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James Hardie Industries plc (NYSE:JHX)
Q3 2020 Earnings Call
Feb 12, 2020, 6:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Jack Truong -- Chief Executive Officer

All right. Good morning, everyone. Thank you for joining us in our Q3 Fiscal Year 2020 Earnings Call. I will begin by discussing key business results and operational highlights of the third quarter and for the first nine months. Jason Miele will then cover the financial details. And finally, I will come back with an update on our global strategy.

I'm very pleased with the progress our entire James Hardie team has achieved during the first nine months. We are executing our strategy that generated strong financial results in each of the last three quarters. It is a very good start to the transformation that our company embarked on a year-ago.

I would like to take a few minutes now to highlight the key transformational changes that we're making to put some context to the results that we report today. We're currently driving a fundamental transformation in our company. This is not about returning to the Hardie of old. What we're executing is much more significant than that. We executed our plan to go from being a big small company to being a small company. This is about building capabilities and processes that connect to core strengths of our company to generate critical mass, to deliver profitable growth while creating a culture of being a customer-centric company.

We are driving a fundamental transformation across our company. Our goal as a small big company is to deliver sustainable and profitable growth. However, if you look at our results during the past 10 years, we have not met that mark. Let's use North America as an example. When you look at the past 10 years, we have had some good PDG years, and we have had some good EBIT margin years, but we have not accomplished both together. This year, however, we have delivered both. Through nine months, we delivered PG of about 6% plus with EBIT margin of 26% plus. This is a good step in the right direction of where we want the new Hardie to be.

Delivering growth above market and strong EBIT margin consistently is hard to do, but that is our goal across all of our business segments. We believe we are now on the right track, but the fundamental transformation is not easy. There's still a lot of work left to do and there are several key areas we need to focus on and invest in. We need to continue to conduct our businesses together and then focus on critical few opportunities to create value to earn our customers business every day via increased demand of our products with the builders on our contractors. We're having more efficient supply chain to serve our customers better, more enabling tool that make it easy for our customers to sell our products. And with high-impact innovation that expand market opportunities for our customers. When we were able to deliver on all of those objectives, we will truly be a global company that can deliver sustainable and profitable growth. I'm excited by our progress to date, as I believe we are on the right track to get there.

Let's now move into the business and operational highlights. Now, turning to Page 7 on Group results. From the Group perspective, we had another quarter of strong profitable growth led by outstanding performance in our North America segments, and a very good performance in our Australian business. For the Group, volume was up 6% in the quarter and 4% for the nine months year-to-date. Net sales were up 5% for the quarter and 3% for the nine months year-to-date. And adjusted EBIT was up 18% for the quarter and 20% for the nine months year-to-date. Adjusted net operating profit for the Group grew 17% in the quarter and in the first nine months of the fiscal year. Globally, our team will execute in our strategic plan resulting in strong financial results in each of the last three quarters.

Let's turn to Page 8, on North America results. Our exterior business delivered exceptional results. Volume grew 13% in the quarter and 8% in the nine months, as our commercial transformation is gaining momentum. We're estimating our addressable market growth for the full fiscal year 2020 to be between the 1% to 2% and we're confident that we'll deliver a 6% plus PDG growth above market for fiscal year 2020. Additionally, our interior business returned to growth, posting a 3% volume growth for the quarter. We're now on track to deliver a full-year expectation of flat to slight volume growth for the interior business.

Now with more volume of fiber cement flowing through a network of more efficient fiber cement manufacturing plants driven by lean, we deliver an increase of 30% in EBIT dollars. And our EBIT margin was 26.1%, a 380 basis point improvement over quarter three a year ago. Our EBIT margins for both the quarter and for the first nine months exceed the top end of our long-term target range.

Our commercial transformation is gaining momentum, supported by continued traction in our lean transformation. Continuous success in both of these initiatives is critical to delivering sustainable and profitable growth. We are pleased with the nine month results of 6% plus PDG and 26% EBIT margin.

Let's now turn to Page 9 for European results. Fiber cement growth momentum continues with net sales up 27% for the first nine months. Fiber gypsum net sales were soft and below our expectations. A large contributor in fact was certainly the softening housing markets in Western Europe, particularly in Germany, France and the UK, but we also experienced a dip in our commercial execution during the past three to four months. And as you know from our global strategy, one of the key disciplines in our company is the continuous improvement mindset of PDCA, plan, do, check and adjust. We believe that we have done the right checks and recently made the right adjustment relative to our plan to ensure we deliver improved fiber gypsum growth going forward.

Our EBIT margin was 9.6% for the nine months year-to-date. Our European strategy is on track and we are excited about introducing innovative fiber cement products into this market.

Now let's turn to Page 10 for APAC results. Our Australian business would stand out in APAC, driving growth above markets in the contract and housing market and delivering strong EBIT dollars growth. Overall APAC saw a moderate EBIT growth for the quarter of 5% and EBIT margin remained in top half of our long-term target range. Similar to my comments on Europe, the business is sound strategy, but we are adjusting as necessary to ensure our New Zealand business execute at the same level as Australia.

Now finally, on Page 11, our updated key assumptions for fiscal year 2020. In North America, we see modest growth in US housing markets. We expect our addressable market to be up 1% to 2%, closer to the 2% range. US residential housing start will be approximately 1.3 million, as we continue to gain traction in our commercial lean trend formation and executions in North America we are now raising our full year PDG 2020 target from 4% to 6% to 6% plus, and we are reaffirming our EBIT margin range of 25% to 27%.

