James Hardie Industries PLC

ASX:JHX

Earnings Call Analysis

James Hardie Projects Strong Q3 in FY24

Amidst a challenging market landscape, James Hardie has demonstrated resilience with robust earnings and strategic growth in high-value products, particularly in Europe. The European increase in EBIT by EUR 7.1 million, fueled by greater net sales prices, contributed to a sturdy EBIT margin improvement to 10.7%. Key financial achievements include strong operating cash flow of $459.1 million in FY'24's first half and improved liquidity of $1 billion. With significant capital allocated to organic growth and shareholder returns, including a new $250 million buyback program, the company maintains a sturdy financial position. For Q3 FY'24, guidance suggests North America volumes between $730 million and $760 million standard feet, EBIT margin of 30-32%, and global adjusted net income of $165-$185 million, indicating confidence in continued growth and market outperformance.

Standing Strong Amid Challenges

Despite a backdrop of economic hurdles, our company showcased remarkable strength and stability during the second quarter, maintaining consistent performance akin to the previous year. Our global team's steadfast execution led to flat year-over-year group net sales of just under $1 billion. Notably, adjusted net income edged higher by 2% to reach $178.9 million, while our adjusted EBITDA margin stood strong at 28.6%. A substantial year-over-year operating cash flow boost resulted in a record high of $459.1 million, marking a whopping 74% surge. This is a testament to our strategy's success and our commitment to controlling manageable aspects of the business.

North America: A Mix of Growth and Challenge

In North America, our net sales dipped by 2% to $734.4 million, which, considering the circumstances, showcases a keen ability to manage a downturn wisely. A 2% price increase helped mitigate a 5% slump in volumes, which remained atop our guidance range. The overall housing market took a considerable hit, but our ability to grow our share against competitive materials shone through visibly. With a material conversion advantage, we've also continued to grow our Contractor Alliance Program, reaching a record membership. Furthermore, we've seen our North American EBIT margin soar by 330 basis points to a historic peak of 31.7%, driven by pricing strategies and cost efficiency measures like reduced freight and pulp costs.

Europe's High-Value Strategy Pays Off

Our focus on high-value products in Europe fuelled a significant EBIT growth to EUR 7.1 million, attributed to a strategic rise in selling prices. While higher labor and energy costs pushed production costs up, the leap in EBIT margins to 10.7% indicates a firm control over profitability. Investments ramped up in selling support and growth initiatives, as we look to push our high-value product strategy into the next fiscal year.

Strong Cash Flow and Liquidity Position

Our financial foundation was reinforced by formidable operating cash flows, leveraging our robust margins. The first half of FY '24 saw operating cash flows of $459.1 million, thanks in part to an $82.7 million improvement in working capital. The Hardie Operating System played a crucial role in this achievement. We maintained liquidity of $608 million, complemented by a healthy leverage ratio and strategic capital allocation—evident in paid down debt, share buyback programs, and consistent investment in organic growth. Our capital expenditures in the first six months totaled $232.6 million, and we project roughly $550 million in such investments through FY '24.

Guidance Forecasts Steady Performance

Looking ahead, we anticipate North American volumes will hover between $730 million and $760 million standard feet, an estimation showcasing our intent to maintain momentum. In terms of profitability, the forecasted EBIT margin sits attractively in the range of 30% to 32%, signaling our confidence in sustained operational efficiency and market leadership.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by, and welcome to the James Hardie Second Quarter Fiscal Year 2024 Results Briefing.Today's briefing is hosted by James Hardie CEO, Mr. Aaron Erter and CFO, Mrs. Rachel Wilson. After the briefing, we will open the lines to Q&A. And I will remind participants to limit your questions to 1 plus a follow-up. After the Q&A, I'll turn it back to Mr. Erter for closing remarks.I would now like to hand the conference over to James Hardie CEO, Mr. Aaron Erter. Please go ahead, sir.

[Aaron Erter, executive]

Thank you, operator. Good morning and good evening to everyone, and welcome to our second quarter fiscal year 2024 results briefing.Turning to Page 2, you will see our standard cautionary note on forward-looking statements. Please note that the presentation today does contain forward-looking statements and the use of non-GAAP financial information. Also, except where we explicitly state otherwise during our prepared remarks, all references to monetary amounts should be assumed to be in U.S. dollars.Moving to Page 3, you will see our agenda for today. Before we begin, I would like to take a moment to introduce you to our new Chief Financial Officer, Rachel Wilson. Rachel brings an impressive track record of over 25 years of experience, including extensive involvement in corporate finance, capital markets, leadership and development of high-performing teams, along with a demonstrated focus on driving profitable growth. We are thrilled to have Rachel join our team, and I am looking forward to partnering with her as we continue to harness James Hardie's momentum. Over the last year, we have continued to add talent, invest in the development of our team and align our structure to support our strategy. In my first year, we have consciously built our talent and select areas such as HR, marketing and technology while also supporting our existing team. Rachel will now share with you in her own words, why she chose to join the James Hardie team.

[Rachel Wilson, executive]

Thanks, Aaron. I'm grateful for the warm welcome and onboarding support that I have received.First off, I want to tell you how excited and honored I am to be joining James Hardie as CFO. In choosing to be here, I've quite literally voted with my feet. And why is that? In simple terms, I believe James Hardie is an exceptional growth business with a significant strategic moat that is supported by its team and values that I'm eager to be a part of. My experience as a public company CFO and former Wall Street Investment Banker brings unique financial skills and leadership experience to James Hardie executive team. Under Aaron's leadership, I believe we can further drive sustainable, profitable growth and development of our people. I'm in my 12th week here, and I've spent much of my time thus far meeting the team, engaging with them as functional groups as well as individually and learning about our business. I can certainly attest to the fact that the momentum here is possible. Finally, I'm very much looking forward to getting to know the investment and analyst community and continue to take you on our journey of being homeowner focused customer and contractor driven. I'm energized to be on this team and I believe in our right to win.With that, I'll turn it back over to Aaron before I discuss our second quarter results. Aaron?

