Q1 2020 Earnings Call
Ladies and gentlemen, thank you for your patience to be could conference calls we'll begin shortly again, thank you for standing by.
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This call will contain forward looking statements including statements.
Plans and objectives and future economic performance forward looking statements are only predictions and are subject to a number of risks and uncertainties. Therefore actual results may differ differ materially from those indicated by such forward looking statements as a result of various important doctors, including but not limited to those set forth in the risk factor section of the company's latest form 10-K.
These forward looking statements fall within the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995 regarding future events in the future financial performance of the company, including the Companys financial outlook.
Forward looking statements contained in this call are based on information as of today, WH third 2020, and except as required by law. The company undertakes no obligation to update or revise any of these forward looking statements.
Finally, this call will contain references to certain non-GAAP measures reconciliation of these non-GAAP measures is set forth in today's press release. The company has posted a summary financial slide presentation on the best investors section of its website under events and presentations that will be reference during management's review financial results.
On the call today for Beacon will be Mr., Julian Francis President and CEO and Mr., Joe No Wickey executive Vice President and CFO I would now like to turn the call over to Mr., Julian Francis President and CEO. Please proceed mr. Francis.
Thank you Josh and good evening, everyone welcome to our first quarter 2020, <unk> earnings call.
Following the completion of my first full quarter is beacon CEO I'm excited to share our progress against the goals we've set for ourselves.
It was a few comments about Q1, and then get right into a strategy review update before passing to Joe financial details and fiscal years 2020 guidance.
I'm pleased to abroad to first quarter inline with our expectations, despite a weaker market environment, both sequentially and year over year.
We talked on our last pool, they seasonally difficult comparisons due to year ago relief demand associated with Hurricanes. So although sales were down we believe we tracked with the market.
We also talked about expecting in a bag flat gross margin play fall sequentially. During the first quarter period with cat results, representing good performance during a quarter that typically see sequential decline in that metric.
We outperformed on this the gross margins are 24.5% in the first quarter, which is up marginally compared to Q4 29 team.
I'm pleased to our ability to execute on a critical indicator that we focused on.
I was also pleased to see growth in all commercial roofing blues business, where the second consecutive quarter of year on year growth. Although modest this represents a positive trends in an important part of our exterior products business, but he recently underperformed.
Our adjusted operating expenses came in higher than anticipated on additional health Tech costs I know the timing related expenses, Joe will elaborate on these in his comments.
In summary.
One represented performance in line with our expectations.
Particularly encouraged with our gross margin progress, although there is clearly improvement to be made in many areas.
Now, let me talk about the strategic will it be doing which is really what will drive our future performance.
On the last fall, we signaled a strategic shift is underway with a pivot from large scale acquisition integrations to focus on our current operations.
The recent history of our company has been acquisitions any growth.
It's been important for us to build scale in order to establish our competitive position for the future.
Going forward.
Scale represents competitive advantage that we must capitalize on to enable us to grow faster than the market.
By investing in sales and service models that benefit all customers so that they choose to make us that preferred supplier we can outperform.
They will also enable us to use our assets more efficiently and control our expenses to drive operating leverage.
With Beacon is most successful we differentiate our offer with strong customer relationships and an ability to sit the unique needs every day.
We also builds from partnerships with suppliers, who rely on us to position that products advantageous, leaving the market supporting innovation and product and service to benefit our customers.
We were able to provide value to our customers with strong supplier partnerships, we create opportunities for us to grow together.
So the beacon becomes a significantly different distributor from others and the distributor of choice, we are increasing customer interaction improving operations partnering with our suppliers and differentiating our service proposition.
The strategic review why launched upon joining beacon is focused on improving the sales and operating performance I don't know networks have been exterior and interior branches and enhancing the overall customer experience using our scope and scale to differentiate our offering in the market.
While the review is not yet final we've moved ahead on several fronts.
The strategic review work is making clear to me that is beacon integrated 40 companies over the years, we've missed some opportunities.
Now with major acquisitions behind US, we are determined to grow organically and expand our position.
It is critical that our sales team is more active in the marketplace asking for orders and following up with the service in order to drive topline growth.
As I mentioned on our last fall, we have the opportunity to grow our residential and commercial customer lists organically.
