Earnings Call Transcript
James Hardie Industries plc (JHX)
Earnings Call Transcript - JHX Q1 2022
Operator, Operator
Thank you for standing by and welcome to the James Hardie Industries, JHX, Q1 FY 2022 Results Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. I would now like to hand the conference over to Dr. Jack Truong, Chief Executive Officer. Please go ahead.
Jack Truong, CEO
Good morning and good evening to everyone. Thank you for joining us on our first quarter fiscal year 2022 earnings call. I will begin today's call by providing a brief update on our global strategy that was announced in our Annual Investor Day in this past May. This is now the 9th consecutive quarter our company has delivered strong financial results with growth above market and strong returns based on the consistent execution of our global strategy. Our CFO, Jason Miele, will then cover our financial results for the quarter and also provide an update on our full year guidance. After that, we'll open up for questions. So let's now turn to Page 5 for an update on our strategy. In our Investor Day at the end of May, we described our three critical strategic initiatives that will enable consistent profitable growth globally for our company from fiscal year 2022 to fiscal year 2024. The three strategic initiatives are number one, expanding the James Hardie brand from a premium professional brand into a market-leading consumer brand that focuses on marketing directly to homeowners to create true demand for our products; number two, penetrating and driving growth in existing and new markets such as repair and remodel; and number three, commercializing global innovations that allow us to expand into other exterior looks and to take advantage of the adjacent opportunities in each of our regions. In addition, we will continue to execute and build on the significant foundation we have built over the past three years. This foundation includes continuing on our path to becoming a world-class manufacturer via lean practices, continuing to partner closely with our customers through a push-pull strategy and continuing to integrate our supply chain with our customers to serve the markets. Let's now turn to Page 6 to discuss additional details on how we're driving profitable organic growth by marketing directly to homeowners. During our Investor Day, we shared details about our 360-degree integrated marketing campaign that reaches homeowners directly to create demand. As I shared with you then, the four phases of our campaign are targeted homeowners for awareness, consideration, purchase, and amplification. The TV campaign is pivotal as the foundation of the awareness phase. It illustrates through the power of emotional storytelling, the meaningful ways that a family finds comfort, connection, joy, and safety from their home made with James Hardie brand exterior products. These are the James Hardie brand exterior products that continue to make their homes beautiful over time and yet with superior durability that protects the family from the elements. To date, the TV commercial has been very successful in raising awareness of James Hardie with our targeted homeowners. We have received very positive feedback from homeowners, builders, contractors, and customers. We continue to air this TV campaign in strategic growth markets across North America throughout the year. Consumers are relating to the emotional storytelling and are becoming more aware of the James Hardie brand and our exciting line of exterior products that meet their needs. After the homeowners are aware of James Hardie, it’s important that we reach them with the right content at the right time as they consider their options to beautify the exterior of their home, leading us to page seven to discuss in more detail the consideration phase. In this second phase of the 360-degree integrated marketing campaign, we leverage social media and key influencers to reach the homeowners as they consider their options. What you see on the left-hand side of this slide are just samples of the social media content that elevate the key emotional messaging from our TV commercial. We engage with groups of targeted homeowners with this content through relevant conversations on social media platforms that these homeowners frequently visit. To further augment and reinforce our story, we partner with key influencers and lifestyle experts such as Kia Malone to expand our reach and to help educate homeowners about the endless design possibilities that the trusted protection of James Hardie brand exterior products can deliver. In a segment by Kia Malone, which aired during a news hour in the Northeast of the U.S. and amplified across multiple key social media platforms, Kia described how the home exterior can immensely impact its value. Our products, upgraded with James Hardie brand fiber cement solutions, provide the number one return on investment of all major exterior remodeling projects and our James Hardie brand fiber cement exterior offers styles and colors to help achieve long-lasting beauty, enhanced by engineered climate technology that provides durability and peace of mind protection. You can watch segments across many social media outlets including our Instagram, LinkedIn, and Facebook, as indicated on the right-hand side of this slide. We're tracking the impact of our marketing campaign including web sessions, leads generated, and of course, sales of high-value products. We're very encouraged by the early results. In