[Aaron Erter, executive]

Thank you, Rachel. I speak for all of us here at James Hardie, when I say how excited we are to have you join our team. And I know that you will bring strong capability and leadership, which will positively impact everyone across James Hardie.For today's call, I will start by providing a strategy and operations update. Rachel will then discuss our financial results, and I will return to discuss our outlook, guidance and provide a brief closing. After that, we will then open it up for your questions.Before I share an update on our strategy and operations, I would like to take this opportunity to thank all of our employees around the world who remain focused on safely delivering the highest quality products, solutions and services to our customer partners. Our employees truly represent the very best in our industry and consistently enable our superior value proposition.Let's start now on Page 5 with a brief business update. Our teams remain laser-focused on partnering with our customers, managing decisively and controlling what we can control. Our second quarter results continue to highlight how impactful that focus has been. For the second quarter, we achieved global net sales of just under $1 billion, flat versus the prior corresponding period, with a record quarterly global adjusted net income of $178.9 million, up 2% versus the prior corresponding period. Both our global net sales and adjusted net income results were again supported by volumes in North America that have outperformed the market. Our second quarter North American volume of 773 million standard feet was at the top end of our guidance range, and we delivered that with a record 31.7% EBIT margin. The adjusted net income result was also supported by strong financial results in our Asia-Pacific and European regions. For the first half of the year, we generated record operating cash flow of $459.1 million, up 74% year-over-year. Finally, as we discussed last quarter, we have been accelerating our investment in SG&A, supporting our marketing tent-poles, driving awareness and conversion in targeted regions to aid in sustaining profitable share gain. Rachel will share additional details in the financial section. While uncertainty continues to affect our end markets, our focus remains on partnering with our customers and controlling what we can control to outperform in the markets we participate.Now please turn to Page 6 in our global strategic framework. As I shared last quarter, at the heart of our global strategy, we are homeowner focused, customer and contractor driven. With that in mind, all three regions remain focused on our three key strategic initiatives. Number one, profitably grow and take share where we have the right to win. Number two, bring our customers high-value differentiated solutions; and number three, connect and influence all the participants in the customer value chain. We accelerated our strategic initiatives by establishing competitive advantages through our strategic enablers without compromising on our foundational imperatives. I remain confident in our team and our strategy. Combined, they position us to execute at a high level and drive profitable share gain in all 3 regions. Last quarter, I shared additional details about our 3 strategic initiatives. Today, I want to spend some time discussing 2 of our 4 foundational imperatives, Zero Harm and the Hardie Operating System.Let us now turn to Slide 7 to discuss our first foundational imperative Zero Harm. At James Hardie, our focus on Zero Harm is a non-negotiable element of our global culture and is underpinned by a conviction that every incident is preventable. We operate with our team's safety, security and well-being as our #1 priority. This also includes ensuring our products are safe and that safety is adhered to when we work with our partners, customers and within the communities we participate. While Zero Harm is managed centrally at the global level, it relies on participation from every employee because safety is everyone's responsibility. We take a bottom-up approach to involve our employees and safety and empower them with the skills they need to avoid accidents and injuries. As seen here in October, we launched our inaugural Global Zero Harm month at James Hardie. All of our teams across all of our manufacturing sites and offices globally dedicated a day to discuss and exclusively focus on safety. These Zero Harm days are an annual event and show that our business will never put profit before safety. I would also like to highlight our progress on DART or Days Away Restricted or Transferred when compared to the industry average. At a global level, our year-to-date DART was 0.57. High-performing companies do safety well. Why? Because it requires complex situational awareness and unrelenting focus and vigilance. While we are improving, there are no shortcuts to Zero Harm and there remains more to be done as we continue to operate with a belief that all incidents are preventable. Thank you to each and every James Hardie team member for your continued focus on embedding Zero Harm in everything you do.Now let's turn to Slide 8 to discuss another foundational imperative, the Hardie Operating System. The Hardie Operating System or HOS, is our enterprise management system, which has been developed to drive focus across all areas of our business. This system provides clarity of priorities, efficient resource allocation and execution standards for approved initiatives. This focus and discipline ensures all efforts to generate expected outcomes back to the business on time. The HOS works in conjunction with our existing manufacturing system called HMOS, HOS: How Work Gets Done. While HOS covers more than what we have listed here, today, I want to touch on 3 critical initiatives: number one, driving manufacturing efficiency through lean manufacturing principles with HMOS, delivering procurement and R&D savings and improvements in working capital. As it relates to these 3 components, HOS helps us to offset cost increases outside of our control. providing us with the flexibility to strategically invest in our homeowners, customers and contractors, including the builders, where and when appropriate, while maintaining our focus on profitable share gain. Over the next 3 years, we expect to generate $100 million of cumulative global savings through HMOS. This is achieved by driving ongoing lean efficiency throughout our global network of plants, including rolled throughput yield, net available hours and a focus on delivering against our ESG targets. Across our facilities, you can see HMOS in action as we move towards standardized HMOS individual cues, such as pyramid trackers and color-coated escalation billboards. This consistency underpins the rigorous lean process that is embedded in the HMOS and that we are rolling out across all of our facilities globally. Additionally, over the next 3 years, we plan on delivering $60 million of savings through procurement and R&D-led initiatives. From a procurement perspective, this is about leveraging the size of our global business to purchase more efficiently and implementing best practices to drive unit costs down. From an R&D perspective, it is about value improvements, including ESG initiatives that expand our competitive advantage. It is not about cutting R&D investment. Together, our lean manufacturing and procurement and R&D savings will lead to an expected cumulative $160 million of savings from FY '24 through FY '26. Lastly, in terms of working capital, over the next 3 years, we plan on delivering a cumulative improvement of $100 million by continuing to demonstrate discipline and rigor with how we manage all aspects of our working capital globally. These goals were first announced publicly in May 2023 in our remuneration report, and I am very pleased with the progress we have made to-date on these 3 key HOS initiatives, and I look forward to continuing to update you in the quarters ahead.Now I would like to hand it over to Rachel to share more details about our second quarter results. Rachel?

