Executive Summary / Key Takeaways

• James Hardie Industries plc ($JHX) is executing a transformative strategy centered on accelerating material conversion from traditional building materials to its high-performance fiber cement and outdoor living solutions, significantly expanding its total addressable market.
• The recent acquisition of The AZEK Company (AZEK) is a pivotal move, creating a leading exterior home and outdoor living solutions provider and targeting over $500 million in commercial synergies and $125 million in cost synergies.
• Despite challenging North American repair and remodel (R&R) and new construction markets, marked by affordability pressures and inventory destocking, James Hardie is committed to outperforming market demand through its differentiated technology, strong brand, and customer-centric strategies.
• The company's robust cash flow generation, expected to be at least $200 million in FY26 and accelerate thereafter, supports strategic investments in organic growth, rapid deleveraging, and capital returns to shareholders.
• Technological innovation, including ColorPlus and new installation-efficient products, provides a significant competitive moat, driving higher average selling prices (ASPs), reducing labor costs, and expanding market reach.

The Foundation of Resilience: James Hardie's Material Conversion Imperative

James Hardie Industries plc, founded in 1888, has evolved into a global leader in high-performance building materials. While its history spans over a century, the company's significant presence in the North American market, particularly with fiber cement products, has flourished over the last three decades. During this period, James Hardie products now clad an estimated 11 million homes, with an ambitious target to reach 25 million homes by 2035. This growth trajectory is underpinned by a core strategy: aggressive material conversion from traditional substrates like vinyl, wood, brick, and masonry to its superior fiber cement solutions.

The company's strategic focus is deeply rooted in being homeowner-focused, customer, and contractor-driven, aiming to deliver winning solutions across the entire value chain. This approach has enabled James Hardie to establish itself as the number one siding brand in North America, a testament to its differentiated product offerings and market execution. The company's localized manufacturing network is a critical competitive advantage, providing unrivaled business support and flexibility to its largest and fastest-growing customers.

Technological Edge: The Core of James Hardie's Competitive Moat

James Hardie's competitive advantage is significantly bolstered by its differentiated technology and continuous innovation. Its fiber cement products are renowned for "unmatched resilience and beauty," serving as a "frontline defense against the elements, moisture, pests and fire". This inherent durability provides a compelling value proposition, particularly when compared to traditional wood-based or vinyl alternatives.

A prime example of this technological leadership is the ColorPlus offering. This product comes pre-finished using proprietary technology, offering a "virtually limitless range of color options" and is "engineered for climate". The tangible benefits for customers are substantial: ColorPlus provides "superior aesthetics, customization and durability," alongside "time and cost savings," which are particularly attractive in areas with labor constraints and high painting costs. For homebuilders, ColorPlus helps "expediting the sales cycle and supporting the ASP" for their homes, as builders utilizing James Hardie ColorPlus are "selling homes faster and for more money". This innovation has translated into strong financial performance, with single-family ColorPlus volumes demonstrating double-digit growth in both Q3 FY25 and year-to-date, and a high-single-digit compound annual growth rate (CAGR) in the Northeast and Midwest R&R markets over the last five years, even amidst flat or declining market conditions.

Beyond ColorPlus, James Hardie is actively developing new solutions. The Hardie Architectural Panel is strategically targeting material conversion wins against brick and stucco, adding incremental growth opportunities. In the Midwest, the company is piloting innovative products within its Statement Collection designed to "reduce install time and thereby labor costs," with "early results continue to be highly encouraging". These initiatives are expected to "unlock a much larger range of addressable homes at more affordable price points". In Europe, the Therm25 fiber gypsum flooring product has garnered industry accolades, including the Plus X Award, for its "innovation, quality, functionality, ergonomics and sustainability". These R&D efforts, led by the global innovation team, contribute directly to James Hardie's competitive moat, enabling higher ASPs, lower installed costs, expanded addressable markets, and sustained market outperformance.

Expanding Horizons: The AZEK Acquisition and Competitive Dynamics

A transformative event for James Hardie was the completion of its acquisition of The AZEK Company on July 1, 2025. This strategic move created a "leading provider of exterior home and outdoor living solutions," significantly expanding James Hardie's product offering and strengthening its customer value proposition. The combined entity is now positioned to capture material conversion opportunities within a total addressable market more than twice the size of legacy James Hardie.

In the competitive landscape, James Hardie holds a leading position in the North American siding market, including exclusive partnerships with top homebuilders and trusted relationships with professional contractors. The company currently supplies approximately 80% of all hard siding to homebuilders constructing over 100 homes per year.

Comparing James Hardie to its key direct competitors reveals distinct advantages and strategic positioning:

• Owens Corning (OC): While Owens Corning offers a broader portfolio including insulation and roofing, James Hardie's fiber cement products are "notably more resistant to moisture and pests" and offer specialized durability, providing a distinct edge in product longevity and performance. James Hardie's operational execution in fiber cement production also suggests potential advantages in supply chain efficiency.
• CRH plc (CRH): CRH plc, a large diversified building materials company, operates at a greater global scale. However, James Hardie's fiber cement products are designed for high-performance applications, potentially offering "easier installation and lower maintenance requirements" compared to some of CRH plc's broader offerings. James Hardie leads in specialized product performance for residential construction, while CRH plc excels in overall market share capture through diversification.
• Louisiana-Pacific Corporation (LPX): Louisiana-Pacific Corporation focuses on engineered wood products. James Hardie's fiber cement offerings provide "superior resistance to fire and insects" compared to Louisiana-Pacific Corporation's wood-based products, a critical differentiator in safety and durability for exterior applications. James Hardie leads in technological advancements for long-term product performance, while Louisiana-Pacific Corporation may have cost advantages in wood sourcing.