fact, our campaign has already delivered over 300 million impressions and reached homeowners in the target market an average of seven to nine times with the James Hardie story. What is particularly encouraging is that traffic to our website by female consumers has increased seven times over the same period last year. Let's now turn to Page 8. The second of our three core strategic initiatives is to penetrate and drive profitable growth in the repair and remodel segments. A key component of this strategy, which we discussed in Investor Day back in May, is driving the high-value product mix. On this page, you see the impact this particular strategy is having on North American business. Starting on the left-hand side, what you see here is a plot about current product portfolio in North America across two key criteria: price and value. In North America, we define high-value products as our Hardie brand exterior products, Hardie brand exterior products with ColorPlus technology, and all about Hardie brand innovations, including the recently launched Hardie textured panels. The focus of our strategy to drive a high-value product mix is to create awareness and generate demand for our differentiated line of products with homeowners in the remodel and segments where our value propositions are strong. In turn, this generates increased sales and margin for our customers and for us. Key strategic actions we will execute to drive the high-value product mix are: one, shifting demand from Cemplank products to Hardie brand solutions where appropriate; two, driving penetration of ColorPlus technology products in repair and remodel segments; and three, expanding into adjacent markets with our market-led innovations. On the right-hand side, what you see here is the significant impact this strategy has had on our recent financial results in North America. Our teams are partnering with our customers to drive a higher value product mix and you can see the results in Q1. The blue line on this chart represents percent volume growth for each quarter from fiscal year 2020 to Q1 of fiscal year 2022, while the green bars represent percent price mix growth across that same period. If you focus on Q1 fiscal year 2022, you will observe the real impact that our strategy of driving a high-value product mix had on our financial results. Not only did we see strong volume growth at 21%, but equally important, we also saw a significant step change in price mix growth of 7%. This indicates that by partnering closely with our customers, we have succeeded in shifting toward a high-value product mix and driving profitable growth. While not shown here, we have had similar success in Europe and Australia and New Zealand in delivering similarly strong results. The expansion of the high-value product mix for growing our overall volume, along with lean manufacturing execution, were key drivers in offsetting input cost inflation and marketing investment in the first quarter. It enabled us to deliver a strong leverage to our bottom line across all three regions: North America, Europe, and Asia-Pacific. Turning now to Page 9 for an update on innovation. In May 2021, we announced the launch of three new global innovations: Hardie Textured Panels in North America, Hardie Fine Texture Cladding in Australia, and Hardie VL Plank in Europe. We have seen very good traction with market acceptance and penetration of all three products since their launch. We continue to partner with our customers to drive awareness and adoption. Feedback from homeowners and our customers in North America has been overwhelmingly positive. Hardie Textured Panels provide contemporary design solutions that fit any home style that homeowners want and need. In addition, they offer protective properties such as durability, water resistance, and fade resistance. What you see here are four examples of Hardie Textured Panels on two different homes in Oregon, one in California, and one in Utah. I would like to point out here the variety in home designs, from contemporary to coastal to mixed designs. Turning now to Page 10. Similar to North America, feedback from homeowners and customers in Australia is also very positive. What you see on this page are four examples of Hardie Fine Texture Cladding in the Australian market, which as you can see helps to augment the modern design look that is prominent throughout the continent. As with Hardie Textured Panels in North America, Hardie Fine Texture Cladding offers endless design possibilities for homeowners while delivering on the protection that homeowners need: durability, water resistance, and non-combustibility. Moving to Page 11. In Europe, we are also very pleased with the progress of the Hardie VL Plank product. Installers have consistently provided positive feedback regarding the time savings that Hardie VL Plank offers compared to comparable solutions. Hardie VL Plank saves approximately 20% on total installation time. On this page, you see examples of Hardie VL Plank in the UK and French markets. I would point out how Hardie VL Plank helps to protect and provide a mixed design modern look, which is becoming more popular with homeowners across the Western European continent. We’re excited about these new innovations and how they will allow us to continue to penetrate and grow in large adjacent markets in each of our three operating regions. While we're excited about the early success of these three new innovations, our global innovation program is much larger