James Hardie Industries PLC

ASX:JHX

Earnings Call Transcript 2022-Q1

[Operator]

Thank you for standing by, and welcome to the James Hardie Industries JHX Q1 FY '22 results briefing. [Operator Instructions] I would now like to hand the conference over to Dr. Jack Truong, Chief Executive Officer. Please go ahead.

[Jack G. Truong, CEO & Director]

Good morning, and good evening, everyone. Thank you for joining us on our first quarter fiscal year 2022 earnings call. I will begin today's call by providing a brief update on our global strategy that was announced in our Annual Investor Day this past May. This is now the ninth consecutive quarter of our company delivering on strong financial results with growth above market and strong returns based on the consistent execution of our global strategy. Our CFO, Jason Miele, will then cover our financial results for the quarter and also an update on our full year guidance. After that, we'll open up for questions. Let's now turn to Page 5 for an update on our strategy. In our Investor Day at the end of May, we described our 3 critical strategic initiatives that will enable consistent profitable growth globally for our company from fiscal year 2022 to fiscal year 2024. The three strategic initiatives are: number one, expanding the James Hardie brand from a premium professional brand into a market-leading consumer brand that focuses on marketing directly to the homeowners to create true demand of our products; number two, penetrating and driving growth in existing and new markets such as repair and remodel; and number three, commercializing global innovations that allow us to expand into other exterior looks and to take advantage of the adjacent opportunities in each of our regions. In addition, we will continue to execute and build on a significant foundation we have built over the past 3 years. This foundation includes continue on our path of becoming a world-class manufacturer via LEAN, continuing to partner closely with our customers via push-forward strategy and continue to integrate our supply chain with our customers to serve the market. Let's now turn to Page 6 to discuss additional details on how we're driving profitable organic growth through marketing directly to homeowners. During our Investor Day, we shared details about our 360-degree integrated marketing campaign that reaches homeowners directly to create demand. As I shared with you then, the 4 phases of Christine's path of targeted homeowners to purchase our awareness, consideration, purchase and amplification. The TV campaign It's Possible with James Hardie is the foundation of the awareness phase. It illustrates through the power of emotional storytelling, the meaningful ways that a family find comfort, connection, joy and safety from their home made with James Hardie brand exterior products. These are the James Hardie brand exterior products that continue to make their homes beautiful over time and yet with superior durability that protect a family from the elements. To date, the TV commercial has been very successful in raising awareness of James Hardie with our targeted homeowners, the Christine's. We have received very positive feedback from homeowners, builders, contractors and customers. We continue to air this TV campaign in strategic growth markets across North America throughout the year. Consumers are relating to the emotional storytelling and are becoming more and more aware of the James Hardie brand and our exciting line of exterior products that meet their needs. After the homeowners are aware of James Hardie, it's important that we reach them with the right content at the right time as they consider the option to beautify the exterior of their home, which leads me now to Page 7 to discuss in more details of the consideration phase. In the second phase of the 360-degree integrated marketing campaign, we leverage on social media and key influencers to reach the homeowners as they consider their options. What you see on the left-hand side of this slide are just samples of the social media content that elevates the key emotional messaging from our TV commercial. We then engage, with Christine's, our targeted homeowners with concepts via relevant conversations in social media platforms that Christine frequently visits. To further augment and reinforce our story, we're partnering with key influencers and lifestyle experts such as Kia Malone to further expand our reach and to help educate the homeowners about the endless design possibilities with trusted protection that James Hardie brand exterior products can deliver. In this segment, by Kia Malone, which runs during the news hour in the Northeast of the U.S. and then amplified across all of our key social media platforms. Kia describes how the home exterior can positively impact its value' how upgrading with James Hardie brand fiber cement products provides a #1 return on investments of all major exterior remodeling projects; and how James Hardie brand fiber cement exteriors offer styles and colors that help achieve long-lasting beauty and how engineered for climate technology provides durability and peace of mind protection. You can watch a segment of many social media outlets, including our Instagram, LinkedIn and Facebook, as indicated on the right-hand side of this slide. We're tracking the impact of our marketing campaign, including web sessions, lead generated and of course, sales of high-value products. We're very encouraged with the early results. In fact, to date, our campaign had already delivered over 300 million impressions and reached Christine in the target market an average of 7x to 9x with the James Hardie story. What is also very encouraging is that traffic to our website by female consumers had increased 7x over the same period last year. Let's now turn to Page 8. The second of our 3 core strategic initiatives is to penetrate and drive profitable growth in repair and remodel segments. A key component of this strategy that we discussed during Investor Day back in May, is about driving the high-value product mix. On this page, you see the impact this particular strategy is having on our North American business. Starting on the left-hand side, what you see here is a plot of our current product portfolio in North America across 2 key criteria: price and value. In North America, we define our high-value products as our Hardie brand exterior products, Hardie brand exterior products with ColorPlus technology and all of our Hardie brand innovations including the recently launched