In Europe, we continue to expect the addressable housing markets to be slightly down for the full year. We're continuing to introduce new fiber cement products and the one change in our European assumptions for the year is that we now expect EBIT margin to be flat year-on-year rather than increasing. The primary driver in the change in our EBIT margin expectations is the soft fiber gypsum sales growth, I discussed on the European slide.

In APAC, there is no changes to our assumptions. We expect the addressable housing markets in Australia to be down mid to single digit. APAC is expected to deliver volume growth of our markets of 3% to 5% and EBIT margin in the top half of the range.

Finally we raised our guidance on adjusted net operating profit to be between $350 million and $370 million. Overall, I'm very pleased with the progress the team has achieved in the first nine months of this year, especially in North America and Australia. We have posted three consecutive quarters of strong financial results, our teams are executing against our strategic plan, and our results to date have demonstrated that.

I will now hand over to Jason to take you through the financial review and highlights. Jason?

Jason Miele -- Vice President, Investor and Media Relations

Thank you, Jack. Good morning, everyone. We will start on Slide 13 on the Group results. As Jack mentioned a strong financial performance across the Group, starting with our top line results. You'll see sales volume up 6% for the quarter and up 4% for the nine month period. Net sales up 5% and 3% respectively. The top line strength is driven by the outstanding performance Jack discussed in our North American business. On the profit metrics you see gross profit increased 15% for the third quarter and 12% for the nine months. That's been driven by the improvements in lean, globally across our businesses as well as the strong top line performance.

You also see the lean performance coming through in our gross margin percentage with the nine months up 290 basis points. Finally, EBIT -- our EBIT, adjusted EBIT is up 18% for the quarter and 20% for the nine month period and net operating profit is up 17% for both periods, driven by the strong adjusted EBIT growth and also partially offset by higher tax expense and higher general corporate costs.

Moving on to the North America result. As Jack mentioned, PDG is very much on track. We've raised our target to plus 6% for FY '20. Exteriors volumes were up 13% for the quarter and 8% for the nine month period. The momentum of our commercial transformation continues in our exteriors business and we're also starting to see the acceleration of our interiors volumes continuing to improve. You'll remember in FY '18 and FY '19, our interiors volumes were down, both of those years. Last February, we would have signaled that we expected FY '20 to be flat year-on-year and we're very much on track to deliver that target in FY '20.

Price was favorably impacted by our price increase on April 1 to start the year partially offset slightly by mix with both periods being up 1%. The EBIT metrics were quite strong. EBIT dollars excluding were up 30% for the quarter and up 20% for the nine month period with both periods been at 26.1% EBIT margin, which continues to be above our long-term range. EBIT results were driven by the higher net sales, lean savings as well as lower freight costs and the quarter in particular was also helped by lower pulp costs.

The next slide on Page 15, is our long-term, six year view by quarter of EBIT dollars and EBIT margin. You'll see the three bars there on the far right represent our Q1, Q2 and Q3 FY '20 EBIT dollar performance. You'll note that those are the three highest quarters we've achieved over that six year period, while also delivering margin above the top of our range. And as Jack mentioned we reiterated our target for FY '20 of 25% to 27% for our North America business.

Moving on to input costs. This continues to be a more positive story than it was last year. Pulp is down 22% for the quarter. So that is the three month period ended December 31, 2019 versus the same three months in the prior year. I'll remind everyone, that those are market prices and a market metric that kind of activity, helps us kind of on a one quarter lag. Freight was also down 12% quarter-over-quarter, sorry to be specific, the December quarter versus the December quarter. That is starting to narrow a bit from what we saw in the first half of the year, but still a very good trend. And lastly, cement prices were up slightly. Gas prices were down 29% and electric prices were up 6%.

Moving on to Asia Pac. As Jack discussed, certainly, the top line metrics have been impacted by a softening -- continued softening in the Australian housing markets, and sales volumes down 4% for the quarter and 2% for the nine month period, and sales down 3% and flat respectively. Australia was the standout for the segment driving strong growth above market and delivering those top line results. Price was strong throughout the region at plus 3% for both periods.

EBIT in Australian dollars was up 5.5% for the third quarter and 1% for the nine month period. Those results are being driven by the higher average net sales price across the region, lean savings, particularly in our Australian plants, lower pulp costs offset partially by higher freight. As a reminder, our US dollar results when translated are being negatively impacted by unfavorable FX rates for both periods.

Moving on to Europe on Page 18. So as Jack mentioned there is -- third quarter result in Europe is certainly softer than we wanted. Strategy is on track, but that third quarter is impacting obviously also the nine month period. The third quarter results were primarily a result of the softer fiber gypsum volume growth that you see also impacting the profit metrics. For the nine month period, sales were up 4% with average price up 1%. We had fiber cement net sales up 27% for the nine months ended and fiber gypsum net sales up 2%. Higher SG&A costs are driving EBIT down year-on-year as well as EBIT margin excluding of 9.6% for the nine month period is 70 basis points off of last year and as Jack stated, we've lowered our expectations to have a flat full year FY '20 versus FY '19 for EBIT margin -- adjusted EBIT margin in Europe.

And that was -- sorry last thing would be on integration costs. We did have higher than anticipated integration costs, certainly higher than we signaled to start the year. I believe we started the year with a range of EUR4 million to EUR7 million. We are now at EUR8.6 million through nine months and EUR3.9 million in the third quarter. We'd anticipate to have roughly EUR2 million to EUR3 million more left to go in FY '20. In FY '21, we will not be recording integration costs.