than just these three products. Our innovation team is focused on our innovation pipeline to ensure we will have additional new innovations to provide endless design possibilities with superior durability and protection for homeowners around the world. Turning to Page 12 for a summary of our global results for the first quarter. This is now the ninth consecutive quarter we have delivered consistent financial results, growth above market, and strong returns. Specifically, in the first quarter, we delivered global net sales of over US$843 million, which reflects a 35% growth versus the prior corresponding period, and we delivered a global adjusted net income of more than US$130 million, which represents an increase of 50% over the prior corresponding period. Most importantly, we achieved strong financial results in all three regions for four consecutive quarters. All three regions delivered exceptional double-digit growth in both net sales and in North America driven by strong momentum in high-value product mix penetration and market share gain, achieving net sales of more than US$577 million at 28% growth. EBIT surpassed US$169 million at 29% growth, resulting in a continued strong EBIT margin of 29.3% for the quarter. In Europe, we experienced four straight quarters of strong organic growth. Net sales exceeded €103 million, showcasing a 37% increase over the prior corresponding period, and EBIT rose to over €13 million for a commendable EBIT margin of 13.1%. In Asia-Pacific, with strong performances in all three countries, we reported net sales of A$184 million at 33% growth and EBIT of A$50 million at 50% growth, resulting in a robust EBIT margin of 27.4%. Our strategy of driving penetration of the high-value product mix in all three regions, along with lean manufacturing execution, was the key driver in delivering positive leverage to the bottom line in all three regions. This was achieved against the backdrop of high input cost inflation and higher investments in marketing innovation during the quarter. I would like to now turn over to our CFO, Jason, to provide additional details on our financial results.
Jason Miele, CFO
Thank you, Jack. Good morning, and good evening, everyone. I’ll start on Slide 14 with our global results. This is our fourth straight quarter with record global results, including quarterly records for net sales, adjusted EBIT, and adjusted net income. This also marks the fourth consecutive quarter we’ve been able to deliver strong results in all three regions simultaneously. In the first quarter, each region again delivered double-digit net sales growth and double-digit EBIT growth while also expanding their adjusted EBIT margin. In my view, our ability to expand global adjusted EBIT and EBITDA margins and drive leverage on our outstanding top-line results is the real standout of our first-quarter results. We invested significantly in our strategic initiatives during the quarter with SG&A up 36% globally, and like most companies, we are facing significant inflationary cost pressures. Yet, we were able to still drive margin expansion and leverage to the bottom line with adjusted net income improving by 50% on a plus 35% net sales performance. As I just mentioned, global net sales increased by 35% to US$843.3 million. This excellent top-line success was driven by strong volume growth in all three regions totaling 25% overall. Our net sales growth included a 10% price mix improvement as our teams in all three regions successfully gained momentum in driving a higher value product mix. Through continuous improvements in lean manufacturing globally and integration of our supply chain with our customers, we were able to translate that strong top-line performance into an even stronger bottom-line outcome. Global adjusted EBIT improved by 45%, and global adjusted net income increased by 50%. Global adjusted net income in the first quarter of US$134.2 million represents another all-time record high for a quarter. As I mentioned earlier, we managed to expand our global adjusted EBITDA margin by 110 basis points to 26% in the first quarter. We continue to generate strong cash flow with operating cash flow of US$184.1 million in the first quarter. It is worth noting that these first-quarter results are not merely reflective of comping an easy prior quarter due to COVID. Our first-quarter results last year included global net sales down only 5%, adjusted EBIT flat, and adjusted net income was only down 1% in the prior period. I will now review each region in more detail starting with North America on Page 15. In North America, the team delivered another outstanding quarter. In the first quarter, net sales increased by 28% to US$577.1 million. This represents the highest net sales in one quarter ever achieved by the North American business. It is worth noting that this first-quarter result was against a comp of flat last year. This significant growth was driven by our continued focus to partner and integrate with our customers. In addition to strong volume growth, the team began gaining momentum in high-value product mix penetration with our customers. Price mix improved by 7%, and our expectation is that we will deliver price mix improvement of 7% to 9% for the full year. These outstanding top-line results were coupled with even better adjusted EBIT growth, which increased by 29% in the quarter to US$169.3 million at an EBIT margin of 29.3%. These exceptional adjusted EBIT and margin results were driven by strong