Earnings Call Transcript
James Hardie Industries plc (JHX)
Earnings Call Transcript - JHX Q4 2024
Operator, Operator
Thank you for joining us for the James Hardie Q4 FY '24 Results Call. There will be a presentation followed by a question-and-answer session. I will now turn the conference over to Mr. Aaron Erter, CEO. Please proceed.
Aaron Erter, CEO
Thank you, operator. Good morning and good evening to everyone, and welcome to our fourth quarter and total fiscal year 2024 results briefing. Turning to Page 2, you will see our standard cautionary note on forward-looking statements. Please note that the presentation today does contain forward-looking statements and the use of non-GAAP financial information. Also, except where we explicitly state otherwise during our prepared remarks, all references to monetary amounts should be assumed to be in U.S. dollars. Moving to Page 3, you will see our agenda for today. Joining me is our CFO, Rachel Wilson. For today's call, I will start by providing a strategy and operations update. Rachel will then discuss our financial results and I will return to discuss our outlook, guidance, and provide a brief closing. We will then open it up for questions. Before I share an update on our strategy and operations, I would like to take this opportunity to thank all of our team members around the world who remain focused on safely delivering the highest quality products, solutions, and services to our customer partners. Our James Hardie team truly represents the very best in our industry and consistently enables our superior value proposition. Let's start on Page 5 with a brief business update. Our team's focus remains simple: working safely, partnering with our customers, investing in long-term growth, and driving profitable share gain. Our fourth quarter results continue to highlight how impactful that focus has been and is reflected in our full year results. For the full year, we achieved record global net sales of just under $4 billion, up 4% versus the prior corresponding period with record global adjusted net income of $708 million, up 17% versus the prior corresponding period. Both our global net sales and adjusted net income results were again supported by volumes in North America that have outperformed the market. For the full year, North American volume was just over 3 billion standard feet, and we delivered that with a record 31.9% EBIT margin. The adjusted net income result was also supported by solid year-over-year financial results in our Asia Pacific region. In the EU, business performance improved year-over-year and we are seeing momentum in growing our high-value products. For the 12 months, we generated record operating cash flow of $914 million, up 50% year-over-year. We have continued to accelerate our investment in long-term growth, supporting our marketing tentpoles, driving awareness and conversion in targeted regions to aid in sustaining profitable share gain. We have done this in the face of a challenging and what has been uncertain markets around the globe. Rachel will share additional details regarding the quarterly results in the financial section. While uncertainty continues to affect our end markets, our focus remains on partnering with our customers and controlling what we can control to outperform in the markets we participate. Now, please turn to Page 6 and our global strategic framework. As I continue to emphasize at the heart of our global strategy, we are homeowner-focused, customer- and contractor-driven. With that in mind, all three regions remain focused on our three key strategic initiatives. Number one, profitably grow and take share where we have the right to win. Number two, bring our customers high-value differentiated solutions. And number three, connect and influence all the participants in the customer value chain. I remain confident in our team and our strategy. Combined, they position us to execute at a high level and drive profitable share gains in all three regions. We accelerate our strategic initiatives by establishing competitive advantages through our strategic enablers without compromising on our foundational imperatives. Over the last few quarters, we have shared pieces of our value proposition that go beyond the product. This has included our marketing tentpoles, which helped drive demand, our unrivaled business support, and our localized manufacturing, which improves our customer experience. Over the next two slides, I will show you how far James Hardie has come and pull together all the pieces that demonstrate clearly how we are driving long-term value creation. Let us now turn to Slide 7. In FY '24, our North American business continued to profitably take share. Our FY '24 volumes grew by 1% year-over-year against a market where in FY '24 major remodeling contracted by 11% in single-family new construction and calendar year '23 contracted by 6%. Our strong above-market growth in FY '24 was driven by, number one, our partnerships with the large builders who took considerable share during the year; and number two, our continued focus on driving material conversion in the repair and remodel space. Over the last two-plus decades, James Hardie has built considerable awareness and goodwill with contractors and builders across the country with our superior siding solution. Since the year 2000, we have sold over 45 billion standard feet of product. This includes siding, trim, soffit as well as interior products. Within the same time frame and siding alone, we have sold over 28 billion standard feet of product. Conceptually, this is equivalent to fully cladding over 11 million homes. While this is an admirable achievement, there is more to be gained. Since joining James Hardie, just under two years ago, you have heard me talk about how we are a homeowner-focused, customer and contractor-driven. This focus is what will help to drive ongoing profitable share gain and further material conversion, resulting in more homes being clad with James Hardie products over the years to come. Turning to Slide 8 to discuss this in more detail. At James Hardie, we are investing in long-term value creation. Over the last 10 years, James Hardie has taken consistent market share. The U.S. Census reports fiber cement share of primary cladding of new homes at 23% in 2022, up from 16% in 2012, equivalent to just under 1% of share gain per year. To sustain and build on this growth, we continue to invest in demand creation. This investment occurs across the entire value chain and is aligned with our homeowner-focused, customer and contractor-driven mindset. We accomplished this by leveraging our marketing tentpoles, which include TV and sports sponsorships, influencer partnerships, in-store marketing at our retail partners as well as targeted marketing with our contractors. Demand creation ultimately drives increased awareness for James Hardie products and creates long-term demand across the value chain. Next, we have our innovative solutions. We have high-quality and differentiated product solutions that meet the needs of our customer partners and homeowners. In the Northeast and Midwest, which are repair and remodel dominant, we have significant