Moving on to these other segments and income tax. The other business on the top left there, as you know, we announced the exiting of our windows business in North America last year in FY '19, so those are the charges you see being taken in FY '19. And we wrapped up that process and completely ceased that business early this year. So you're seeing essentially no activity for the full year, for the nine months and zero now in Q3 that will continue at zero.

Research and development down slightly for both periods. We are continuing committed to R&D investments as Jack's mentioned in our September Investor tour and earlier, we were committed to innovation and we'd anticipate continued investments in our R&D segment. General corporate costs are driven higher due to -- primarily due to higher stock compensation expenses for both period. I'll talk about that in a bit more detail on the next slide we get to.

Finally on this slide adjusted ETR is right in line with our expectations and what we've been signaling all year. Three months ago, we estimated 17.9% and now we -- our view is at 17.8% for the full year.

As mentioned diving a bit deeper into the general corporate cost line, we've presented here a few things, a trend line as we have the FY '19 quarterly average of general corporate costs along with the three quarters from this year. And also noting in the current quarter the $24.3 million of general corporate costs includes a unusual item of $3.5 million related to the acceleration in the timing of accounting for expenses associated with a retired executive, as the effective service term for that executive as shortened. We are required to accelerate the accounting for these expenses over the remaining service life, which is now at the end of March 2020. Thus, these expenses from an accounting perspective, have been accelerated into the third quarter as well as the fourth quarter.

If you look at general corporate cost excluding that amounts we're at $20.8 million for the quarter. The increase versus the prior several quarters is primarily driven by higher stock comp expense as mentioned, which is driven by not only a higher share price, but an increase in share price during the period from the first balance sheet date to the last balance sheet date of the period. We've also increased investments in our corporate capabilities which we had signaled last quarter, we'd be increasing investment throughout our business and that's also part of the increase you're seeing here.

Finally, Page 21 this combines two of our slides. we used to present separately, cash flows, and capital expenditures. On the left, cash flows is very straightforward, very good results with cash flow from operations of $84 million period-over-period or 27% at $393 million, a very strong result which has been driven by the increased profitability and cash generation of our business units. Year-over-year, you also see significant changes in investing activities and financing activities, which is primarily driven by the Fermacell acquisition in the prior year and no repeating of an acquisition in the current year.

On the right hand side, capital expenditures, $161 million through the nine months, right on track to -- right around what we signaled of $200 million to start the year. In North America, we continue the construction of our Prattville, Alabama, facility and in Asia Pac, we have completed the construction of our brownfield construction at Carole Park and we now anticipate we would commission that in Q1 of FY '22 as we monitor demand.

Moving on to the liquidity profile. No change from the past several quarters. We have the same instruments in place $800 million of US notes, EUR400 million of notes and EUR500 million revolver, that's remained the same for several quarters now. Our leverages continues to remain on track. We're at 2.1 times net debt to adjusted EBITDA, remained slightly above our range, which is 1 times to 2 times, but is down from 2.3 times in the prior period as of September 30, 2019. And we continue to anticipate to have that firmly within our range in the next two to three quarters, which is on track with what we said to you three months ago.

Finally, a repeat of a slide in Jack's deck. The FY '20 key assumptions and market outlook. I'll just reiterate the items that have changed. So in North America we've refined our estimate of around US residential housing from a range of $1.23 million -- sorry $1.2 million to $1.3 million to be approximately $1.3 million as the data comes in. And also raised our PDG guidance for our exteriors volume to plus 6% from 4% to 6% last quarter.

In Europe, we the third bullet there, we've lowered our expectations on EBIT margin. We had originally anticipated. EBIT margin accretion FY '20 versus FY '19, we're now signaling that to be flat year-on-year. No changes in Asia Pac. And finally, we raised our adjusted net operating profit guidance from $340 million to $370 million to $350 million to $370 million.

With that I will hand it back over to Jack to go through the strategic update.

Jack Truong -- Chief Executive Officer

Thanks Jason. Now the fun part. Now let's turn to Page 25 for an updates on our strategy. And starting with the fundamental transformation that were undertaken. Now we are moving from being a big small company to a small big company with a keen focus on delivering the most value to our customers and earn the business every day. So what does that mean by being a small big company? It really means about connecting different functions together, connecting different businesses together as one global James Hardie team and focus on the critical few opportunities and drive for those results. And as we continue to connect different pieces of our company together, leverage on those core strengths and focus on the right priorities, that's just how we're going to get the momentum and the growth -- the profitable growth that we would expect for being a small big company.

So it is really important for us is about for all of us about the priorities to be a customer-centric company. And it starts with commercial. This is what we went from being a pull company that was focused primarily on demand creation with the builders and contractors to one that is not only focussed on demand creation with the builder and the contractor, but also focussed on adding significantly more value to our customers. And we open up game on demand creation to pull why we engage with our customer push to make it easier for our customers to make more money, selling our products in our competition.

And then really from the operation side is that as we create more and more demand, it is important for us then as we flow those demand through our plants that those plants also operate as one. So traditionally each and everyone of our fiber cement plants across North America and Asia Pacific used to run independently. But through Hardie manufacturing operating system based on lean principles, all of our fiber cement plants are now running as one interconnected network to produce consistently good quality products with more predictable service for our customers while reducing waste.