organic volume growth, particularly of high-value products, paired with continued lean manufacturing savings. These margin-accretive items were partially offset by our considerable investment in growth initiatives and inflationary cost headwinds. The North America team continues to deliver consistent double-digit net sales growth at a step changed EBIT margin level. Turning now to Page 16 to discuss the European result. In Europe, the team delivered a fourth straight quarter of strong results and a third consecutive quarter of double-digit net sales growth. In the first quarter, net sales increased by 37% to €103.3 million. The team remains focused on high-value product mix penetration with our customers. Fiber cement net sales increased 91% in the quarter, which contributed to a 9% improvement in price mix. The combination of strong volumes, improved price mix, along with lean improvements resulted in Europe adjusted EBIT margins expanding year-over-year to 13.1%. Fiscal year 2022 marks the start of the fourth full year since the Fermacell acquisition. The European team is now fully integrated into James Hardie, and they have started fiscal year 2022 with significant momentum. Let's now move to Page 17 to discuss Asia-Pacific. In the first quarter, net sales increased by 33% in Australian dollars. You will note that Asia-Pacific price mix was negative for the quarter. This was due to the significant shift in Philippine sales volumes as a percentage of the total. In the prior first quarter, the Philippines was shut down for much of the period due to COVID restrictions. However, in our Australia and New Zealand business, we are achieving results similar to those of North America and Europe with price mix growth of 6% as the teams have strong momentum and high-value product mix penetration with our customers. The strong top-line results in the first quarter were translated into even stronger bottom-line results with adjusted EBIT growth of 50% to A$50.4 million at an EBIT margin of 27.4%, representing a 300 basis point margin expansion versus the prior first quarter. Moving now to Page 18 to discuss operating cash flows and capital expenditures. We had strong operating cash flow of US$184.1 million in the first quarter, and the trailing 12-month operating cash flow was up 56% to US$781.8 million. On the right side of the slide, you see a summary of our capital expenditures. In the first quarter, capital expenditures totaled US$43.4 million. Production at our Prattville, Alabama facility continues to ramp up and is on track to be the best startup in our history globally. Sheet machine one started saleable production in March, and sheet machine two began saleable production in July. We believe that additional capacity will help us to continue to drive profitable growth and gain market share throughout fiscal year 2022. Looking forward, we expect total capital expenditures to average between US$250 million to US$350 million per year over the three-year period from fiscal year 2022 through fiscal year 2024. This reflects a greater investment in future capacity, both brownfield and greenfield, in all three regions as we continue to drive profitable growth. Adding the right capacity at the right time positions us to continue to drive market share gains and bring products to our customers and end users. Moving to Page 19, we'll discuss capital management and allocation. Our strong capital structure and cash flows have enabled us to execute all of our capital allocation objectives. We continue to preserve a strong liquidity position and financial flexibility, and we are positioned to continue investing in organic growth, including capacity expansion, market-driven innovation, and marketing directly to homeowners. We remain focused on investing in growth and returning capital to our shareholders while continuing to strengthen our balance sheet. Finally, let's turn to Page 20 to discuss guidance. Our significant momentum and high-value product mix penetration in all three regions, combined with continued market share gains and lean execution, gives us confidence in raising the adjusted net income guidance range while also committing to further investment in our growth initiatives. We have raised our adjusted net income guidance to a range of US$550 million to US$590 million. The comparable figure for the prior year was US$458 million. The revised guidance range represents a 20% to 29% year-on-year improvement in adjusted net income. Specific to our North America segment, we're providing two points of guidance. First, for North American net sales for the full year fiscal year 2022, we expect growth greater than 20%, and we expect price mix growth of between 7% and 9%. We've also revised our guidance regarding the cost of goods sold, inflation, and investment in our strategic initiatives. Globally, we are anticipating between US$120 million to US$150 million in cost of goods sold inflationary headwinds in fiscal year 2022 versus fiscal year 2021. We have also increased our expectations for investment in our growth initiatives. We now expect to invest between US$100 million to US$120 million in strategic growth initiatives. Our first-quarter results were exceptional. We delivered expansion in all three regions against the backdrop of global cost inflation while investing aggressively in our strategic growth initiatives. We have now concluded our prepared remarks. I'll hand it over to the Operator to commence the Q&A portion of today's meeting.