opportunity to penetrate with our ColorPlus portfolio of products. These products are engineered for extreme climate and offer superior durability, citing what James Hardie products delivers lasting beauty for the homeowner with minimal maintenance. In new construction, which dominates the southern parts of the U.S., we have opportunity for growth while defending existing share through our prime and sampling products. As I previously mentioned, we remain the predominant hard siding choice for 24 of the top 25 large builders. We remain committed to these large builders as we expand our focus to grow with the rest of the top 200. Currently, we provide approximately 80% of the hard siding needs for the top 200 builders, and we are committed to further growing our share. Across both repair and remodel and new construction, our products continue to offer superior design and curb appeal. Our end market presence for over 25 years has also made us a trusted brand. Both of these play a part in driving ongoing long-term value creation. Next, we have our unrivaled support. James Hardie products have a superior value proposition. That is visible from the street. For our customers and partners who use our products, the unrivaled support and localized manufacturing we provide directly benefits them each and every day. These benefits include customer integration that ensures the right products are delivered to the right place and at the right time. Interactive in-person events such as our Dream Builder program, which provides product education and training support. And finally, our Contractor Alliance program, which is about supporting our contractors with lead generation and co-branding, all in support of helping grow their businesses to drive long-term material conversion to James Hardie products. As I mentioned, James Hardie has owned more than 11 million homes in the U.S. Every home that is clad with James Hardie is a lasting mark on the residential streetscape. The long-lasting beauty of James Hardie products helps to further drive awareness of our product and channel future material conversion in neighborhoods across America. As we continue to invest in demand creation, offer the right products and solutions for our customer partners and provide unrivaled business support, this will drive a virtuous cycle of material conversion, profitable share gain and long-term value creation, resulting in more homes being clad in James Hardie products. Now, I would like to hand it over to Rachel to share more details about our fourth quarter results. Rachel?
Rachel Wilson, CFO
Thank you, Aaron. Let's start on Page 10 to discuss our global results for the fourth quarter. Our team delivered impressive results this quarter compared to last year, maintaining consistent execution throughout fiscal year 2024. For the quarter, group net sales increased by 9% to just over $1 billion, adjusted net income rose 19% to $174.2 million, and the global adjusted EBITDA margin improved to 27.9%, up 250 basis points. Operating cash flow for FY '24 reached a record $914.2 million, up 50%. Our team's focus on executing our strategy is reflected in these solid results. Now, turning to Slide 11, I’ll explain our adjusted net income waterfall for the fourth quarter. Adjusted net income increased 19% or $28 million year-over-year to $174.2 million, aligning with the guidance provided in February. This growth was primarily driven by strong EBIT growth in North America, contributing $35.9 million to the adjusted net income increase. Additionally, growth in the EU contributed $3.6 million to the rise in adjusted net income. During the quarter, our ongoing marketing investments aimed at driving long-term growth led to a 24% increase in global SG&A, which now totals $164.2 million, representing 16.3% of revenues, up from 14.5% last year. Sequentially, global SG&A increased 5% compared to the third quarter of fiscal year 2024. This investment, particularly in our marketing initiatives, underscores our commitment to enhancing brand awareness and achieving profitable growth. In Q4, we recorded a 22% year-over-year increase in homeowner leads nationwide and more than a twofold increase in our key repair and remodel markets. While general corporate SG&A expenses saw a modest year-over-year decline, higher employee costs, stock compensation, and professional fees countered the prior year’s New Zealand weather tightness expenses, leading to flat general corporate SG&A expenses sequentially. Our estimated adjusted tax rate range for FY '25 is 23.5% to 24.5%, compared to 23% for FY '24. We are proud of our global teams for their execution in a challenging market and will continue focusing on consistent performance in fiscal 2025. Now, let’s move to Page 12 to review the North American results, starting with the top line. For the quarter, North America net sales totaled $735.2 million, up 13% compared to the previous year, with an average net sales price increase of 4%. Volume was 766.3 million standard feet, reflecting a 9% year-over-year rise and aligning with our guidance. Overall housing end markets during the quarter remained mixed. Experts highlighted ongoing pressure in major project repair and remodel, suggesting an 11% decline year-over-year in Q4, while single-family new construction showed a double-digit increase in December. We apply a one-quarter lag methodology to single-family new construction starts to align the data with our sales timing. Similar to the third quarter, our strategic partnerships with large builders drove strong volume growth in the South Central region, especially in Texas, which is heavily focused on new construction. We also experienced strong growth in the West, with these regions outperforming total North American volume growth. Key repair and remodel markets in the North experienced single-digit declines year-on-year, which is comparatively better than major project repair and remodel, which dropped low double digits. Importantly, our exterior cladding volume grew low double digits. Furthermore, we have significantly increased our presence in the multifamily sector, which now represents roughly 15% of our new construction exposure, up from 10%. Regarding margins, North American EBIT margin improved by 270 basis points year-over-year to 31.7%, aligning with our guidance range. EBIT in the fourth quarter rose 23% to $233 million compared to the previous year, benefiting from higher average net sales prices and lower input costs. Year-over-year, cost-saving measures from pulp prices and plant improvements outweighed the increases in cement and freight costs. Sequentially, cement costs rose low double digits, as expected. Additionally, we incurred about $3 million in startup ramp-up costs related to Prattville sheet machine 3 and our ColorPlus finishing capacity project in Westfield. For this quarter, SG&A expenses rose 46% year-over-year from a low base in the previous year. Our SG&A investment continues to focus on marketing initiatives to drive long-term demand. SG&A as a percentage of sales increased by 2 percentage points. Despite the volatility in the housing market, we remain optimistic about our relative share performance. By