From my first stays with the company I've been impressed with the teams drive to win.
Committed to developing their skills and increasing customer interactions and we will provide tools to support them.
Will expand the use of advanced analytics and pricing tools to segments have customer base and target the most profitable opportunities.
The development and deployment of these tools is underway and I believe will enhance our capabilities ensuring consistency in our execution.
Last month, I had the opportunity to announce on new branding out or anyone managers meeting.
It was exciting to share that we are unifying our company under the Beacon building products brand to reflect a portfolio of exterior and interior sola and weatherproofing products.
This move reflects our ability to supply customers with a broad range of both residential and commercial building products and the unique service offering across North America.
Beacons customers will benefit in many ways.
Our research has shown that as customers expand their businesses. The ones are recognized and trusted partner, who makes it simple for them to grow across the region or across the country.
On a local level customers want to do business with a no market leader they can rely on.
Internally. This is a new chapter for employees, who all know proudly represent beacon from coast to coast.
Teams already rallying around a common brand in common goals.
Well the 40 legacy company names have had an important role in our history and success. There is shared belief in the value of coming together to better serve our customers.
I also talked previously about operational performance and how they tend to think about our branch network in Quintiles.
All branches have operational improvement opportunities that are being addressed continuously.
We have intensified our focus on the bottom quintile.
Each branches unique, but often has common cause for underperformance, such as footprint market access and operational capabilities.
To improve the profitability of these locations. We are beginning to have indepth reviews, among local region and koeppen corporate leadership to determine the appropriate actions and established plans, but each individual location.
Well, it's important to recognize these changes won't occur overnight.
We have developed an executed against the plan, we do see upticks in core metrics.
I believe there is an opportunity for mid single digit improvement in operating income from these branches alone, resulting in $30 million to $60 million in incremental annual adjusted EBITDA performance.
[noise], capturing this as well as improved performance at the remaining 400 plus branches is a core strategic imperative that will yield significant improvements over current results.
We've also been reviewing how to capitalize on a market scale and scope to enhance and differentiate us service offering.
Ultimately our ability to serve customers in a way that brings more value to them is how we differentiate ourselves in the market.
Our operating model is one that puts customization market at the center about business by networking branches together in major m. essays to be more responsive.
This network now called beacons on time, and complete or Mtc network. She is inventory fleet of equipment and employees in a manner that materially raises customer service.
Our network Central Dispatch Phase is now live in city markets with more than 20 additional markets planned for the remainder of Twentytwenty.
The results are very encouraging.
Aside from the customer service benefit we have seen average delivery miles declined by 12% in Q1 year over year.
Inventory metrics are also showing improved results with approximately an additional fulton achieved in 14 of our more mature T C markets.
We will open a hub location in the important Denver market in Q2.
Identified 10 to 15 additional areas that could best utilize this customized comp concept over the next several years.
We believe there is an opportunity to 450 to 100 million positive impact on inventory balances from the more efficient tunes. In addition to cost savings associated with a more efficient use of our assets.
Finally, I will highlight our continued commitment to transact with customers the way they prefer.
The that our sales cancer by phone or online.
What we do see is that their adoption of our digital solution continues to grow.
We've talked previously about a 1 billion dollar annual goal for E Commerce sales.
I see the majority of our customers wanting to conduct at least a portion of that business with us in a digital fashion.
There is currently a window for us to create preference for our digital solution, which we believe translates to improved customer retention.
Customers also order logic baskets with an improved mix of products on the Beacon Pro plus platform.
We are targeting to exceed 10% of sales on Beacon Pro plus this fiscal year up from mid single digits last year.
We are the clear leader in this value added area.
Investing and upgrades and expanded functionality to maintain that leadership.
As an example, this month, we are launching Beacon pro plus Fry interiors customers.
Being able to utilize our solutions through every aspect of a jobs lifecycle, including quoting ordering and final payment is a unique distinction from our competitors.
In summary.
Our strategic review is not yet fully complete but I believe it is uncovering the true potential of beacon to grow both top and bottom line.
Our scale advantage will allow us to expand margins by improving our sales and service model.
Reduce costs to serve buyer efficient use of our assets and generate more cash through inventory optimization and improved financial performance.
