James Hardie Industries Q1 2027 Earnings Report

James Hardie Industries EPS Results

• Actual EPS: $0.36
• Consensus EPS: $0.32
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.29

James Hardie Industries Revenue Results

• Actual Revenue: $1.47 billion
• Expected Revenue: $1.42 billion
• Beat/Miss: Beat by +$53.39 million
• YoY Revenue Growth: +63.90%

James Hardie Industries Announcement Details

• Quarter: Q1 2027
• Date: 8/6/2026
• Time: After Market Closes
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 6:00PM ET

James Hardie Industries (NYSE:JHX) plc (NYSE: JHX) is a global manufacturer of high-performance fiber cement building products. The company specializes in exterior cladding, trim and soffit, as well as interior backerboard solutions designed for residential and commercial construction. By combining cement, sand and cellulose fibers, James Hardie produces durable, low-maintenance materials that resist moisture, fire and termite damage, catering to builders, contractors and homeowners through a network of distributors and retail channels.

The company’s flagship products include Hardie® Plank® and Hardie® Panel® siding systems, Hardie® BackerBoard® for tile applications, and a range of architectural trim solutions. These offerings are marketed under well-known brands such as Hardie®Fiber™ and Hardie®Panel®, with extended lines in select regions. James Hardie continually invests in research and development to expand its product portfolio, focusing on sustainability and innovations that improve installation efficiency and enhance building performance.

Founded in Melbourne, Australia, in 1888 by namesake James Hardie, the business began as a brick‐making enterprise and later pioneered fiber cement manufacturing in the 20th century. In 2001, the company structure was reorganized under an Ireland-incorporated parent to better manage its growing international operations. Today, James Hardie operates over 30 manufacturing plants across North America, Europe, Australia and New Zealand, with additional sales offices in Asia, reflecting its commitment to serving major construction markets worldwide.

Leadership at James Hardie is anchored by President and Chief Executive Officer Albert Manifold, who has guided the company’s global growth initiatives, and Chairman Paul Ormond, who oversees corporate governance and strategic planning. Together, the management team focuses on strengthening supply chains, enhancing product quality and driving long-term shareholder value through disciplined capital allocation and customer-driven innovation.

James Hardie Industries Q1 2027 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong first-quarter outperformance: Net sales rose 12% pro forma to $1.47 billion, while Adjusted EBITDA reached $422 million, both above the high end of guidance. Management raised fiscal 2027 guidance to $5.564–$5.723 billion in sales and $1.536–$1.625 billion in Adjusted EBITDA.
• Positive Sentiment: Fiber cement returned to strong growth: Organic growth reached 20%, driven by ColorPlus, Statement Essentials, Trim-Over, stronger higher-end repair and remodeling and multifamily demand, and easier comparisons after last year’s inventory destocking. Fiber cement sell-through accelerated to 19% in June.
• Positive Sentiment: Distribution and synergy momentum improved: Expanded partnerships with Boise Cascade and six regional distributors are expected to support material conversion and the fiscal 2027 commercial revenue synergy target of $125 million. Cost synergies remain ahead of schedule and under budget, while free cash flow reached $254 million and net leverage fell to 2.7x after $400 million of debt repayment.
• Negative Sentiment: Macro and cost pressures remain significant: Elevated mortgage rates, cautious builders and consumers, freight inflation, and expected fiscal 2027 cost pressure of $80–$100 million are limiting visibility. Management is planning the second half prudently and expects distribution transitions to create near-term sales volatility and additional marketing and support costs.

Presentation

[Aaron Erter, CEO at James Hardie]

We're ahead of our expectations, led primarily by better than expected organic growth in our fiber cement business. Performance that came against an economic and housing macro backdrop that remains uncertain. Our team stayed focused on what we can control, strong execution and serving our customers at a high level. We entered the year with a clear set of priorities, return fiber cement to growth, outperform the market across our portfolio, expand Adjusted EBITDA, achieve cost and revenue synergies, and drive a step-up in free cash flow to support deleveraging. One quarter in, we're pleased with our progress against each of these priorities. Let me get into the highlights of the quarter. Net sales for the quarter were above the high end of our original guidance range, with pro forma growth of 12%, strong outperformance versus the market. Adjusted EBITDA was also above the high end of our guidance range.

[Aaron Erter, CEO at James Hardie]

As you saw in our results today, starting in Q1, we are excluding share-based compensation expense and Adjusted EBITDA and other non-GAAP financial measures. We believe excluding stock-based comp provides a clearer view of our underlying performance and makes us more comparable to our peers. We have also heard from a number of our investors that they would like to see this change, and we appreciate that input. We will continue to break out SBC as a separate line item in our reconciliation tables so investors can clearly see the impact of this change. Back to the results. Our outperformance in the quarter was broad-based, but it was led by our fiber cement business, where organic growth of 20% came in ahead of our expectations. Three things primarily drove the beat.

[Aaron Erter, CEO at James Hardie]

First, strong execution against our growth initiatives, including ColorPlus, Statement Essentials, and Trim-Over, where we're seeing continued proof points on material conversion, particularly in the Northeast and Midwest. Second, strength in two parts of the market where we are particularly strong that have held up better than the rest, the higher end of the market, including repair and remodel and multi-family new construction. Third, we lapped the inventory destock from a year ago. Our strong execution and progress in fiber cement are encouraging as we head into the balance of the year, even as the market environment remains uncertain. In Deck, Rail & Accessories, underlying demand remained healthy, with nearly double-digit sell-through that re-accelerated through the quarter, driven by strong consumer demand and incremental shelf space across the platform.

[Aaron Erter, CEO at James Hardie]

We're encouraged by the continued strength in TimberTech, driven by wood deck conversions, mix shift to more premium products, and commercial synergy momentum. The Australia, New Zealand, and Europe businesses performed well, both growing revenue double digits and outperforming in a challenging macro environment. We made progress on debt paydown in the quarter, redeeming $400 million of unsecured notes ahead of their 2028 maturity. This keeps us well on track toward our net leverage target of approximately 2.4x at the end of this fiscal year, and less than 2x by fiscal Q2 2028. Turning to the integration. Commercial synergy momentum continues to build. We're seeing broad-based wins across our combined sales force, strengthening our conviction in the fiscal 2027 $125 million run rate commercial revenue synergy target. Last quarter, we highlighted two examples, Lansing Building Products and CBUSA.