collaborating with our customers, the North American team achieved strong results in the fourth quarter. Next, let’s move to Page 13 to discuss the Asia Pacific results. Like North America, our Asia Pacific segment had a robust fourth quarter, with net sales increasing 5% year-over-year to AUD 215.2 million. This increase was driven by a 9% rise in our average net sales price, partially offset by a 4% drop in volume. In the December quarter, Australian housing activity weakened, with dwelling approvals down 10% year-over-year. In calendar year 2023, dwelling approvals decreased 14% compared to the previous calendar year. In Q4, New Zealand was the best-performing region. EBIT fell 1% to AUD 58.6 million, primarily due to higher cash costs affected by mix, partially offset by an increased average net sales price. SG&A expenses rose 43% year-over-year as we continue investing in long-term demand creation, increasing SG&A as a percentage of sales by 3 percentage points. The APAC EBIT margin declined by 170 basis points compared to the prior period to 27.2%. The Australian housing market faces challenges with affordability issues and a double-digit decline in building approvals. Despite these challenges, our teams generated a 5% increase in net sales by achieving profitable market share growth. Our Asia Pacific team consistently partners with customers to deliver a successful fiscal year. Now, let’s turn to Page 14 to discuss the European results. Our European team had a solid fourth quarter, continuing to execute well in a challenging market. The European market has seen double-digit declines; for instance, German building permits dropped 29% year-over-year in the three months leading to January 2024. European net sales were flat at EUR 118 million, mainly due to a 5% increase in average selling price resulting from our strategic price increases and growth in high-value products. We are witnessing a shift in our product mix towards higher-value fiber cement offerings. Our efforts to provide products suited for both multifamily and single-family homes are ongoing. During the quarter, fiber gypsum volumes decreased low double digits, while high-value products rose mid-single digits, indicating a satisfactory trend towards high-value products comprising a larger part of our mix. Overall European volumes saw a 9% decline, which, despite being significant, is a lower decline than the broader European market. Like our other areas, SG&A increased 14% year-over-year, with SG&A as a percentage of sales rising by 3 percentage points. In the EU, these investments encompassed establishing dedicated sales teams for our panel portfolio across Europe and advancing market initiatives. EBIT improved year-over-year to EUR 12.1 million, driven by a higher average net sales price and partially offset by lower raw material costs, including paper and energy. The EBIT margin improved year-over-year by 360 basis points to 10.3%. We expect to achieve mid to high single-digit EBIT margins in the near term, with the EU team's focus on growing high-value products supporting long-term margin expansion opportunities. We have adjusted our transfer pricing for intercompany sales from the U.S. to Europe effective April 1, with no overall impact on consolidated results. Moving to Page 15 to discuss cash flow, liquidity, capital allocation, and capital expenditures, our strong operating cash flow underscores our robust margins and the superior value we provide to our customers, builders, and contractors. FY '24 operating cash flow reached $914.2 million, driven by solid financial performance across all three regions and a working capital improvement of $31.1 million. Our liquidity remains strong, with a Q4 net leverage ratio of 0.67 times and liquidity of $958.2 million. We prioritize investing in organic growth while ensuring a flexible balance sheet and returning excess capital to shareholders. During Q4, we repurchased 1.9 million shares for $75 million at an average price of $39.42 per share. For FY '24, we bought back 8.7 million shares for $271.4 million at an average price of $31.42. Looking ahead to Q1 FY '25, we plan to continue repurchasing shares under our $250 million buyback program. Over the past year, our strong cash flow allowed us to fund the buyback while maintaining balance sheet flexibility. Capital expenditures for FY '24 totaled $449.3 million, with an additional $75 million incurred but not yet paid. For FY '25, we will continue investing to meet future demand, expecting CapEx between $500 million to $550 million. Major investments include preparatory work for capacity additions in North America and proven global initiatives to enhance existing capacity, as well as investments in the Hardie Operating System initiatives. I will discuss our long-term growth and capacity in more detail shortly. We have robust operating cash flows, strong liquidity, and a flexible balance sheet, enabling investments in profitable growth. Now, let's move to Page 16 to review our progress on HOS initiatives. The Hardie Operating System, or HOS, focuses on improving our work processes at James Hardie. This necessitates ongoing investments in critical company-wide initiatives supporting operational savings year-over-year. In FY '25, we’ll make investments to accelerate strategic opportunities, facilitating future cost savings. These investments are factored into our guidance and represent an important step in our growth, enhancing our foundation for efficient scaling. Last year, we outlined cumulative saving targets for FY '24 to FY '26 based on FY '23 levels. Significant progress has been made towards these targets this year. In our first full year, we achieved $31 million in global HMOS savings against a three-year target of $100 million, driven by reduced unplanned machine downtime and improved throughput yield, which minimized product reject costs. Across procurement and R&D, we achieved $52 million in savings, surpassing our three-year target of $60 million through better management of indirect spending, R&D improvements, and supply chain optimization. Lastly, we saw a $31.1 million improvement in working capital. We anticipate continued progress, especially given the seasonality of accounts receivable in Q4. Our global teams have made notable advancements toward our targets. These savings are crucial for fueling our growth and enabling us to invest in profitable share gains. Now, turning to Page 17 to discuss the outlook for long-term capacity. As mentioned by Aaron at the start of the call, we are committed to driving long-term value creation. To support future demand, we have capacity projects at various stages of development to align with our profit-sharing expectations. In North America, we are set to commission sheet machine 3 in Q1. Together with sheet machine 4, this will add 600 million standard feet, raising total capacity at Prattville to 1.2 billion standard feet. Expanding the Prattville site allows us to better address the demands for new construction and repair from a key U.S. central location. At Westfield, we plan to initiate production at our dedicated ColorPlus facility in Q1, aimed at enhancing our service to the Northeast repair and remodel markets. Additionally, in FY '24, we secured land in Missouri for future greenfield development. The Crystal City site is integral to our long-term planning for continued material conversion and profitable share gains. In Europe, our Orejo Brownfield site in Spain will add 252 million standard feet, increasing nameplate capacity to 527 million standard feet and enhancing our manufacturing cost structure. Similar to North America, we acquired land in Europe during FY '24 as part of our long-term capacity strategy. We are excited about the opportunities ahead for our high-value products. At James Hardie, we have steadily increased market share over the last decade, as shown on Slides 7 and 8. To meet projected demand, we are funding capacity and advancing projects to flexibly align with profitable share gains, including optimizing existing capacity with HOS improvements as well as balancing Brownfield and Greenfield developments. I will now turn it back to Aaron.