And market-driven innovation is also that trend formation. This is all about delivering the high impact innovations. The critical feel that our customers need instead of what our R&D engineers want. And to really support these three critical transformation our culture need to also change to enable those connections. For example, where we used to be more top down within our company now is more the empowerment. So it's really about making sure that the decision making process are really driven deeper within the organization and also the accountability that come with it, and that has really energized our employees across the company and around the world. And rather than work in silos and decision makings are made separately, we now work together as one cross-functional team that would allow us to make better decision, more holistic decision for the better, good of the total company or the total business. And so we went from being a regional-based company to now more a globally connected company with the mindset of learning that is what's could be old in one part of the world, can also be new in a different part of the world. It's really about the culture of very learning from each other and really trying to maximize and raise the standard of our company across the globe.

And it's moving from being just reactive to the situation to be more proactive, they really think ahead where it's around the corner and then prioritize as a total company and really address those issues before it become a bigger issue. And most important to our company is about being that 1% improvement a day. It is really that continuous improvement mindset, how do we take the total company interconnected connected together and make the improvement 1% a day. And that is really the transformation, our company is going through from the cultural perspective as well as from the business perspective. That really what we strive and aspire to do going forward. And we have started on this journey a year ago.

Now just to give you some example. On page 26, I'm going to share with you here really what the customer-focused strategy really in action at the International Beauty Show that we just had recently in Las Vegas last month. Over three days at the show, our leadership team along with our cross-functional team members met with similar teams of our top 25 customers where we took the time to discuss, learn and share our plan together to further align our partnerships. And then we have reiterated our commitment to our customers that we want to earn and win the businesses each and every day with the value that we create in our company for them, specifically for them, each and every one of them. And it was a very successful show and you can see the engagement that we have had with our customer throughout the show, with the engaged employees that we have at the show from the cross-functional perspective. And we look forward to building on this momentum to help deliver our sustainable profitable growth going forward. This is just an example in action.

Now on to Page 27 to provide you an update on our progress with lean transformation. We have now deployed a Hardie manufacturing operating system in all of our facilities in North America and have recently started our European deployment. In fact, I was in Orejo, Spain, last week to participate in the first HMOS deployment in our fiber gypsum plant in Europe. And we plan to deploy HMOS in all of our European sites within the next 12 months. And you can see this is the continuous improvement mindset. So we started the lean journey in Asia-Pacific during the past few years, and we took those learnings and then replicate to the North American and improve on it, and which is then become the Hardie manufacturing operating system which we deploy across North American plants.

Now we take the HMOS in North America, now replicate to Europe and improve on it based on the European capabilities and then we also will replicate this back to Asia-Pacific to really drive the improvements as expected. And what we would expect in a year from now is that the HMOS implemented deployed in Europe now within replicate back to North America with those learnings. Now that is the continuous improvement mindset and the strategy that we are deploying within our company using the lean principles to really drive toward producing our products with consistent quality, with predictable service and of course, to really take the unnecessary cost out of our manufacturing and supply chain system.

We are currently on track to deliver against our lean cost out for each of the regions. In North America, our lean cost target is $100 million cumulative through fiscal year '22. And so we have now deployed HMOS in 100% of our existing facilities in North America. Our teams are solely focused on continuous improvement and quality cost and predictable delivery of our products. And I'm also very pleased with how engaged our employees are in embracing and executing our lean principles than our results show. Year-to-date after three quarters, we have already reached the target that we have set for the year, which is the really faster than anyone of us had expected it.

In Europe, our target cost that was $20 million, and recently we launched at our first facility in Orejo, Spain, and Europe will be incorporated and replicating key learnings from North America and we expect all plants to be transformed to lean by the end of fiscal year '21.

In Asia-Pacific, our cumulative target through fiscal year '22 is $19 million, with focus on continuous improvements while replicating learnings from our North American deployments. Our teams are sharing best practice and are becoming more globally connected every day. And our focus on lean transformation is a key initiative to support our goal of sustainable and profitable growth.

Now, let's turn to Page 28 and discuss another core pillar of our corporate strategy, market-driven innovation. Our approach is to translate the megatrends, integrate these with customer insights to develop winning products concept and ultimately, bring these to market that the customers and the market really want.

And as a company, we are committed to increase investments in and usage of our dedicated global R&D team to deliver innovations that address our customers' needs and support our long-term growth expectations.

And today, I would like to speak about three of these innovations in more detail. Our HardieWindbreaker, ExoTec Vero and Easytex products. First, if you look at the HardieWindbreaker, which is a critical innovation for our European and Australian businesses. In Europe, we launched the product in May of 2019 and we market the product as HardieWindbreaker sheathing products and then that innovation is then replicated back to Australia, where we launched an improved product for the Australian markets in November of this past year as a RAB board. This product get install beneath external cladding or rain screen and it deliver superior water resistance, long term climate durability and superior strength. We are targeting this products to our residential segment, including single and multifamily housing. And we are excited about it and specifically how it addresses a definite market and customer pain points. And we look forward to supporting this growth in future periods.

Now moving on to Slide 30, we also just launched our ExoTec Vero facade panel. This product was launched in Australia in this past November and offer a pre-finished concrete look facade panel as non-combustible and offer a look that this market is asking for. It is targeted to our commercial segment. Certainly, with this use as a test site as well, the learning from this will also allow us to replicate in other markets around the world.

And lastly on Page 31, we launched our EasyTex cladding innovation in Australia just this past month. This product is a fiber cement panel used as external cladding with an embedded fine render texture which eliminates the need for render or wet trades, and really simplify the way renders has been put on at the exteriors of homes. It also feature an interlocker mechanism for faster construction. This product is targeted at our single-family new construction segment. Now, these three new products are few of our ongoing innovations and above all else, our philosophy is about delivering the products that our customers want and need, while addressing market trends, easy and fast to install, low maintenance with high durability. And I'm excited about what the future holds, as we identify new market-driven innovations and continue to address our customers' needs each and every day.