Operator, Operator
Thank you. First question comes from Peter Steyn from Macquarie. Please go ahead.
Peter Steyn, Analyst
Good evening, Jack and Jason. Thanks very much for your time and congrats on the results. So two questions: just got your CapEx guidance, Jason; you mentioned greenfield and brownfield intentions in all three regions. Could you perhaps give us a little more detail there in terms of some of the nascent thinking, where the investment is likely to focus?
Jason Miele, CFO
Yes, Peter. Obviously, we're focused on high-value product penetration. As we think about new capacity, it'll be through that lens as well as innovation. But as I mentioned earlier, we do expect to have greenfield capacity expansion in all three regions, so in Australia, Europe, as well as North America.
Peter Steyn, Analyst
So where you moving closer to 5% in Europe? Are we in the context of a sales performance?
Jason Miele, CFO
That is the plan, Peter.
Peter Steyn, Analyst
Okay, perfect. And then my second question would just be around the cost guidance, obviously increasing that is just curious on the SG&A and R&D spaces; have those increased largely as a function of increased marketing spend? And is that a consequence of better outcomes than what you've been expecting at this stage that you're wanting to ramp up that investment? Just a little bit of detail and sort of strategic thinking around that?
Jack Truong, CEO
Peter, that's a very good question. Yes. So as I mentioned, the early results about the campaign have been very successful, allowing us to really reach the right target groups, specifically the female homeowners that fit our demographics and who live in the homes that really need to be remodeled. So based on that data and the strong financial results that we're seeing, we have a clear path to continue with this program, accelerate it, and expand it throughout the U.S. and in other parts of the world where we operate. Additionally, we have a full line of innovative products that we plan to launch and commercialize. So it's about being able to drive growth with high margins and reinvest some of that into continual improvement.
Peter Steyn, Analyst
Yes. Perfect. That makes sense. And in the meantime, you’ve got the capacity to very easily serve the market that’s coming at you as you see it and via incremental investment from a marketing point of view.
Jack Truong, CEO
Correct.
Peter Steyn, Analyst
Perfect. Thanks. I’ll leave it there. Appreciate it.
Jack Truong, CEO
Thanks, Peter.
Operator, Operator
Thank you. Your next question comes from Andrew Scott from Morgan Stanley. Please go ahead.
Andrew Scott, Analyst
Jack and Jason, well done and great results. Just a couple of questions. Jack, given the market strength, I’m interested in your thoughts on announcing a second price increase for this year.
Jack Truong, CEO
Well, Andrew, our plan has always been to employ value pricing, and so we will be taking our annual price increase at the same time every year. The only difference this past year is that we moved our price increase up to align with the beginning of the calendar year. So that is our path.
Andrew Scott, Analyst
Okay, understood. Just thought the market might have been strong enough to sustain a second increase.
Jack Truong, CEO
Well, our strategy is really about delivering more value to our consumers and customers, and it’s about ensuring that we can market high-value products that deliver a strong value proposition to the homeowners. That's what you saw in our Q1 results, where we managed to get that price mix to rise much higher than the normal price increase merely for the sake of an increase.
Andrew Scott, Analyst
Absolutely. It was a great outcome there. Just a second question. We can’t discuss industrial companies at the moment without focusing on supply chain. So I’m interested if you can talk about any specific inputs for you that are not just seeing price appreciation, but actually difficulty in obtaining those supplies. In terms of your supply to customers, how is that tracking? Perhaps discuss service metrics, whether it’s delivery in full or other metrics, please?