Aaron Erter, CEO
Thank you, Rachel. We have delivered record results in FY '24 in a difficult operating environment. In addition, we have continued to outperform our end markets. These results are proof points that we are accelerating and taking share, all while we have increased our investment in long-term demand creation. Let's now move to Page 19 to discuss our market outlook and guidance. For our largest market, North America, we are again providing the calendar year 2024 market outlook data from several external data providers. The average estimate for single-family new construction is for growth of 7%. Multifamily new construction is forecasted to contract 21%. In Repair and Remodel, our largest end market, is estimated to decline 4%. Using these external ranges along with our assumed market segment exposures, the implied range for our blended addressable market is down 6% to up 3%, implying an average 2% decline. This compares to the flat outlook that was forecasted in February. It won't come as a surprise to you to see that these third-party forecasts for Repair and Remodel have weakened throughout the quarter, led by deferral in interest rate cut expectations. That said, since joining James Hardie, I have seen us execute our strategy at a high level and increase our investment in long-term demand creation. Our business and team remain in a strong position to capitalize on the expected return to growth in the Repair and Remodel segments over the years ahead. We remain laser-focused on driving profitable share gain and are demonstrating this with market outperformance. If you turn to Page 20, we have again provided the volume sensitivity analysis for FY '25. This sensitivity analysis was prepared in the same manner as last quarter, which assumes our current range of expectations for raw material costs and freight rates while continuing to invest in growth as currently planned. These volumes are simply to provide context to our EBIT margin sensitivity in North America and should not be construed as volume guidance beyond Q1 fiscal year 2025. Regardless of how markets fluctuate, we remain focused on outperforming our end markets. Now please turn to Page 21. Today, we are providing two sets of guidance: Q1 fiscal year 2025 and full-year guidance for 2025. For Q1, we are providing three points of guidance. First, we expect North America volumes to be in the range of 745 million to 775 million standard feet. Second, we expect North America EBIT margin to be in the range of 30% to 32%. And lastly, we expect global adjusted net income to be in the range of $155 million to $175 million. Now turning to Page 22. For fiscal year 2025, we are providing three points of guidance. First, we expect North America volumes to be in the range of 2,950 million standard feet to 3,150 million standard feet. Second, we expect North America EBIT margin to be in the range of 29% to 31%. And lastly, we expect global adjusted net income to be in the range of $630 million to $700 million. In FY '25, we remain homeowner-focused, customer- and contractor-driven. This strategy will enable us to deliver long-term profitable share gain and material conversion. To action this, we are focused on customer partnerships. This is about investing in and working with our customers to activate our value proposition to help profitably grow their businesses. Demand creation. This is about investing in targeted marketing to drive awareness of James Hardie solutions across the value chain. This includes homeowner marketing and investing in programs and events that support our contractors to grow their businesses. Regarding our expectations for PDG, we continue to expect strong PDG in FY '25 of at least 4%. As a reminder, PDG should be looked at on a rolling 12-month view and not quarterly. FY '24 was a very strong year for profitable share gain. In FY '25, we will continue to closely partner with the entire value chain to drive further profitable share gain. As you know, we have key agreements with the top 24 of 25 homebuilders across the U.S. to meet their hard siding needs. These agreements have remained unchanged. In addition, over the last 12 months, we have deepened our relationships with the top 200 homebuilders. We are growing awareness and demand with these builders by meeting their needs with the right product solutions. Finally, investing for growth. You heard Rachel speak earlier about our ongoing investments in HOS initiatives to support the business' long-term growth. This investment is inclusive of preparing our business for scalable growth to meet our expectations for further material conversion. As I mentioned earlier, our team is energized and focused on driving profitable share gains, and we are positioned to deliver another strong financial result in fiscal year 2025. Finally, please move to Page 23. We at James Hardie are a global growth company. Over the last 10 years to FY '24, we have grown global net sales with an annual compound growth rate of 10%. This is a testament to the value proposition that our products bring to our customers and partners. Our global operating cash flow over the last 3 years to FY '24 has expanded by 3x relative to that of FY '14. We have a highly profitable business, and that allows for focused investment in organic growth opportunities. Our global adjusted return on capital employed over the last 3 years to FY '24 has averaged 45%. Our profitable returns and investments continue to showcase the power of investing in organic growth. Finally, our global adjusted net income over the last 10 years has grown with an annual compound growth rate of 14%, which has exceeded our sales growth rate. I am really proud of our team's ongoing ability to drive profitable share gain and execute consistently, delivering a strong fourth quarter result and demonstrating operational momentum as we head into FY '25. We are homeowner-focused, customer- and contractor-driven. Finally, I look forward to seeing a lot of you at our Investor Day next month, where we will show you our value proposition in the field and articulate our longer-term ambitions. With that, I would like the operator to open the line up for questions.
