Lee Power

Lee Power asked about the core reasons for past struggles with ColorPlus in the Northeast as part of the organic Fiber Cement strategy, specifically regarding productivity, the price gap versus vinyl, and the dealer/contractor network. He also followed up on Trim Attachment Rates in new housing and R&R, and how the AZEK acquisition has influenced this.

Answer

President of AZEK Residential Jon Skelly explained that the Northeast and Midwest offer significant Repair and Remodel opportunities due to aging housing stock. The key is to decrease the price differential versus inferior substrates like vinyl. Pilot programs reducing 'On-the-wall costs' have shown a 17% increase in ColorPlus volume in pilot regions, giving confidence to scale. CEO Aaron Erter noted continued progress in trim attachment, with large home builder agreements now including trim, and sees AZEK and Versatex as opportunities to increase utilization in regions like the Northeast.

Lee Power asked about the core reasons for past struggles with ColorPlus in the Northeast, focusing on productivity, the price gap versus vinyl, and the dealer/contractor network. He also inquired about current trim attachment rates in new housing and R&R, and how AZEK has contributed.

Answer

CEO Aaron Erter explained that the opportunity in the Northeast and Midwest lies in aging housing stock and reducing the price differential against inferior substrates like vinyl by about 50%. He cited a 17% increase in ColorPlus volume in pilot regions due to on-the-wall cost reductions and the partnership with Boise Cascade for Statement Essentials. Regarding trim attachment, Aaron Erter noted continued progress, inclusion in large home builder agreements, and significant opportunities with AZEK and Versitex in regions not fully utilizing fiber cement, driven by positive dealer feedback on the combined offering.

Lee Power from J.P. Morgan inquired about James Hardie's current market share with major homebuilders and whether those gains extend to builders outside the top 20. He also asked about the role of cost controls ('clutch') in achieving the company's post-acquisition leverage targets.

Answer

CEO Aaron Erter stated the company is in an 'enviable position' and continues to take share with top builders, extending to the top 200. He acknowledged the near-term reset in expectations due to the new construction slowdown but emphasized the long-term strength of these partnerships. On costs, Mr. Erter confirmed the company will take necessary actions in areas like marketing and plant efficiency without making rash decisions that could harm long-term growth. CFO Rachel Wilson added that the company's history of strong margins and growth positions it well to meet its deleveraging commitments.

Lee Power from UBS requested more detail on the performance of the ColorPlus product line and sought to understand the drivers behind the flat quarter-over-quarter volume guidance for Q4, questioning if it implied a deteriorating market.

Answer

CEO Aaron Erter described the market as 'choppy' but highlighted that ColorPlus is seeing good results from targeted marketing and that overall remodeling sentiment has recently improved. CFO Rachel Wilson clarified that the Q4 volume guidance is consistent with their full-year forecast, which assumes no significant market recovery, and reflects confidence from a strong Q3.

Lee Power from UBS questioned the drivers behind the guided Q2 volume decline after a flat Q1 and requested an updated outlook on input costs for the remainder of fiscal 2025.

Answer

CEO Aaron Erter explained that the Q2 guidance reflects a recent softening observed in both the R&R and single-family new construction markets. CFO Rachel Wilson added that input cost headwinds, particularly from cement, pulp, and labor, are expected to increase in Q2. However, she noted the company is positioned to offset these pressures through cost savings and higher average selling prices.