[Aaron Erter, CEO at James Hardie]

As you saw earlier this week, we announced an expanded nationwide partnership with Boise Cascade, one of the largest U.S. wholesale distributors of building materials. This agreement makes Boise a national distribution partner across our entire portfolio, from Hardie Siding & Trim to AZEK Exteriors, and for the first time, TimberTech Decking and Railing. In addition to the expanded partnership with Boise, we have expanded our partnership with six major regional distributors, Capital, Dixie, Lumbermen's, Parksite, Woodgrain, and Woolf. Now carrying the full line of the Hardie portfolio. They will now become fiber cement partners in addition to their existing decking partnerships, extending our reach into the repair and remodel market. These expanded partnerships are a validation of our strategy and the culmination of months of planning to bring together James Hardie's industry-leading exterior building products with the best-in-class national distributor and best-in-class regional distributors.

[Aaron Erter, CEO at James Hardie]

These expanded partnerships also mark a significant step forward toward achieving our revenue synergy target. On cost synergies, we remain ahead of schedule, while under budget for cost to achieve, without sacrificing service or execution. Our combined sales force gathered for a company-wide sales meeting in Chicago in late May, bringing our legacy Hardie and AZEK teams together under one roof for the first time. One company, one sales force, one culture, with a shared playbook. At 500 strong, we believe we have the largest and best sales force in the industry, and the early results reflect that. We also continued extending the Hardie Operating System across the AZEK manufacturing network, resulting in improved productivity, tighter procurement discipline, and better cost visibility across the combined plant footprint. These examples are the best of both companies coming together in practice.

[Aaron Erter, CEO at James Hardie]

As a reminder, our $23 billion exterior total addressable market in North America remains heavily under-penetrated by more resilient materials, yielding a $17+ billion conversion opportunity. We are executing against five pillars to capture it, and I will touch briefly on each. First, material conversion. We continue to see contractors switch competitive decking to TimberTech, and longtime Hardie Siding contractors add composite and PVC decking to their offering. There are approximately 60 million decks in the U.S., and the vast majority are wood. These two-way wins remain a meaningful contributor to above-market growth. Second, channel expansion. We continue to scale Hardie into TimberTech and AZEK strong accounts in the north, and TimberTech into Hardie strong accounts in the south, adding new stocking locations across the combined footprint this quarter. Third, innovation and new product development.

[Aaron Erter, CEO at James Hardie]

Our combined product and R&D teams remain focused on solutions that accelerate material conversion, applying the AZEK innovation playbook to fiber cement with products like TimberHue, which offers authentic wood grain finishes in eight colors. Fourth, brand preference. Brand search volume and customer sample orders, a leading indicator of future demand, both continue to grow at a healthy clip in the quarter, reinforcing our position as one of the most recognized brands in our categories and supporting sustained share gains over time. Fifth, simplifying the consumer journey. Our replatform website continues to improve how homeowners research, compare, and connect with our contractor network. Together, these five pillars remain the core of how we win in North America, and we are pleased with our progress across each of these this quarter. Let me give you an update on our fiber cement growth plan.

[Aaron Erter, CEO at James Hardie]

As discussed last quarter, our focus remains on the Northeast and Midwest, where repair and remodel wood and wood look siding alone represents an approximately $1 billion conversion opportunity, and where AZEK gives us immediate channel relevance, an established footprint, strong relationships, and complementary products. The expanded Statement and Statement Essentials rollout is gaining traction, continuing with double-digit growth in the Midwest East pilot, and is now live in an additional five regions. Building on that momentum, we opened two new expanded Statement partner stocking locations on the East Coast, improving service and availability of the full collection across our pilot markets, with ColorPlus mix continuing to grow. At the same time, we've expanded our Hardie Pro Lab, our mobile contractor training units, to drive Statement Essentials adoption across the broader Midwest and Northeast footprint, and we're seeing that training translate into sell-through.

[Aaron Erter, CEO at James Hardie]

Our three conversion priorities remain unchanged: converting vinyl siding, winning against wood, and expanding our presence in premium products. On vinyl, we are accelerating penetration in the Northeast, Midwest, and the Carolinas, backed by expanded ColorPlus rollout and contractor training. On wood, fire resilience, especially in the West, continues to be an increasingly important part of the conversation as building codes evolve, insurance requirements tighten, and homeowners place greater emphasis on durability and risk mitigation. Finally, TimberHue and our enhanced Artisan lineup, our premium, higher priced, higher margin lines, are gaining traction with custom builders and high-end remodelers. Let me close my remarks with a quick word on the external environment before I hand it to Ryan. The housing macro backdrop remains uncertain and broadly similar to what we discussed last quarter. Mortgage rates remain elevated, and builder confidence and consumer sentiment remain cautious.

[Aaron Erter, CEO at James Hardie]

Housing starts have converged down toward permits over the quarter, as I touched on earlier, we are seeing a divergence by price band with the middle to upper tiers, where we participate more significantly, holding up better than the rest of the market. In our outlook, we are not assuming housing industry conditions improve from here. We are focused on what we can control and our own execution, and we remain committed to our fiscal 2027 priorities: market outperformance, a return to growth in fiber cement, attainment of cost and revenue synergies, Adjusted EBITDA expansion, and significant growth in free cash flow and further deleveraging. Let me turn it over to Ryan, who will walk you through our financial results and outlook in more detail.

[Ryan Lada, CFO at James Hardie]

Thanks, Aaron. Total net sales for the first quarter were $1.47 billion, growing 64% on a reported basis and 12% on a pro forma basis above the high end of our original guidance range. As Aaron mentioned, starting this quarter, we're excluding share-based compensation expense from Adjusted EBITDA and our other non-GAAP measures. We'll continue to break share-based compensation out as a separate line in our reconciliation tables so investors can see the impact clearly in both current and prior periods. Adjusted EBITDA was $422 million, with margins of 28.6% above the high end of our original guide, with and without the share-based compensation exclusion, reflecting volume leverage and the benefit of our cost actions. A few modeling notes. Adjusted corporate and unallocated R&D was $32.3 million in the quarter. Keep in mind, a portion of our cost synergy benefits continue to run through that line.