Operator, Operator
Your first question comes from Keith Chau from MST.
Keith Chau, Analyst
First question and perhaps the obvious one. I just want to work out your comments around market share growth for FY '25 against the guidance that you provided. So, Aaron, you talked about delivering strong PDG for FY '25. There's a comment in the presentation of plan to outperform the market, which frankly is not quite as explicit as Hardie is typically is. But you're guiding to an addressable market of down 2%. At the midpoint of guidance, your volumes are flat. So effectively, the PDG is 2%. When the company has invested heavily in SG&A, this discussion about homeowner leads up 22%. And in your performance scorecard is a target of PDG of 400 basis points. And I take your point about not looking at a quarterly PDG. So, let's just work on full year numbers and effectively assume it's 2% based on the guidance. So, can you just help me square up how that all works? Because it just seems as though your comments on PDG are certainly more bullish than what the implied quantitative guidance is.
Aaron Erter, CEO
Yes, absolutely. Yes, Keith, absolutely. And we'll walk you through it, and Rachel and I will tag team this. Obviously, one of the things that we did that you'll all notice, which is new for us under this leadership team, has provided full-year guidance. One of the things I'm proud of is the new process that we put in over a year ago and seeing the track record that we've had over the last year, we feel very confident in giving full-year guidance here. Also, as you know, PDG, and you just mentioned that it's best looked upon from a full year standpoint. Obviously, the last 12 months, if you look at our PDG growth in North America, it was high single digits. So, a really large bar for us to cross here from a PDG standpoint. I think part of it is the range here and where it's loaded. I'll have Rachel walk you through that and then I'll get back on and give you a few other comments here. Rachel, you want to walk Keith through it?
Rachel Wilson, CFO
Absolutely. So, as we pointed out in that slide, while you point to the 2%, minus 2% of the average, the range right now is pretty broad, right? It's minus 6% to plus 3%. And when you really dig into, particularly in Repair and Remodel, where it becomes more positive on a quarterly basis, it's in the back part of the year. And as we talk about our epicenter Repair and Remodel market, guess what, steady winter, right? So that's something that we are taking into account as we think about our guidance range. Volume is our largest factor for revenue and margin, and it is a broad range. We are trying to narrow that. So, rather than go all the way from the minus 6% to the plus 3%, you've noted correctly from flat point, it's really minus 3% to plus 3%. We are expecting raw material headwinds, which are working to offset the cost and pricing, and we continue to invest in the business. That's demand creation initiatives and HOS investments to enhance that scalability. Finally, look, we're early in the year. So, our unknowns around this broader macro and raw materials outlook are with us. We're forecasting net sales growth in all divisions with positive price in all regions. Margins remain strong, and we do have a 4% North America PDG outlook with continued investment. So, we have some confidence around the momentum of our business. I'll turn it back to Aaron.
Aaron Erter, CEO
Yes. No, I think you hit most of it, Rachel. And look, Keith, I mean, the obvious here is we just came off what is a record FY '24. So, we do have a lot of positive momentum. We continue to expect to take share. As I mentioned, we do feel strongly of having 4% PDG growth. That's after a year of 8% PDG growth.
Keith Chau, Analyst
Sorry, and so my follow-up then is, if you're still expecting 4% PDG growth, is the midpoint of your guidance range relevant based on where the midpoint of your addressable market expectation is? Because if you square up the two headline ranges, the implied PDG for the full year is 2%. And I take your point, you came off high PDG last year, depending on how you square it off, it's probably high single digits to low double digits. But in the prior year, PDG was low. So, you've kind of got 2 years to square off. So, just help me understand, is the midpoint of guidance relevant or not based on your expectations for PDG of 4% and your addressable market change of negative 2%?
