Aaron Erter: Yeah. And when I say not performing as well, it’s all relative. Again, talking specifically about North America, again, we have a terrific team. So they really are bringing solutions to our customer partners. And if you think about the difficult environment, whether you’re an R&R, whether you’re a new construction, you need a partner that can bring you value. And that’s what we’re bringing out there to our customers in each one of those segments out there. But look, we were down 5%. If you look at our volumes, we would say R&R in general, was down mid-teens is what some of the external advisers have been telling us if you look at some of the studies out there. And then new construction down 14%. So even with that, you can see our strong performance.
Now region by region, you did mention Texas, and that is relatively strong because it’s been buffered by new construction. That’s where a lot of the new construction is going on there. And then if I look at an area like the Pacific Northwest, that is us having the right proposition that we didn’t have before and going out and taking share from a competitor, plain and simple.
Operator: Your next question comes from Simon Thackray from Jefferies.
Simon Thackray : Rachel, just on some basic math. The company free cash flow generation looks again pretty formidable and looking at on an annual run rate, maybe $400 million of free cash flow after the CapEx. You’ve announced $250 million buyback. So I’m sort of confused why you need a $300 million term loan when you got the free cash flow generation. You paid out the $140 million revolver. I get that. Why do you need to term-out 5 years worth of debt for $300 million when you’re generating that kind of cash flow, just out of interest?
Rachel Wilson: So the first thing you rightly know, we paid down $140 million of revolver with the term loan. As it tells you, our term loan is at SOFR plus 2%. So this is very attractive money for a locked-in 5-year and we are a growth company. So as you think about being a growth company, having cash on the shelf for that very accessible cash is very appropriate for where we are in being a growth company. And we can support that organic growth. And as you can see, we also can do an and. In this case, we just announced a new $250 million share repurchase program on the heels of completing the $200 million share repurchase program, $200 million is equivalent of just under 2% of our shares outstanding. So again, I think we’re taking a balanced approach as we think about our capital allocation and return capital structures.
Simon Thackray : No, I get that. But the HOS system that you’re talking to Aaron delivers you another $160 million of pretax improvement plus working capital is another $100 million you’re talking about. I mean you got cash coming at you at your ease. I’m just trying to really understand is there something else that I should be thinking about? I know you’re saying you’re a growth company. I mean, is that acquisition? Is that capital allocation over and above the existing CapEx envelope? Is it capacity coming on faster we should be thinking about. Trying to really understand the logic of that, given the strength of the numbers you’re putting out there and the way you’ve structured that finance facility.
Rachel Wilson: Yeah. I’m going to start back with the first comment is why are we generating so much cash? We have great margins, right? And our great margins are a hallmark of James Hardie, but we’re in a cyclical business. So the combination of being in a cyclical business means what is that insurance policy and what does it cost you? And SOFR plus 2%. And again, I paid down our revolver, so not being kind of lazy with the cap structure. It does feel appropriate to support the growth ahead.
Operator: Your next question comes from Peter Steyn from Macquarie.
Peter Steyn: Aaron, just a quick question on SG&A. So you’re clearly picking that up fairly materially at [indiscernible], hopefully is the low end of the cycle. Could you talk to us a little bit about some of the benefits that you’re seeing there, what you’re specifically investing in, also picking up that comment about in the strategy about connecting and influencing all participants in the value chain. Where it is that you’re investing and what the impacts have been? Because clearly, that is coming through in bucket loads from a volume perspective?
Aaron Erter: And I think you’ve really seen this ramp-up of SG&A over the last couple of quarters. And as we look to Q3, we expect it to be similar to what we’re seeing here now or what you just saw in Q2. Look, it supports our strategy. I’ve said this over and over, customer-focused. When I think about our strategy, homeowner focused customer and contractor driven. So more recently, I think you’ve heard James already talked just about the homeowner, right? And the focus has been really on media, namely Magnolia Home. We think that we need to do more than that when we think about the value chain. So as recently, we’ve been investing in media, but it’s been targeted at media where we think it goes across our entire value chain.
So that is homeowners, that’s customers and contractors. And really, I brought this term into play of our marketing tent-poles out there. And it’s really a few key areas that we think about from a marketing perspective that we’re going to invest in. So if you think about the builder and contractor, we think about the brand-based events. We think about our contractor alliance program. Also, we’re getting more prescriptive as it relates to regional marketing, and that can include sponsoring local sports teams. So it really covers the gamut of that homeowner focused customer and contractor driven. One of the things that I look at is the share gains that James Hardie has been able to achieve over the last 10 years. And I think we shared that, it was some census data.
And we achieved 8% share growth over the last 10 years out there from 15% to 23%, and this was really centered around new construction. What I’m really excited about, if you look over those last 10 years, we didn’t do much of this at all, right? So if we think moving forward and you look at this investment, we expect this to accelerate our share gains. And look, it’s only been 2 quarters, and I think you have to judge us on an annual basis, but we are taking share, and we sit here with a year gone by, I think it will be a worthwhile investment. So early days, but that’s why we’re doing it, Peter.
Peter Steyn: And then just turning to new construction, obviously, an area of significant focus for you this year. Could you comment on what you’ve experienced in terms of the entire proposition being pulled through. So beyond just plank, what you’ve seen in trim and other products that have contributed to the overall profitability of the portfolio in the context of new construction.
Aaron Erter: Yeah. Look, in new construction, I would just say this. We’re bringing the solutions that our customers need and value, right? So new construction and as we partner with our large builder customers, it’s very, very competitive out there. I think we’ve talked about it before. Part of the reason they’re doing so well is there’s not existing homes out there for people to buy. So they have land and they’re building on them. And one of the things that they have the advantage of doing because they have such a strong balance sheet as they’re buying down rates. Usually, the magic number is sub-5% from an interest rate standpoint out there, and they’re getting traction there. And this is really the large builders out there.