Jack Truong, CEO
Yes, Andrew. If you look at our performance, particularly in North America, the past seven or eight quarters show that we’ve managed to deliver volume to the marketplace in double digits and we’ll continue to do so. As you know, we have the Prattville facility. As Jason mentioned, the start-up of Prattville's line 1 is going well, and we just commenced with line 2. Together with a lean approach and our supply chain integration, we can make the right products to meet market needs and effectively flow those from our production line to the marketplace. These are the key initiatives that we have to ensure we serve the markets with value-driven products.
Andrew Scott, Analyst
Okay. Thank you. That’s great.
Jack Truong, CEO
Thank you.
Jason Miele, CFO
Thanks, Andrew.
Operator, Operator
Thank you. Your next question comes from Lee Power from UBS. Please go ahead.
Lee Power, Analyst
Hi Jack. Hi Jason. I was expecting to see COGS guidance maybe drive some of the impact upgrade. Can you just talk a little bit about what you are seeing there now that the COGS inflation guides to the top end of the range, maybe around freight and pulp, especially since it seems like many of them have started to decline? I’d just love to get your thoughts.
Jack Truong, CEO
Yes, Lee. It's a good question. I’d say it’s more of a narrowing of a range than increasing. We now have three more months of actuals under our belt and better site lines into the future. While pulp and freight haven’t declined significantly, they’ve normalized a bit. The other piece of that guidance would be our expectations around volumes have increased since the last time we spoke, and that guidance is in total dollars. So that affects the entire direction.
Lee Power, Analyst
Okay. That makes sense. Thank you. And then maybe can you just talk about Australian manufacturing? Have you seen any impact through lockdown at Roseville?
Jack Truong, CEO
No. Fortunately, we're able to continue to run our plant in Australia, both in Roseville and Carole Park, to serve our customers.
Lee Power, Analyst
Cool. Thank you.
Operator, Operator
Thank you. Your next question comes from Lisa Huynh from Citi. Please go ahead.
Lisa Huynh, Analyst
Hi, good morning, Jack. Good morning, Jason. I'm just interested in the ASP uplift you saw in North America. Can we talk about that in a bit more detail about contributions to the ASP uplift we saw from pulling forward the annual price increase, but also higher value products?
Jack Truong, CEO
Yes, so this is really the first full quarter that we have executed at a high-value product mix penetration. The way to think about that is that about two-thirds of what we've seen there is related to price, competitor price, and one-third to the mix. As we indicated at the Investor Day and our last quarterly earnings call, the number one objective is to shift the market from the siding brand of Cemplank to Hardie brand. And second, as we penetrate more into the repair and remodeling market, our color products provide the highest value proposition to the market. As we invest in marketing to reach the homeowners and tell that story about James Hardie's superior products, it drives a lot of growth for our color products.
Lisa Huynh, Analyst
Yeah. Thanks, Jack. As a follow-up, would you say a large portion of the ASP improvement has been driven by the higher value products? Would you classify the transition of customer base from Cemplank to the standard Hardie board rather than a big uptake of the textured panels as it currently stands? It seems too early to understand?
Jack Truong, CEO
That's correct. So the way to look at it, Lisa, is that in the first-quarter results, a lot of the improvement stemmed from the transition from Cemplank to Hardie brand products, followed by the Hardie brand exterior with ColorPlus technology. There's some contribution from new market-led innovations, but it’s still early for that to gain momentum as part of the overall mix yet; however, we expect to see continued acceleration in color products and new market-led innovations over time.
Lisa Huynh, Analyst
Thanks.
Operator, Operator
Thank you. Your next question comes from Sophie Spartalis from Bank of America. Please go ahead.
Sophie Spartalis, Analyst
Good morning. Just in regard to the manufacturing strategy going forward. It seems that you've pulled on a lot of the brownfield and greenfield capacity just from a top-down level. Are you still envisaging having particular plants producing specific products, and how do you expect to service the market? Or will it be a more integrated network servicing full countries? Can you walk through the strategy there, please?
Jack Truong, CEO
Certainly, the greenfield and brownfield capacities are pivotal for three regions; we don't move products from one region to another. As we now aim to accelerate our growth, our business today is far larger than it was three or four years ago, and we expect the growth rate we plan for is significant. It’s about having plants dedicated to specific products, resulting in a more integrated network to better serve our market.
