG&A, stating they are 'clutching' on discretionary items like a new TV commercial but continuing to invest ('pedal') in strategic initiatives like the contractor alliance program to support long-term growth.

Keith Chau from MST Financial inquired about the recently renegotiated customer contracts, specifically what factors enabled Amcor to secure better contractual terms, pricing, and volume commitments, and if there were any associated costs.

Answer

CEO Peter Konieczny confirmed that there were no costs associated with renegotiating the contracts. He explained that the improvements stemmed from two angles: operating in a low-volume environment (particularly in the beverage business), where renegotiated outcomes provided better line of sight and stabilized the volume outlook; and successfully covering inflation recovery in some contracts. These efforts resulted in improved inflation support and greater confidence in future volume outputs.

Keith Chau inquired about the recently renegotiated customer contracts, specifically what factors led to improvements in terms, pricing, and volume commitments, and if there were any associated costs.

Answer

CEO Peter Konieczny explained that the renegotiations stabilized the volume outlook, particularly in the beverage business, and successfully covered inflation recovery. He confirmed that there were no associated costs, resulting in better inflation support and more confident volume outputs going forward.

Keith Chau asked about the process for divesting the underperforming North American Beverage business and management's confidence in improving its performance before a potential sale.

Answer

CEO Peter Konieczny emphasized that the immediate priority is to stabilize the business's performance over the next few quarters before exploring strategic alternatives. He stressed that the short-term operational issues are being addressed separately from the long-term strategic portfolio assessment and that any future action will be carefully considered to maximize shareholder value.

Keith Chau pressed for details on procurement synergy tactics, referencing a specific supplier meeting and asking about the consequences for suppliers who do not cooperate.

Answer

CEO Peter Konieczny declined to discuss specific supplier negotiation tactics or communications, citing the sensitive nature of the topic. He affirmed that the company has a playbook and will represent its business interests respectfully but firmly, without elaborating on the details requested.

Keith Chau asked for an update on underlying consumer demand, whether any restocking has occurred, and if the end of healthcare destocking will lead to a positive price/mix improvement in the Flexibles division in the second half.

Answer

CEO Peter Konieczny stated that consumer demand modestly softened in Q2 vs Q1, in line with expectations. He confirmed the company is pleased with its volume performance, noting four consecutive quarters of sequential improvement. Konieczny affirmed that healthcare destocking is now largely complete, which will improve the mix exposure in the second half and support a return to growth in that category. He clarified that the company does not see a broad restocking trend, only normal seasonal inventory shifts.