[Ryan Lada, CFO at James Hardie]

Our adjusted effective tax rate was 21.7%, in line with expectations. Weighted average diluted shares were approximately 584 million in the quarter, and we expect share count to remain broadly consistent throughout the year. Adjusted net interest was $64.8 million in Q1, and we expect it to normalize around $60 million per quarter for the remainder of the fiscal year. Adjusted EPS was $0.36, up 13%, with growth diluted by the increase in shares from the AZEK consideration. As we discussed last quarter, we continue to convert customers as part of our commercial synergy program, and some of those wins involve buying back existing channel inventory. These are investments tied to specific conversion wins, not a reflection of underlying demand, and we'd expect to see these investments continue as we close out more of our commercial synergy pipeline.

[Ryan Lada, CFO at James Hardie]

On costs, we continue to expect approximately $80 million-$100 million of cost pressure in fiscal 2027, primarily raw materials, freight, and energy, with roughly 2/3 of that impact in North America. The pricing actions we announced in late April are directly offsetting this pressure, and we're pleased with the execution and realization to date. Our raw material cost assumptions have improved modestly, but we're seeing offsetting pressure in freight, where elevated spot rates and network dynamics are running above our original planning assumptions. We are actively working on contracting a higher percentage of our freight lanes to help reduce this pressure. Oil prices have moved below our planning assumptions, but refined products like diesel have not seen the same relief. We are holding our assumption of $80 million-$100 million of cost pressure in fiscal 2027, and we're continuing to watch this closely given the volatility.

[Ryan Lada, CFO at James Hardie]

Separately, the $25 million in annualized fiscal year 2027 savings from our Fontana and Summerville plant closures, along with continued cost savings across sourcing, productivity, and formulation, are tracking as planned. In Siding & Trim, net sales were $859.8 million, up 34%, with organic growth of 20%, ahead of our expectations and led by fiber cement. Adjusted EBITDA margin was 33.5%, reflecting volume leverage, pricing, and continued plant cost savings from our manufacturing footprint optimization work. Sell-through was strong exiting the quarter, outpacing shipments, driving volume leverage, and bringing channel inventory to healthy levels. In Deck, Rail & Accessories, net sales were $305.1 million, a decline of 5%. The year-over-year sales comparison reflects the planned channel inventory normalization we discussed last quarter, not a change in the underlying health of the category.

[Ryan Lada, CFO at James Hardie]

Sell-through improved sequentially each month, and we exited the quarter with channel inventory and days on hand at healthy levels. We continue to see strong engagement with TimberTech and AZEK across both legacy AZEK and legacy Hardie accounts, supporting our confidence in the long-term material conversion opportunity. Adjusted EBITDA margin was 27.1%. In Australia and New Zealand, USD net sales were $153.3 million, up 26%, with EBITDA margin of 34.9%. This reflected strong volume growth, disciplined cost management, and the benefit of FX. In Europe, net sales were $156.4 million, up 15%, with EBITDA margin of 19.4%, reflecting continued expense management, improved manufacturing efficiency, solid fiber gypsum and fiber cement demand, and the benefit of FX. Free cash flow in the quarter was $254 million, driven by higher profitability, lower capital expenditures, improved working capital, and a continued reduction in acquisition and integration related costs.

[Ryan Lada, CFO at James Hardie]

As Aaron mentioned, we redeemed $400 million of senior unsecured notes in the quarter, bringing net leverage down to 2.7x, on track towards the leverage targets Aaron reiterated. Turning to our outlook for the second quarter and fiscal year 2027. Before I jump in, it's worth flagging as you think about modeling the next few quarters. The distribution changes Aaron discussed create real upside to both the current year and long term. We've built what visibility we have into our guide. The moving pieces here are mostly on sell-in, as new and legacy distributors transition at the same time. Given that, we'd expect some quarter-over-quarter noise there over the next couple of periods. Sell-through, though, we expect to remain strong through the transition. We'll also incur some costs along the way, marketing, sales support, and other transition-related investments as we onboard new partners and wind down legacy relationships.

[Ryan Lada, CFO at James Hardie]

Additionally, beginning with our second quarter results, we have fully lapped the AZEK acquisition. Going forward, we will not reference pro forma or organic growth metrics for quarterly comparisons. In Q2, we expect net sales of $1.485 billion-$1.575 billion or growth of 14.9%-21.9%. We expect Adjusted EBITDA of $420 million-$455 million. Given our first quarter performance, we are raising our full year outlook. We now expect sales of $5.564 billion-$5.723 billion or growth of 5.9%-9% on a pro forma basis for the full year fiscal 2027.

[Ryan Lada, CFO at James Hardie]

We now expect Adjusted EBITDA of $1.536 billion-$1.625 billion. This outlook reflects the flow-through of the first quarter performance and the current expectations for the incremental contribution from our new distribution partnerships. We continue to plan the back half prudently against an uncertain macro backdrop. We expect free cash flow to exceed $500 million for the full year and capital expenditures to be approximately 6%-7% of net sales. With that, I'll turn the call back to Aaron.

[Aaron Erter, CEO at James Hardie]

Thanks, Ryan. Before we open it up to questions, let me leave you with a few thoughts. We're encouraged with our start to fiscal 2027, a good quarter, with strong outperformance and execution in a market that remains uncertain. This solid performance gives us confidence as we move through the rest of the year. We remain well-positioned when the macro backdrop improves. We look forward to sharing more with you at our Investor Day in New York on September 15th. If you need more information on this, please reach out to our IR team. Finally, I want to thank our team for their continued execution and discipline. None of this happens without you. With that, operator, please open the line for questions.

[Operator]

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ryan Merkel with William Blair. Your line is open. Please go ahead.

[Ryan Merkel, Analyst at William Blair]

Hey, everyone. Nice quarter, thanks for the question. I'd like to start with the North America fiber cement organic growth up 20%. Aaron, I know an easy comp helped, it's really impressive growth. Can you just talk about why you beat your guide, what's working, why are we seeing the inflection now?

[Aaron Erter, CEO at James Hardie]

Yeah. Hey, Ryan, thanks for the question. I think many of you know, we've talked about fiber cement coming into this year being our number one priority. The Q1 results, they're very encouraging. With that said, we're not satisfied. I like to bucketize the three main reasons why we're seeing fiber cement grow, why we saw it in Q1, as I'd really frame it, is the execution of our strategic initiatives, the stock comp, the rest being really price and mix. Let me dive a little bit more into thinking about our strategic initiatives. We've talked a lot about ColorPlus and that being a big focus of ours as we think about really getting after repair and remodel, namely in those areas that have been under-penetrated for us.