[Rachel Wilson, executive]

Thank you, Aaron.Let's start on Page 10 to discuss our global results for the second quarter. Against the challenging backdrop, our team has delivered strong set results in the second quarter compared to last year, with consistent and focused execution through the halfway point of our fiscal year. For the quarter, group net sales were flat year-over-year at just under $1 billion. Adjusted net income increased 2% to $178.9 million. The global adjusted EBITDA margin was 28.6%, and operating cash flow for the first 6 months was a record $459.1 million, up 74% year-over-year. The team is executing on our strategy, and these record results demonstrate the power of controlling the controllables.Now turning to Slide 11, I'll detail our net income waterfall for the second quarter. As mentioned, adjusted net income increased 2% or $3.1 million year-over-year to $178.9 million and was in line with guidance provided in August. The year-over-year increase was primarily driven by strong EBIT growth in North America and APAC, which combined contributed $21.3 million increase to adjusted net income. During the quarter, global SG&A spend, which includes corporate, increased 23% year-over-year to $152.8 million. This equates to 15.3% of revenues, up from 12.5% last year. The increase in investment primarily in our marketing tent-poles reflects our focus on growing brand awareness and driving profitable share gains. Some of our key initiatives include increased marketing through advertising, sponsorship and trade marketing to drive consideration and conversion across the value chain. This not only includes our if possible, being TV ad campaign, but also investing in programs designed to support our contractors and HOS initiatives. Adjusted general corporate costs increased primarily due to an allowance for a legal fee insurance receivables, higher stock-based compensation expense and increased employee costs. In addition, our Q2 adjusted effective tax rate was 23.9%, which was higher than our estimate in Q1 FY '24 of 22.9%. This increase reflects the change in expected geographic mix. Our current estimate for the full year FY '24 tax rate is 23.4%.While this slide focuses on adjusted net income, I did want to take this opportunity to clarify that during the quarter, we recorded a $20 million charge related to the previously announced cancellation of the Truganina greenfield site. The non-cash write-down was recorded as an asset impairment and the impact excluded from our adjusted net income. At this time, we are actively exploring sale options for the site. Overall adjusted net income of $178.9 million was in line with guidance. We are proud of our global teams for the way they've executed in a challenging market, and we remain focused on consistent execution to similarly deliver in the third quarter.Let's now move to Page 12 to discuss North American results. Beginning with the top line results. North American net sales of $734.4 million was down 2% versus the prior corresponding period. Our average net sales price was up 2%, which helped to offset a 5% decrease in volumes. Volume of 773 million standard feet was just above the top end of our guidance range. During the quarter, overall housing end markets were challenging with major project R&R down mid-teens and single-family new construction down 14% in the June quarter. As a reminder, we use a 1-quarter lag methodology that applies to single-family new construction macro data to better align the data to the timing of our reported sales. Our volume decline of 5% year-over-year in contrast with double-digit overall housing market decline highlights the success we are having in converting share against other competitive materials. This reflects James Hardie's continued material conversion advantage in building products. Similar to the first quarter, we continue to see volumes in South Central regions, which is new construction dominant, outperform our total North American volume. This has been supported by our partnering with the larger leading builders who have also been taking share during this time. In the September quarter, single-family new construction term positive, growing 7% year-over-year, albeit off a depressed base and new construction has continued to outperform R&R. We remain focused on serving both the new construction and R&R segments and continue to invest in the larger R&R market. During the quarter, our initiatives to target contractors resulted in record membership to our contractor alliance program with total membership at an all-time high of just over 6,000 contractor members. The contract remains a key relationship in driving conversion to James Hardie's products and completes the concept of being homeowner focused and customer and contractor driven.Now turning to margins. The North America EBIT margin improved by 330 basis points versus the prior corresponding period to a record 31.7% and was towards the top end of our guidance range. EBIT dollars in the second quarter were up 9% to a record $232.7 million and improved $20 million versus the prior corresponding period. EBIT benefited from a higher average net sales price as well as lower input costs, specifically in freight and pulp. These benefits more than offset the impact of lower volumes. During the quarter, we continued to invest with SG&A dollars increasing 18% year-over-year. As a percentage of sales, SG&A expenses increased 1.8 percentage points. This increase was focused on our marketing tent-poles and was highlighted by the strategic investment initiative by Aaron in our last quarterly call. We are gaining awareness from these investments. And since August, our request for close of RFQs have increased by 20% and we've kept this result more cost efficiently. It is early, however, to measure the ultimate return from these investments. Post the quarter-end, we have communicated our annual North American price increase for calendar year '24. On average, prices have gone up mid-single digits. As outlined earlier this year, we continue to expect reported net average selling price to be positive for the fiscal year. Despite housing market volume declines, we are encouraged by our relative share performance by managing decisively and partnering with our customers, the North American team delivered a strong second quarter result with record EBIT and EBIT margin.Let's now turn to Page 13 to discuss the Asia-Pacific results. Similar to North America, it was a strong second quarter for Asia-Pacific segment against a challenging backdrop. Net sales improved 7% versus the prior corresponding period to a record AUD 225.1 million. The net sales improvement was driven by a higher average net sales price, up 15%, which was partially offset by a volume decline of 9%. All 3 countries in the APAC segment experienced a decline in volumes with Australia performing the strongest. EBIT improved 21% to AUD 67.9 million. The result was driven by a higher average net sales price, which more than offset an increase in cost of goods sold. We continue to invest in marketing, such as with the block media campaign built around this popular TV series. We have a focus in APAC on brand-building media and showcasing before and after home transformation made possible with James Hardie products. The APAC EBIT margin improved by 360 basis points versus the prior corresponding period to 30.2%. Similar to North America, our Asia-Pacific team has partnered with our customers and managed decisively to deliver a strong second quarter.We'll now turn to Page 14 to discuss the European results. Our European team had a solid second quarter as the team capitalized on a dislocated market environment. Net sales increased 5%, primarily related to a 20% increase in ASP and a EUR 3.3 million favorable true-up related to customer rebate estimates. The growth in ASP resulted from our strategic price increases and growth in high-value products. We continue to work closely with our customers and respond with products that are geared to both multifamily and single-family homes. Importantly, we are seeing our product mix continue to shift towards our higher-value fiber cement offering. Our fiber gypsum volumes were down mid-teens during the quarter, whereas we experienced double-digit growth in our high-value products. While our high-value products are growing off a small base, they are becoming a larger part of the overall mix, namely the plank and panel opportunity. On a combined basis, however, volumes declined 15%, which while significant, represents a lower decline in the overall European market. Our innovative architectural panel provides an example of our growing high-value products. This fiber cement product offers superior power safety, sophisticated design developed in collaboration with leading European architects and a 15-year warranty, which together represent highly valued attributes in the market. Architectural panel is an innovative and cost-effective solution to help the European multifamily housing balance. Our focus on high-value products helped support EBIT growth of EUR 7.1 million, driven by a higher average net sales price, which more than offset a higher cost of goods sold per unit that was impacted by higher labor and energy costs. Similar to North America, SG&A investments increased to drive new product selling support and growth initiatives. The EBIT margin improved by 640 basis points versus the prior corresponding period to 10.7%. This margin is inclusive of the EUR 3.3 million favorable true-up related to customer rebate estimates. Strategically, the European teams remain focused on driving growth through high-value products in FY '24 and beyond. This strategic emphasis similarly supports the long-term margin expansion opportunity.Turning now to Page 15 to discuss cash flow, liquidity, capital allocation and capital expenditures. Our robust operating cash flows reflect our strong margins, which are a hallmark of James Hardie. In the first half of FY '24, our operating cash flow was $459.1 million. This cash flow result was driven by strong financial results in all 3 regions and a working capital improvement of $82.7 million. These improvements were both supported by the execution of the Hardie Operating System. We continue to maintain a strong liquidity position with a Q2 leverage ratio of 0.79 times and liquidity of $608 million.We are stewards of investor capital. Our capital allocation framework is first and foremost to invest in organic growth. We do this while maintaining a flexible balance sheet while deploying excess capital to our shareholders. Through Q2, we have paid down $90 million of revolver, completed our $200 million buyback program and today announced a new $250 million buyback program, which we expect to complete over the next 12 months. These actions reflect our strong cash flow and balanced approach to capital deployment.Regarding capital expenditures, for the first six months, capital expenditures totaled $232.6 million. We continue to expect to spend approximately $550 million on capital expenditures in FY '24, and we remain committed to keeping capacity supply ahead of demand. Subsequent to the quarter-end and through October, the company paid down the entire $140 million balance on our revolving credit facility. We also entered into a new 5-year $300 million term loan agreement maturing October 2028. As of 31 October 2023, our liquidity was $1 billion versus $608 million at 30 September 2023, with a net leverage of approximately 0.7 times versus 0.79 times at the quarter-end. We have robust operating cash flows, substantial liquidity and a flexible balance sheet, which enables us to invest in profitable growth.I'll now turn it back over to Aaron.