Aaron Erter, CEO
Yes. Keith, what I would say to that, it’s early in the year, it’s a range. And as Rachel said, a large part of that, which, again, you look at PDG from a full year standpoint is loaded into the back half of the year.
Operator, Operator
Your next question comes from Lee Power from UBS.
Lee Power, Analyst
Aaron, Rachel, just kind of continuing on from Keith's point around PDG. So, can you, Aaron, can you maybe talk a little bit about competition trends in the market? And maybe if we focus on the 24 of the top 25 large builders as an example. I think you mentioned today, 80% committed to growing share around this time last year. I think you were talking to north of 85%. I get they're very hard numbers to calculate. But can you maybe use that as an example and if there's any sort of changing trends around competition in that space?
Aaron Erter, CEO
Yes. Lee, it actually is morning here. We're here in Sydney. So, we're right here with you. I would say this, we have more share than we did last year as we started out the year. It continues to grow with the large builders. We've talked traditionally about the top 25. Over the last couple of quarters, I think I've introduced talking about the top 200. So, if we look at the top 200, we've grown from 131 contracts out there to 141 out there. So, we continue to grow and take share with these large builders. We talk a lot about SG&A and the investment there. Some of the investments that we've made are focusing on these top 200 builders. So, we've seen some good return early on when you think about some of these numbers here. The other thing I would say, when we talk about share, we've mentioned trim is a large opportunity for us. So, if I look just the last 12 months and the progress we've made in what is our epicenter of focus market as it relates to Repair and Remodel, the North, we've taken 1% share versus PVC out there in trim. So, we're seeing some good share gains out there with large builders, one of our focus areas in trim, obviously still in Repair and Remodel, but that is a depressed market out there right now.
Lee Power, Analyst
And just maybe as a follow-up, just any change in thinking about the timing of demand creation? Like homeowner leads up 22%, as you mentioned, marketing spend is elevated. I'd be interested in your thoughts around kind of when that should flow through?
Aaron Erter, CEO
Yes. Lee, I know you’re asking when is Repair and Remodel going to recover, right? Look, I think we all had some expectations, a lot of us in the industry that we were going to have interest rate cuts. We talked about it in the spring months ago, now it’s further out if it happens at all in this calendar year. We really look at 4 things as it relates to Repair and Remodel recovery. We look at existing home prices. So, they’re recovering, right? Prices are good, that’s positive for Repair and Remodel. Consumer confidence, it’s recovering. That’s good for Repair and Remodel. Contractor confidence, I would say it’s stable. It’s in positive territory, but not necessarily improving yet. And then I think you’re all aware, and you follow this as well as you look at big-box transactions. Look, it’s in decline, and it’s been in decline, I think, for almost 8 quarters now. So that’s not good for Repair and Remodel. It seems to correlate with some of those big box transactions. You heard one of the largest out there talk about larger transactions being down above the fleet. So – but what I would say, and this is why we continue to invest, right? We’ve talked about all the older homes in the U.S. We talk about people staying in their homes longer. These are all variables that put together make us very optimistic for the long-term growth and the prospect of material conversion from vinyl or other substrates to James Hardie.
Operator, Operator
Your next question comes from Harry Saunders from E&P.
Harry Saunders, Analyst
Firstly, I'm curious about the margin guidance for the full year, set at 29% to 31%. I'm trying to reconcile that with your quarterly averages, which seem to suggest that with a guidance volume midpoint of 763 for the quarter, the margins should be closer to 30% to 32%. Can you clarify this for me?
Rachel Wilson, CFO
Thanks, Harry. A few factors here as we think about margin for the year. I'll start by talking about Aaron's emphasis on continued strategic investment that is around HOS, that is around demand creation. But also in raw materials, I've talked about it in the past, we do expect raw material costs to be higher in FY '25. As you know, our four primary input costs are pulp, cement, freight, and labor; together, they represent about 50% of our variable COGS. And 6 of our top 8 inputs, we do forecast to increase mid-single to double-digit year-over-year. So, that's some of the headwinds we are expecting to face. Additionally, as you work yourself down the income statement, I did talk about the tax rate moving from 23% and we gave you a range of 23.5% to 24.5% at the midpoint of 24%, just to give you a feel for that. If you apply that to last year, it would be worth about $9 million to net income. So, those are some of the factors that we're weighing as we go down. But again, we feel very confident about where we're positioned right now and our PDG position in the market.
Harry Saunders, Analyst
And my follow-up, just I wanted to confirm, there's no lag in the Repair and Remodel end market. So, your calendar year '24 end market guidance could be a little different from your FY '25 for Repair and Remodel?
Rachel Wilson, CFO
Yes, I think it's important to discuss how things have changed since February. While interest rates have been higher for a longer period, the timing of the quarters is also a factor. In the first half of the year, if there are any negative developments, and in the second half, where we expected a positive turnaround, that has now been delayed. Considering our markets and their locations, this is quite significant for us. So when you average out the negative impact of 2%, you need to consider when the recovery is anticipated to occur. For us, this is particularly relevant in our core markets where we can capitalize on that.
Operator, Operator
Your next question comes from Andrew Scott from Morgan Stanley.