Our strategy so designed to help our customers build more with superior service levels throughout the contractor lifecycle I.
Im enthusiastic about what the future holds.
I'll now pass the call over the Joe to provide additional details on the first quarter and our view of 2020.
Thanks, Julien and good evening everyone.
First I'll provide additional color on our quarterly results and then I'll conclude with details on our fiscal 2020 outlook.
Overall organic daily sales decreased 2.7% during the fourth quarter.
Appeared is 62 selling days the same number is the prior year quarter.
As we highlighted during our last quarterly call.
The year gone Hurricane impact I did Burma.
Michael in Florence made for challenging quarterly comparisons within our mid Atlantic in southeast regions.
These two regions were down 14% in 5% respectively during the quarter.
It's important to note that organic growth growth in our five geographic regions honest effected by Hurricane comparisons was essentially flat during the quarter.
Total residential roofing recorded a 4.1% sales declined in the first quarter levels, we believe to be in line with the overall distribution market.
We delivered much stronger performance when excluding the two hurricane impacted regions.
In the five other regions the residential roofing increased 3.5%.
Volume growth, we view is more indicative of core demand during the quarter.
Commercial roofing generate positive daily sales growth for the second consecutive quarter.
We believe this accomplishment represents a significant positive for beacon following four quarters or the sales decline.
Our Q1 results are also more consistent with the overall market growth rate, providing further evidence that the disruptive elements associated with beacons large acquisitions are increasingly behind us.
An important part of a commercial roofing strategy involves our dedicated commercial sales centers.
As a refresh these centers handle all commercial roofing needs at a single location, including quoting engineering projects support in order fulfillment.
We're currently at 27 locations and have plans to add to this over the coming quarters into eventually operate the smile at all major M. essays.
In some cases, we've opted to use one of our existing branches in dedicated entirely to commercial roofing.
But in other locations the operations a carve out within an existing branch structure.
We see this approach is providing a more efficient operating model for commercial roofing customers and also one that closely aligns with our broader Otcs network.
Complimentary product sales declined 3.1% in the quarter.
The result of modest volume declines.
And deflationary pricing in select categories, including steel studs lumber in wallboard.
As a reminder, complementary products are more cyclical than roofing.
With higher exposure to both new construction and discretionary spending.
Single family starts were Soc earlier in the year in only began to recover in the September quarter.
Consistent with our traditional lag relative to starts.
We also began to see volume declined stabilized in the quarter.
This trend bodes well for future quarters.
Now I want to speak about our first quarter margins.
As Julian noted we're pleased to produce a 20 basis point gross margin increased sequentially.
The gain was entirely tied to an improvement in price cost execution.
As a historical reference point seasonal declines MGM, our normal between Q4 in Q1 in fact during the past five years, we've averaged 30 basis point decline. This further highlights are GM accomplishment for the quarter.
We've been working diligently to recover from the price cost impacts of the spring summer 2019, inflationary environment that was coupled with lower demand.
Well, we're not where we want to be with gross margins were certainly moving in the right direction in the first quarter performance raises our confidence for the second half fiscal 2020 margins.
Adjusted operating costs were 342.1 million up from 336.4 million in a year ago quarter.
The year to year increase is primarily due to incremental investments in our fleet.
Coupled with the shift in timing and other expense items.
Increasing fleet investments is a key focus for beacon and supports our industry leading service levels.
The new capital expenditures made at the end of last year resulted in higher depreciation expense in the current quarter.
Additionally, we incurred higher than anticipated timing related costs for some fleet repairs health care cost and customer specific event expenses that we did not believe will repeat at the same level going forward.
It's also important to note that the cost actions, we took in the fourth quarter helped to substantially reduce the inflationary pressures, we experienced on our wages and facility costs.
We remain committed to driving positive adjusted operating leverage over the remaining quarters of 2020, and we'll get there through our overall focus on continuous improvements coupled with the strategic initiatives around LTC and branch operational improvement that Julian previously reviewed.
Now moving onto the balance sheet and cash flows.
With excellent cash flow performance during the first quarter with operating cash use improving by more than 200 million year over year.
Driven both by timing related factors and performance improvement.