[Aaron Erter, executive]

Thank you, Rachel. We have delivered a strong first half and a record quarterly result for adjusted income. In addition, we have outperformed our end markets in challenging conditions. These results are proof points that we are accelerating through the cycle and taking share.Now let's move to Page 17 to discuss our market outlook and guidance. For our largest market, North America, we have again provided the market outlook data from several external data providers. The external ranges continue to change. The average estimate for single-family new construction improved from down 12% to down 9%. Multifamily new construction weakened from down 12% to down 15%, and repair and remodel improved incrementally to down 11%. Using these external ranges along with our assumed market segment exposures for FY '24, the implied range for our blended addressable market is down 7% to 14%, with an average of down 11%. Overall, while these calendar year 2023 North American end market forecasts have improved incrementally, there remains considerable uncertainty in the market today due to poor mortgage affordability, interest rate volatility and unsettled market dynamics. Regardless of market conditions, we remain confident that we will be able to deliver growth above market and strong financial results. We remain laser-focused on driving profitable share gain and are demonstrating this with our market outperformance.If you turn to Page 18, we have again provided the volume sensitivity analysis for FY '24. This sensitivity analysis was prepared in the same manner as last quarter, which assumes our current range of expectations on raw material costs and freight rates and assumes we continue to invest in growth as currently planned. These volumes are simply to provide context to our EBIT margin sensitivity in North America and should not be construed as volume guidance for any quarter in fiscal year 2024. Regardless of how markets fluctuate, we are confident we will outperform our end markets.Now please turn to Page 19. Today, we are providing 3 points of guidance for our third quarter of fiscal year 2024. First, we expect North America volumes to be in the range of $730 million and $760 million standard feet Second, we expect North American EBIT margin to be in the range of 30% to 32%. And lastly, we expect global adjusted net income to be in a range of $165 million to $185 million. As I mentioned earlier, our team is energized and focused on driving profitable share gain, and we are positioned to deliver another strong financial result in our third quarter.Finally, please move to Page 20. As always, I want to close with who we are at James Hardie, a global growth company. I am proud of our team's ability to navigate these uncertain markets to deliver a strong second quarter and build on the momentum from our first quarter. We are homeowner focused customer and contractor driven.Before I hand it over to the operator, I would like to mention that we will be hosting our next Investor Day in late June 2024 in North America. At this event, we look forward to showing you our value proposition in the field, and we'll be sharing more details in the coming months.With that, I would like the operator to open the line up for questions.

[Operator]

Thank you. [Operator Instructions] Your first question comes from Lee Power from UBS.

[Lee Power, analyst]

The midpoint of volume guidance that you've given for the third quarter, it's up 6% year-on-year. I take your end market data, that's really helpful. But just thinking about your mix and share growth. Is there something going on in the third quarter that doesn't mean we should be assuming positive year-on-year performance hold through the fourth quarter as well?

[Aaron Erter, executive]

We're going to launch Rachel right into this to answer the first question. Rachel?

[Rachel Wilson, executive]

So when we look at kind of where we are, the first thing I talk about is we're Q3 relative to Q2. And as you know, for us, Q3 is typically a bit of a seasonality, a bit lower of about 5%. So when you look at our guidance, to your point, the midpoint of our guidance does reflect that seasonality. But apart from that is really fairly similar in terms of how we were guiding and frankly, how we delivered for Q2. And again, we're very pleased with our performance relative to the market overall annuity, and it does reflect our focus on PDG.

[Lee Power, analyst]

Sorry, maybe to clarify, that's useful. But in terms of when I'm thinking about the 3Q guidance and the fact that that's up year-on-year, should we take that as just kind of reconciling that with the market data. Does that positive year-on-year performance, do you think that holds through the fourth quarter? Should we be thinking that the volumes are bottom and that we're now out on a year-on-year basis regardless of seasonality that we're seeing into the third quarter?

[Aaron Erter, executive]

Lee, I'll take this. Right now, we're seeing a pretty normal order pattern. I would say as evidenced by our guidance and up 6%, we feel very strongly about our third quarter. But as we always say, we're just going to get 1 quarter of guidance, and that's what we're doing here.

[Lee Power, analyst]

And then the lean savings, just as a follow-up, the $100 million, can you maybe talk a little bit about the profile of that? I mean it sounds like you're getting great traction. You did, what, 40% gross margins again for the quarter, which is great. Like how do we think about that, the weighting of that through that period? It seems like you've got some great early wins on it.