[Aaron Erter, CEO at James Hardie]

We've done that with the expanded Statement program, which now is live nationwide. We just had two more locations added in Baltimore and Chicopee, Massachusetts. We've talked a lot about the Trim-Over and that being a way for us to really get after vinyl siding. We continue to make really good progress. A year into this pilot, we continue to see encouraging results in the pilot regions. We keep wheeling this out to more and more contractors. One of the things that I know you've seen and that we put out there is really our Hardie Pro Lab, which are mobile training centers, really to take contractors through what Trim-Over is and why it can be easier for them to install and why they can make more money. We've had 50 events in Q1, we've trained over 1,200 contractors out there.

[Aaron Erter, CEO at James Hardie]

The other thing that we're really seeing is the multifamily business. That's about 15% of our volumes. That has taken off for us in Q1. If you look at our growth regions, areas that we really are concentrated in, areas like the Carolinas, these are more affordable price point metros. They're really running ahead of the national market. The other thing I would say is we've had competitors not able to serve the market. We've been able to take advantage of that. A lot of this has to do with, say, number one, to bucketize it's execution of our initiatives. The team has done an outstanding job. The other thing, we talked about the easier comp and then price being the last. That's how I would bucketize it.

[Aaron Erter, CEO at James Hardie]

As we look at the sell-through as well, we haven't talked a lot about sell-through, that is something that our teams are concentrated on. It's something that our teams are incentivized on. Our sell-through for fiber cement really accelerated each month, with June being our strongest with up 19%. Those are the reasons, Ryan, why we would say, fiber cement is up about 20%. A good quarter for us, but like I said, we're not satisfied.

[Ryan Merkel, Analyst at William Blair]

That's great. Thanks for all that detail, Aaron. My next question is just on the guide for 2Q. The revenue in both segments is well above what most of us were thinking. Any way to parse out the assumptions for sell-through and channel load? Any help you can give us to put that in context?

[Aaron Erter, CEO at James Hardie]

Yeah. I'll start out and then I'll hand it over to Ryan here. If you think about our guide as we look at for, of course, the full year, part of this is just letting our beat run through and then thinking about, as you can imagine, there's a lots of puts and takes with what we announce as it relates to distribution, with the Boise partnership and some of our regional partnerships, and then also the transitions out there. That is really what we've added to the full year guide, but I'll hand it over to Ryan. He can talk more specifically to Q2.

[Ryan Lada, CFO at James Hardie]

Yeah. If you think about the Q2 side, from a Deck, Rail & Accessories perspective, we're up over 40% year-over-year. Easiest way to think about that is, we did the channel inventory normalization here in Q1. We saw really strong sell-through above estimated demand in Q1, and that's continued into the quarter so far that we've seen through July. You're having an upside due to that. There is about a third of it that's related to loading in our new distribution partners. Those are the two major drivers on the DR&A side. When you think about Siding & Trim, as we mentioned, we saw a stronger Q1, we saw a stronger sell-through, and from an inventory perspective, we're in a very good position with our channel partners. We feel confident that that execution will continue in Q2 here.

[Ryan Merkel, Analyst at William Blair]

Got it. Thanks, passing on.

[Aaron Erter, CEO at James Hardie]

Thanks, Ryan.

[Operator]

Your next question comes from the line of Brook Campbell-Crawford with Barrenjoey. Your line is open. Please go ahead. Brook?

[Brook Campbell-Crawford, Analyst at Barrenjoey]

Good evening. Thanks for taking my questions. Just the first one on the implied second half group. Hello? Just checking to make sure you can hear me.

[Aaron Erter, CEO at James Hardie]

We got you, Brook.

[Ryan Lada, CFO at James Hardie]

We can hear you.

[Brook Campbell-Crawford, Analyst at Barrenjoey]

All right, great. Just checking on the implied second half group, Adjusted EBITDA. It looks to be down a couple of percent when you normalize the last year's stock comp. Just trying to check any specific dynamics there that would drive that decline year-over-year, just given the really strong first half, or is it just planning for the worst here?

[Aaron Erter, CEO at James Hardie]

Yeah. Look, Brook, I think as you can probably appreciate, as we look at the full year guide and the second half is a sequential step down from H1, is really the normal seasonality there. The other piece is certainly the uncertainty as we look to the back half of the year. I think more than anything, we're being prudent as we look at the back half of the year.

[Ryan Lada, CFO at James Hardie]

Yeah, I think the only other thing I'd add, as we announce those distribution changes, there are some costs that we called out on the call that we would incur. That is included in the guide right now to the best of our knowledge. That does have a little bit of the pressure there. As you recall, DRA seasonally, that October through December period is always the lowest quarter. With sales being down pretty substantially, you do feel some pressure on margin in that quarter, typically.

[Brook Campbell-Crawford, Analyst at Barrenjoey]

That's great. Just finally, my second one around the Trim-Over Method, obviously, doing pretty well with traction there. Do you mind just providing a little bit of history? My understanding is that's been around for quite a while, for whatever reason, James Hardie, in the past, has not really promoted that more broadly across the U.S. Was there any sort of risk that previous-

[Aaron Erter, CEO at James Hardie]

Yeah, Brook, you broke up there. I think we've covered this maybe on a few calls before. If we think about Trim-Over, certainly in some of the areas where James Hardie has been around with high production, this type of install methodology has been around. What we wanted to do is make sure when we brought this out and wheeled this out from a national standpoint, we took the time needed to test this out fully, and it took us a couple of years to do that. We felt comfortable, and that's why we see this as an advantage for certain contractors that are going against vinyl. Again, from a Trim-Over Method methodology standpoint, what it allows you to do is cut down on your labor costs and be able to install James Hardie at a faster rate.

[Aaron Erter, CEO at James Hardie]

Contractors can go out there and do more jobs, and they can make more money. This has been around, this pilot for us, that we wheeled out about a year now, as I mentioned before. We keep seeing success with this, and we keep rolling it out to more regions of the country.