Andrew Scott, Analyst
In your prepared comments, you talked about your arrangements with the big builders. And if I'm not mistaken, you said they are unchanged. We obviously saw a little while ago your competitor announce a supply arrangement with Lennar. They're a long-standing customer. I think I'm right in saying when you're only providing sampling to 2 players, they were one of them. Can I just clarify there that you don't believe you've lost any volume and your arrangement with Lennar has not changed?
Aaron Erter, CEO
So Andrew, I'm not here to talk about our competitors. I do respect them. But our relationship, as I said, is unchanged. There's nothing new. Across the top 25 builders, we have relationships and we have an average of 80% share with the top 24.
Andrew Scott, Analyst
And maybe just in light of that, but also your push to increase your share with the top 200 and the big builders. Can you talk to us about that 4% to 5% price increase that was announced January 1? Do you think we should expect that to be delivered on the new housing segment? Or is this given the push into that segment? Is it more likely that that's diluted there and we only see it come through on the Repair and Remodel side?
Aaron Erter, CEO
Yes. I think what matters is we're going to have a positive average sale price, right? I think that's the key thing, Andrew. It doesn't matter where it comes from. We're going to have a positive average sales price this year.
Andrew Scott, Analyst
Well, Aaron, I mean positive is quite different from 4% to 5%. It sounds like you're suggesting substantially less than the full 4% to 5% dropping through?
Aaron Erter, CEO
We roughly have a 4% price, Andrew.
Operator, Operator
Your next question comes from Brook Campbell-Crawford from Barrenjoey.
Brook Campbell-Crawford, Analyst
If you just look at the first quarter FY '25 volume guidance in North America, at the midpoint, it's basically the same, slightly lower than what you've delivered in the March quarter. And the March quarter would have had a pretty light January, I think, because there is pull forward of volume into December and January had some adverse weather, I think, in places like Texas. So, I'm just surprised you're not expecting a seasonal uplift or better volume in the June quarter versus March. And so can you provide a few comments around that, maybe what we're missing here?
Aaron Erter, CEO
I'll give it to Rachel here. You want to take it.
Rachel Wilson, CFO
Yes. Brook, a few points. You're right. It's flat sequentially March Q to June Q. But as a reminder, this is up 2% year-over-year. I mean, I've had a pretty chilly start to the year. So, we feel excited about where we are and we think that's reflective of the environment we're in.
Brook Campbell-Crawford, Analyst
And my follow-up, just around Australia, can you just provide some comments on what you're seeing there in the forward expectations or what your customers are telling you here on demand? Because I guess it looks like that's going to be a drag on earnings in FY '25, given the market softening. So can you provide some comments on volumes or margin expectations for the APAC region in FY '25?
Aaron Erter, CEO
Yes. Brook, what I would say about Australia, it's a very challenging market right now. I think our volumes are projected to be roughly down 5%. But I will say this, we're having success from a pricing standpoint. I think our average sales price is up roughly 9% in Australia. It was in the fourth quarter. So, very challenging right now in the Australian market. I would almost characterize it as being, call it, a year ago what the U.S. faced. But look, our team continues to go out there and take share and have success with the value proposition that we're offering our customers out there.
Operator, Operator
Your next question comes from Daniel Kang from CLSA.
Daniel Kang, Analyst
I just wanted to delve a little deeper on PDG. Your comment on 4% for the FY '25 year, it's still a great number to be positive, but it's a deceleration from the high single digits levels for FY '24, which you quoted. Can you just comment on what you're seeing in terms of, I guess, the competitive landscape to other substrates? Are you seeing an intensification from other materials?
Aaron Erter, CEO
Yes. What I'd say, Daniel, really good question. Look, as we look at PDG, I mean, we equate 4% to 1% market share gain. It is a very competitive market out there. But I think more than anything, it's the macro right now versus the competitive marketplace out there.
Daniel Kang, Analyst
Yeah, I got it.
Aaron Erter, CEO
Yeah. And then, Daniel, I mean, just look, once again, in any market, we have to outperform and we put forth what we think is going to be a challenging market environment, particularly in Repair and Remodel, which is our largest segment. But we feel pretty confident that we're going to be able to go out there and attain that 4% PDG.
Rachel Wilson, CFO
Yes. I mean, I’d like to just pick up a paper and you know what’s happening with pulp right now. Cement has been continuously up, but we did have a bunch of contracts come up in Q4, which we talked about. So, when you think those two in particular, and then I did mention that 6 of our top 8 input costs, we are expecting to increase mid to single and double digits year-over-year. So, this is why we’re really pushing here on costs and really making sure that our programs are tight and also being very disciplined about pricing as we are expecting these headwinds.
Operator, Operator
Your next question comes from Shaurya Visen from Bank of America.
Shaurya Visen, Analyst
Aaron, a question for you. Just some thoughts on your strategy given the competitive landscape. And I know you've previously spoken about it. But I'm just curious, just given your biggest competitor is now suggesting that they're focused on targeting the bigger builders that traditionally has been your market. So, two questions on that. Firstly, do you think the market is large enough for both of you? And secondly, do you expect pricing pressures as you two compete? Any thoughts around that?
