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DATE
Tuesday, May 20, 2025 at 6 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Aaron Erter
Chief Financial Officer — Rachel Wilson
Vice President, Investor Relations and Market Intelligence — Joe Ahlersmeyer
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RISKS
Management explicitly anticipates a "mid-single-digit decline" in North American market volumes for FY2026, including "a fourth consecutive year of declines in large-ticket repair and remodel activity."
Adjusted EBITDA margin declined by 190 basis points year over year in North America in Q4 FY2025, primarily due to lower volumes and unfavorable cost absorption.
Asia Pacific net sales declined 17% in US dollars and 13% in Australian dollars during Q4 FY2025, with a 31% decline in volumes in Asia Pacific, attributed to the closure of the Philippines and ongoing market challenges.
EBIT margin in North America fell 350 basis points year over year in Q4 FY2025, with roughly 150 basis points attributed to increased depreciation and amortization from recently commissioned assets.
TAKEAWAYS
Global Net Sales: $972 million in net sales in Q4 FY2025, down 3%, reflecting soft end-market demand.
Adjusted EBITDA: $269 million in adjusted EBITDA in Q4 FY2025, a 4% decline, with a margin of 27.6% (down 30 basis points).
Adjusted Net Income: $156 million in adjusted net income for the fourth quarter of fiscal year 2025. Adjusted diluted EPS was $0.36 in Q4 FY2025.
North America Net Sales: $2.9 billion in net sales for North America in FY2025 and 741 million standard feet shipped during the quarter, with a 2% revenue decline, a 3% volume decline, and a 1% increase in average net sales price (ASP).
North America EBIT Margin: 28.2% for the quarter, down 350 basis points; North America EBIT margin was 29.4% for FY2025.
North America EBITDA Margin: North America EBITDA margin was 34.4% in Q4 FY2025, down 190 basis points, with full-year EBITDA reached $1 billion for FY2025 and a EBITDA margin for North America was 35% in FY2025.
Asia Pacific Sales: Sales declined 17% in US dollars (13% in AUD), with a 31% volume decrease in Q4 FY2025, but a ASP in Asia Pacific rose 25% during the fourth quarter of fiscal year 2025. Adjusted EBITDA margin expanded 410 basis points to 34.5% in Q4 FY2025, driven by mix and cost controls as the Philippines exit took effect.
Europe Segment Performance: Net sales reached a record $135 million (up 5% USD, 8% EUR) in Q4 FY2025; Fiber gypsum products in Europe were up high single digits in Q4 FY2025. Fiber cement products in Europe were up mid-teens in Q4 FY2025. Europe saw 7% volume growth and a 7% ASP increase in Q4 FY2025, Europe EBIT margin reached 9.9% in Q4 FY2025.
Cost and Raw Material Pressures: North America faced low double-digit inflation in pulp and cement during Q4 FY2025, while higher raw material and energy costs and increased headcount pressured Europe’s EBITDA margin.
FY2026 Organic Guidance: Management expects low single-digit net sales growth in North America in FY2026, EBITDA margin is expected to remain near 35% in FY2026, and Over 30% free cash flow growth to at least $500 million is projected in FY2026, despite ongoing raw material cost inflation.
CapEx Outlook: FY2026 capital expenditures are projected to decline by nearly $100 million, to approximately $325 million, as major U.S. facility expansions are completed.
Production Capacity: North America's effective capacity utilization was 79% for FY2025, excluding the full impact of recent asset additions; no major capacity investments planned in next few years.
Azek Combination: The Azek merger is targeted to close in coming months; expected to drive $500 million in baseline commercial revenue synergies and $125 million in cost synergies expected over the next three years.
Commercial Initiatives: ColorPlus achieved double-digit growth in FY2025, multiyear exclusive agreements with major homebuilders, and pilot programs to reduce installation costs in new construction cited as major growth drivers.
SUMMARY
The fourth quarter and fiscal year results reflected end-market softness but highlighted resilience in margins and profitability in FY2025, supported by cost discipline and realized price increases. The company completed its exit from the Philippines, reported record revenue in Europe, driven by high-value product sales in Q4 FY2025, and executed high-profile, multiyear exclusivity agreements with leading U.S. homebuilders during the past year. Management announced meaningful capacity additions completed in North America and forecast stable or improved free cash flow in FY2026 due to reduced capital expenditure requirements. Guidance for FY2026 assumes continued market contraction in North America with a focus on outperforming segment peers and defending margins through efficiency and targeted investments. The pending Azek merger is framed as a catalyst for accelerating growth and margin expansion, leveraging operational synergies across contractor and dealer channels.
Segment data for Q4 FY2025 shows that growth in high-value products in Europe helped offset, but did not fully counter, energy and raw material cost pressures.
The CFO stated that capital allocation priorities will be supported by, "diligent working capital management, and reduction in our capital expenditures."
CEO Erter said, we are prudently planning for market volumes to contract in FY2026, marking a fourth consecutive year of declines in large-ticket repair and remodel activity.
Management specified over 30% free cash flow growth to at least $500 million in FY2026, with a targeted long-term capital spending rate of "7% of sales" for North America fiber cement.
The company expects the combined business, post-synergy with Azek, to generate annual free cash flow exceeding $1 billion (after achieving run-rate synergies).
INDUSTRY GLOSSARY
ColorPlus: James Hardie's proprietary pre-finished fiber cement siding solution, offering factory-applied and engineered-for-climate color customization.
Material Conversion: The process of switching market share from competing materials (vinyl, wood, brick, stucco) to fiber cement and high-value product offerings.
ASP: Average Net Sales Price for product sold, a key pricing metric referenced by management.
Full Conference Call Transcript
Joe Ahlersmeyer: Thank you, operator, and thank you to everyone for joining today's call. Note that during the course of prepared remarks and Q&A, management may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on slide two for more information. Forward-looking statements made during today's conference call and in the presentation materials speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements.