Hardie Textured Panels. The focus of our strategy in driving a high-value product mix is to create awareness and higher demand for our differentiated line of products with homeowners in the remodeling segments where our value propositions are strong. In turn, it generates increased sales and margin for our customers and for us. Key strategic actions we are executing to drive high-value product mix are: one, shift in demand from Cemplank products to Hardie brand exteriors where appropriate; two, driving penetration of ColorPlus technology products in the R&R segments; and two -- and three, expanding into adjacent markets with our market-led innovations. On the right-hand side, what you see here is a significant impact this strategy had on our recent financial results in North America. Our teams are partnering with our customers to drive a higher value product mix and you can see the results in Q1. The blue line on this chart represents the percent volume growth for each quarter from fiscal year 2020 to Q1 of fiscal year 2022. The green bars represent percent price/mix growth across the same time period. If you focus on Q1 fiscal year 2022, you will observe the real impact that our strategy of driving high-value product mix had on our financial results. Not only did we see strong volume growth of 21%. But equally important, we also saw a significant step change price/mix growth of 7%. What this indicates is that by partnering closely with our customers, who have seen successful in shifting to high-value product mix and driving profitable growth. One not shown here, we have had similar success in Europe and Australia, New Zealand in delivering similar strong results. Expansion of high-value product mix while growing our overall volume, along with lean manufacturing and execution were the key drivers in offsetting input cost inflation and marketing investment in the first quarter. It enabled us to deliver a strong leverage to our bottom line in all 3 regions: North America, Europe and Asia Pacific. Turning now to Page 9 for an update on innovation. In May of 2021, we announced the launch of 3 new global innovations, Hardie Textured Panels in North America, Hardie Fine Texture Cladding in Australia and Hardie VL Plank in Europe. We had very good traction with market acceptance and penetration of all 3 products since the launch. We continue to partner with our customers to drive awareness and adoption. Feedback from homeowners and our customers in North America had been overwhelmingly positive. Hardie Textured Panels delivered the contemporary design solutions that fit any home style that homeowners want and need. In addition, they offer protection properties as durability, water resistance and fade resistance. What you see here are 4 examples of Hardie Textured Panels on 2 different homes in Oregon, 1 in California and 1 in Utah. What I would like to point out here about these pictures is how Hardie Textured Panels are prominent in a variety of home designs from contemporary look to coastal to mixed design. Turning now to Page 10. Similar to North America, feedback from homeowners and customers in Australia are also very positive. What you see on this page are 4 examples of Hardie Fine Texture Cladding in the Australian market which, as you can see, help to augment the modern design look that is prominent throughout the continent. As with Hardie Textured Panels in North America, Hardie Fine Texture Cladding offer endless design possibilities for homeowners, while delivering on protection that homeowners need: durability, water resistance and non-combustibility. Moving to Page 11. In Europe, we are also very pleased with the progress of our Hardie VL Plank product. Installers have been consistent in their positive feedback about the current savings the Hardie VL Plank offers compared to competitive solutions. Hardie VL Plank saved approximately 20% on total installation time. On this page, you see examples of Hardie VL Plank in the U.K. and French markets. What I would point out is how Hardie VL Plank helped to protect and provide a mixed design modern look which is becoming more popular with homeowners across the Western European continent. We are excited about these new innovations and how they will allow us to continue to penetrate and grow in large adjacent market in each of our 3 operating regions. While we're excited about the early success of these 3 new innovations, our global innovation program is much bigger than just these 3 products. Our innovation team is focused on our innovation pipeline to ensure we will have additional new innovations to provide endless design possibilities with superior durability and protection for the home owners around the world. Turning to Page 12 for a summary of our global results for the first quarter. This is now the ninth consecutive quarter we delivered consistent financial results, growth above market and strong returns. Specifically, in the first quarter, we delivered global net sales of over USD 843 million, which is 35% growth versus the prior corresponding period. And we delivered a global adjusted net income of more than USD 130 million, which is an increase of 50% over the prior corresponding period. Most important is that we delivered strong financial results in all 3 regions for 4 consecutive quarters. As all 3 regions delivered exceptional double-digit growth in both net sales and EBIT, in North America, driven by strong momentum in high-value product mix penetration and share gain, we achieved net sales of more than USD 577 million, a 28% growth; EBIT of more than USD 169 million, a 29% growth for a continued strong EBIT margin of 29.3% for the quarter. In Europe, we delivered 4 straight quarters of strong organic growth. Net sales of more than EUR 103 million, 37% increase over the prior corresponding period; EBIT of more than EUR 13 million for a very good EBIT margin of 13.1%. In Asia Pacific, with strong performance in all 3 countries, we delivered net sales of AUD 184 million, a 33% growth, and EBIT of AUD 50 million, a 50% growth and a strong EBIT margin of 27.4%. Our strategy of driving penetration of high-value product mix in all 3 regions, along with lean manufacturing execution were the key drivers in delivering positive leverage to the bottom line in all 3 regions. This was achieved against a backdrop of high input cost inflation and higher investments in marketing and innovation during the quarter. I would like now to turn over to our CFO, Jason, to provide additional details on our financial results.

