James Hardie Optimises Manufacturing Footprint to Strengthen Cost Base

About James Hardie Industries Plc

James Hardie Industries plc (ASX: JHX) is a global leader in exterior home and outdoor living building products, supplying fibre cement, fibre gypsum, composite and PVC decking and railing solutions to residential and commercial markets. While incorporated in Ireland, the company maintains a strong operational and market presence in Australia and New Zealand, alongside its largest exposure in North America. Its portfolio includes well-recognised brands such as Hardie, TimberTech, AZEK Exteriors, Versatex, fermacell and StruXure, with products designed for durability, climate resilience and aesthetic appeal.

Over the past several years, James Hardie has pursued a strategy focused on operational excellence, disciplined capital allocation and product innovation, underpinned by the Hardie Operating System. As market conditions evolve and cost pressures persist across construction and manufacturing sectors, the company has continued to review its asset base to ensure it remains aligned with long-term growth objectives. The latest announcement to rationalise elements of its North American manufacturing footprint reflects this ongoing focus, aiming to enhance efficiency while maintaining capacity to support customer demand and future expansion.

Details of the Manufacturing Optimisation

James Hardie confirmed that its manufacturing facilities in Fontana, California and Summerville, South Carolina will cease manufacturing operations within the next two months. Together, these facilities account for around 6 per cent of the company’s year-to-date North American production volume. Importantly, the company has stated that all affected production will be absorbed by its remaining manufacturing network, which has undergone significant modernisation in recent years.

The decision follows a comprehensive review of James Hardie’s manufacturing footprint, with management determining that production volumes can be more efficiently handled by newer, advanced facilities. While manufacturing operations at the Fontana site will cease, the company’s Innovation and Research & Development functions at that location will remain in operation, preserving its role as a centre for product development and technical expertise.

Chief Executive Officer Aaron Erter emphasised that the decision was not taken lightly, acknowledging the contribution of employees at the affected sites while highlighting the strategic importance of strengthening the company’s cost structure and productivity.

Financial Impact and Cost Savings

The optimisation initiatives are expected to generate annualised cost savings of approximately US$25 million, commencing from the first quarter of fiscal year 2027. These savings are anticipated to arise primarily from reduced fixed costs and improved utilisation across the remaining manufacturing facilities, reflecting higher throughput at modern plants with superior efficiency profiles.

James Hardie also outlined that the actions are incremental to any cost synergies expected from the recently completed AZEK acquisition, indicating that further operational benefits may be realised across the broader group over time.

To implement the changes, the company expects to incur one-off pre-tax charges in the range of US$40 million to US$44 million. These costs will relate largely to employee severance and transition arrangements, contract termination and facility exit costs, along with asset impairments and other non-cash items. The charges are expected to be recognised primarily in the fourth quarter of FY26 and will be split approximately evenly between cash and non-cash impacts. Further details are expected to be provided at the upcoming third-quarter earnings call.

Reaffirmation of FY26 Guidance

Alongside the announcement, James Hardie reaffirmed its previously issued guidance for both the third quarter and the full fiscal year 2026, originally provided with its second-quarter results in November 2025. This reaffirmation suggests that management does not expect the manufacturing optimisation to disrupt near-term earnings performance or customer service levels.

By maintaining guidance, the company has sought to reassure investors that the closures are a proactive efficiency measure rather than a response to weakening demand. The reaffirmation also underscores management’s confidence in the underlying strength of the business and its ability to execute structural improvements without compromising short-term financial outcomes.

Strategic Context: Hardie Operating System

The footprint optimisation aligns closely with James Hardie’s broader Hardie Operating System, which focuses on continuous improvement, lean manufacturing principles and disciplined execution across operations. Over recent years, the company has invested heavily in modernising its manufacturing base, upgrading equipment and improving material conversion processes.

By consolidating production into more efficient plants, James Hardie aims to improve asset utilisation, enhance manufacturing flexibility and create a more resilient supply chain. These initiatives are particularly relevant in an environment characterised by labour constraints, energy cost volatility and ongoing pressure on construction affordability.

Industry and Market Environment

The global building products sector continues to navigate a mixed operating environment. While long-term demand drivers such as population growth, renovation activity and climate-resilient construction remain supportive, near-term conditions are influenced by interest rates, housing affordability and regional construction cycles.

In North America, James Hardie’s largest market, demand for exterior and outdoor living products has proven more resilient than some interior categories, supported by renovation and repair activity. At the same time, manufacturers face ongoing input cost pressures and the need to invest in sustainable and efficient production.

Against this backdrop, proactive manufacturing rationalisation is increasingly viewed as a strategic lever to protect margins and fund future growth initiatives.

Outlook

Looking ahead, James Hardie enters the second half of FY26 with a clearer path to improved cost efficiency and a manufacturing footprint better aligned with long-term demand. While the company will absorb one-off costs in the near term, the anticipated savings from FY27 are expected to strengthen earnings resilience and support reinvestment in innovation and growth.

Management remains focused on delivering sustainable value through disciplined execution, leveraging its strong brand portfolio and market leadership in exterior building solutions. Continued emphasis on operational excellence and customer service will be key as the company navigates evolving construction markets.