Also, unless otherwise indicated, our materials and comments refer to figures in US dollars, and any comparisons made are to the corresponding period in the prior fiscal year. Now please turn to slide three, where you will find the agenda for today's call. I am joined by Aaron Erter, Chief Executive Officer of James Hardie Industries plc, and Rachel Wilson, our Chief Financial Officer. Aaron will begin our prepared remarks by reviewing our FY2025 accomplishments, discussing our focus and outlook into FY2026, and detailing our progress against key strategies in North America.
Then he will provide an overview of our core business opportunity and speak to the long-term outlook of our organic business before discussing our combination with the Azek company. Rachel will then review our financial results for the fourth quarter and discuss FY2026 guidance before turning the call back over to Aaron to conclude prepared remarks. At that time, we will move to Q&A. I'm now pleased to hand the call over to our Chief Executive Officer, Mr. Aaron Erter.
Aaron Erter: Thanks, Joe. Before I begin, I would like to thank our team around the world whose dedication and hard work enable us to continually delight and win with our customers, doing so with an uncompromising commitment to safety. Together, we are living our company's purpose of building a better future for all and working towards accomplishing our mission to be the most respected and desired building products brand in the world. I also want to welcome those new to our call, along with our long-standing participants. We look forward to sharing James Hardie's compelling investment profile and detailing how we execute on creating significant value for all shareholders.
Given the expanded participation on today's call, our prepared remarks will be a bit longer than usual as I intend to review some of the key aspects of our competitive positioning that are critical for developing an understanding of James Hardie's value proposition. These include the substantial runway of our material conversion opportunity against vinyl and wood, the unmatched resilience and beauty of our innovative and differentiated product offerings, our localized manufacturing, unrivaled by any other siding player, and instrumental to the growth plans of our largest, fastest-growing customers. And of course, our purposeful strategies to create demand across the value chain, winning over homeowners, contractors, and customers with our value proposition and fostering loyalty to the James Hardie brand.
So with that, let's begin on slide four. We delivered solid business and financial results in the fourth quarter, and our fiscal year 2025 performance reflects our commitment to invest to scale the organization and grow profitably, even in a more challenging market environment. We are executing on our growth strategy and are confident that our actions are driving outperformance in our markets and positioning us well to sustain this outperformance. We are winning by partnering with our customers and contractors and delighting homeowners. This success propels our organization forward and fuels my optimism about the future of James Hardie. We have the strongest team in the industry and the right strategy to go after a material conversion opportunity.
We are well-positioned to compete directly with substrates like vinyl and wood. Our products offer a highly compelling value proposition that spans our full customer value chain. Our focus across the value chain involves demand creation and building brand awareness, developing innovative designs and aesthetics for homeowners, and working closely with our contractor, dealer, and distributor partners as we accelerate material conversion across our end markets. We continue to invest strategically in growth despite the challenging demand environment and have delivered robust profitability while strengthening our position in the market. Consequently, when demand improves, we are well-positioned to accelerate outperformance.
In late March, we announced that together with the Azek company, we are creating a leading growth platform in building products. Later on, I'll share the strategic and financial reasons why this is the right combination at the right time. Our full-year business results demonstrate the inherent strength of our unique value proposition and the underlying momentum in our strategy against a softer market environment. We delivered 2.95 billion standard feet of volume in North America, within the range we guided to a year ago, despite softer end market demand than we had originally anticipated.
Our North America EBIT margin of 29.4% shows how we generate savings through the Hardie operating system and quickly and decisively prioritize consistent, high-return investments in organic growth and organizational scale. This result exceeded our initial commitment to profitability. In a difficult North America market environment in FY2025, we generated $2.9 billion in North America sales, along with $1 billion of EBITDA, resulting in a 35% EBITDA margin. And finally, we generated $644 million of adjusted net income, again driving performance that exceeded the commitments we made last May, thanks to purposeful execution by each of our business teams around the globe.
As we turn our focus towards continuing our material conversion mission, I reflect with pride on the resilience our teams have shown as our industry faces more recent, broader macroeconomic uncertainty that could further impact the cost of home construction and weigh on consumer sentiment, influencing demand. As a result, in North America, which represents approximately three-quarters of our total net sales, we are prudently planning for market volumes to contract in FY2026, including a fourth consecutive year of declines in large-ticket repair and remodel activity. Despite near-term headwinds, the has and will enable James Hardie to structurally grow through expansions and contractions.
We will continue to capitalize on these strengths as we navigate through the current backdrop, focusing on outperforming our end markets to drive top and bottom line in FY2026, consistent with our prior planning assumptions. In Australia and New Zealand, which constitutes a low double-digit percentage of our total net sales, our strategy remains consistent and focused. We are leveraging innovation to accelerate material conversion against brick and masonry, and we are optimizing our network for future growth. While the Australian market similarly remains challenged due to affordability issues, we continue to grow our strong category share across our end markets, and we will outperform in what we anticipate will be a relatively flat market environment in FY2026.
The APAC business has positioned itself well for a recovery in end market demand, and we have great confidence that we will take full advantage when the opportunity comes. In Europe, which also contributes a low double-digit percentage of our total net sales, our markets remain challenged. And our expectation for a more gradual path to recovery for Germany, our largest European market, remains unchanged. However, we continue to focus on our core strategy of driving double-digit sales growth in high-value products, which we achieved in both the fourth quarter and throughout 2025.
We have a solid plan to expand our margins in Europe, comprised of purposeful investment to drive operating leverage alongside sales growth and to generate cost savings by optimizing our production footprint and driving efficiencies. Across our businesses, we remain committed to outperforming the markets in which we participate and have purposeful strategies that ensure we deliver on these commitments year in and year out. These plans are grounded in capturing the material conversion opportunity and driving value for our customer partners. Now please turn to slide five, where I will review our recent performance and accomplishments within our North America single-family exteriors business. We delivered upon our North America volume guidance this year despite challenges across our end markets.