In addition, I'd highlight that our total debt declined more than 300 million versus the prior year quarter.
For fiscal 2017 to fiscal 2019 Beacon has averaged more than 300 million annually in free cash flow or operating cash flow less capital expenditures.
And during the most recent trailing 12 month period, we continue to repeat this solid performance with 367 million or free cash flow.
This type of execution has been a hallmark for beacons since our IPO and Weve regularly posted positive operating cash flow during our time as a public company.
We believe this remains an important differentiator for us.
To summarize our first quarter, we recorded a very important sequential improvement in gross margins along with a significant year to year reduction in total debt.
And geography is not impacted by hurricane comparisons we saw more stable sales performance in our overall sales growth rates were inline with the market.
Let us I want to provide our 2020 expectations.
We're comfortable with the current range of the streets sales and adjusted EBITDA estimates for fiscal 2020.
We continue to forecast flat full year market demand and believe we will modestly outperformed the overall market.
We expect the market to be driven by lower storm demand offset by higher repair and remodel and increased new construction.
During our last call, we emphasize that the year would unfold in two parts.
A softer first half as a result of lower hurricane demand.
And a much stronger second half on improving repair and remodel and new construction.
Within that flat market environment, we're still confident the second half will deliver year to year adjusted EBITDA gains.
Hi, a higher gross margins that are result of a lesson flushing, there inflationary environment in higher demand.
And also favorable operating cost leverage driven by the initiatives. We previously reviewed.
One final comment related to the rebranding announcement the Julian discussed.
We wanted to remind you that the relevant cost information was all outlined in the 8-K filing that coincided with the January announcement.
Remember that will exclude all of these costs from our future adjusted non-GAAP disclosures.
I'll now turn the call back to Julian before we move to questions Julian Thanks, Joe.
So it all comes back to what differentiates one company from another in the distribution business do you want to have strong relationships with customers and ability to serve them in a unique way that helps them grow in order to be their distributor of choice and we want to build on our strong relationships with our valued supplies.
We have much more work to do to demonstrate our full potential.
By focusing on organic growth and expanding our service proposition, while driving operational performance the foundation for solid top and bottom line growth. This year is in place.
With that we're ready to open up the line for questions.
Ladies and gentlemen, if you with which to ask a question. Please press star followed by one on your Touchtone telephone. If your question has been answered you wish to withdraw your question that's the town Keith.
It is limited to one question and one follow up.
First question comes from Keith Hughes Sub Suntrust Robinson Humphrey. Please go ahead. Your line is open.
Thank you two questions first your commentary on hitting the Street Street views for the year streets that about I.
I assume you may need that out here, it's about 508 million.
Came in good that below where the street was first.
Where do you expect to make that up and that's still a second half phenomenal.
You think it'll start to accelerate year over year, how's it going to play out.
Hey, Keith this is Joe.
Yeah. Good great question and yes, we believe it's a second half phenomenon, where you're really see it starts improved a lot is in the second half of the year as we've mentioned the first half of the year really you have the impact of the hurricanes in the storm demand, which per Bates more pressure on in the second half of the years. When we really believe we'll see some of the increasing improve and not only.
In the market conditions, but also in some of our performance for the reasons, we highlighted with somebody initiatives going on as well too so thats correct.
Okay.
And then second question, where where do you think you stand on inventory right now it's Jim story was up a little bit year over year sales down I don't know, which product that's where do you think you ran the channel inventory.
Keith This is Julian so to a great question.
So on a dollar value our inventory is up I think as we look at inventories overall.
Certainly our volume of inventory is down remember, we did have an inflationary environment last year. So that did drive some of the the overall difference I would say that I think the questions also related to kind of where we were relative to last year, we do believe boots.
Last year, there was some elevated inventories we left of the calendar year.
We did not participate in any additional large buys towards the end of year, we think that would likely some additional.
The purchase is out there, but I think overall I.
I think the inventories certainly our inventories we believe are well positioned.
Evenly balanced for for the outlook going forward.
Okay, and if I could sneak one final one and just a technical question on the dividends for the preferred shares Joe I know you reported loss this quarter of all the charges.
If you exclude those which you would you.