Sophie Spartalis, Analyst
Okay. So you're moving towards dedicated plants for different products servicing the entire U.S. region?
Jack Truong, CEO
Correct. For instance, we've mentioned in the last quarterly earnings that some of our plants in South Carolina that we are about to recommission will be designed specifically for our siding brand products.
Sophie Spartalis, Analyst
Okay. That’s clear. Thanks, Jack. And what about the geographical mix you’re observing for these higher value product initiatives? Are you gaining share in your traditionally weaker markets? Could you provide some color on where the volumes are rising, particularly in the U.S. and Europe?
Jack Truong, CEO
Yes. Given the recent COVID environment, consumer behavior is changing. For example, in the U.S., a lot of people want to remodel their homes because the market is strong, and new construction has not met the demand. There's a heightened awareness of the need for homeowners to remodel while staying put. This has led to increased remodeling activities. As we reach out to homeowners who are considering remodels, we find more demand for high-value products like the Hardie brand exterior with color. We are introducing diverse products that can satisfy various design needs across different regions.
Sophie Spartalis, Analyst
Okay. That’s great. Thanks, Jack.
Operator, Operator
Thank you. Your next question comes from Simon Thackray from Jefferies. Please go ahead.
Simon Thackray, Analyst
Thank you very much. Good morning, Jack. Good morning, Jason.
Jack Truong, CEO
Hi, Simon. Good morning.
Jason Miele, CFO
Good morning.
Simon Thackray, Analyst
Just wanting to explore the mixed shift you observed. You do have 7% in North America in particular with Cemplank; I want to understand how much of that shift was convincing folks that a significant price rise in the commodity board was occurring. What was the extent of the price rise in commodity board that helped convince manufacturers to shift towards a value product under your brand?
Jack Truong, CEO
Simon, the shift was largely due to our ability to communicate the value that we offer to our direct customers, as well as to homeowners and builders. By emphasizing the Hardie brand exterior products, we provide superior service and warranties for homeowners compared to other brands. This value proposition enabled us to transition from Cemplank to Hardie brand products. Additionally, we have taken substantial price increases on Cemplank to narrow the gap, facilitating this shift.
Simon Thackray, Analyst
So the shift was driven more by the value proposition than simply pushing out prices on Cemplank to entice users over?
Jack Truong, CEO
Yes, the primary focus was on providing homeowners with diverse designs through a broad portfolio of Hardie brand products. The Cemplank brand is a more limited option, and the Hardie brand offers many different design combinations. We did increase the price of Cemplank to make the gap smaller, but the fundamental driver was the value proposition.
Simon Thackray, Analyst
That makes sense. I noticed your comments on your expectations were revised from 4% to 6% to 7% to 9% for price mix increase—great confidence in traction with the strategy. I was curious how that upgrade to price mix is influencing your thoughts around CapEx and capacity. To what extent has this increased your ambition for capacity and CapEx to meet future demand?
Jack Truong, CEO
Well, Simon, as we shared at our Investor Day, we are now positioned to create demand for our products through marketing efforts directed at homeowners and through innovation. The repair and remodeling market is substantial in the regions where we operate, and until now, no brand has actively communicated to homeowners about the benefits our products can deliver. Our strategy revolves around driving demand for high-value products directly to homeowners while ensuring that we support our customers with strong value. Early successes provide us confidence to reinvest in marketing and innovation, requiring that we evaluate our capacity plans to ensure we can grow accordingly.
Simon Thackray, Analyst
That’s super helpful, Jack. Are you seeing any industry bottlenecks or constraints that might limit your volume aspirations?
Jack Truong, CEO
Yes, there is definitely a limited supply of skilled labor negatively impacting our industry across all geographies.
Simon Thackray, Analyst
Thanks, Jack. Thanks, Jason. Appreciate it.
Jack Truong, CEO
Thanks.
Operator, Operator
Thank you. Your next question comes from Daniel Kang from CLSA. Please go ahead.