[Jason Miele, Chief Financial Officer]

Thank you, Jack. Good morning and good evening, everyone. I will start on Slide 14 with our global results. This is our fourth straight quarter with record global results including quarterly records for net sales, adjusted EBIT and adjusted net income. This also marks the fourth consecutive quarter we've been able to deliver strong results in all 3 regions simultaneously. In the first quarter, each region again delivered double-digit net sales growth and double-digit EBIT growth while also expanding their adjusted EBIT margin. In my view, our ability to expand global adjusted EBIT and EBITDA margins, and our ability to drive leverage on our outstanding top line results is the real standout of our first quarter results. We invested significantly in our strategic initiatives during the quarter, with SG&A up 36% globally. And like most companies, we had significant inflationary cost pressures, yet we were able to still drive margin expansion and drive leverage to the bottom line with adjusted net income improving 50% on a plus 35% net sales performance. As I just mentioned, global net sales increased 35% to USD 843.3 million. This excellent top line result was driven by strong volume growth in all 3 regions, totaling 25% global volume growth and net sales growth included 10% price/mix improvement as our teams in all 3 regions successfully gained momentum in driving a higher value product mix. Through continuous improvement of lean manufacturing globally, and integration of our supply chain with our customers, we were able to translate that strong top line result into an even stronger bottom line outcome. Global adjusted EBIT improved 45% and global adjusted net income increased 50%. Global adjusted net income in the first quarter of USD 134.2 million represents another all-time record high for a quarter. And as I mentioned earlier, we were able to expand our global adjusted EBITDA margin by 110 basis points to 26% in the first quarter. We continue to generate strong cash flow with operating cash flow of USD 184.1 million in the first quarter. It is worth noting that these first quarter results are not reflective of simply comping an easy prior quarter due to COVID. Our first quarter results last year included our global net sales down only 5%, adjusted EBIT flat and adjusted net income was only down 1% in the prior period. I will now review each region in more detail, starting with North America on Page 15. In North America, the team delivered another outstanding quarter. In the first quarter, net sales increased by 28% to USD 577.1 million. This represents the highest net sales in 1 quarter ever achieved by the North American business. It is worth noting that this first quarter result was against a comp of flat last year. This significant growth was driven by our continued focus to partner and integrate with our customers. In addition to strong volume growth, the team began gaining momentum in high-value product mix penetration with our customers. Price/mix improved by 7% and our expectation is we will deliver price/mix improvement of 7% to 9% for the full year. These outstanding top line results were coupled with even better adjusted EBIT growth, which increased by 29% in the quarter to USD 169.3 million at an EBIT margin of 29.3%. The exceptional adjusted EBIT and margin results were driven by strong organic volume growth particularly of high-value products and continued lean manufacturing savings. These margin-accretive items were partially offset by our significant investment in growth initiatives and inflationary cost headwinds. The North American team continues to deliver consistent double-digit net sales growth at a step-changed EBIT margin level. Turning now to Page 16 to discuss the European results. In Europe, the team delivered a fourth straight quarter of strong results and a third straight quarter of double-digit net sales growth. In the first quarter, net sales increased 37% to EUR 103.3 million. The team remains focused on high-value product mix penetration with our customers. Fiber cement net sales increased 91% in the quarter, which contributed to a 9% improvement in price/mix. The combination of strong volumes, improved price/mix as well as LEAN improvements resulted in Europe adjusted EBIT margins expanding year-over-year to 13.1%. Fiscal year 2022 represents the start of the fourth full year since the Fermacell acquisition. The European team is now fully integrated into James Hardie, and they have started fiscal year '22 with significant momentum. Let's now move to Page 17 to discuss Asia Pacific. In the first quarter, net sales increased 33% in Australian dollars. You will note that Asia Pacific price/mix was negative for the quarter, this was due to the significant shift in Philippines sales volumes as a percentage of the total. In the prior first quarter, the Philippines was shut down for much of the period due to COVID restrictions. However, in our Australia and New Zealand business, we are achieving similar results to that of North America and Europe with price/mix growth of 6% as the teams have strong momentum and high-value product mix penetration with our customers. The strong top line results in the first quarter were translated into even stronger bottom line results with adjusted EBIT growth of 50% to AUD 50.4 million at an EBIT margin of 27.4%. That is a 300 basis point -- that is 300 basis points of margin expansion versus the prior first quarter. Moving now to Page 18 to discuss operating cash flows and capital expenditures. We had strong operating cash flow of USD 184.1 million in the first quarter and the trailing 12-month operating cash flow was up 56% to USD 781.8 million. On the right-hand side of the slide, you see a summary of our capital expenditures. In the first quarter, capital expenditures totaled USD 43.4 million. Production at our Prattville, Alabama facility continues to ramp up and is on track to be the best startup in our history globally. Sheet machine 1 started saleable production in March and sheet machine 2 began saleable production in July. We believe this additional capacity will help us to continue to drive profitable growth and gain market share throughout fiscal year 2022. Looking forward, we expect total capital expenditures to average between USD 250 million to USD 350 million per year over the 3-year period of fiscal year '22 through fiscal year '24. This is an increase to our prior capital expenditure guidance and reflects greater investment in future capacity, both brownfield and greenfield, in all 3 regions as we continue to drive profitable growth. Adding the right capacity at the right time positions us to continue to drive market share gains and flow products to our customers and the end users. Moving to Page 19, we'll discuss capital management and allocation. Our strong capital structure and cash flows have enabled us to execute on all of our capital allocation objectives. We continue to preserve a strong liquidity position and financial flexibility. And we are positioned to continue to invest in organic growth, including capacity expansion, market-driven innovation and marketing directly to the homeowner. We remain focused on investing in growth and returning capital to our shareholders while continuing to strengthen our balance sheet. Finally, let's turn to Page 20 to discuss guidance. Our significant momentum and high-value product mix penetration in all 3 regions, combined with continued market share gains and lean execution gives us confidence in raising the adjusted net income guidance range while also committing to further investment in our growth initiatives. We have raised our adjusted net income guidance to a range of USD 550 million and USD 590 million. The comparable figure for the prior year was USD 458 million. The revised guidance range represents a 20% to 29% year-on-year improvement in adjusted net income. Specific to our North America segment, we are providing 2 points of guidance. First, for North America net sales for the full year fiscal year 2022, we expect growth greater than 20%. And we expect price/mix growth of between 7% and 9%. We've also revised our guidance regarding cost of goods sold, inflation and investment in our strategic initiatives. Globally, we're anticipating between USD 120 million to USD 150 million in cost of goods sold inflationary headwinds in fiscal year '22 versus fiscal year '21. We have also increased our fiscal year '22 expectation for investment in our growth initiatives. We now expect to invest between $100 million to $120 million in strategic growth initiatives. Our first quarter results were exceptional. We delivered margin expansion in all 3 regions amongst a backdrop of global cost inflation and while investing aggressively in our strategic growth initiatives. We have now concluded our prepared remarks. I'll hand it over to the operator to commence the Q&A portion of today's meeting.