[Aaron Erter, executive]

Yeah. Lee, look, I think you're referring to HOS, which there's a few components of that for us. Obviously, HMOS, which is our Hardie manufacturing operating system, we have a terrific team across our entire manufacturing organization. We think about every single region, but I'll just pick North America, for instance, North America is run by a terrific leader and Sean Gadd, Ryan Kilcullen is our leader of HOS and the HMOS throughout the organization and then [John Ashworth], who runs manufacturing. What this team is really looking at is we're looking at our yield, but we're also looking at our net hours when we look at that HMOS metric. The other thing that is new that we haven't talked about before is we have our ESG initiatives in here that we think are going to generate substantial savings for us when we think about waste, those types of things. So that really makes up the $100 million. We're off to a very strong start there. The other components of HOS would be when we think about R&D and procurement. I think you've heard me mention many times that we had a change in our structure as it relates to procurement. Procurement was more regional. We've set it up centralized under Ryan Kilcullen, a gentleman by the name of O'Brien runs this for us. He's doing a terrific job, and we're really being able to leverage James Hardie as a whole. And we're seeing savings across all different areas, but also being able to work with our suppliers when we think about payment terms and things like that. So we're off to a strong start as it relates to HOS.

[Operator]

Your next question comes from Shaurya Visen from Bank of America.

[Shaurya Visen, analyst]

Just one question on your SG&A, perhaps for you, Rachel. Looking at Page 8 of your financial statements. And the SG&A costs came in at $40.5 million versus $28 million for the same period last year. And I know you mentioned certain one-offs related to a provision of receivables. So if you could just give us a sense of if you take that number out, what was the SG&A on an underlying basis? And also, more importantly, how should we think about that number in 3Q and 4Q?

[Rachel Wilson, executive]

So we talked about 3 components about our general corporate costs that is $40 million. One is an insurance receivable unwind as it relates to an expected recovery of legal fees. Again, this is an insurance receivable unwind. That probably is your largest component in the delta. The other 2 pieces that we should talk about are higher stock-based compensation that only reflects our share cost and increase in our share price, but also a larger group of employees, which is also reflected in the third component, which is our increased employee cost. And those are the 3 elements I'd point you to.

[Shaurya Visen, analyst]

Rachel, can you give us the numbers if you have it?

[Rachel Wilson, executive]

I think the only one that I should give a little bit more color on is the unwind of the insurance receivable because it is a onetime and that is in your kind of low single-digit millions.

[Shaurya Visen, analyst]

If I can just squeeze in one very quickly to Aaron. Just looking at Page 18 of your presentation, the guidance. I just note that -- I appreciate those are just ranges in sensitivities, but it looks to me that the ranges have gone up. You put in a $850 million number. Is it fair to say that it sort of shows an increasing confidence or I'm reading too much into it.

[Aaron Erter, executive]

Yeah. Shaurya, it's a good observation. I think number 1, we're trying to simplify this. Number 2, we do have confidence in what we laid out. As I mentioned before, as we start into our Q3, we're seeing very strong order pattern. So we have confidence in what we're displaying here.

[Operator]

Your next question comes from Lisa Huynh from JPM.

[Lisa Huynh, analyst]

Just had a question about the price rise. I mean, can you share any feedback that you've had with your customers so far, just given you put through another price rise in commodity prices do seem lower?

[Aaron Erter, executive]

Yeah. Lisa, so let me just remind you, I think I've gone through this of what our strategy is in relation to pricing, right? We look at a value-based approach when we think about pricing. It's not purely commodities go up x or go down x and that we're going to take price one way or another. So it's more value based. Also, I just want to remind everyone, we're not a commodity, right? We think we bring the highest value proposition to our customers. and it costs money, right? Cost resources, you think of everything that we're bringing to our customer, partners and they're paying for it. The other thing, and you can look across the different regions, right, strong price in North America, relatively speaking, when you think about the market dynamics, I can say the same for APAC, and I can say the same for Europe as well. So we really study and take into account market dynamics as well, so we're going to be able to go out there and take price and still be able to defend and gain share. That's how we look at this, Lisa.

[Lisa Huynh, analyst]

And I also ask just around the volume trends you're seeing at the moment. You said orders have been quite strong. I guess in the slide deck, you called out South, Central and Northwest as being the best performing region. Can you give us any color on the North East and some of the other regions where you're kind of seeing there that aren't performing as well.

[Aaron Erter, executive]

Yeah. And when I say not performing as well, it's all relative. Again, talking specifically about North America, again, we have a terrific team. So they really are bringing solutions to our customer partners. And if you think about the difficult environment, whether you're an R&R, whether you're a new construction, you need a partner that can bring you value. And that's what we're bringing out there to our customers in each one of those segments out there. But look, we were down 5%. If you look at our volumes, we would say R&R in general, was down mid-teens is what some of the external advisers have been telling us if you look at some of the studies out there. And then new construction down 14%. So even with that, you can see our strong performance. Now region by region, you did mention Texas, and that is relatively strong because it's been buffered by new construction. That's where a lot of the new construction is going on there. And then if I look at an area like the Pacific Northwest, that is us having the right proposition that we didn't have before and going out and taking share from a competitor, plain and simple.

[Operator]

Your next question comes from Simon Thackray from Jefferies.

[Simon Thackray, analyst]

Rachel, just on some basic math. The company free cash flow generation looks again pretty formidable and looking at on an annual run rate, maybe $400 million of free cash flow after the CapEx. You've announced $250 million buyback. So I'm sort of confused why you need a $300 million term loan when you got the free cash flow generation. You paid out the $140 million revolver. I get that. Why do you need to term-out 5 years worth of debt for $300 million when you're generating that kind of cash flow, just out of interest?

[Rachel Wilson, executive]

So the first thing you rightly know, we paid down $140 million of revolver with the term loan. As it tells you, our term loan is at SOFR plus 2%. So this is very attractive money for a locked-in 5-year and we are a growth company. So as you think about being a growth company, having cash on the shelf for that very accessible cash is very appropriate for where we are in being a growth company. And we can support that organic growth. And as you can see, we also can do an and. In this case, we just announced a new $250 million share repurchase program on the heels of completing the $200 million share repurchase program, $200 million is equivalent of just under 2% of our shares outstanding. So again, I think we're taking a balanced approach as we think about our capital allocation and return capital structures.

[Simon Thackray, analyst]

No, I get that. But the HOS system that you're talking to Aaron delivers you another $160 million of pretax improvement plus working capital is another $100 million you're talking about. I mean you got cash coming at you at your ease. I'm just trying to really understand is there something else that I should be thinking about? I know you're saying you're a growth company. I mean, is that acquisition? Is that capital allocation over and above the existing CapEx envelope? Is it capacity coming on faster we should be thinking about. Trying to really understand the logic of that, given the strength of the numbers you're putting out there and the way you've structured that finance facility.