In closing, I would like to reiterate that we are focused on becoming the leading global building material company that delivers a sustainable and profitable growth. I believe that we are on this path and that the last nine months have been a strong start. I'd also like to take the opportunity to thank all 5,000 employees -- global employees across the James Hardie Company for excellent work and very good execution during the past nine months. Thank you.

We'll open for Q&A.

Questions and Answers:

Operator

Thank you, ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] And your first question today comes from Simon Thackray from Jefferies. Please ask your question, Simon.

Simon Thackray -- Jefferies -- Analyst

Thanks very much. Good morning, Jack. Good morning, Jason. Thanks for taking my question. I've really got a couple of quick ones. Just in terms North America, an impressive performance year-on-year from a volume perspective, exteriors up 13%, you turned around interiors. We had pulp down 20%. You've got lean benefits running ahead of schedule. It was by in fairness a very [Indecipherable] you had low growth last year and weather effect and all sorts of stuff. Yet, with the EBIT margin of 26.1% with no disrespect, the gross margin sequentially for the Group was down 60 basis points and the EBIT margin for North America was down a 100 basis point, with all those tailwinds flowing. I'm trying to understand that consequence from all of those tailwinds been reflected in that margin. Albeit, it's a good one for [Indecipherable] it's down sequentially in a quarter that looked really, really favorable for you. Can you just help me understand that?

Jason Miele -- Vice President, Investor and Media Relations

Yeah. Thanks for your question. I think it's essentially 27% last quarter dropping to 26.1% this quarter, why? I think we had similar questions last quarter. I was looking forward. And I think what I would have said last quarter remains the same. So third quarter is our lowest volume quarter. So I think that's the number one driver when you're talking about margin. We've talked about freight narrowing a bit in the back half of the year. Certainly, to your point, pulp was a tailwind, Q3 versus the same period last year, but versus Q2 not as -- it was a tailwind, but not as significant as that was ramping down over time. But again -- and lastly, we signaled we would continued to invest and we have. And so I think those things combined, you end up at 26.1%, which is a great outcome. 26.1% for the nine months, while delivering a PDG for the full year at 6% plus. We're quite pleased with how the quarter turned out.

Simon Thackray -- Jefferies -- Analyst

Yeah. No, [Indecipherable] I am not criticizing the EBIT margin, I am just looking at the extraordinary volume growth we saw that not withstanding that the third quarter is weaker, one would have expected there to be more leverage in that volume to the cost inputs to be better. So what I would like to know...

Jason Miele -- Vice President, Investor and Media Relations

So if I think about -- so you've asked the question a couple of ways. Q3 versus Q3, we did expand margins significantly over 300 basis points. Q3 versus Q2, I don't have the number off the top of my head, but volume would certainly be down Q3 versus Q2 due to seasonality.

Simon Thackray -- Jefferies -- Analyst

Yes. Due to seasonality of the volume, but by the same target, the gross margin is normally better in Q3 than any other quarter as well. So I can look at that sequentially with a better gross margin Q-on-Q. What I would like to ask is the following, it's very strong PDG with upgraded guidance it is excellent. If hypothetically [Technical Issues] decelerated in US, which is great, you are now delivering positive comp on interiors I can say going forward. If we were to see US housing starts, let's say, up 7% or 8% in FY '21, and you can post positive interiors growth in sort of low to mid single digits, and R&R kicks along in sort of mid single digit level, are you still able within that environment with that changing [Indecipherable] to achieve the kind of PDG targets that we are looking at, because that was sort of another low double-digit volume?

Jack Truong -- Chief Executive Officer

Simon. I didn't understand what you just talk about.

Jason Miele -- Vice President, Investor and Media Relations

Sorry Simon, it's quite hard to hear you. I think a lot of math there, but you're saying, if the underlying housing market grows 7%, 8%, R&R is still at about 2% to 3%, can we still drive PDG results similar to this year. Is that your question?

Simon Thackray -- Jefferies -- Analyst

In mix in periods and you have a -- would have an impact to PDG, just to understand.

Jason Miele -- Vice President, Investor and Media Relations

So let's cover up on that part first. So interiors is not part of our PDG calculation. PDG is a calculation associated strictly to our exteriors volumes.

Simon Thackray -- Jefferies -- Analyst

Exteriors. Yes.

Jason Miele -- Vice President, Investor and Media Relations

So then within exteriors, you have new construction and RNR. Do you want to cover up whether you believe we can drive the PDG results in a accelerated market of 8% new construction growth and 3% R&R growth?

Jack Truong -- Chief Executive Officer

Yes. Simon, just a couple of things to remember as we head into the next -- this coming year, is that the first six months of 2019 was a very soft new construction in North America, because of all type of weather, the polar vortex between and so on. I think it was like, was down for the first six months for the new construction, down like minus 6% to 7%. So as you look into the comp, just purely look at the comp for the next six months, you're going to see a higher comp. But in reality the actual new construction unit is still at the same as we have in this past quarter. So it's just about -- so we have to keep that as a fundamental levels set.

And then the second part is that, as I mentioned before, is that we are now becoming a small big company now, that we have a much bigger critical mass. And it's important for us that every day that we execute well as a team cross-functionally to focus on the critical few parameters to really drive the results -- expected results. Then we have to earn that business every day. So with the strategy we have and how we've been executing, I'm confident that we can do that. But at the same time, it is something that we have to earn every day. It's not a guarantee.