During FY2025, multifamily, which has been a low double-digit percentage of segment volumes the past two years, saw a significant market correction. But we outperformed despite our volumes falling over 20%, lapping record performance from FY2024. Multifamily remains an attractive long-term segment for us beyond this near-term normalization in market activity. Interiors, which is around 10% of segment volumes, declined as well, falling high single digits as the discretionary interior remodeling market remains soft. The vast majority of our North America business that is neither multifamily nor interiors is growing. This represents our siding, trim, and soffit products across both repair and remodel and single-family new construction.
This growth reflects the encouraging results of our long-term purposeful strategic actions to grow our share with the National Home Builders and expand our presence in key repair and remodel geographies. Our growth in FY2025 through market declines proves we are executing on our plan to win in these large material conversion opportunities. This outperformance in single-family exteriors is attributable to strategies like leveraging innovative product solutions such as ColorPlus. Our ColorPlus offering remains strategically important across both single-family new construction and repair and remodel, and our focused efforts and investments enabled double-digit growth in FY2025. For those new to James Hardie, our ColorPlus products come pre-finished using proprietary technology, offering a virtually limitless range of color options.
And like all our products, they are engineered for climate. Simply put, there is no other product like this on the market. The value proposition of ColorPlus enables contractors and home builders to create beautiful, distinguished homes with superior aesthetics, customization, and durability, in addition to offering time and cost savings. Our strategy is winning against vinyl within repair and remodel by strengthening our presence in the Northeast and Midwest, two regions ripe for material conversion through the residing of aging homes with appreciated values that remain clad with other substrates. We are again leveraging our ColorPlus technology, highlighting FiberCement's unique product attributes, and harnessing our clear advantage over other hard siding products in the marketplace.
In the Northeast and Midwest, we have grown ColorPlus volumes at high single-digit CAGR over the last five years compared to end markets that were flat to down. Key to our success has been our ability to rapidly onboard new contractors to the alliance, our loyalty program that we will continue to grow and enhance over the coming years. Approximately 40% of new contractors added this year were introduced to the program by a customer sales representative, a clear proof point of how we have amplified our commercial efforts leading to not just hundreds, by leveraging our deep partnership with our customers, but thousands of feet on the street.
Importantly, as we accelerate sales with siding and decking contractors to capture the vast opportunities that lie ahead, the size and strength of our sales force and the alignment with our customer sales teams underscore our supreme confidence in achieving our commercial synergy commitments. Nobody in the industry has a sales force like James Hardie. Turning to new construction, we continue to achieve success in deepening our partnerships and supporting homebuilders' growth objectives.
Over the last year, in a clear demonstration of the appreciation for our innovative product solutions and unrivaled business support, we have announced multiyear national hard siding and trim exclusivity agreements with the following: Meritage Homes, MI Homes, David Weekley Homes, Stanley Martin Homes, Castle Rock Communities, TruMark Homes, DBH Homes, Davidson Homes, and McKinley Homes. Our customers drive our innovation focus, and our broad product range continually delivers material conversion wins. Beyond our home builder exclusivity agreements, we have demonstrated success in accelerating our material conversion opportunity in new construction, from vinyl to James Hardie Fiber Cement. Let me share a few examples of how we are doing this.
In many cases, we win on the absolute value proposition alone as homebuilders see that buyers are motivated by the resilient beauty of our products. In other cases, we are increasingly reducing overall switching costs by innovating through ColorPlus and around the installation process. In parts of the Midwest and specifically with our statement collection, we are piloting products that are quicker and easier to install and thus reduce the on-the-wall costs. The early results are highly encouraging and demonstrate the potential to unlock a large range of addressable homes at more affordable price points.
By highlighting and enhancing the James Hardie value proposition, we become increasingly successful at convincing large home builder partners to convert from vinyl to fiber cement. Our builder partner Van Meter Homes, whom many of you saw at our investor day, recently dropped vinyl from their designs in favor of fiber cement, highlighting our ability to meet the desires of home buyers across different price points and innovate to improve the installed cost of our product. Please turn to slide six. I'd like to take this opportunity to reiterate that we remain well-positioned to execute on the growth objectives we outlined at our Investor Day last June.
They are to drive long-term profitable growth in our organic fiber cement business and to take advantage of the significant material conversion opportunity in front of us. Within repair and remodel, long-term market fundamentals are highly supportive, with over 35 million homes aged 20 to 40 years, the prime age for replacing or improving exterior siding. Ten million vinyl homes alone have been built over the past 30 years. Or an easy way to think about the tremendous opportunity is almost 80% of the homes in the United States today are not sided with fiber cement. In new construction, the fiber cement category has grown structurally for decades with further opportunity to expand in the decades to come.
This is particularly true with large builders seeking to drive further value for the homeowner, with aesthetics and durability of the product, differentiate increasingly standardized homes through customization of exterior visuals, and to achieve labor savings through innovative solutions such as our pre-finish, ColorPlus technology. We often talk about our path for value creation, and we see immense material conversion opportunity as the fuel for our growth engine. But to capture this opportunity requires the elements we have refined over the years: creating demand across the value chain by being the brand of choice, providing customers with innovative solutions, and supporting the growth of our partners through unrivaled business support and localized manufacturing.
I had the pleasure of visiting with hundreds of valued customers and business partners at the International Builders Show in late February, where we showcased many of our new and innovative product offerings. Our focus on innovation continues to resonate with our customers, and we believe our winning solutions will accelerate our material conversion effort. New products like our TimberHue, Artisan Lab, and Statement Essentials products give contractors and homeowners additional innovative design solutions. We're also targeting material conversion wins against brick and stucco with products such as Hardie Architectural Panel, adding incremental runway on top of what has been our core focus and would look exciting.
In North America, we remain steadfast in our commitment to driving double-digit revenue growth over the long term, which is built on low single-digit underlying market growth, approximately four points of outperformance versus our end markets through time, and an expectation to grow value faster than volumes by an additional mid-single digits. It also remains our expectation that, organically, we will expand our North America EBITDA margin by 500 basis points, enabling us to triple our EBITDA. We have stated this path will not be linear; however, we are highly confident we will achieve our objectives over the long term.