[Operator]

[Operator Instructions] Your first question comes from Peter Steyn from Macquarie.

[Peter Steyn, Analyst]

Congrats on the results. Perhaps just 2 questions. Just on your CapEx guidance, Jason, you mentioned greenfield and brownfield intentions in all 3 regions. Could you perhaps give us a little bit more detail there in terms of some of the nascent thinking where the investment is likely to focus?

[Jason Miele, Chief Financial Officer]

Yes, Peter. Obviously, we're focused on high-value product penetration. And so as we think about new capacity, it will be through that lens as well as innovation. But as mentioned earlier, we do expect to have greenfield capacity expansion in all 3 regions. So in Australia, Europe as well as North America.

[Peter Steyn, Analyst]

So we're moving closer to fiber cement in Europe. Are we? in the context of the sales performance.

[Jack G. Truong, CEO & Director]

Value is still playing, Peter.

[Peter Steyn, Analyst]

Okay. Perfect. And then my second question would just be around the cost guidance, obviously, increasing that. Just curious on the SG&A and R&D space. Is it largely a function of increased marketing spend? And is that a consequence of better outcomes than what you've been expecting at this stage that you're wanting to ramp up that investment? Or perhaps just a little bit of detail and sort of strategic thinking around that?

[Jack G. Truong, CEO & Director]

Peter, that's a very good question. Yes. So as I had mentioned, the early results of our campaign have been very successful, allow us to really reach the right target groups, which is really the Christine's, the female homeowners that fit our demographics as well as they live in the homes that really need to be remodeled. And then so it is -- so that's -- based on those data, we -- and the financial results coming out of that, what we see is a really good path for us to continue to not only continue with the program but accelerate and then expand throughout the U.S. as well as in other parts of the world that we operate in. And second is that we also have a full line of innovative products that we plan to launch and commercialize. So it is about being able to drive growth with high margin and then be able to reinvest some of that to continue that path.

[Peter Steyn, Analyst]

Perfect. That makes sense. And in the meantime, you've got the capacity to very easily serve the market that's coming at you as you see it and via incremental investment from a marketing point of view.

[Jack G. Truong, CEO & Director]

Correct.

[Operator]

Your next question comes from Andrew Scott from Morgan Stanley.

[Andrew Geoffrey Scott, Executive Director]

Well done and great results. Just a couple of questions. Jack, given the market strength, just interested in your thoughts on announcing a second price increase for this year?

[Jack G. Truong, CEO & Director]

Well, Andrew, you know that our plan has always been that we do value pricing. And so we will be taking our annual price increase about the same time every year. The only difference is that this past year, we moved our price increase up to really align with the beginning of the calendar year. So it is our -- that is our path.

[Andrew Geoffrey Scott, Executive Director]

Okay. Understood. Just the market might have been strong enough to sustain a second increase.

[Jack G. Truong, CEO & Director]

Well, it is. Our strategy is really about delivering more value to our consumers and customers, and it's really about making sure that we can market the high-value products that deliver a strong value [ contribution ] to the homeowners. And that is our strategy. And that's what you saw in our Q1 results, that we are able to get that price/mix to go higher, much higher than the normal price increase -- invoice price increase for sake of invoice price increase.