Aaron Erter, CEO
Yes. Thank you for the question. Look, I'd say number one, and you hear me talk about this a lot. We're going to focus on what we can control. So, I can't control what any competitors are doing out there. Look, our main competitor in my mind, is other substrates. So that is a very large total addressable market out there, and we feel very, very confident in our ability to go and have material conversion. Look, I would just say this in reference to pricing, and I've said this before, we're not a commodity. We are not a commodity. So, this like-to-like whomever or whatever it may be, becomes a little bit irrelevant when you think about the value proposition that we're offering to our customer partners. So yes, it's a competitive marketplace, but I feel very confident in our ability to go out and win. If you look at the results from last year, the type of PDG growth we had, we feel like in any market, we're going to be able to go out and take share.
Shaurya Visen, Analyst
Rachel, a quick one for you. Just North America, look at your ASP increase for the quarter, which is 4%. Could you give us a sense of the price and the mix within that?
Rachel Wilson, CFO
Our ASP has been 4%, correct, on a year-over-year on a Q4 basis. As we are looking ahead, this is a market where Aaron was saying where is trim going to be, right? And what is the size of some of this. So, we are thinking about mix and Repair and Remodel, as you know, from a gross margin perspective does have a higher and the color has a higher gross margin even if we aren’t equal on an EBIT basis. So again, while mix will be a factor, we are expecting positive ASP as discussed and really feel confident that we will end up.
Operator, Operator
Your next question comes from Simon Thackray from Jefferies.
Simon Thackray, Analyst
Rachel, just a quick one actually, we're going through a pretty decent period of investment as reflected in the CapEx, and the D&A is going to have to move up as we've seen sequentially each quarter in '24. I think it would be helpful just to understand the impact on the EBIT margins on the cash side by getting some guidance on FY '25 group D&A because you've kindly done for CapEx. Would that be possible?
Rachel Wilson, CFO
Yes. We've not provided that guidance at the D&A level, but we have given you guidance about what we have coming on for CapEx, how much we're going to spend. And also, we have quite detailed on our property, plants, and equipment in the 20-F. So that should be one that can be projected.
Simon Thackray, Analyst
So, then maybe just on SG&A expectations either in dollar terms or percentage terms then to '25, given that the group cash spend in the fourth quarter was approaching 12% of revenues. So that would be helpful. Are we to assume we're going to maintain at that level or adjust? Or is it up or down from the fourth quarter run rate?
Aaron Erter, CEO
Yes. Simon, what I've always said is we're going to invest in the business what we need to for long-term growth. I would say if you have to look at it, though, as far as just modeling purposes, it's going to be similar as what you've seen before. That's what I would give with this.
Simon Thackray, Analyst
Can I ask a quick question about something on Page 12? You mentioned that the exterior volume is up low double digits, but the total volume is up 9%. How can I make sense of that? Sorry if this seems obvious, but I'm confused about how the exterior volume can increase in low double digits while the total sales volume only rises 9%.
Aaron Erter, CEO
Yes. I think that interiors would be down significantly more. That's where you're getting that. And it goes to reason when you think about what we talked about from some of the big boxes and some of their transactions, I think it correlates pretty well with that, Simon.
Rachel Wilson, CFO
Look, this is an emphasis of how are we doing in the marketplace. So, there’s PDG, but also there’s a mix of products and just to emphasize that an exterior volume, we are continuing to be very strong here, being up low double digits.
Operator, Operator
Your next question comes from Sam Seow from Citi.
Sam Seow, Analyst
Maybe just following on from Simon there. Aaron, when you took over, SG&A or since you took over, SG&A has probably increased $200 million. And if I annualize that fourth quarter number, it's getting close to $650 million. Just wondering, is there any flexibility in that? Could you bring that down to manage profitability? Or as you think about FY '25, is that fourth quarter exit rate largely what spend might look like irrespective of market conditions?
Aaron Erter, CEO
Yes. Sam, look, a good question. We talked a lot about pedal and clutch, right? So, when we see the need to be able to do that, we can clutch spend particularly a lot of the marketing spend. But look, as I've said before, we're investing in long-term growth. We've talked about the opportunities that we see out there in Repair and Remodel from a long-term standpoint. And we need to be ready, whether that be people, whether that be investment, what we're doing in CapEx, whether that be demand generation. We feel strongly with our strategy that we need to continue to invest in these areas. It's some of these, but it's also areas we've talked about HOS and some investments that we're doing today to ensure scalability but also cost savings in the future, systems, tools, processes, those types of things, Sam. So, we are focused on that. Yes, we can clutch. But for the long-term viability of the business, we believe that these investments we're making right now are the right investments.
Sam Seow, Analyst
So maybe just following on from that. The profitable share gain, the high single-digit is impressive, but largely driven by new housing implying the PDG in Repair and Remodel piece is a fair bit lower. So, my question is basically, is that right? And then after these heavy SG&A investment, what would be a realistic target for PDG in Repair and Remodel specifically?
Aaron Erter, CEO
Yes. Sam, really simply, we don’t talk PDG by segment. As I said before, we’re targeting 4% PDG growth for the year and that’s what we’re focused on.
Operator, Operator
That does conclude our time for questions. I'll now hand back to Mr. Aaron for closing remarks.
Aaron Erter, CEO
All right. Thank you, operator. Appreciate everyone’s time here. Thank you, and thank you to all the James Hardie employees around the world for a great FY ‘24 and looking forward to a positive FY ‘25. Thank you, all.
Operator, Operator
That does conclude our conference for today. Thank you for participating. You may now disconnect.