James Hardie Fiber Cement has achieved enviable success over just the three decades since introducing our products to the North American market, and we estimate that our products now clad more than 11 million homes. Our conviction in our long-term aspirations is rooted in the boundless opportunity ahead of us and our ability to capture it as we aim for 25 million homes by 2035.
We're proud to have been trusted by all who have chosen Hardie as the first impression for anyone who visits their home, but also as the first line of defense against the elements: moisture, pests, and fire to protect what matters most, and we will be unwavering in what we see as the driver of our past and future success in North America fiber cement: the value we provide to all participants across the value chain: homeowners, contractors, and customers. Now please turn to slide seven, where I'll talk about the next chapter of growth for James Hardie.
Built upon the strong foundation of the organic fiber cement business that I've just reaffirmed, we announced that together with the Azek company, we are creating a leading growth platform in building products. I'll share the five key strategic and financial reasons why this is the right combination at the right time. Our stated criteria for investing in inorganic growth has been that any opportunity would need to accelerate our current strategy, increase our value proposition to our current customers, and be financially attractive over the long term. This opportunity clearly satisfies each of these three criteria. At James Hardie, we are homeowner-focused, customer and contractor-driven.
In essence, this means that the driving force of our business is delivering winning solutions across the customer value chain. With Azek, we expand this successful approach into the highly attractive outdoor living category, with the fast-growing, highly profitable business built on industry-leading teams, multiyear strategic investments, differentiated products, and best-in-class execution. Net-net, together, we will create a leading platform for growth. Once combined, we will offer a comprehensive solution of leading exterior brands, which positions us to benefit from material conversion opportunities in the context of a total addressable market more than twice the size of ours today.
The financial profile of the combined company is best-in-class, with further enhancements to growth, profitability, and cash flow through the delivery of identified cost synergies and tangible commercial synergies with meaningful room for upside. In summary, this transaction will accelerate James Hardie's strategy, increase value to our customers, and deliver significant long-term financial value creation. And with respect to timing, we expect to close the transaction in the coming months. Turning to slide eight, I would like to provide more color on our commercial synergy opportunity. Our largest opportunity lies at the contractor level. The importance of the contractor and our respective presence with these business partners cannot be understated.
We believe the breadth and strong loyalty of our respective contractor bases will be crucial to our ability to accelerate material conversion with each other's contractors across our collective product portfolio. Let me talk a little more about how this would work. Consider a contractor that is already using one of our products in a particular category, say fiber cement siding, but a different substrate in another product category, like wood decking. We can run our tried and true material conversion playbook to accelerate growth with these contractors who have already been sold on the value proposition of fiber cement and will now be selling homeowners on the benefits of both James Hardie siding and TimberTech decking.
We will also introduce our contractor partners to categories and products they may not have historically participated in, demonstrating the financial benefits that these can offer. One of our key criteria for M&A was the ability to offer a greater value proposition to our existing customers. We think our contractors who do one product with us but not the other will see the power of expanding the scope of their business and partnering with two of the leading brands in all of repair and remodel. In any scenario, we see this as an acceleration of our respective current strategies, underpinning our confidence in delivering substantial synergies through material conversion.
The feedback on this combination from our dealer customers has been consistently enthusiastic.
Joe Ahlersmeyer: Our core focus on bringing differentiated solutions to our business partners
Aaron Erter: is resonating through the feedback we are hearing, reinforcing our confidence in the shared opportunity to accelerate growth through material conversion and increased penetration of our products in the market. We look to earn incremental shelf space at new and existing dealer locations. With James Hardie in nearly five times as many dealer locations as Azek today, there is meaningful runway to expand Azek's presence on the shelf, which would increase brand visibility and product availability to contractors nationwide, further supporting the incremental growth at the contractor level.
We believe that dealers will recognize the attractiveness of a combined product offering, make decisions that align to the needs and wants of their most loyal contractor customers, and place value on the simplicity that SKU harmonization could offer, particularly in promoting products like PVC trim. Our dealer partners will also help facilitate synergy capture at the contractor level, acting to amplify the reach of our sales force and playing an important role in converting contractors to James Hardie, Azek, and TimberTech. As a combined organization, we believe this cohesive relationship can be improved, allowing for more at-bats with contractors.
Joe Ahlersmeyer: Moving to the home builder,
Aaron Erter: where we have been demonstrating the momentum of our strategy. With several major exclusivity wins over the course of the past year, James Hardie's position with large home builders has never been stronger. Azek has not had an on-purpose effort in this channel until only recently, illustrating the expansive opportunity that exists to introduce Azek's many exterior product categories into our partnerships. We continue to observe consolidation in our industry, notably with national retailers looking to expand their business with the pro contractor.
With our portfolio at closing consisting of the leading brand in siding, the leading pro contractor brand in decking, and the two leading brands in PVC trim, our valuable relationships with contractors position us as an important strategic partner to anyone seeking to grow with the pro. We have an existing presence, and Azek too has already found success in expanding its retail business. We see more opportunity as a combined organization to bring our value proposition into these important retailers. And in wholesale, we look forward to continuing to drive growth for our valued distribution partners, strengthening relationships forged over many years, and maintaining best-in-class business support through our localized manufacturing.
In summary, we have line of sight into the commercial opportunities ahead and remain confident that we will capture at least $500 million of baseline revenue synergies with clear opportunities for incremental upside. Turning to slide nine, I would also like to reinforce the significant, clear, and credible cost synergy opportunity ahead for the combined company. We are underway with a rigorous integration and value capture planning process, which is supported by a dedicated integration management office and best-in-class advisers. We are prioritizing fast cost synergy delivery and quick wins, though we've chosen to take a prudent approach to the timing of our targeted synergy delivery.