[Andrew Geoffrey Scott, Executive Director]

Absolutely, it was a great outcome there. Just second question. We can't talk about industrials companies at the moment without focusing on supply chain. So just interested, can you talk about any specific inputs for you that are not just seeing price appreciation, but actually difficulty obtaining those supply? And in terms of your supply to customers, how is that tracking? Maybe if you can talk about service metrics, whether it's delivery in full or other metrics, please?

[Jack G. Truong, CEO & Director]

Yes. I think, Andrew, if you look at our, I think, Slide 8 or 9 that really shows the volume growth that we have in North America the past 7 or 8 quarters, we're able to deliver volume to the marketplace in North America in double digits, and we will continue to do so. And as you know, that we have Prattville, I think Jason mentioned that the start-up of Prattville line, line 1 is going well and we just started line 2. And then together with the lean approach and our supply chain integration of our customers that would allow us to essentially make the right products that the market needs and then be able to flow the product from production line to the marketplace. So these are the key initiatives that we have been driving within our company to ensure that we serve the markets on what the products can deliver the value.

[Operator]

Your next question comes from Lee Power from UBS.

[Lee Power, Analyst]

I was expecting to see COGS guidance maybe drive some of the NPAT upgrade. Can you just talk a little bit about what you're seeing there now that COGS inflation guidance is to the top end of the range, maybe around freight and pulp just because it seems like a lot of them have started declining. So I'd just like to get your thoughts.

[Jason Miele, Chief Financial Officer]

Yes, Lee. It's a good question. So I'd say it's more of a narrowing of a range than increasing. So obviously, we have 3 more months of actuals under our belt and better sightlines into the future. Certainly, pulp and freight, while they haven't gone down significantly, they've normalized a bit. The other piece of that guidance would be our expectations around volumes have increased since the last time we spoke. And that guidance is in total dollars. But that's going in the opposite direction.

[Lee Power, Analyst]

Okay. That makes sense. And then maybe can you talk about Australian manufacturing? Have you seen any impact through lockdown at Rosehill?

[Jack G. Truong, CEO & Director]

No. Fortunately, we're able to continue to run our plants in Australia, both in Rosehill and Carole Park to be able to serve our customers.

[Operator]

Your next question comes from Lisa Huynh from Citi.

[Lisa Huynh, Research Analyst]

I'm just interested in the ASP uplift you guys saw in North America. I guess, can we kind of talk about -- talk about that in a little bit more detail on what contribution to the ASP uplift we saw from pulling forward the annual price increase, but also higher value products?

[Jack G. Truong, CEO & Director]

Yes. So this is really the first full quarter that we really fully execute the high-value product mix penetration. So the way to think about that is that it's very -- 2/3 of what we've seen there is related to price and [indiscernible] price and 1/3 to the mix. And as we have indicated at the Investor Day as well as last quarter earnings, number one, that we would shift the market from the [ fighting ] brand of Cemplank into Hardie Brand. And then second is that as we penetrate more into the repair and remodeling market, particularly remodeling, that our color products is where we offer the highest value proposition to the markets. And as we invested in marketing and reaching the homeowners and really tell that story about the superior products that James Hardie has, that really drove a lot of the growth of our color products.

[Lisa Huynh, Research Analyst]

Yes. And I guess as a follow-up, all that 1/3 of the ASP improvement that's been driven by the higher value products. Would you -- it sounds like a large proportion of that is transitioning the customer base from Cemplank to the more standard Hardie board rather than a big uptake of textured panels as it currently stands. It's still early days, I understand.

[Jack G. Truong, CEO & Director]

That's correct. So the way to think about it, Lisa, is that the -- in the first quarter results, a lot of that was due to the transition from Cemplank to Hardie brand planks, Hardie brand products. And then second is the Hardie brand exterior with ColorPlus technology. That's what we -- the product that we penetrate into remodeling segments. And then there's a little bit of a new in market-led innovation in there, but it's too early for that to gain momentum as part of the overall mix yet. But as time goes on, we should expect to see that the color product will continue to accelerate. And then, of course, with the market-led innovations.

[Operator]

Your next question comes from Sophie Spartalis from Bank of America.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Jack, just with regards to the manufacturing strategy going forward, it seems that you've brought on a lot of the brownfield and greenfield capacity. Just from a top down level, are you still envisaging having particular plants producing particular products? And how do you expect to service market? Or will it be more of a, I guess, integrated network servicing sort of full country? Can you just talk through the strategy there, please?

[Jack G. Truong, CEO & Director]

Yes. So certainly, the greenfield and brownfield capacity, really big capacity for [ region ]. We don't move product from one region to another region. So as we begin now to really -- to accelerate our growth and you know the size of our business today now is a lot bigger than it was 3, 4 years ago. And at the growth rate that we would expect to plan for is that we are really getting into the stage where it is about having more of what we call a focus factory or -- certain plants are really dedicated, we do certain type of products so that we have a more integrated network to serve our markets a lot better.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. So you're going down the route of dedicated plants for different products servicing the entire U.S. region?