Daniel Kang, Analyst
Hey Jack. Hey Jason.
Jack Truong, CEO
Hey, Daniel.
Jason Miele, CFO
Welcome back.
Daniel Kang, Analyst
Thank you. I have a question regarding North America; really strong performance now with record sales of up 28% but only a similar amount by 29%. So why aren't we seeing that operating leverage come through? Is that primarily due to reinvestment in growth initiatives?
Jack Truong, CEO
That's correct, Daniel. We have an extensive market and integrated marketing campaign that we started at the beginning of the year and accelerated throughout the quarter. This will be the key driver for profit growth in our company, which is why you are not seeing as much leverage to the bottom line as you might expect in other regions. At the same time, we are also contending with high inflation on input costs during the quarter.
Daniel Kang, Analyst
Got it. And the price mix performance looks impressive. Just being early in the campaign for both North America and ANZ. You provided guidance for North America of 7% to 9%, which fits the expectations, but should we also expect similar guidance for ANZ moving from 6% toward that 7% to 9% level?
Jack Truong, CEO
It's too early to tell in ANZ, Daniel, because the key driver we have in North America is that we kicked off our consumer marketing campaigns at the beginning of the year. We have yet to start in Australia; that remains to be seen.
Daniel Kang, Analyst
Right. I'll live with that. Thanks very much, Jack.
Operator, Operator
Thank you. Your next question comes from Keith Chau from MST Marquee. Please go ahead.
Keith Chau, Analyst
Good evening, Jack and Jason. My first question focuses on the North America division; great outcomes for the period, obviously. Can you provide a steer on how interiors and exteriors volumes are tracking in the second quarter and for the first quarter just completed? Were there any standout regions in the U.S. where we saw outside growth or any competitive substations from which you think you took shares at a higher rate than what you'd normally consider?
Jack Truong, CEO
In North America, we’ve seen very strong growth in lower U.S. regions, particularly among the color product categories that gained significant penetration. This area has higher concentrations of remodeling jobs. So yes, we continue to gain momentum during this past quarter alongside our traditional areas.
Keith Chau, Analyst
Sorry, Jack. Did you say lower U.S. regions?
Jack Truong, CEO
Yes, the lowest regions which include the Northeast, Canada, and the Pacific Northwest.
Keith Chau, Analyst
Okay. Great. On exteriors and interiors growth; do you have a bit of a steer on how that’s tracking at the moment?
Jack Truong, CEO
We're focused primarily on driving the high-value product mix. We’re running around mid-teens on total volume.
Keith Chau, Analyst
Yes. Okay, cool. Just a follow-up on the question about CapEx and any potential European plants; you've always preferred to set key milestones before establishing new targets. If considering a fiber cement plant in Europe, what milestones would you be looking at from a management perspective before formally committing to a plant?
Jack Truong, CEO
Currently, we are keeping our plans confidential. However, I can share that the target we set out for Europe back in February 2019 is to achieve EBIT margins at the level of 14% by the end of this year. This is a primary milestone that we need to reach. To achieve that, we should have a certain amount of revenue in fiber cement at the right mix to accelerate towards our goal of reaching €1 billion in total business in Europe with a 20% EBIT margin by 2029.
Keith Chau, Analyst
That's right. Thanks very much, Jack. I appreciate your time.
Jack Truong, CEO
Thank you.
Operator, Operator
Thank you. There are no further questions at this time. I'll now hand back to Dr. Truong for closing remarks.
Jack Truong, CEO
Before we conclude, I would like to take the opportunity to extend my gratitude to all James Hardie colleagues from around the world. Our exceptional financial results in the first quarter of fiscal year 2022 are a direct result of their continued execution of our global strategy as a cohesive company. These outstanding first quarter results signify that we are truly a new James Hardie—a company that continues to leverage its global reach, capabilities, and scale to consistently deliver on our financial goals. I'm excited about the remaining fiscal year 2022 and beyond as we proceed with this next phase of profitable growth. Thank you, and have a good night and good morning.
Operator, Operator
Thank you. That concludes our conference for today. Thank you for participating. You may now disconnect.