We would expect cost synergy savings related to administrative functions to be executed more rapidly. This includes savings from eliminating duplicative back-office functions, systems integrations, and consolidating some of our facilities. We're also looking for quick delivery of savings from freight optimization and shared procurement of packaging and indirect items such as safety equipment and insurance. Lastly, we see a smaller but still meaningful opportunity to capture synergies from improving alignment and driving continuous improvement in our R&D, commercial, and marketing operations, but are committed to preventing any disruption to our customers.
We will act with care and do so over a longer time frame as building upon our strength as a unified sales organization is key to the delivery of our commercial synergies. We have tremendous confidence in the integration execution given the similarities of both companies' cultures, goals, and operating models, and expect to progress as planned towards our target for $125 million of cost synergies. Turning to slide ten, the financial profile of the combined company is best-in-class, with further enhancements to growth, profitability, and cash flow through the delivery of clear and credible cost synergies and tangible commercial synergies with meaningful room for upside.
In addition to growth in operating cash flows from our strong organic runway and synergy opportunities, reductions in capital spending requirements should also drive an acceleration in our free cash flow. We have invested ahead of volume purposely in our North America business, considering our substantial runway for material conversion and confidence in our organic revenue opportunity. Today, our existing footprint is sufficient to fully service anticipated demand, placing us collectively in a strong position over the next few years. The sustainability of our strong cash flows extends beyond purposeful investment. The combined business, post-achievement of run-rate synergies, is expected to generate annual free cash flow of greater than $1 billion.
We will use our strong cash flows to support organic growth, to rapidly deleverage, and to fund capital return to shareholders. Now, I'll turn it over to Rachel to review our results in more detail and discuss our outlook. Rachel?
Rachel Wilson: Thank you, Aaron. Please turn to slide eleven. We again delivered solid results to close out FY2025 performance while remaining focused on scaling the organization and investing to profitably grow our business. We achieved each of our FY2025 guidance metrics despite a more challenging macro environment as compared to May of last year when we initially provided this outlook. In North America, our team delivered a solid fourth quarter, and we achieved our guidance points both in our second half and full year for volume and EBIT margin. Our mid-thirties EBITDA margin for the full year demonstrates diligent cost control and full delivery of cost savings, which together help mitigate unfavorable volume leverage from softer end markets.
Looking ahead, we will stay focused on the key strategies that have underpinned our financial performance, investing ahead of recovery and evolving our plans to accelerate our market outperformance. In Asia Pacific and Europe, our teams continue to demonstrate a strong commitment to driving outperformance in challenging markets, with results consistent with our expectations. In Asia Pacific, we are executing well on our strategies and winning by partnering with customers to own material conversion opportunity. Focusing on the ANZ markets given the Philippines exit, Q4 net sales increased modestly in local currency as we offset a challenging market and outperformed peers. Europe achieved record Q4 sales as our portfolio of high-value products is performing well.
This top-line momentum coupled with the current manufacturing facility rationalization positions Europe for improved margin performance. Across all three regions, our results and strategies demonstrate a commitment to delivering profitable growth. Our strong margin delivery continues to drive our robust cash generation, which enables us to execute on our capital allocation priorities. This includes investing to drive growth, reducing leverage post the close of the Azek merger, and returning capital to shareholders within our deleveraging commitments. Lastly, our pre-close planning efforts are well underway to facilitate a successful integration of the Azek company. This includes planning for clear and credible cost synergies, such as organizational alignment and tangible commercial synergies as Aaron has noted.
Please turn to slide twelve for the financial highlights of our fiscal fourth quarter. Total net sales were 3% below last year's record fourth quarter, but consistent with our expectations at $972 million globally. We delivered $269 million of adjusted EBITDA in the quarter, with an adjusted EBITDA margin of 27.6%. Total adjusted EBITDA declined 4%, and our margins decreased by 30 basis points. Our full-year adjusted EBITDA margin was down 80 basis points, modestly below our record results in the prior year, demonstrating our ability to manage the uncontrollable impacts of market volumes and raw material headwinds utilizing key levers like Hardie operating system savings and focused cost control.
Adjusted net income in the quarter was $156 million, and adjusted diluted EPS was $0.36 per share. Let's move to slide thirteen, where I will comment on the year-over-year drivers that led to our fourth-quarter consolidated adjusted EBITDA of $269 million. North America drove a $20 million decrease in total adjusted EBITDA as volumes declined due to ongoing demand challenges in our end markets. Our decisions to remain staffed at our plants while investing in scale and future growth are important actions to capture the opportunity as our markets recover. Additionally, we face raw material headwinds, particularly in cement and pulp, which further weighed on margins.
Within Asia Pacific, Australia and New Zealand delivered high single-digit profit growth, but overall adjusted EBITDA declined by $2 million, owing primarily to the closure of the Philippines. Europe increased by $1 million as strong growth from volume and price were partially offset by higher energy and raw material costs as well as higher employee costs related to increased headcount for our high-value product sales force. And finally, R&D and adjusted corporate costs were down $9 million year over year, primarily driven by lower stock-based compensation expense.
Turning to slide fourteen, North American net sales declined 2% year over year in the quarter, primarily driven by a 3% decline in volume and partially mitigated by a 1% increase in average net sales price (ASP). From a year-over-year standpoint, the 3% decrease in volumes was comprised of a low single-digit decrease in our exterior products and a low double-digit decline in our interior products. In aggregate, we shipped 741 million standard feet in North America in the quarter, helping deliver on our second half and full-year guidance.
Consistent with the sequential commentary we provided on our last call, volumes were roughly flat in the fourth quarter compared to the third, with volumes of our exterior products up slightly and volumes of our interior products down mid-single digits. ASP rose 1% year over year, primarily related to the realization of our annual price increase, which became effective in January of 2025. EBIT margin was 28.2%, down 350 basis points year over year, including an approximately 150 basis point headwind from depreciation and amortization expense. The increase in depreciation in the fourth quarter reflects Prattville Sheet Machine number three, which went into service at the end of the second quarter.