[Operator]

Your next question comes from the line of Keith Hughes with Truist. Your line is open. Please go ahead.

[Keith Hughes, Analyst at Truist]

Thank you. First question, with the new agreement with Boise, if you could talk, big picture, longer term, what this does, and which side of the business will it have a bigger impact on, TimberTech or HardiePlank or whatever your views are there?

[Aaron Erter, CEO at James Hardie]

Yeah. Hey, Keith. Really good question. Look, we're extremely excited about what we announced with Boise and some of the other regional distributors. Look, as you know, Boise is a scaled national two-step distributor, and we've had a deep and proven relationship with Boise with our fiber cement business, which was effectively national even before this agreement was signed. We're building on a partnership that has already been proven, that works. We know what Boise can do. We think they're one of the best in the business. The other thing is just moving to a full line exclusive relationship, does really three things for us. It concentrates a demand behind a single national partner that is now fully aligned with James Hardie and AZEK and TimberTech portfolios, rather than really splitting attention across competing lines.

[Aaron Erter, CEO at James Hardie]

I think that's really important because we talk so much about our large sales force of having 500+ people. If you put Boise's sales force with that, call it 600+ people, and you put them together, that's a really formidable type of force that's going out there and selling our full exterior lineup. Look, it really pairs Boise's national reach and logistics with our own downstream demand generation, as I mentioned before. We're driving pull-through at the dealer and contractor level while Boise's handling distribution, but they're also driving pull-through as well. Look, I think the other thing that is really obvious, Boise now has every reason to grow our brands and actively convert volume because their success is directly tied to ours, and I think that's the best type of partnership out there. We're really excited about it.

[Aaron Erter, CEO at James Hardie]

To answer your question, who's to gain more? Look, we have some pretty ambitious targets, joint targets with Boise, and we think we're going to be able to continue to grow the fiber cement business, and certainly the TimberTech business and the AZEK business is going to be relatively new. Right off the bat, we think we'll see gains there. One thing to keep in mind, is we closed on the deal with AZEK. This has been part of our plan. There's a few different chess pieces that we have planned here since when we signed the deal. This is one of them. Helps us be able to grow our business, our collective business, and helps us to really accelerate our revenue synergies out there.

[Aaron Erter, CEO at James Hardie]

More than anything, we think signing with Boise, we think with these regional partners, is going to help us service our customers better. That really is the key point there.

[Keith Hughes, Analyst at Truist]

One other question if I may. Siding & Trim had an excellent price. Mixed growth, high single digits. Is that something that you think will maintain at that level for the rest of the fiscal year?

[Aaron Erter, CEO at James Hardie]

Yeah, Keith, the way I think about it, look, we have from Siding & Trim, fiber cement, we were about 5.5% from a price standpoint, roughly, a 0.5% point from a mix, and that's really the growth that we've seen in ColorPlus. We think it's more of like a 3.5%-4% type of range when we look through the rest of the year.

[Keith Hughes, Analyst at Truist]

Okay. Thank you.

[Aaron Erter, CEO at James Hardie]

Sure.

[Operator]

Your next question comes from the line of Keith Chau with MST Marquee. Your line is open. Please go ahead.

[Ryan Lada, CFO at James Hardie]

Hey, Keith.

[Aaron Erter, CEO at James Hardie]

Keith, you there? Keith? I don't hear Keith. Maybe we'll come back to him.

[Keith Chau, Analyst at MST Marquee]

Hello. Can you hear me?

[Ryan Lada, CFO at James Hardie]

There you are.

[Aaron Erter, CEO at James Hardie]

There you are. We must be having some delay.

[Keith Chau, Analyst at MST Marquee]

There we go. Thank you.

[Aaron Erter, CEO at James Hardie]

Yeah. There you go, Keith.

[Keith Chau, Analyst at MST Marquee]

Hey, Aaron. Hey, Ryan. Thanks for taking my question.

[Aaron Erter, CEO at James Hardie]

Sure.

[Keith Chau, Analyst at MST Marquee]

First one, just to follow up, Ryan, on some of the comments you made earlier. I think you said, and please correct me if I'm wrong, but the growth you're expecting in Deck, Rail & Accessories in the second quarter, up 40% versus last year. I think you mentioned a third of that is related to movement in the channel. Let's just talk in round number terms, but that's probably roughly $15 million at EBITDA, which leaves you somewhere close to $30 million as an underlying improvement for DR&A. Understanding that there is seasonality into that business into the end of the year, your September quarter is typically low, but then that improves into December. Is it fair to assume that that $30 million EBITDA improvement in the second quarter can be annualized going into the full year, or is that being way too aggressive?

[Ryan Lada, CFO at James Hardie]

I would probably say that's a little bit aggressive, right? I mean, your Q1 results, you saw the decline driven by the lower sales number and then us intentionally pulling down production and having slightly less absorption. Q2 kind of gets back to a little bit of a higher flow-through due to that incremental volume. I think you probably need to do more of like a two to three quarter average, just because using 2Q with all that additional volume is probably a little bit too much.

[Keith Chau, Analyst at MST Marquee]

Okay. Thanks, Ryan. Then I think at the last result, you mentioned you were going to potentially at least try and quantify some of the costs associated with all of these distribution changes. I certainly appreciate that it's not necessarily the easiest thing to do. On the cost side, when you're funding Boise to make some of these changes, and potentially some of the other distribution partners, what level of costs do you expect to incur-

[Aaron Erter, CEO at James Hardie]

Yeah.

[Keith Chau, Analyst at MST Marquee]

... in the third and fourth quarters for this financial year, will those costs be taken above the line or below the line, please? Thanks very much.

[Aaron Erter, CEO at James Hardie]

Yeah. Keith, what I would say from a cost standpoint, and also from a sales standpoint, there's a lot of puts and takes there. Best we know, we've embedded in our guide, from a sales and cost standpoint.

[Ryan Lada, CFO at James Hardie]

Yeah, the one thing that's a little bit unique, as I called out on the call, is if there is channel inventory buyback, we would call that out separate. The guide does not contemplate that fully. As you transition, you wait to see how it burns down and what kind of inventory transfers between locations. That would be something we would call out if we get to the next guide if it was material. I know we called it out, that if there was any impact in Q1, we would let you know. It was pretty minimal, and it was under $1 million, we didn't call it out specifically from some of the synergy wins that we had in the first quarter.