Jimmy or would you assume the dividends are paid and unconverted or how would that how about book if we didnt adjusted EBITA for.
Not quite sure if all the question, but I'll give it a shot Keith I think you're trying to get at what an adjusted EPS number would be is that your question correct correct would would we assume that converts or can the preferred shares were converted or not converted.
I think as well as you know as we talked about our focus is really going to be about adjusted EBITDA going forward, that's where we're putting all the focus intentionally numbers. We did provide as you saw in here. They adjusted net income numbers in the press release that 28.3.
In the footnote you'll also see the share count numbers. So in the income statement. It has common and then in the footnotes with the income statement. It shows the preferred shares to it traditionally in the past what the analysts have done for this quarter would have been added those share counts.
Right, Okay, that's what it thank you.
Yep.
Your next question comes from Trey Grooms with Stephens. Please go ahead. Your line is open.
Thank you good afternoon.
Afternoon.
So just a couple from me.
One is the the gross margin Joe you mentioned that you're confident and.
The second half gross margin improvement.
Can you go a little bit deeper into what's driving that confidence I know you had a little bit of an outperformance here in one Q.
But as we look into the second half.
Just some of the things that you're expecting there if you could maybe go a little deeper into some of the moving pieces there maybe your price cost.
Scenario, you're baking and just any any of the moving factors there that we could.
That we could maybe get a little more color on.
Sure sure you about I'll provide a little bit more kind of detail in there.
I think you're right. If you look at last year's performance in 19, you started to see the kind of negative price cost impacts in the back half the year. So we'll have that on the favorable side. This time and keep my last year was driven by some of those inflationary environment, coupled with low demand right. So this year, how we've positioned in our view is.
You're going to see a lower inflationary environment as we go into that third and fourth quarter period with what we believe based on the market additions looks like high better demand as well to putting those two pieces together is what why we believe we'll see a much stronger price cost position kind of going into the back a couple of quarters, that's what drives our optimism.
Got it okay.
And with the the comment.
You know comfortable with the sales and adjusted EBITDA numbers that are out there for consensus now.
As we're kind of looking at the free cash flow for this year over the last few years, you've had you know some some pretty wide swings in working capital some to the plus side some some not.
But you you've had some improvement in inventories you talked about.
As we just look at working capital and we're trying to kind of triangulate into what all of this means for free cash flow. This year, how should we be thinking about.
The working capital piece of.
The free cash flow could it be.
Tailwind for you guys. This year, possibly with some of the benefits are seeing or just if you could help us out with any of that Joe.
So trades Julien overall, the the working capital position, we believe will improve through the year. That's a major focus area for US you know I talked about its in a in our remarks about our ability to to drive that lower and that is that is something that remains a big focus.
Area for Us I do think the overall, we will see that as a tailwinds.
For the remainder of our fiscal year, ending going forward as we implement against our strategic initiatives.
And just housekeeping on this any.
Update on how we should think about capex for this year.
Sure, we're still trailing towards pretty much that 0.9 to one person sales number towards our capex expenditures during the current year now I'll caveat all as as Julien said, we're working through a lot of great stuff right now on some of these strategic initiatives specifically on the LTC, we're seeing some great gains as you.
As Julian talked about in regards to our improvements or decreases in the miles driven per order all that which is really going to help us I don't know if it will be as much this year, but going forward forward. This certainly should have a benefit on our capex numbers.
Lowering them.
Okay and another one quick housekeeping just as we're looking at adjusted EBITDA is there any other cash charges in adjusted EBITDA that could weigh on the free cash flow number that we need to be aware of.
As we look at that this year.
From a cash charge perspective, not much at all you you saw some of the branding costs, but they were pretty minimal right up branding roll out from a cash perspective might be this that 5 million dollar number we had talked about outside of that our integration costs from the acquisitions are pretty much gone away.
You will see is the Q comes out tomorrow, we actually have just existing markets in all of it. So you won't see acquisitions, even noted in there. So it's good so that will also have less of you'll see from cash from the acquisition. So nothing to significant from a cash perspective.
That will impact it.
Great. Thanks for taking my questions and all the detailed very helpful. Thank you.
That's right.