North America EBITDA was $248 million, with an EBITDA margin of 34.4%, down 190 basis points year over year. Lower volumes and unfavorable cost absorption were the primary drivers of this decrease. The year-over-year headwind from higher raw material costs continued in the fourth quarter, principally driven by low double-digit inflation collectively for pulp and cement. We continue to control the controllable with favorable ASP, HOS savings, and our focused cost actions continuing to provide meaningful offsets to raw material headwinds. Our efforts to align spend to the current environment have helped to bolster our strong margins even as we prioritize investments across the value chain in anticipation of our market recovering.
Turning to slide fifteen regarding our performance in Asia Pacific. During the fourth quarter, Asia Pacific total segment net sales declined 17% in US dollars and decreased 13% in Australian dollars, primarily due to a 31% decrease in volumes, partially offset by a 25% rise in ASP. Asia Pacific total segment adjusted EBIT margin was 30.5%. Adjusted EBITDA declined 5% to $41 million, and adjusted EBITDA margin increased 410 basis points to 34.5%. The decline in net sales and volume and the increase in ASP and margins relate to the contribution from the Philippines in the prior year but not in the current year.
As a reminder, last August, we announced that we would cease manufacturing and wind down commercial operations in the Philippines, but we continued to sell product inventory throughout the second quarter, after which contribution was de minimis. As a result, our segment financial results for the fourth quarter of fiscal year 2025 represent sales and profits related only to our Australian and New Zealand operations, whereas the fourth quarter of fiscal 2024 included a full quarter of results from our Philippines operations. This comparability impact will continue into the first half of fiscal year 2026.
Regarding the comparable underlying performance of our remaining business, during the fourth quarter, Australia and New Zealand together saw a low single-digit decrease in volume and a low single-digit increase in ASP, leading to a slight increase in net sales. EBITDA grew, and EBITDA margin expanded as cost savings and price helped offset lower volumes. Turning to slide sixteen, Europe net sales increased to a quarterly record of $135 million, up 5% in US dollars and 8% in euros. Regarding our local currency sales performance in the quarter, fiber gypsum products were up high single digits, and fiber cement products were up mid-teens. Volumes grew 7%, benefiting from strong performance across the portfolio, including double-digit volume growth from high-value products.
ASP increased 7%, primarily driven by our June 2024 and January 2025 price increases. EBIT margin was 9.9%, inclusive of $9 million of depreciation and amortization expense. EBITDA was $22 million, and EBITDA margin was 16.2%, down 50 basis points, with the benefit of top-line strength offset by higher raw material and energy costs as well as investment in our sales force to support high-value product growth. Now please turn to slide seventeen, where I will discuss guidance. Please note these targets reflect only the organic James Hardie business.
For FY2026, we are assuming macro headwinds continue, including more recent economic uncertainty that could further impact the cost of home construction, as well as weigh on consumer sentiment as both factors ultimately influence demand. We are committed to driving profitable growth and are reaffirming our previously stated business planning assumptions for organic sales and EBITDA growth in every region. Furthermore, we remain aligned as an organization around delivering strong cash flows not only to fund growth investments but also to ensure a strong balance sheet and enable return of capital to shareholders within our deleveraging targets.
We expect to grow our free cash flow by over 30% to at least $500 million in FY2026 by virtue of our profitable growth, stewardship of working capital, and reduction in our capital expenditures. In North America, we are prudently assuming a mid-single-digit decline in our market volumes. However, we believe the strength of our brand and the attractiveness of our value proposition will continue to support volumes above market. And combined with our favorable ASP, we expect to deliver low single-digit net sales growth in our North American segment in FY2026, benefiting in part from continued double-digit volume growth in single-family ColorPlus.
We remain steadfast in our approach to controlling the controllables and expect to deliver incremental cost savings to protect our strong margin profile despite high single-digit raw material inflation. Coupled with our top-line growth, we continue to expect cost savings to largely mitigate the impact of inflation, resulting in relatively stable EBITDA margins year over year at approximately 35%. With respect to tariffs, we are well-positioned with localized manufacturing to weather all potential outcomes. We procure approximately 80% of our raw materials from within 150 miles and ship approximately two-thirds of what we sell in North America to customers within 500 miles.
Consistent with our prior planning assumptions, we continue to expect growth in net sales and EBITDA both within Australia and New Zealand as well as for our Europe segment. On a consolidated basis, we expect adjusted EBITDA to grow by approximately low single digits. Lastly, we expect free cash flow of at least $500 million in FY2026, up over 30% versus FY2025, due to solid operating cash flow generation, diligent working capital management, and reduction in our capital expenditures. Altogether highlighting our ability to execute on our capital allocation priorities. Now moving to slide eighteen, I would like to review our free cash flow expectation for FY2026.
Considering our substantial runway for material conversion and confidence in our organic revenue opportunity, we've invested purposefully in our North American manufacturing footprint. Now with Prattville Sheet Machine three and Westfield ColorPlus facility in service, and Prattville Sheet Machine four completed and awaiting commissioning, we have sufficient capacity in place to service our market opportunity. To that point, our average North American effective capacity utilization in FY2025 was 79%, which only includes a partial year contribution from Prattville Sheet Machine three and does not incorporate the capacity offered by Prattville Sheet Machine four. Investments in capacity expansion projects will decline for the next few years as our recent major projects have reached completion.
In FY2026, we expect total capital expenditures to decline by nearly $100 million year over year to approximately $325 million, which significantly drives our expected free cash flow increase. Looking further ahead, we expect to maintain a disciplined approach to capital expenditures, with our North American Fiber Cement segment investing 6% to 7% of sales in CapEx over the long term. As we maintain this capital spending discipline and execute on our growth plans, we expect to generate substantial free cash flow and diligently allocate capital to create value for all shareholders. Now, I'll turn it back to Aaron to conclude our prepared remarks.