[Keith Chau, Analyst at MST Marquee]

Okay. That's great. Thanks very much.

[Aaron Erter, CEO at James Hardie]

Thanks, Keith.

[Operator]

As a reminder, when asking your question, if you are muted locally, please remember to unmute your device. Your next question comes from the line of Phil Ng with Jefferies. Your line is open. Please go ahead.

[Phil Ng, Analyst at Jefferies]

Well, Aaron, what a way to celebrate your one-year anniversary for the AZEK deal with such strong results, and congratulations to the team.

[Aaron Erter, CEO at James Hardie]

Thank you, Phil.

[Phil Ng, Analyst at Jefferies]

First off, question perhaps for Ryan. You gave us some color for 2Q with some load in dynamic on decking in particular. Any more consideration? Does that have an impact perhaps in the back half in terms of your sales? Your implied sales guidance for both decking and siding is flat. I don't know if there was any pull forward that will impact the back half from that dynamic. Is the load in largely just decking? Is there any siding consideration? Just give us some color on the back half framework calling for flat sales-

[Ryan Lada, CFO at James Hardie]

Yeah-

[Phil Ng, Analyst at Jefferies]

... for both decking

[Ryan Lada, CFO at James Hardie]

If you think of the load in in Q2, it's primarily on the decking DR&A side. There is a modest amount in fiber cement, but it's a pretty small number. With some of the other distribution partners that we called out this week as well, there will be some load in in fiber cement that may impact the back half of the year, depending on timing. Anytime load in happens, you can get a little bit of an impact on pull forward, which is why I mentioned some quarter-to-quarter variability during the call earlier. That could be just timing as you look and wait and see. As you load in, you wait to see the sell-through, and that could impact the back half slightly.

[Ryan Lada, CFO at James Hardie]

Right now, just given the backdrop from a macro perspective, we thought it was prudent to keep the back half as we originally guided. If things improve, we would have an opportunity to guide differently as we execute through here.

[Phil Ng, Analyst at Jefferies]

Okay. It sounds like it's more conservatism. Anywhere, to kind of flush out some of this noise, Ryan, how you're thinking about sell-out for decking or siding for this year?

[Ryan Lada, CFO at James Hardie]

Yeah. I don't think we've quantified the full year amount, but I know when we started the beginning of the year, we said we expected mid-single-digit sell-through in the DR&A side, and we continue to expect that. The trend we've seen in Q1 was extremely positive. Each month, it built from April on throughout the end of the quarter. We have preliminary kind of July results, and we continue to see right around that double-digit number in July. We feel pretty good about mid-single-digits for the remainder of the year on the decking side. I don't know if you want to, Aaron, comment on the fiber cement side.

[Aaron Erter, CEO at James Hardie]

Yeah. Look, we talked about Q1 and what we saw from a sell of fiber cement and we said it's at 9% up and end of June it was 19% up. We continue to see strength there that is very encouraging for us.

[Phil Ng, Analyst at Jefferies]

Okay. Aaron, you kind of teased about this already on the commercial synergies perhaps coming in better than you expected. I think initially when you guys gave us the framework, it didn't count for any wins on the two-step distribution with a guy like Boise. Would that be incremental and is there any way to kind of size up, perhaps, maybe not just this year, but 12-18 months out with some of these moves you've made on the distribution side? How much potential upside you could generate on the commercial synergies top-line perspective?

[Aaron Erter, CEO at James Hardie]

Phil, what we've said on commercial synergies, we would exit the year $125 million. Certainly, there can be some potential upside there. We're not ready to call that yet. Why don't I do this? I have Jon Skelly in here, who leads our North American business, and he and his team are responsible for really going after and getting after these commercial synergies day in and day out. Jon can speak to a little bit about what we're seeing there.

[Jon Skelly, President and General Manager of North America Building Products Group at James Hardie]

Phil, I think we talked a little bit about this at your last call. Again, I think the customer permission and reception has exceeded our expectations, right? I think we've been able to uncover more opportunities than we initially expected. Again, some of these things take time to actually get closed and turn into revenue. Having said that, I do believe that the targets we've laid out are highly achievable. With a combination of Boise plus the enhanced relationships with new regional distributors, it could allow us to get there faster. It could allow us to achieve the capture slightly ahead of schedule, but we're still comfortable with what we've laid out in terms of total opportunity.

[Aaron Erter, CEO at James Hardie]

Hey, Phil, just to remind you and everyone else, the way we bucketize these when we think of commercial synergies are really national dealers, retail, independent lumber yards, distribution, regional and national builders, and then you're looking at contractors. Those are some of the areas that Jon and his team are going after and seeking those opportunities each and every day.

[Phil Ng, Analyst at Jefferies]

Appreciate the color, guys. Thank you.

[Aaron Erter, CEO at James Hardie]

Sure.

[Operator]

Your next question comes from the line of Peter Steyn with Macquarie. Your line is open. Please go ahead.

[Peter Steyn, Analyst at Macquarie]

Good evening, Aaron and team. Thank you very much for your time. Aaron, perhaps just another question around the distribution. If you think about a couple of the factors that I'm sure was in your conversations and contemplations, service, incremental optimization of the supply chain, and then the potential to enable some of the next things that no doubt follow from here, as you just pointed out. How did you think about and how did Boise and the combination play into those different buckets, i.e. lifting service or incrementally improving, ultimately, the profitability of your supply chain?

[Aaron Erter, CEO at James Hardie]

Yeah. Look, really good question there. Peter, we contemplated everything when we thought about this move. Obviously, this was a huge move for us. As I mentioned before, this is something that we have been thinking about over the last year. As you can imagine, our teams thought about everything. We also had a lot of comfort as we started out a couple pilots with TimberTech, with Boise. When you think about within Pittsburgh, within Baltimore, and really exceeding expectations out there. Number one, and this was even before this move, and we looked at all our two-step distributor partners, was how do they service? We certainly took that as the number one factor out there. Then as you can imagine, all the other variables, and some of them you mentioned, we looked at.

[Peter Steyn, Analyst at Macquarie]

Perfect. I won't use my follow-up on a follow-up, if I may. The other topic that's come up a few times in today's conversation is the Hardie Operating System and the impact that you're starting to see from a manufacturing perspective. Could you perhaps just allude or give us a little more detail on that and what you're seeing?