The AZEK acquisition directly addresses James Hardie's previous vulnerability in product diversification. By integrating AZEK's leading Deck, Rail & Accessories business, James Hardie now offers a comprehensive exterior solution, enhancing its value proposition to existing customers and attracting new ones. This expanded portfolio, combined with James Hardie's presence in nearly five times as many dealer locations as AZEK previously, creates significant runway to expand AZEK's shelf presence and drive commercial synergies.

Financial Performance and Outlook Amidst Headwinds

James Hardie's financial performance in fiscal year 2025 demonstrated resilience despite a challenging macroeconomic environment. The company achieved $2.9 billion in North America sales and $1 billion in EBITDA, resulting in a robust 35% EBITDA margin. Consolidated adjusted net income for FY25 reached $644 million, exceeding initial commitments.

However, the first quarter of fiscal year 2026 (Q1 FY26) presented a more challenging picture, largely as anticipated by management. Total net sales were $900 million globally, a 9% decline from the prior year's strong quarter. Adjusted EBITDA for Q1 FY26 was $226 million, with a 25.1% margin, representing a 21% decline year-over-year and a 370 basis point margin decrease. North America net sales declined 12% due to lower volumes, partially offset by a 3% increase in average net sales price (ASP). North America adjusted EBITDA was $206 million, with a 32.1% margin, down 400 basis points, primarily driven by lower volumes, unfavorable cost absorption, and persistent raw material inflation, particularly from pulp.

Management attributed the volume declines to an "expected normalization of channel inventories" due to moderating growth expectations and "more defensive inventory posturing at distributors and dealers". This destocking trend is expected to continue into Q2 and Q3 FY26, particularly impacting the South, where single-family new construction has seen "outsized pressure from affordability and elevated home inventories".

Despite these headwinds, the AZEK business delivered a strong June quarter, exceeding its previous guidance, with Deck, Rail & Accessories (DR&A) achieving mid-single-digit sell-through growth. This demonstrates the resilience of the decking category and the strong value proposition of AZEK's products.

For the full fiscal year 2026, James Hardie has issued comprehensive guidance incorporating the AZEK acquisition:

• Siding & Trim Segment (North America): Net sales are projected to be between $2.675 billion and $2.85 billion. Market demand is expected to decline by "high single digits" due to ongoing affordability pressures and macroeconomic uncertainty.
• Deck, Rail & Accessories Segment: Net sales are expected to be between $775 million and $800 million for the next nine months, with sell-through growth assumed to be in the "low single digits".
• Total Company Adjusted EBITDA: Expected to be between $1.05 billion and $1.15 billion, including an estimated $250 million to $265 million contribution from AZEK. This corresponds to an adjusted diluted EPS of $0.75 to $0.85.
• Free Cash Flow: Anticipated to be at least $200 million in FY26, an acceleration from FY25's $380.6 million, driven by profitable growth, working capital management, and reduced capital expenditures.
• Capital Expenditures: Expected to decline to approximately $400 million in FY26, including $75 million for AZEK, as major capacity projects like Prattville Sheet Machine 3 and Westfield ColorPlus facility are now complete.

The company is committed to achieving $125 million in cost synergies over three years from the AZEK acquisition, with over 50% of general and administrative savings already actioned, expected to provide $20 million in P&L benefit in the latter half of FY26. Commercial synergies are targeted at over $500 million in under five years, with early wins already observed through cross-selling and expanded partnerships.

Risks and Strategic Responses

James Hardie faces several pertinent risks. The primary challenge remains the "challenging demand in both repair and remodel and new construction in North America," with "uncertainty" being a common theme. Homeowners are deferring large remodeling projects, and affordability issues continue to impede single-family new construction. This has led to "weaker than anticipated" activity and "more cautious order patterns and defensive inventory positioning" at channel partners. Furthermore, the anticipated benefits from homebuilder exclusivity wins and new product launches are conservatively expected to materialize more in FY27 and beyond, rather than the back half of FY26. Raw material inflation, particularly in pulp and cement, also poses a persistent headwind to margins.

James Hardie's strategic responses to these risks are multi-faceted. The company employs a "pedal and clutch" approach to manage expenses while continuing to invest in long-term growth initiatives. The Hardie Operating System (HOS) is ingrained in the company's culture, driving continuous improvement and cost savings across manufacturing, procurement, and administrative functions, which is expected to largely mitigate high single-digit raw material inflation in FY26. The localized manufacturing network provides flexibility and high service levels to customers, a critical advantage during periods of cautious inventory management. The AZEK acquisition, while adding debt, is expected to drive rapid deleveraging, with a commitment to reach net leverage at or below 2x within two full years post-close.

Conclusion

James Hardie Industries plc is at a pivotal juncture, strategically expanding its market reach and product portfolio through the transformative AZEK acquisition. Despite facing significant near-term headwinds in the North American housing and remodeling markets, the company's core investment thesis remains robust, anchored by its relentless pursuit of material conversion, technological leadership, and a deeply ingrained customer-centric strategy. The integration of AZEK is progressing ahead of schedule on cost synergies and already demonstrating early commercial wins, underscoring the long-term value creation potential.

While investors must acknowledge the ongoing market uncertainties and the impact of inventory adjustments on near-term volumes, James Hardie's commitment to outperforming market demand, coupled with its disciplined capital allocation and strong cash flow generation, positions it for accelerated growth as market conditions recover. The company's differentiated fiber cement technology, continuously enhanced through R&D, provides a durable competitive advantage that drives superior product performance and value across the building products industry. James Hardie's strategic vision, operational excellence, and expanded product offering through AZEK create a compelling narrative for sustained market leadership and shareholder value in the years to come.