Aaron Erter: Thanks, Rachel. Wrapping up on slide nineteen. Our ability to expand the reach of our products by capitalizing on both underlying market growth and our material conversion opportunity and to gain share through our superior value proposition has not only supported our historic peer-leading growth but also underlies our expectation for continued long-term outperformance. We are a profitable growth company, aligned as an organization around our purpose of building a better future for all. James Hardie's value proposition as a growth company is highly compelling, with three primary pillars for shareholder value creation. First, we have the right strategy, one where our success perpetuates driving even greater success.
Second, we have the best team in the industry, dedicated and focused on bringing our customer partner solutions that enable them to win. And third, our financial profile is attractive and will only continue to improve as we diligently allocate capital and work towards executing our strategy. We believe our combination with Azek will further accelerate our sales growth by an incremental 2.5 percentage points on top of our double-digit trajectory due to Azek's faster growth profile and delivery of $500 million of run-rate commercial synergies over the next five years.
We also expect that the transaction will be accretive to our organic margin expansion target of 500-plus basis points, driven both by Azek's own organic margin improvement potential and by the $125 million of run-rate cost synergies that we expect to achieve over the next three years. Our combined business will be an engine of tremendous cash flow generation, and once run-rate cost synergies are achieved, we expect to generate robust annual free cash flow of greater than $1 billion. And finally, I'm excited to bring together the two leading teams in the industry that will be dedicated and focused on bringing differentiated solutions to our customers to help them win each and every day.
Our team is poised to execute on FY2026. We look forward to welcoming the Azek team into James Hardie and becoming the leading solutions provider in the building products industry. With that, operator, please open the line for questions. Thank you.
Operator: If you wish to ask a question, please press star one on your telephone and wait for your name. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question.
Aaron Erter: We ask that you please limit yourself to one question. If you have additional
Operator: questions, please rejoin the queue. Your first question comes from Harry Saunders with E&P. Please go ahead.
Harry Saunders: Good morning, Rachel and Aaron. Thanks for taking my question.
Rachel Wilson: Just wondering if you could split out your internal view of North American R&R and new single-family end markets in FY2026 and maybe your approximate sort of above-market growth expectations or PDG within that guidance, please?
Aaron Erter: Yeah. Harry, thanks for the question, and good to hear from you. Look, as you know, when you look at the history of our company, what we've been able to do is outperform no matter what the markets are. We've been proud of doing that. We'll continue to do that. As we look at some of the external forecasts out there from an R&R perspective, you see anything from down mid-single digits to high single digits. And, again, we expect to outperform those markets in which we participate. I think even more recently, you saw one of the large home improvement retailers as early as today talk about some of the softness in large R&R.
And that speaks to the uncertainty that we're seeing in the marketplace. I think what's important is if you look at our guidance, we can tolerate that type of depression in the market because we will outperform.
Operator: And next question comes from Matthew McKellar with RBC Capital Markets. Please go ahead.
Matthew McKellar: Hi. Thanks for taking my question. Just a high-level one. Regarding Azek and your top priorities around integration, what do you need to get right in the first call
Aaron Erter: six to twelve months as a combined company to really set yourselves up to be able to achieve the commercial synergies in particular you're targeting over the first few years. Thanks.
Aaron Erter: Yeah. Hey, Matthew. Great question. Look. I think more than anything, and having done this before, the most important thing you have to get right starts with people. And that means, you know, putting people in the right positions and all that you retain people. And then be able to clearly lay out the priorities for them. So it all starts with people. And I'm really excited because if I look at, you know, the James Hardie team, the Azek team that I've had a chance to have some exposure to, we truly do have the best teams in the industry.
Operator: The next question comes from Shaurya Visen with Bank of America. Please go ahead.
Shaurya Visen: Morning, Aaron. Morning, Rachel.
Shaurya Visen: Thanks for taking my question. Aaron, I had a question, you know, if something you alluded to earlier in your comments. So could you give us some more color on the recent agreements that you've signed? And I'm looking at, like, more the last one month. And I'm thinking more like Daiwa, CPH, Mackenzie, Davidson. What is the nature or duration or scope of these agreements, and perhaps, you know, a related question is, as you talk to your potential and existing customers, do you get a sense that you are incrementally getting more traction as Azek's products? I'm thinking more like trim decking. Are complementary to yours.
And, you know, directly looking at, you know, next six to twelve months. Thanks, Aaron.
Aaron Erter: Yeah. Sure. I thank you for the question. Look, I think just in summary here, we've been talking about our focus and putting resources around large home builders for some time. You can see that strategy is paying off as, you know, some of the recent wins. We talked about really having a focus on the top two hundred. So that's what you're seeing, you know, come to fruition here over the last couple of years. And, you know, we put an exclamation point on it with some of these newer agreements. I would say they're different. You know, each one of them is different, so I won't go through each one of them. But most of them are multiyear.
And they include hard siding and trim as well. So you are seeing us partner more and more with these large home builders. And as we think forward and the opportunities not only for our core business but as we, you know, align with Azek, there's gonna be, you know, tremendous opportunity moving forward.
Operator: The next question comes from Keith Chau with MSC.
Keith Chau: Hi, Aaron. Hi, Rachel. Thanks for
Keith Chau: updating my question. Just while I wanna talk about the channel at the moment. You know, quite clearly, the end market demand is soft. There's you know, it's been selling season didn't transpire. It's expected. So just wondering if you can give us a sense of what you're seeing in channel how you're feeling about channel inventory levels. And with a there is risk of destocking just going back to the experience in 2022. So just seeing if you know, you're seeing anything like that at the moment or you know, whether you're happy with channel inventories at the moment. Thank you.
Aaron Erter: Yeah. Hey, Keith. I'm having a hard time understanding. I think I got what are we seeing out there in the channels and maybe what the inventory levels are. Did I get that correct?
Keith Chau: Yeah. That's correct. Thank you.
Aaron Erter: Yeah. So
Aaron Erter: look. I think, you know, as we look at the channel and it's different, you know, for different customers, of course. But in general, I would say that we are seeing, you know, normal
Aaron Erter: stock levels out there, you know, just as a general statement.
