James Hardie Industries PLC (ASX: JHX) shares are jumping on Tuesday morning.
At the time of writing, the building materials company's shares are up almost 9% to $27.63.
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Why are James Hardie shares jumping?
Investors have been fighting to get hold of the company's shares this morning after it released its second quarter update.
According to the release, James Hardie posted a 34% increase in net sales over the prior corresponding period to US$1,292.2 million. This was driven by the inclusion of the recently acquired AZEK business, which offset a 1% decline in organic sales during the quarter.
Also growing strongly during the quarter was its adjusted EBITDA, which lifted 25% to US$329.5 million.
Things weren't quite so positive on the bottom line, with James Hardie posting a net loss of US$55.8 million. This reflects AZEK acquisition related expenses of US$130.3 million, a lower gross margin, and higher SG&A expenses.
With respect to its gross margin, management advised that it decreased 6.2 percentage points largely due to a US$47.9 million inventory step-up adjustment related to recording the acquired inventory of AZEK at fair value. Additionally, its legacy North America fibre cement business had a lower gross margin during the period.
On an adjusted basis, the company's net income was down 2% over the prior corresponding period to US$154 million.
What drove this result?
Commenting on the quarter, James Hardie's CEO, Aaron Erter, said:
Our second-quarter results were consistent with what we shared in early October, with Siding & Trim outperforming the modeling considerations we provided in August. The environment remains challenging, requiring us to address market conditions with focus and adaptability. Siding & Trim saw a modest decline in organic net sales in the quarter, and lower manufacturing utilization in our legacy North America operations impacted our margins.
We are targeting actions to improve manufacturing costs while continuing to enhance efficiency through the Hardie Operating System. Deck, Rail & Accessories delivered mid-single-digit growth in both net sales and sell-through ahead of stable market demand, demonstrating our ability to drive material conversion through channel expansion and new product initiatives.
Mr Erter also spoke about the AZEK acquisition. Pleasingly, it is performing better than expected and its cost synergies are ahead of schedule. He adds:
The AZEK business is performing well and is surpassing our expectations. On the integration front, we have made solid progress bringing the two companies together and have exceeded our FY26 cost synergy target ahead of schedule. On the commercial side, we have captured early wins with several dealers, contractors and homebuilders, demonstrating our potential to drive accelerated material conversion across exteriors and outdoor living.
Our confidence in the combination of James Hardie and AZEK has strengthened as we have seen customers respond to our differentiated products, leading brands, focus on innovation and continued investment across the value chain.
Guidance upgrade
Giving James Hardie's shares a major boost today has been management's upgraded guidance for FY 2026.
It has lifted its sales estimates and earnings guidance for the 12 months. The latter sees management targeting adjusted EBITDA of US$1.2 billion to US$1.25 billion in FY 2026. This is up from its previous guidance of US$1.05 billion to US$1.15 billion.
Commenting on its guidance, Erter said:
For Siding & Trim, we've seen more stable market conditions and normalized inventory levels than we had embedded in our prior outlook, giving us the confidence to modestly raise full-year guidance for the segment. We continue to expect the Exteriors market to be challenging in the near term, and have reflected that assumption in our updated Siding & Trim guidance range.
For Deck, Rail & Accessories, we saw mid-single digit sell-through growth continue in Q2 and into October, and we anticipate inventories held by our channel partners will remain at seasonally normal levels through the balance of our fiscal year.