[Jack G. Truong, CEO & Director]

Correct. For example, I think we have announced in the last quarter earnings that the Summerville plant in South Carolina that we're about to recommission, that plant will be pretty much dedicated to reducing our fighting brand products, for example.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. That's clear. And then just in terms of the geographical mix that you're now seeing for this higher value product initiative. Are you gaining share in sort of your traditionally weaker market? Can you maybe just provide some color as to where the volumes are going, particularly in the U.S. and Europe?

[Jack G. Truong, CEO & Director]

Yes, because during -- with the recent COVID environment, the consumer behavior has really changed. Let me walk you through just a couple of examples. In the U.S., so we have more and more people want to remodel their homes because price of home is going up. And then certainly new construction has not been building enough homes to satisfy the needs in the marketplace. So there has been a heightened awareness as for need for homeowners to stay put and then remodel their homes. So that's -- so we can see a lot more of the remodeling activities. And when -- so if we're able to reach those homeowners and when they're about to want to remodel, and that is where a lot more of our high-value products like the Hardie brand exterior color where we can deliver different -- many different type of designs that would fit the homeowners' needs. And it's someone in Northeast of the U.S. can have the shingles with the cedar shake type of look or the woods look and that someone in the West Coast of the U.S. can have more the modern flat look. And we do have those products now that can satisfy those needs. And then if you move across to Europe. And for -- right now, there is -- in Germany, for example, there's a lot more folks that like to remodel their condo, their apartments because that's really the living behavior in Germany, for example. And so when that happens, what we see more and more people would like to use the fiber gypsum product from James Hardie, particularly the flooring products, our products that are very durable. It is one board that can deliver on the impact resistance, the acoustics attenuation properties as well as compliant with the fire rating code. So it's really -- so a lot of these behaviors are happening now is really playing into our strength of having a diverse portfolio of products that can satisfy those changing consumer needs.

[Operator]

Your next question comes from Simon Thackray from Jefferies.

[Simon Thackray, Equity Analyst]

Just like to explore -- just wanted to explore a little bit more the mix shift that you observed that got you to your 7% in North America. In particular, with Cemplank, I just want to understand how much of that shift was by convincing folks that a significant price rise in the commodity board was occurring? What was the sort of extent of price rise or price lift that you saw in commodity board that helped convince folks also to move towards value product, branded product?

[Jack G. Truong, CEO & Director]

Simon, it's more of the fact that we are able now to communicate the value that we deliver not only to our direct customers but also to the homeowners and the builders in that with the Hardie brand exterior products. We have much better service. And at the same time, our products have much better -- the Hardie brand products have much better warranty for the homeowners. And those are really the key value that we're able to move the market from Cemplank to Hardie brand. And also, at the same time, the Cemplank brand is more of the fighter brand, it's not so much of a brand that would deliver more value to the consumers and the homeowners. And then through the Hardie brand exterior, they can upgrade to different combination with colors and then rehab the total exterior of the home that have many different type of designs that various homeowners around the country really want the need.

[Simon Thackray, Equity Analyst]

Which is [indiscernible].

[Jack G. Truong, CEO & Director]

That is Cemplank brand, yes.

[Simon Thackray, Equity Analyst]

So the value -- it was really the value proposition that [ did the ] shift more so than pushing hard on price in Cemplank to convince people that that value proposition made sense?

[Jack G. Truong, CEO & Director]

So first -- first and foremost, it's really about having the home owners really be able to have different designs based on a broad portfolio of Hardie brand products. I mean Cemplank is also a very narrow brand. And also at the same time, we also took some really big price increase on Cemplank at the same time to make sure that we can narrow that gap. So it's the combination of two that really pushed it across.

[Simon Thackray, Equity Analyst]

Yes. Okay, that makes sense. And just noting your comments previously, price/mix expectations were 4% to 6%, they're now 7% to 9%, which is showing great confidence and great traction with the strategy. You -- I'm interested from both of you how that upgrade to price/mix is also influencing your thoughts around CapEx and capacity going back to Peter's original question. To what extent has that sort of increased your ambitions or accelerated your ambitions for capacity and CapEx for the business to meet future demand?

[Jack G. Truong, CEO & Director]

Well, I think, Simon, a couple of things that -- this is what we mentioned in our Investors Day, is that we're now in the position of driving -- creating and driving demand of our products and through marketing directly to the homeowners and then, of course, through innovation. Because the remodeling market is a very large market in the geography that we operate in. And up until now is -- for the exterior of the homes is -- no brand or no company has really talked to the homeowners and really shown them the different benefits that the product can deliver. And we are -- that's our strategy. It's really about driving, creating the demand of our high-value products directly to the homeowners and be able to bring that demand to our customers. So it is a -- the early success that we have has really gave us some really good confidence that as we continue to drive more profitable growth that we can reinvest in marketing and innovation and then to be able to be in a position to accelerate growth. And through that, we know that we have to look very hard at our capacity plan and to make sure that we have the right plan in place to be able to be in a position to grow at that level.