Aaron Erter: If we think about from a repair and remodel standpoint and look, one of the things that is always one of my favorite things to do is be able to be out with our customers. So I was able to be with hundreds of them at IBS, and I was able to be with many of them, you know, at our James Hardie events, whether that be at our contractor summit or James Hardie Invitational. And more recently, just being out in the field with our contractors.
Aaron Erter: So from a large home builder standpoint, I think you're seeing some of the press out there. With the different, you know, blips on the radar. But I think we're gonna see a challenge from a large home builder standpoint as we look at single-family new construction. If we look at R&R, it continually is soft out there, and that's some of the comments that we talked about as we started this call. But as I said before, Keith, look, with that said, there's still a lot of share out there for us to be able to go out and get after. And I do believe we have the strongest value proposition. We're partnering with our dealer partners.
We're partnering with our contractors. We're partnering with our large builders as we bring differentiated solutions. And, you know, no matter what the environment, we're gonna go out and win.
Operator: Your next question comes from Keith Hughes with Truist. Please go ahead.
Keith Hughes: Thank you. On the mid-single-digit, the
Aaron Erter: decline in volume in North America on the guide, could you talk about what influence interior products and multifamily is going to have on that number? Yeah, Keith. So if I look at the mid-single-digit decline, you know, we talked about R&R being down mid-single digits to high single digits. Single-family new construction, you know, we're looking at it being flat, but it could be down. You know, particularly some of the things that, you know, you're hearing more and more from some of the large homebuilders, the challenges they're having. And then multifamily, we would say is gonna be down, but not as much as FY2025.
Because we did see, you know, it significantly down to even, and that's what we cited in our call. You know, if we look at our single-family, you know, call it exteriors business, we saw good traction and solid growth there. Really, what was a detractor was the multifamily. Also, our interiors business.
Operator: Your next question comes from Will Wilson with UBS. Please go ahead.
Will Wilson: Hi, Aaron. Rachel. Evening.
Will Wilson: Just wanna get a feel for how things have progressed this quarter
Will Wilson: in the US. Other things kinda slowed down significantly March through to April, but have started to pick up. Since. Is that what you're hearing on the grounds?
Aaron Erter: You wanna take this one, Rachel?
Rachel Wilson: Sure. I think what we are saying is that we're, you know, being a little bit more conservative in the uncertainty in the markets right now. We are seeing performance in at the for the months to date as we would expect. But, look, we're gonna be a little cautious out there, and our guidance is reflective of that. But, again, we are performing very much to our plan. Your next question comes from Brook Campbell-Crawford with Darren Joey. Please go ahead. Good evening. Rachel. Thanks for taking my question.
Brook Campbell-Crawford: Just had to
Brook Campbell-Crawford: one on market share. The annual report notes that share gains in North America in FY2025 were positive, but below target levels, which seems a little bit at odds with all the positivity you've talked about in the prepared remarks around share gains and wins. So just if you don't mind just spending a minute or two just talking on base, you know, perhaps what led to that shortfall in share gains in 2025 and how what you're gonna do effectively to help change that going forward. Thanks.
Aaron Erter: Yeah. Hey, Brook. Just really simply and I think we mentioned this before. You know, our single-family exteriors business, right, which is the, you know, the bulk of our business grew. In what was a down market. So we're outperforming. I think Keith just asked the question. I gave a little bit of clarity there. Where we did see, you know, some slippage was in multifamily. Which that whole category was down dramatically. And then if you look at our interiors business, it was down, call it high single digits as well. And the interior business really correlates to, you know, large interior remodeling projects.
Rachel Wilson: Yeah. Go ahead, Brook. I think it's also important to add as Aaron was talking with some of those wins that you've been experiencing and what are you expecting? And I think what we should talk about is there do you expect strategic acceleration, and that's reflective of that progress we're making with new construction, where we've announced those wins but those volumes ramp up throughout the year. We've had momentum that we are building with our contract on R&R, and that's the result from that ColorPlus, which demonstrates the progress even in softer markets. We've had contribution from new product releases like TimberHue, again, as Aaron talked about, and we expect those to build throughout the year.
We've had innovations to improve on-the-wall costs, as Aaron discussed, yielding encouraging early results. So I think those are some of those strategic initiatives as we look ahead and think about volumes for next year. Thank you. Your last question today is from Andrew Scott with Morgan Stanley. Please go ahead.
Andrew Scott: Thank you. Aaron, I was a little surprised just by the 1%
Andrew Scott: ASP in North America. It seems relatively low realization versus the increase. I think you told us that you'd gone out with a mid-single-digit price increase. So can you just talk about what's driving that? Are we seeing more discounting or increased use of rebates, or is it just
Andrew Scott: is there something in mix? And then if we extend it forward, do you expect better realization as the year progresses? Because mid-single-digit down plus a bit of PDG. So you're definitely gonna need better price realization to get to the mid to the low single-digit growth for the full year.
Aaron Erter: Yeah. Hey, Andrew. Thanks for the question. Look. We're continually bringing value to our customers. We're creating value in the marketplace. Think long and short of it, we're not a commodity. And, you know, if you look at our history, we've been able to consistently go out there and get value in the marketplace because of the proposition that we bring to our customers. Look. We put it in January. We put through our annual price increase. And we're recognizing our underlying ASP gains. As we anticipated. I think the thing that you're seeing there is what we were just talking about as some of this headwind as it relates to multifamily.
If you would take out the multifamily just in our fourth quarter, a point and a half. I mean, that accounted for a headwind of almost So you know, we did see some of the negative headwinds from multifamily, and it was reflected in our pricing as well. But look, as we move forward, and I think you've heard me say this since I've been sitting in this chair, is we're gonna move forward and continually have positive ASP. Alright. And finally, we have Operator and everyone on the line, thank you.
Again, I wanna thank all of the team around the world who work safely to really bring our customers the solutions they need to help them drive their business. And furthering our purpose of building a better future for all. Thank you, everyone, for the time.
Operator: Thank you. That does conclude our conference for today.
Operator: Thank you for participating. You may now disconnect.