[Aaron Erter, CEO at James Hardie]

Certainly just for all of you on the call, our Hardie Operating System is really our version of Lean. That started out with our manufacturing plants and has really extended to other areas like procurement. We think about formulation. We have a target level of savings that we go out and get after every single year. That is on track. Everyone is involved in the Hardie Operating System, but really Ryan Kilcullen, who leads our operations, spearheads that for us. Our plants are running extremely well. Even when we saw lower volumes, they ran well, and as you can imagine, getting more volume has helped them to run even better. We continue to see progress there.

[Aaron Erter, CEO at James Hardie]

As we think about synergies and around cost synergies and some opportunities we have, we've talked for some time about really implementing the Hardie Operating System within the legacy AZEK plants. Ryan and his team have done that, and we're already seeing really solid results. When we think about efficiency, when we think about downtime, that's been something. Even those plants ran well. Now we have a unified system across our entire network.

[Peter Steyn, Analyst at Macquarie]

Thank you, Aaron.

[Aaron Erter, CEO at James Hardie]

Thanks.

[Ryan Lada, CFO at James Hardie]

Thank you.

[Operator]

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

[Tim Wojs, Analyst at Baird]

Hey, guys. Good afternoon. Nice job. Maybe just first question. When you guys have historically done two-step distribution changes in the past, and I know they've been at a much smaller scale, but in your history, what is the typical kind of training period or training ramp for those sales forces to be kind of fully effective from beginning to when they're fully effective selling a product?

[Aaron Erter, CEO at James Hardie]

Yeah. Tim, we'll hand that over to Jon to answer that.

[Jon Skelly, President and General Manager of North America Building Products Group at James Hardie]

Yeah. Tim, I think, in the Boise situation, clearly they've been selling composite decking for a long period of time. There's a lot of experience overall with the category. What we need to do is get them trained and armed and ready around the value proposition of TimberTech, right? We're already in the process of doing that. Again, we expect that curve to ramp up pretty quickly. A relevant data point, you'll recall when TimberTech converted Capital out west a few years back. Again, it was a very similar situation. They were already experienced in the category. We leveraged that knowledge, got them trained on the TimberTech value proposition, and that enabled us to move very quickly and drive really strong growth with that conversion. We expect to see that again.

[Jon Skelly, President and General Manager of North America Building Products Group at James Hardie]

Some of the other regional distributors that we've taken on, [inaudible], fiber cement siding, several of them were already in the siding category. They're, again, familiar with the category, and there'll be a similar training process around James Hardie value proposition, and then the joint sales targeting from the commercial organizations, joint marketing across the marketing organizations to drive that downstream pull-through demand.

[Tim Wojs, Analyst at Baird]

Okay. Very good. Ryan, just on the cost inflation, I think the $80 million-$100 million is the same as it was last quarter. How much of that did you feel in the first quarter, and how much is baked into the second?

[Ryan Lada, CFO at James Hardie]

We probably felt, I don't think we quantified it, but I would say $20 million-$25 million in Q1, mainly on the freight side there, right? A lot of the raw materials will be hung up on the balance sheet, just the way the inventory's brought in. From a freight perspective, that was immediate. As you see, even when rates come down, the freight doesn't drop fast. That was the major driver there. We have seen a little bit of relief on the commodity and actual raw material side. As we called out, the freight piece, we're running at a higher volume, then there is some general discrepancies in the freight market right now. Those spot rates are higher than normal.

[Ryan Lada, CFO at James Hardie]

We're working actively to try to contract more of our freight lanes under contract versus spot, so we can actively work that kind of relief. That's why we kept it at the $80 million-$100 million for now.

[Tim Wojs, Analyst at Baird]

Okay, great. See you guys in September. Thank you.

[Aaron Erter, CEO at James Hardie]

Thanks.

[Ryan Lada, CFO at James Hardie]

Thanks, Tim.

[Operator]

Your next question comes from the line of Harry Saunders with E&P. Your line is open. Please go ahead.

[Harry Saunders, Analyst at E&P]

Good evening, Aaron and team. Thanks for taking my questions. Firstly, I know we've touched on this. Just wondering what the share-based payment expense was previously assumed in the old guidance range before and perhaps sort of what we could assume for the balance of the year just as a run rate, please? Thanks.

[Aaron Erter, CEO at James Hardie]

Go ahead, Ryan.

[Ryan Lada, CFO at James Hardie]

In the original guide that we would've released at fiscal year-end there, it was about $50 million of share-based comp. I think in Q1, we called out about $15 million. I think you could probably use that as a run rate based on the current valuation of the stock. I think that I would plan on it as that annualized from Q1.

[Harry Saunders, Analyst at E&P]

Understood. Thank you. Just also wondering, I know we've touched on this as well a bit, but have you quantified the net stocking benefit? I guess you're giving up some coverage as well elsewhere, but any net stocking benefit from the Boise and other deals, have you quantified that for Q2 and for the balance of the year, please?

[Aaron Erter, CEO at James Hardie]

Harry, it's embedded in our guide. I think the way to look at it from a full-year standpoint is we took our beat, and we rolled that forward, and then we kept the back half relatively flat, if you will. The other piece of that that you see is going to be the puts and takes from the two-step distribution changes.

[Harry Saunders, Analyst at E&P]

Got it. Thank you very much.

[Aaron Erter, CEO at James Hardie]

Welcome.

[Operator]

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

[Matthew Bouley, Analyst at Barclays]

Hey, Good evening, everyone. Thank you for taking the questions. Questions on the kind of balance of sort of your own organic growth initiatives and then the commercial synergies. Basically, where are you on those commercial synergies in the first half of the year, Q1 and Q2? I know you kept the full year at $125 million and said there might be some upside, but if I'm kind of rank ordering them, I guess, when we look about your growth here relative to the market, commercial synergies, some of your initiatives like ColorPlus, Trim-Over Method, etc, what do you think is kind of the most powerful couple of drivers that are leading this level of growth? Thank you.