[Rachel Wilson, executive]

Yeah. I'm going to start back with the first comment is why are we generating so much cash? We have great margins, right? And our great margins are a hallmark of James Hardie, but we're in a cyclical business. So the combination of being in a cyclical business means what is that insurance policy and what does it cost you? And SOFR plus 2%. And again, I paid down our revolver, so not being kind of lazy with the cap structure. It does feel appropriate to support the growth ahead.

[Operator]

Your next question comes from Peter Steyn from Macquarie.

[Peter Steyn, analyst]

Aaron, just a quick question on SG&A. So you're clearly picking that up fairly materially at [indiscernible], hopefully is the low end of the cycle. Could you talk to us a little bit about some of the benefits that you're seeing there, what you're specifically investing in, also picking up that comment about in the strategy about connecting and influencing all participants in the value chain. Where it is that you're investing and what the impacts have been? Because clearly, that is coming through in bucket loads from a volume perspective?

[Aaron Erter, executive]

And I think you've really seen this ramp-up of SG&A over the last couple of quarters. And as we look to Q3, we expect it to be similar to what we're seeing here now or what you just saw in Q2. Look, it supports our strategy. I've said this over and over, customer-focused. When I think about our strategy, homeowner focused customer and contractor driven. So more recently, I think you've heard James already talked just about the homeowner, right? And the focus has been really on media, namely Magnolia Home. We think that we need to do more than that when we think about the value chain. So as recently, we've been investing in media, but it's been targeted at media where we think it goes across our entire value chain. So that is homeowners, that's customers and contractors. And really, I brought this term into play of our marketing tent-poles out there. And it's really a few key areas that we think about from a marketing perspective that we're going to invest in. So if you think about the builder and contractor, we think about the brand-based events. We think about our contractor alliance program. Also, we're getting more prescriptive as it relates to regional marketing, and that can include sponsoring local sports teams. So it really covers the gamut of that homeowner focused customer and contractor driven. One of the things that I look at is the share gains that James Hardie has been able to achieve over the last 10 years. And I think we shared that, it was some census data. And we achieved 8% share growth over the last 10 years out there from 15% to 23%, and this was really centered around new construction. What I'm really excited about, if you look over those last 10 years, we didn't do much of this at all, right? So if we think moving forward and you look at this investment, we expect this to accelerate our share gains. And look, it's only been 2 quarters, and I think you have to judge us on an annual basis, but we are taking share, and we sit here with a year gone by, I think it will be a worthwhile investment. So early days, but that's why we're doing it, Peter.

[Peter Steyn, analyst]

And then just turning to new construction, obviously, an area of significant focus for you this year. Could you comment on what you've experienced in terms of the entire proposition being pulled through. So beyond just plank, what you've seen in trim and other products that have contributed to the overall profitability of the portfolio in the context of new construction.

[Aaron Erter, executive]

Yeah. Look, in new construction, I would just say this. We're bringing the solutions that our customers need and value, right? So new construction and as we partner with our large builder customers, it's very, very competitive out there. I think we've talked about it before. Part of the reason they're doing so well is there's not existing homes out there for people to buy. So they have land and they're building on them. And one of the things that they have the advantage of doing because they have such a strong balance sheet as they're buying down rates. Usually, the magic number is sub-5% from an interest rate standpoint out there, and they're getting traction there. And this is really the large builders out there. So as you can imagine, very, very cost conscious. And we're bringing them the solutions they need for those different levels of buyers. One other ones that we've talked about many times is Cemplank, right? And we introduced that early into the year. And I think there was a lot of fears of are we going to let this product get out of control because I know that happened before. We're managing it appropriately. And I think it's evidenced when you see the type of margins that the North American team has been able to generate. One of the things you asked about was Trim. That's an on-purpose strategy and focus for us from a North American standpoint is really to increase our Trim attachment rate. We are doing that. I think probably it's best to let a whole year to go by before we would talk to that, Peter. But when we look at every single one of our product segments, we're bringing the right solutions to our customers. That's what we're focused on.

[Peter Steyn, analyst]

I'm going to be cheeky and just sneak one quick one on cash flow for Rachel. Sorry. $82.7 million worth of working capital unwind; we haven't seen that in the second quarter typically. Rachel, how much of that is structural versus sort of a seasonal some other effect that's playing through there. So I guess how much HOS are we seeing in that number?

[Rachel Wilson, executive]

Well, Peter, you're absolutely right to point out there's 2 factors, right? You can't ignore that there is some seasonality, but then what part is structural. And when you dig into the working capital, I know you guys have just gotten the numbers, you're going to see the 2 key drivers are inventory and accounts payable. And what does that reflect? So on the inventory, we're doing a lot more with customer integration. So with the customer integration, we're specifically getting a tighter look on their inventory with our top customers, largely driven the North America. From that inventory, look, we are getting that close inventory. Look, not only is that a demand signal for us, but it is also a great way for us to efficiently manage their inventory and our inventory. So that is a number that is clearly part of the HOS. As we look at the accounts payable, that also is a reflection of the procurement group that Aaron had discussed. So really, when you say things like it's our phone bills. I mean it's something so basic as some of that we're having a global procurement focus is letting us access some of that opportunity.

[Operator]

Your next question comes from Harry Saunders from E&P.

[Harry Saunders, analyst]

Firstly, just one on primary demand growth. I think you alluded to sort of 4% previously. Just wondering any idea how this is tracking. It seems it's well ahead of that sort of 4% in the quarter given the end market growth that you talked about?

[Aaron Erter, executive]

Yeah. Harry, we set this back in March, right, the end of March when we kicked off our fiscal year at 4%. And if you remember the year prior, I think we came in North America, roughly 3%. So 4% was a goal that was not a layup for our team out there. I would say right now how we're tracking is we're very pleased with our performance relative to PDG. If I look at PDG, I think we need to evaluate it annually versus 1 or 2 quarters. And I think what's really encouraging for us is we continue to take share with our superior product out there. I mentioned before, I think to Peter, of just the opportunity from a material conversion that we do have in front of us. Over the last 10 years, we've taken substantial share without doing a lot as it relates to demand creation. We're putting more behind demand creation, so we expect to see our PDG growth just accelerate.

[Harry Saunders, analyst]

Right. So when you say accelerate, so FY '25, you could expect the higher PDG than that 4%?