Simon Thackray -- Jefferies -- Analyst

Sure. I appreciate that. I'm just sort of trying to understand if there is any mix shift historically, which says, 65% R&R, 35% new housing, 75% or so of volume, 25% interiors. How does that mix shift, if at all, change target for PDG, that's what I was trying to understand in sort of hypothetical perspective and whether that obviously changed margin [Phonetic]?

Jason Miele -- Vice President, Investor and Media Relations

We are getting a ton of feedback of this call. Can we move to the next question. Sorry, Simon. We are getting a ton of feedback in the room off your line. So we're going have to move on to the next question in the room.

Peter Wilson -- Credit Suisse -- Analyst

Pete Wilson, Credit Suisse. So not make to excuses. Very strong volume. Can you just give us some more color on where you won that business, which geographies, products, which customers, where did it actually come from?

Jack Truong -- Chief Executive Officer

So as we started this journey a year ago from pull to push/pull. And so we do have reallocated and put the resources on the pull to true pull, where we have the hunters go out and really get our business on the wall. And then while we invest in the key account to manage with our customers a lot better. So now it's really come to a dynamic of those two of working together. That's the hunters have been able to gain some really good conversion against other categories and competitors and be able then to translate that into sales with our customers. And so, we have very, very strong growth in South Central, the Texas area, the Southeast the Mid-South area and also we've been gaining a lot of momentum in the Northeast. So it's certainly the area that we have focused on as part of our strategy to continue to gain market share.

Peter Wilson -- Credit Suisse -- Analyst

Okay. And the Q4 results, would you be happy for the market to extrapolate that forward or is there anything unusual about the quarter, i.e., was there any end-of-year volume pull-forward or something of that nature?

Jack Truong -- Chief Executive Officer

No. We didn't raise our price until this quarter. So it's really that -- so the results from this past quarter is as pure push-pull normal driving of business that our company has been on.

Peter Wilson -- Credit Suisse -- Analyst

Okay. And on price, I mean slightly soft result, 1% which you have put down to mix. The only thing, what's the margin impact of that, is there is a mix on price, is there a comparable mix shift on cost of goods sold? Or is there actually a negative margin impact of a softer price?

Jack Truong -- Chief Executive Officer

I think couple of things to remember now, Peter, is that we are now moving into HMOS, or lean transformation, so our network of plants become more and more efficient every day. So the key for us is really about having the degree of freedom to manage the volume, price mix, to ensure that we have the maximum amount of volume fiber cement flowing through our now more efficient plants. As we do that, we will generates a significant leverage to drive more EBIT dollars.

So when it come to price mix, what we want to do too is that the mix that we are also beginning to go into is that we see opportunities. So we currently have low penetration in multifamily. And so we are putting a focus to gain more penetration in that area. And of course, products in the multifamily has lower price point, because it's different type of products, but as they are also fiber cement, and they will also flow throughout the same network of plants that by doing that we still generate a lot more EBIT dollars. And so that was the mix that we talk about.

And the other is on price, is that, a big part of our price growth that we plan this year is really about the increased penetration of our Win with Color program. And so we had a soft start, a rough start to the launch of this program a year ago, and that's kind of not meeting the plan that we have put in, but we expect going forward the color program will become a growth generator as well as the price generator in our business in North America.

Sophie Spartellus -- Bank of America -- Analyst

Good morning. Sophie Spartellus from Bank of America. Just in terms of seasonality, I recall at the Investor Day, you talked around the internal initiatives being able to smooth out the seasonality that we generally see Q-on-Q. We did see a bit of seasonality this quarter. Can you just talk about how long that will take to flush through the accounts?

Jack Truong -- Chief Executive Officer

Well, I think if -- I think it's the new construction was stronger in the last three, four months than in the previous year. So as you probably saw, the construction activities have picked up. And so it's just as -- at the end of day we are a pull company, we are demand creation company, so as the builders start to build and as the R&R contractors want to remodel home, we are supplying that. So that's the stat phenomenon that you see that we track very well with that as well.

Sophie Spartellus -- Bank of America -- Analyst

Okay. So we should expect to see that continued seasonality going forward? You don't have any internal, I guess, pull factors to smooth that out?

Jack Truong -- Chief Executive Officer

No, because really we are the demand generator company.

Sophie Spartellus -- Bank of America -- Analyst

Okay. And then just in terms of Europe, the differential between fiber cement and fiber gypsum, you talked around a softer European market in some of the markets there. Can you just maybe talk through a little bit more around why fiber gypsum sort of had that shortfall?

Jack Truong -- Chief Executive Officer

Yes. It is a transformational journey for our company globally. Now, here in North America, up until a year ago, we were primarily a pull company. We didn't really focus a lot on push, which has really managed our customers better. And the same thing with our European business, and also, to a large extent our business in Australia is that, our business with fiber gypsum in Europe was primarily a pull business. That means that most of our sales team had been focused on going to the architects, going to designer, going to specifier and specified in fiber gypsum as a technical product on the wall and we didn't focus a lot on the customer side.

And so with whole global strategy now to drive bigger growth, it's important that we become the push/pull and that transition was taking lot longer for our European team than we had expected it. But as of last week, we spent a lot of time together and I believe that the team really got it now, not only at the leadership level, it is really deeper down within the organization. And I would expect that big adjustment will happen pretty quickly, similar to what you see in North America and going forward. But that's what happened. It's really been a pull company and our key competitors are pretty much in the channel in Europe.

Lee Power -- CLSA -- Analyst

Lee Power, CLSA. Jack, just when you talked a bit about achieving the high margin and high PDG at the same time, is there any -- and that's kind of come with very little lean reinvestment. Is there any change in thinking about the level of lean that needs to be reinvested to maintain 6% PDG over the longer term?