[Aaron Erter, CEO at James Hardie]

Yeah, A great question. Look, we haven't given exactly what those commercial synergies are quarter-by-quarter, as you can imagine, Jon talked a little bit about this. They're fluid as it relates to when they happen. What we can reaffirm is the $125 million exit run rate, and certainly we think there could be possibly upside to that with some of the new news we talked about. From a commercial synergy standpoint, that's how I would talk about that. As far as how we bucketize what is having the greatest impact, I mentioned for Q1, a third, a third, a third, basically of three different buckets. That's strategic initiatives. Obviously, we had a little bit of help from the comp, from the destocking, and certainly then price as well.

[Aaron Erter, CEO at James Hardie]

We really are seeing strong execution on our initiatives, particularly in fiber cement around areas like ColorPlus. We mentioned the expanded Statement Collection, which is just getting started. We talked about the Trim-Over. These are things, yes, we're seeing the benefits in one quarter. These are sustained growth items for us as we think about our strategy moving forward.

[Matthew Bouley, Analyst at Barclays]

Got it. Okay. No, thank you for that, Aaron. Secondly, given what you just guided for Q2 and your comments about inventory, and it sounds like that this probably didn't really happen, but my question is on, often in this industry, when you have price increases, you might see some pre-buys and things like that. Just, given you had a couple price announcements during the quarter there, did you see any kind of unusual inventory swings related to that? Thank you.

[Aaron Erter, CEO at James Hardie]

Yeah. We really didn't. We're sitting, broadly speaking, I can say this across our segments, we're at a normalized inventory level.

[Matthew Bouley, Analyst at Barclays]

Absolutely. All right. Great. Thanks, guys. Good luck.

[Aaron Erter, CEO at James Hardie]

Thank you.

[Ryan Lada, CFO at James Hardie]

Thank you.

[Operator]

Your next question comes from the line of Daniel Sykes with Jarden. Your line is open. Please go ahead.

[Daniel Sykes, Analyst at Jarden]

Hi, Aaron and Ryan. Thanks for taking my questions. Just have two, really. Number one, just on the volumes. Obviously, it's very strong with the double-digit growth in exterior products. I was just wondering whether you could quantify the destocking. I know you mentioned it was kind of a soft comp, but in the context of that double-digit growth, what was the destocking impact in there?

[Aaron Erter, CEO at James Hardie]

Yeah. As far as from a dollar volume standpoint, we would say it was roughly $40 million-$50 million from a destocking standpoint. When we talked about our growth in fiber cement, we talked about those components really being roughly 1/3, 1/3, 1/3 of that type of 20% growth.

[Daniel Sykes, Analyst at Jarden]

Okay. Great. Then, just another one, just in terms of the definitional changes to Adjusted EBITDA. In relation to the old FY 2027 guidance, can you just confirm, was that under the same definition, or is the definition changed in this new guidance?

[Ryan Lada, CFO at James Hardie]

The original guide included stock-based comp in our Adjusted EBITDA. Now it would be excluded moving forward. I think the easiest way to restate the original guide would just basically add $50 million of stock comp back from the low to the high end of the guide at every point. That would be the major change. I think given where the stock value is today, some of that will go up a little bit, and that's why I think we realized about $15 million in the quarter. I think annualizing that's a safe bet for the remainder of the year. That's the major change there was about $50 million you could float through at any point of the guide.

[Daniel Sykes, Analyst at Jarden]

Okay, good. Thanks, guys.

[Aaron Erter, CEO at James Hardie]

Thank you.

[Operator]

Your next question comes from the line of Rafe Jadrosich with Bank of America. Your line is open. Please go ahead.

[Rafe Jadrosich, Analyst at Bank of America]

Hi, good evening. Thanks for taking my question. Obviously the pretty big beat and raise. Just the 2Q, the segment margins going forward are coming down on a percent basis for the full year for both siding and decking. Can you just talk about what the headwinds are there? Is that because of either inventory buyback or investments or mix? Just sort of bridge us to what's happening on a percent basis.

[Ryan Lada, CFO at James Hardie]

Yeah. I would say the major piece is, we called out the freight issue that we're seeing on the spot rate and kind of just availability. The other piece is really just driven off of the investments in these distribution partners. That's everything from sales to market activity to ensuring the right rate setups there. That's the major driver there. As the back half, as we said, right, I mean Q3, that October to December period is always the lowest from a D&A perspective. As it is, like with volumes up, the flow throughs are a little bit higher. You're not investing at the same rate. These investments kind of hit us from Q2 on, so that's why you're seeing that marginal decline.

[Rafe Jadrosich, Analyst at Bank of America]

Got it. Okay. That's helpful. Following up on the Decking & Railing, the sell-through up double-digit. You called out shelf space, taking some incremental shelf space. Can you just give a little bit more color on where that's happening? It does look like there's been some placement at Home Depot. Wondering if there's been more expansion at retail or if there's specific channels where you're seeing that. Thank you.

[Aaron Erter, CEO at James Hardie]

Yeah. We'll let Jon answer that.

[Jon Skelly, President and General Manager of North America Building Products Group at James Hardie]

Yeah. What you see is in the quarter, that's prime season. We landed a lot of additional shelf space gains during last year's early buy season. What you're seeing is that's when you actually get those conversions, right? That's when you place the inventory into the channel, once you drive the sell-through with that double-digit sell-through, that's what gets you the reorder points. Those new gains, in addition to the core business which continue to operate at a very high level, that's what led to some of the outperformance and sell-through. Core business performing pulling through the product at the gains that we got through early buy is what drove that double-digit.

[Aaron Erter, CEO at James Hardie]

Okay. I think that's

[Rafe Jadrosich, Analyst at Bank of America]

Thank you.

[Operator]

We have reached the end of the question and answer session. This concludes today's call. Thank you for attending. You may now disconnect.

Participants

Analysts

• Aaron Erter, CEO at James Hardie
• Ryan Lada, CFO at James Hardie
• Ryan Merkel, Analyst at William Blair
• Brook Campbell-Crawford, Analyst at Barrenjoey
• Keith Hughes, Analyst at Truist
• Keith Chau, Analyst at MST Marquee
• Phil Ng, Analyst at Jefferies
• Jon Skelly, President and General Manager of North America Building Products Group at James Hardie
• Peter Steyn, Analyst at Macquarie
• Tim Wojs, Analyst at Baird
• Harry Saunders, Analyst at E&P
• Matthew Bouley, Analyst at Barclays
• Daniel Sykes, Analyst at Jarden
• Rafe Jadrosich, Analyst at Bank of America