[Aaron Erter, executive]

No. Harry, you know better than to try to get me to talk about FY '25. We're just going to give here Q3 guidance.

[Harry Saunders, analyst]

Okay. My other question relates to the seasonal uptick you typically see in the fourth quarter. Is there anything to sort of change the view, I guess, that you usually would see a seasonal volume increase?

[Aaron Erter, executive]

Yeah. And Harry, I think probably you might be referring to our people buying ahead as it relates to price increases. We're seeing normal order patterns right now. So we're not seeing anything different.

[Harry Saunders, analyst]

Right. And sorry, but in the March quarter, you typically will get a sort of a volume increase over the December quarter, right, look at historical trends. Just wondering if there's anything to change sort of that usual seasonality view?

[Rachel Wilson, executive]

Yeah. I think we expect -- the seasonality is there with us as part of the Q3 guidance. And so there's nothing unusual in what we have seen so far.

[Harry Saunders, analyst]

Sorry, I might just sneak one more in on the HOS cumulative savings. So just to be clear, that's a cumulative number. So can you give an idea of the run rate broadly that you might be sort of factoring in by the time you get to FY '26?

[Rachel Wilson, executive]

Yeah, I'll start by saying these targets were set as of our fiscal year-end, right? And they're through FY '26. So it's a bit premature to be talking about where we are particularly on a quarterly basis. But I think Aaron talked about what are some of the key drivers we're looking at. He took you through in each month what we're tracking with R&D and procurement and also what I was talking about with the customer integration, particularly working cap at some of the initiatives. So that's coming together to be that. But again, I'll remind you, we just set that baseline, and it is through FY '26.

[Operator]

Your next question comes from Brook Campbell-Crawford from Barrenjoey.

[Brook Campbell-Crawford, analyst]

It was a follow-up actually on the HOS savings. Are you able to just clarify or provide some color on what the uses of those savings are going to be? Are you looking to move it around and invest elsewhere or are you more keen to that drop through to earnings or maybe it's a mix of both. So any sort of examples or further color on the use of those savings would be great.

[Aaron Erter, executive]

Yeah. Look, the way that we look at cost savings, Brook, is really, it's going to help offset non-controllable costs, right? Another benefit of HOS is it's going to help us add incremental capacity. And it's going to allow us to continue to invest in the things to grow our business. I talked about the marketing tent-poles, things like that. It's going to help us invest in people. So the list goes on and on, but that's how I look at the HOS savings. It's not a one-for-one transfer over to the P&L.

[Brook Campbell-Crawford, analyst]

And then would you want to provide some comments on the R&R market. I know you talked to mid-teens decline in the quarter. But any sort of green shoots there. You've always sort of flagged there on that there are some good structural drivers that should support that market at some point. So are you hearing any green shoots at all? And as well if you're able to comment about how it sort of trended through this year just so we can think about when the comps start to get easier, I guess, in calendar 2024.

[Aaron Erter, executive]

Sure, Brook. Look, we remain bullish on R&R from a mid to long-term standpoint. There's many reasons why which I'll go into. But look, just more short-term, as we talk to our contractors, they feel the same way, but they're cautious right now. And they're cautious because homeowners are cautious for many different reasons. Interest rates continue to climb in North America, that's one piece. But there's just still uncertainty out there in the marketplace. But as I've said many times before, we're in a really good spot as it relates to R&R. You think about the material conversion opportunity for us. There's so many homes out there that are older that need recited, right? And that's one of the reasons why we're investing now because it is a long sales cycle for us. Also, people have more wealth in their homes than they've ever had. So as they come off the sidelines, we want to be there. Rachel uses the term, which I like a lot. We think about the R&R market like a beach ball underwater. She cited that, but I still like it. And that's what we see out there is this R&R market has all the elements to really take off. And if you look at some of the projections, it's for the back half of next year. We also think about our investments, I mentioned in our marketing, but it's also having people in the field and then it's our capacity as well. If we think about Prattville 3, that's going to come online at the end of February of next calendar year. So we'll have the capacity. We'll have the demand creation in store, all the elements check off. We're really, really excited about our prospects.

[Operator]

Your next question comes from Rohan Gallagher from Jarden Group.

[Rohan Gallagher, analyst]

First of all, congratulations on continuing to defy the market, so it's a credit to you and the team. Just in relation to costs. I noticed that the last 12 months, you've had massive tailwinds associated with pulp and freight, in particular. I'm conscious of the geopolitical risk, diesel prices, et cetera. Can you just comment on where you see those 4 key cost of goods sold drivers and what you're assuming impliciting your guidance going forward where you can, please?

[Rachel Wilson, executive]

Yeah. So we've been talking about 4 key COGS drivers for us. And we talk about freight, we talk about cement, we talk about labor and pulp. So those are the 4 that we've been tracking. And as we've discussed, those are nearly kind of 50% of our COGS. So you're right to point to those. As you pointed out [indiscernible] tailwinds for us this year. We've also cited that we expect cement, particularly in the very end of the year, it's going to be a headwind for us. So we've had puts and takes on our cost overall, but those are really the 4 of the 2 key monitoring.

[Rohan Gallagher, analyst]

And just freight, in particular, are we seeing that starting to back up now?

[Rachel Wilson, executive]

Cross rate has been for the year, you're right, favorable on a quarter-to-quarter sequential basis, pulp has been the area that's really been still supportive.

[Rohan Gallagher, analyst]

Okay. And a follow-up question, Rachel, if I may. And apologies, it was a previous question, and I missed the call. But on the term loan that you've refinanced, can you confirm whether that's number 1 fully drill and the rate that you signed off on.

[Rachel Wilson, executive]

Yeah. So it's not a reside. So the term loan A, it's roughly at SOFR plus 2%, it's $300 million, it's 5-year, and we used $140 million of those proceeds to repay our revolver, okay? So the other piece is we also announced the $250 million new share repurchase program. So if you look across the cap structure, we are taking a balanced approach here to how we are thinking about funding and supporting our growth.

[Rohan Gallagher, analyst]

Okay. And final question, if I may. Aaron, you've commented in your published remarks about mid-single price in growth as ASP being announced, et cetera. Obviously, the mix effect with your customer base will vary as well as product mix rebates, et cetera. At what point would you envisage or could you envisage ASP in North America flat-lining or even declining given the uncertain markets that we're facing currently?

[Aaron Erter, executive]

Yeah. Rohan, just very simply, we don't see that average price declining for us. We believe for the foreseeable future is going to be positive.