Jack Truong -- Chief Executive Officer

Well, first of all, I just want to -- if you look back at our historical result in North America and in our annual report, look at the last 10 years, our average PDG during the last 10 years, excluding this year, is about 3.8%, and our EBIT margin was 22.7%. And most of the PDG that is more than 6% really happened during the first three, four years after the global financial crisis and after that it has been kind of below the range and so on. So it's really the business model that we have to change now is really driven from being running many different plants independently into one network as one plant, pretty much like one super-sized plant, if you will. And that is the one that allow us to be able to be the new baseline of performance. And for us to really the new business model that we are on. And we just need to execute that game plan more consistently for us to be able to be more predictable in what that should be and how much investment we should put in as we need to go into the future. But as of right now, it is a little bit more about adhoc as we see how things are developing, because we are still in doing this trend formation.

Lee Power -- CLSA -- Analyst

And then just following on from Peter's question. You talked about the hunters doing really well. I mean, in the past you've talked about base erosion. Is that still occurring? And then maybe how you reconcile that with out base result, which is also...

Jack Truong -- Chief Executive Officer

Yes. So remember we are a pushed -- we have traditionally been a pull company. We haven't really put a lot into push. And now as we put together a push/pull, it's really demand creation that drive our sales. And with now a lot more -- our total company now more customer focused or customer-centric, we don't have a lot of erosion, as much erosion that we used to have in the past. And that's just really what we see as a result of our company that -- the consistent result that we have in delivering during the past three quarters. And also keep in mind though what we strive to do here is to grow, but grow at a profitable growth. So it's not just about again the volume.

Lee Power -- CLSA -- Analyst

Okay. Thanks.

Peter Steyn -- Macquarie -- Analyst

Good Morning, Jack, Jason. Peter Steyn from Macquarie. Jack, with the EasyTex slides behind you and ExoTec as well, just curious how you are thinking about the possibility of the application of some of these products, particularly in the Stucco market in the US and how that could alter your addressable market over time?

Jack Truong -- Chief Executive Officer

Yes. So really the key part of the innovation process is really about for us to understand those unmet needs, particularly in this case the Stucco markets in the US or the render market in Western Europe, is really about understanding those unmet needs. And what we have right now just is a product, EasyTex. And so based on our knowledge now of what's going on with the unmet need in the North American markets and Europe, then -- would allow us then to have the right product, the -- really define the right products that we can use our technology to really develop. And that is really where we're going. So the EasyTex is just the beginning of a platform that would allow us to really innovate.

Peter Steyn -- Macquarie -- Analyst

Right. Thanks. And then just following on on the lean conversation. Could you give us a sense of where you are from an annualized run rate point of view in the realization of the gains that you've envisaged?

Jason Miele -- Vice President, Investor and Media Relations

Well, we will give you more definitive numbers in May when we come back here to give you guidance for fiscal year '21. But as of right now, I mean, certainly, you can see that now EBIT results, where my counselor says that the first three quarters of lean execution, we -- pretty much nearly the same as what we had anticipated for the whole year. So we are ahead of the plan.

Peter Steyn -- Macquarie -- Analyst

Okay. Perfect. And then, just wanted to pick up on a small item or smaller item, not to discount the New Zealand business, but sales down 18% in New Zealand. Obviously, there would be a bit of currency impact there as well, but I'm just curious to get your sense of some of the challenges in getting that business back on its feet again?

Jack Truong -- Chief Executive Officer

Well, I think this is also a case where I mentioned at beginning of this strategy section is that the move into the small big company, we got to integrate the functions together and really focus on the right priority, the critical few priorities and make better decision holistically. And that is the area that we've been lacking in our New Zealand business at the leadership level. And so we're working to address that. We have deployed one of our best manufacturing leaders in our North American plant to become the new plant manager of our fiber cement plants in New Zealand, for example. So we start to really strengthen the bench strengths in New Zealand to really address that issue because this needs to be addressed.

Peter Steyn -- Macquarie -- Analyst

Perfect. I'll leave it there. Thanks.

Jason Miele -- Vice President, Investor and Media Relations

We'll go to the questions on the phone. Please operator.

Operator

Thank you. Your next question comes from Keith Chau from MST Marquee. Please ask your question, Keith.

Keith Chau -- MST Marquee -- Analyst

Good morning, Jack and Jason. A few questions on my end. Just firstly circling back on price. Just wondering if you can give us a sense of what the like-for-like price increase was in the period? And also, what the expectation going forward is, recognizing that I think price increases have been announced I think this April?

Jason Miele -- Vice President, Investor and Media Relations

We see no changes. We announced our price increase this quarter. It's between 2% and 3%, it really depends on the region.

Keith Chau -- MST Marquee -- Analyst

And it's just on like-for-like basis, Jack?

Jack Truong -- Chief Executive Officer

Like-for -- what do you mean by that Keith.

Keith Chau -- MST Marquee -- Analyst

So excluding the mix impact in the quarter, what would the like-for-like price increase be?

Jason Miele -- Vice President, Investor and Media Relations

So at the beginning of the year, we signaled we expected a 2% price increase to flow through the financials and so the mix is what's driving that down. So difference in what you're selling, whether you are selling more multifamily, more interiors, as a percent of the total period-over-period. So we achieved our price increases. The price increases we took in the market we got. The team did a great job at that. And now it's just -- as the periods roll by, we are getting different mixes than what we necessarily expected when we said we'll deliver too.