[Simon Thackray, Equity Analyst]

That's super helpful, Jack. And just against that background, though, I mean, the homebuilders have talked about capacity constraints, we talked about in Australia and New Zealand, increasingly in Europe. Has that been a limiter? Or do you think that's a limit on some of the volume aspirations? Are there bottlenecks in the industry that are perhaps even holding back what are very impressive numbers in this quarter. Is there any sort of not concerns, but are there any sort of speed limiters within the industry, the construction industry for you guys that you can see this year?

[Jack G. Truong, CEO & Director]

Simon, it's really about -- as we look at capacity and expansion of our footprint and growth, we want to make sure that because now that we have [ gotten ] the capability of communicating directly and marketing directly to the homeowners, we want to make sure that we market and sell high-value products as opposed to market and sell low-end stuff. And that really adds little value to the homeowners. So we're -- as we make this transition to drive growth, it's important that we would stick to our strategy of really driving the growth of those key products as opposed to just grab volume just for the sake of volume.

[Simon Thackray, Equity Analyst]

Sure. But sorry, I think what I was saying is, are you seeing any industry bottlenecks, any industry constraints on just being able to actually physically do the work? Get the work done?

[Jack G. Truong, CEO & Director]

And there certainly -- in this time certainly the trend of lack of skilled labor is still a pretty strong limiting factor. And I think that's really been faced across all geographies.

[Operator]

Your next question comes from Daniel Kang from CLSA.

[Daniel Kang, Research Analyst]

Listen, I had -- I guess a question on North America, really strong performance, another record result, sales up 28%. But EBIT was only up a similar amount by 29%. So we're not seeing that operating leverage come through. Is that due to primarily just the reinvestment growth initiatives?

[Jack G. Truong, CEO & Director]

That's correct, Daniel. As you know, we have a very big market and integrated marketing campaign that we that we started really about the beginning of the year and then accelerated through the quarter. And that will continue to be a key driver for profitable growth in our company. And so that is what you saw is the -- not as much in leverage to the bottom line as you see in other regions. And also at the same time, we have -- this also comp toward the backdrop of very high inflation on input costs that we experienced during the quarter.

[Daniel Kang, Research Analyst]

Got it. And then the price/mix performance, very impressive, just very early in the campaign, both in North America and ANZ. You've provided some guidance for North America to 7% to 9%, which makes sense as the campaign gains momentum, it accelerates. Should we expect a similar scenario for ANZ from 6% towards that 7% to 9% level?

[Jack G. Truong, CEO & Director]

It is too early to tell yet in ANZ, Daniel, because the key driver that we have in North America that we started consumer marketing campaigns just about beginning of the year. So we're gaining that momentum here in the U.S., and we have yet to start in Australia. So that remains to be seen.

[Operator]

Your next question comes from Keith Chau from MST Marquee.

[Keith Chau, Basic Industrial Analyst]

My first question, focusing on the North America division, a great outcome for the period, obviously. Just wondering if you can give us a steer on how exteriors and interiors volumes are tracking in the second quarter to date. And for the first quarter just completed, were there any particular standout regions in the U.S. where you saw outsized growth or whether there were any competitive substrates you think you took share from at a higher rate than what you'd normally conserve?

[Jack G. Truong, CEO & Director]

Well, I think first -- the first question, Keith, is that in North America, we see very, very strong growth in the [ Low S ] area. And it is no surprise, and that's the area where the color product gains a lot of penetration, and that's also the area that high concentration of remodeling type of job. So it is an area that we are gaining a lot of momentum during this past quarter, along with, of course, in our traditional area.

[Keith Chau, Basic Industrial Analyst]

Sorry, Jack, did you say the lower U.S.?

[Jack G. Truong, CEO & Director]

In the Low S, which is the Northeast, Canada and the Pacific Northwest.

[Keith Chau, Basic Industrial Analyst]

Okay. Great. And sorry, just going back on the interiors and exteriors growth in the period to date. Can you give us a bit of a steer on where that's tracking at the moment?

[Jack G. Truong, CEO & Director]

Well, so our focus is really on -- really drive high-value product mix. So we now look at the total volume. And we're running around mid-teens.

[Keith Chau, Basic Industrial Analyst]

Yes. Okay. Cool. And then just a follow-up on the question on CapEx and the potential European plant. In periods gone by, you've always been a fan of kind of setting key milestones before setting new targets. One example being the EBIT margin target for the North America Fiber Cement division. So in that context, if you look at intentions to put on a fiber cement plant in Europe, what are some of the key milestones that you want to see as a management team for that business to be tracking that before formally committing to a plant -- fiber cement plant in Europe?

[Jack G. Truong, CEO & Director]

What is right now the key that we keep that in internal confidential right now. But certainly, what I can share is that the target that we set out for Europe back in February 2019 in terms of having the exit EBIT margin coming out at the end of this year to be in that 14% range is kind of the first milestone that we really want to and to get to -- to be able to have the right operating approach to put investment for fiber cement. Because to really get to that level, it means that we needed to have a certain amount of revenue in fiber cement at the right mix that would allow us to accelerate towards our ambition of having a EUR 1 billion business -- total business in Europe with 20% EBIT margin by 2029.