[Operator]

Your next question comes from Sam Seow from Citi.

[Samuel Seow, analyst]

Just wanted to ask on third quarter margin. I guess normally declined sequentially on lower volumes, but you're talking on keeping that flat. I just wondered if you could walk us through the moving pieces. And in relation to margin seasonality going forward with the cost-out, is there a way to balance your reinvestment in SG&A, I guess, seasonally to keep that more stable through the year?

[Aaron Erter, executive]

Yeah. Look, I'll start, and then Rachel can jump in here. As far as margins, first of all, we've had a healthy margin through this entire year and moving forward I think we're forecasting that as well. We're going to continue to invest in the business. where we need to invest, which we talked about some of the demand creation, mainly some of the marketing tent-poles. And what's also helping our margins is the benefits we're getting from the outstanding work our team is doing around HMOS, right? Also working with our suppliers to continue to offset inflation were some of the cost savings. So if you think about our margins and how healthy they are, those are some of the areas that are really aiding us, but we're still able to be able to invest in demand creation.

[Rachel Wilson, executive]

What I like what Aaron's focused on, given the market right now, he's kind of telling us control the controllable, right? So that is kind of our execution mantra as we go through. And controlling the controllables needs, we've given some of that margin guidance, it's also in relation to a very specific input cost environment as well. So I think we have to also keep in mind there's things we can do and then less with the environment. So that's one of the reasons we're being quite cautious right now, keeping our focus very much on our execution and giving you guidance as we look ahead to the 1 quarter.

[Samuel Seow, analyst]

But just following on from that, is there an opportunity with HMOS to keep the margins more stable. Will the margin profile more stable through the year?

[Aaron Erter, executive]

And I think you're probably looking at past years, correct, if you look at the margin profile. Look, I think there's opportunities with our HOS system to keep our margins stable and really just continue to execute our existing strategy. So yes, I think there is.

[Samuel Seow, analyst]

And then just quickly, lastly, we saw cancellation rates pick up because of rising rates. Is there any thoughts around something similar happening this year or any reason things might be different as you look at your customer backlogs?

[Aaron Erter, executive]

Yeah. Sam, look, based upon where we're at now, I'm reflecting back on when I started roughly a year ago in the tumultuous market that we faced. We have confidence in what we're seeing right now, hence, the guidance we're putting forward. I think what's different than last year is the strength of new construction that we're seeing out there. So we come into Q3 very, very confident of where we're at right now.

[Samuel Seow, analyst]

And then any thoughts on cancellation rates?

[Aaron Erter, executive]

We have not seen much in the way from a cancellation rate standpoint.

[Samuel Seow, analyst]

Look, I think our guidance for Q3 underscores that confidence, and that is a difference as well.

[Operator]

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

[Paul Quinn, analyst]

Just wanted some -- maybe some color just on the North American volume, that 5% reduction. Was there a meaningful split between what you saw the reduction in repair remodel and new home construction?

[Aaron Erter, executive]

Yeah. Look, I think it's still good directionally. We always have said that 65% is R&R, 35% is new construction. I think directionally, that still stands. But I did mention some of the areas of the country that are outperforming and one of them being Texas and that really correlates to new construction. But then conversely, Pacific Northwest is more or less going out and taking share from a competitor because we have the right value proposition. But just in summary, I would say, more of the new construction focused markets are doing better than what would be our R&R markets.

[Paul Quinn, analyst]

And then that contract or alliance that you've got that 6,000 members, it sounds like a big number, no idea how big that market is, if you could size that total market?

[Aaron Erter, executive]

Size of the total market for R&R, I'm not sure I understand, Paul.

[Paul Quinn, analyst]

I thought you guided that your contractor alliance membership was total 6,000 members. In percentage of contractors you've got or total North America, what is that? How big is that market?

[Aaron Erter, executive]

Yeah. I think we would have to have the denominator of how many contractors are out there, which we don't. All I would say is we see sequential improvement here. So if we look last year at this time, I think we had roughly 4,000 members, and we've moved that with an on-purpose plan to 6,000 at all different levels.

[Operator]

[Operator Instructions] Your next question comes from Keith Chau from MST Marquee.

[Keith Chau, analyst]

The first one, just to cover off on channel risk. I mean one of the other building products companies out there, I think overnight was saying that the channel was actually getting pretty thin on inventory. So I just want to try and understand whether that's the case of fiber cement, whether there's any risk there? And as an extension to that point, Aaron, you've been in the business for a year now. Have you noticed anything changed significantly to the sales team. Obviously, you've got these initiatives in place to drive demand creation. But anything internally or how that sales team is being run, that's changed that you've picked up over the last year that's made a big difference.

[Aaron Erter, executive]

I think number 1, we don't see any -- as far as inventories in the channel, it's normalized to us. We don't see any noticeable difference of it being stopped or thin. So that's number 1. Number 2, as it relates to the sales team and look, we have great sales leaders across all of our regions, very, very good in alignment with our customers. Here's the difference, I think that we've seen. Number 1, our customer integration keeps getting better and better. That's not only our relationships with our customers, but also the data in which they're giving us, which is helping us as it relates to helping them, right, to have the right inventory and where they need it. Just to give you a stat, we've taken our largest customers, we had about 30% of them that gave us data. Now we're closer to 70% this year. So that's number one. The other thing, I think, that's different is we're getting more specialized from a sales standpoint. When I talk about investments, we're making investments to get specialized in certain areas. So for instance, when we think about single-family new constructions, it's putting people on that's focused on some of those large builders, but also moving past the Top 25 to the Top 200 as well. So I think those are 2 of the noticeable changes that we've made within the last year that we're seeing benefits from, Keith.

[Keith Chau, analyst]

And then just coming back to a point that was made on share gains in the Pacific Northwest. Can you give us a bit more detail on whether that's in hard siding or whether that's against vinyl or other substrates, whether that's Trim or plank? Any color on that would be very useful.

[Aaron Erter, executive]

Yeah. I'd just say very simply, it's in the hard siding and it would be in the fiber cement barrier.

[Operator]

Thank you. There are no further questions at this time. I'll now hand back to Mr. Erter for closing remarks.

[Aaron Erter, executive]

Yeah. Thank you, operator. Just again, thank you to everyone. I appreciate the time. I want to again thank all of the team at James Hardie for making an excellent Q2. I appreciate that everything you do. That's it. Thank you.

[Operator]

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