Jack Truong -- Chief Executive Officer

Keith, just something to think about too is that the like-for-like, if you look at the first nine months this year versus last, is that we had expected our Win with Color program to be more penetrated, but it didn't meet the expectation. And then, the second is that, we have made a conscious decision to really grow more into the multifamily segment, so that's really the mix -- the two key mix that really drove the price that we have today.

Keith Chau -- MST Marquee -- Analyst

Okay. Thanks, Jack. And then, secondly, just circling back on lean, so tracking ahead of expectations. I think the expectation for this year was a range of $15 million to $20 million. So just wondering if you can give us a sense of where within that range we are sitting at for the nine months of this year? And also, is it at all possible that lean benefits get reinvested at a fast pace than delivery, either in the fourth quarter of this year or in the FY '21?

Jack Truong -- Chief Executive Officer

You want to answer that.

Jason Miele -- Vice President, Investor and Media Relations

Yes. Keith, so I think as Jack said earlier, regarding the $15 million to $20 million target through nine months, we are there. So we're running kind of one quarter ahead of schedule. As far as reinvestment outpacing leans that probably would not occur. If you look over the next three years, we've set our targets of $15 million to $20 million and then escalating up to $100 million in year three. So the investment wouldn't exceed that.

Keith Chau -- MST Marquee -- Analyst

Okay. Thanks, Jason. On plant performance, I think, you noticed in the pack, that plant performance did improve relative to last year. I think previously in the slides that we had on the US September site tour, on a quarter-on-quarter basis, the plant performance has continued to improve. So notwithstanding some of the movements within the gross profit margin, are you satisfied that plant performance is continuing to improve on a quarter-on-quarter basis?

Jason Miele -- Vice President, Investor and Media Relations

Just to clarify your question, Keith, obviously, most of what we present is this fiscal year versus last fiscal year. You are asking has the plant performance improved Q3 FY '20 versus Q2 FY '20?

Keith Chau -- MST Marquee -- Analyst

Yes. That's right.

Jason Miele -- Vice President, Investor and Media Relations

Yes. We continue to -- lean continues to accelerate. So similar to how you -- we laid out at the Investor tour and in previous presentations, the three-year targets for lean and you can kind of see that increasing over time. You can think about the quarters in a similar way for FY '20.

Keith Chau -- MST Marquee -- Analyst

Okay.

Jack Truong -- Chief Executive Officer

Just to add on what Jason says too is that, for lean is really about us continuously improve every month, and of course then every quarter and that is the premise for us to be able to deliver on that $100 million cumulative savings.

Keith Chau -- MST Marquee -- Analyst

Okay. Thanks, Jack. On the interiors business, Jason, I think you mentioned the target for this year was to get back to flat outcome. I think for the first three quarters of the year you're at flat already. So is the implication that for the fourth quarter, you're expecting volumes to be flat? Or should we be thinking volumes are going to -- the volume momentum that we are seeing in interiors continue through into the fourth quarter and also a positive comp in FY '21?

Jason Miele -- Vice President, Investor and Media Relations

I think my comment was, we are on track to achieve the goal we stated last February. We'll provide guidance specific to FY '21 in May. But I think if you go back and look at some of the things we've talked about, the interiors business, including on prior calls on our September tour, it's about retail fundamentals currently and where we said, we believe that could get us back to flat or slightly positive. And then, into the future to really make it a significant growth business, it was about innovation and delivering new products into the retail channel. So we're right on track with where we want to be, Keith, and we'll provide FY '21 guidance in May.

Keith Chau -- MST Marquee -- Analyst

Okay. Excellent. And just lastly from me on corporate cost. Just wondering if you can give us some guidance on what would be a reasonable assumption for 4Q '20 or at least what's embedded within the guidance range? And also, if it is at all possible to give us a bit of a stare into FY '21 please?

Jason Miele -- Vice President, Investor and Media Relations

Yes. So I think, I'd say, obviously the normalized number I talked about on Slide 20, $20.8 million, is at the December 31 share price and it is excluding the one-off or the unusual item I talked about. So that could probably be a starting point for your analysis. And then, in my comments, I was quite clear that that acceleration will also occur into Q4. So you should consider that in your fourth quarter number.

Keith Chau -- MST Marquee -- Analyst

And then into FY '21, or is that something that we should hang tight on until the full-year results?

Jason Miele -- Vice President, Investor and Media Relations

Certainly, when we provide our NOPAT guidance for FY '21, we will include our range for general corporate costs. But I think my comment a second ago around $20.8 million that is our result excluding the abnormal item. So I think that could be -- you could look at that in prior quarters to forecast and develop your model for FY '21.

Keith Chau -- MST Marquee -- Analyst

Okay. Thanks very much, Jack and Jason.

Jason Miele -- Vice President, Investor and Media Relations

Thanks, Keith.

Operator

I will now hand the conference back to your presenters. Please continue.

Jack Truong -- Chief Executive Officer

Well, thank you all very much for attending our conference call. We are very excited about the results that we have delivered within the first nine months. Our strategy is on track. We still have much work to do, but we're really excited about it. Thank you.

Duration: 66 minutes

Call participants:

Jack Truong -- Chief Executive Officer

Jason Miele -- Vice President, Investor and Media Relations

Simon Thackray -- Jefferies -- Analyst

Peter Wilson -- Credit Suisse -- Analyst

Sophie Spartellus -- Bank of America -- Analyst

Lee Power -- CLSA -- Analyst

Peter Steyn -- Macquarie -- Analyst

Keith Chau -- MST Marquee -- Analyst

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