[Operator]

Your next question comes from Peter Wilson from Credit Suisse.

[Peter Wilson, Associate]

Would you mind giving us some market commentary, specifically commentary on the repair and remodel market in North America? Because in recent weeks, there's been a bit of mixed commentary from U.S. companies, some saying that the R&R market is still very strong and others saying that demand is starting to come off. So just interested in what you're seeing right now in the R&R segment?

[Jack G. Truong, CEO & Director]

Peter, what we actually see is R&R market is quite strong. I mean what we saw particularly this past quarter is that the -- we estimate the market growth in R&R is roughly 15% in the U.S., particularly. And also given that the -- I think someone asked about the effects of COVID or the Delta variant, still a lot of folks who still want to work from home. And so there is a heightened need to continue to remodel their homes. And also at the same time, there's not enough of new homes being built to really satisfy the needs of all the demand for homes out there. And so the low interest rate is still here. So we -- so we still -- we see a lot of key indicators that we continue to point to a strong R&R market going forward.

[Peter Wilson, Associate]

Okay. Okay, good. And then in the context of your expectations in North America to deliver above-market growth this year. Can you speak about the customer piece right now in North America? Because I imagine for Hardie, there's some very happy customers, but for some of the other suppliers who are capacity constrained and have customers on allocation that there's some pretty dissatisfied customers. Can you speak to what is like on the ground there now and how that customer piece feeds into your expectations for the rest of the year?

[Jack G. Truong, CEO & Director]

Well, I think the key for us is that we continue to add more value to our customers by ensuring that our customers make more money selling our products than our competition. And that means that we need -- our job and our role is to create demand of our high-value products with the homeowners so that we can bring that demand to our customers to really turn that into sales for them and then sales for us. And at the same time, as we integrate our supply chain with our customers, this allows us to serve the market through our customers better than our competition. So those are the 2 key values that we're delivering to our customers to ensure that we continue to add more value to them so that we continue to build a stronger partnership every day with our customers. Not only in North America, but it's also in Asia Pacific and also in Europe. And you see that our results across all 3 geographies have really been strong for the last 4 quarters.

[Operator]

Your next question comes from Paul Quinn from RBC Capital Markets.

[Paul C. Quinn]

Just 2 easy questions. One, great to hear that Prattville is coming up nicely. Just if you could remind us what the volume addition to that plant is on a North American basis?

[Jason Miele, Chief Financial Officer]

Yes, Paul, on a nameplate capacity basis, both those lines are 300 million standard feet nameplate capacity.

[Jack G. Truong, CEO & Director]

Each.

[Jason Miele, Chief Financial Officer]

Each. Correct. So total for those first 2 sheet machines in Prattville is 600 million standard feet, nameplate.

[Paul C. Quinn]

Okay. And then just on ColorPlus. If you could give us an indication, I mean that seemed like one of the areas for growth for ASP, what the market penetration is? So what ColorPlus is as a percentage of Hardie branded products?

[Jack G. Truong, CEO & Director]

It is still relatively lower than our expectation and really, frankly, hasn't grown -- that mix hasn't grown during the past few years. So it is a big focus for us. And the key driver for us is really being able to market and reach directly to the targeted homeowners to be able to tell that value story. And that is really the key initiative of consumer market and that we're driving to really accelerate the growth of color. Because that is a big opportunity for our company going forward, particularly when -- with the remodeling segment is a growth segment that we see.

[Paul C. Quinn]

Okay. So to help us track where are you at now then?

[Jack G. Truong, CEO & Director]

I don't think we disclose that.

[Paul C. Quinn]

In round numbers.

[Jason Miele, Chief Financial Officer]

Yes, we historically don't disclose the split of ColorPlus versus Hardie brand, Paul.

[Paul C. Quinn]

So there's basically no way for us to track the growth at ColorPlus, right?

[Jack G. Truong, CEO & Director]

Not today, but I think we're -- when your [ contract ] is really about our high-value product mix that we disclosed. We just include the Hardie brand exteriors, the Hardie brand exterior with ColorPlus and then assume with the Hardie brand market led innovations.

[Operator]

There are no further questions at this time. I'll now hand back to Dr. Truong for closing remarks.

[Jack G. Truong, CEO & Director]

Well, so before we end the call, I would just like to take the opportunity to extend my gratitude and thanks to all James Hardie colleagues from around the world. Our exceptional financial results in the first quarter of fiscal year 2022 are the direct result of the continued execution of our global strategy together as a global company. These outstanding first quarter results are another indication that we're truly a new James Hardie company. A company that continued to leverage on its global reach, its global capabilities, and its global scale to execute together and deliver on our financial results consistently. I'm excited for the remainder of the fiscal year 2022 and beyond as we continue in this next phase of profit growth. Thank you, and have a good night, and good morning.

[Operator]

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