As a reminder, we ask that you do limit yourself to one question and one follow up and your next question comes from Truman Patterson with Wells Fargo. Please go ahead. Your line is open.
Hi, Good afternoon, guys. Thanks for taking my questions.
First just wanted to talk about your adjusted Opex I believe it was up about 90 bips year over year. You know this is even after I believe you know you all removed the 25 million an annual costs.
Could you just walk us through what's happening there or you know maybe paying paying up.
For employees to keep them in.
In the branches et cetera, but what's going on there and then also how should we think about your ability to lever the opex line in 2020.
So Truman this is Julian thanks for the question.
I did say in my comments that we were a little disappointed with our overall opex performance in the quarter we did.
We did see that is being.
Something that.
Not so somewhat surprised but.
Hi.
We believe a lot of it is associated with timing related issues.
There are some things in there the.
We talked about some additional.
Depreciation associated with.
Fleet, we think that in your fleet ultimately translates into.
Lower maintenance expense.
The other thing that they are a couple of things in there. One was said we did have some higher health care costs. The come through I think Thats, you know frustration for not just our business, but old all businesses.
We change our medical plans starting in the new calendar years. So we think there's some opportunity for us to to address that head on.
In addition.
Maintenance costs, well described as the counter seasonal so as we see.
The market slowed down.
Our branches tend to put the vehicles into more maintenance to make sure that we're ready for for the pickup we saw a little bit of that move from what we believe was future quarters and sort of pulled back into into this quarter. So we would expect to be able to get that that back in line.
Over the over the coming quarters. So we do think that there is there is leveraging in that area as well. So overall a couple of things like I said, we maintain that we committed to getting operating leverage this year from our operating expenses and certainly I think.
I think that.
No as we've seen.
The the sort of labor rate inflation impact.
I think the service is what our operational continuous improvement initiatives becomes critical to our future performance, we have to be able to offset that with productivity.
I think we flagged in that area a little bit recently.
But again, that's where I think improving it branch level focus on continuous improvement focusing on productivity at a branch level is critical to our future performance and it is something that we.
Determined refocused on to ensure that we we maintain that in line and actually drive it down overall over the next several years as a percent of sales.
Okay. Okay. Thank you for that and then then on a follow up.
I believe you all said, you're you're targeting bringing your bottom quintile of branches up.
Normal operating levels and I believe you mentioned it was EUR $30 million to $60 million EBIT dollars tailwind potentially.
Could you just give us a little bit of color on that have you know how you're going to go about targeting that.
Yes, Ken this is Julian.
So are there. So we tend to think about this in terms of quintiles, but certainly we see the bottom quintile of.
Forms so about 100 branches or so.
As a significant opportunity obviously, they're below.
Our average operating margin so the ability to improve improve their performance I also said in my prepared remarks that.
We do see some very unique situations. So we do have to go down and get ads individual reasons at each of the branch levels, but there are these underlying causes that we believe are somewhat common.
And so.
Are we in the right position in the market do we have the right scale in that market to compete successfully.
Do we have the capabilities of the right talents in those markets to drive and to drive the results forward. So what we're doing differently is we've asked the local operating teams to really think very carefully about providing the resources necessary to those hundred also branches.
To really drive that improvement. So I said, you're right I did say, we see sort of $30 million to $60 million of operating improvement once we get at all of these.
Initiatives, but it's really branch by branch it doesn't happen overnight.
But I think the additional focus tools resources training Upskilling, focusing branch management training on a on the ability to improve.
Those specific branches.
As a significant opportunity I also said that.
We've been doing this now for a few months and we are seeing improvements.
In a in the overall metrics of those branches. So we believe that was sealing the the early indication that we are do have the ability to affect outcomes.
At these branches as well yeah. This is Joe the piece I would add on their treatment to what Julien just mentioned is for the level of focus as getting is right from the highest levels of the organization right on down I think that level of focus has really have an impact people see it. They understand it has been talked about throughout the organization and as Julien said, we're starting to see the.
Thank you already sounds great.
Okay. Thank you guys.
Your next question comes from Kevin how far with Northcoast Research. Please go ahead. Your line is open.
Hey, good even everybody.
I Wonder if you could talk about.
On the gross margin side, so up 20 basis points sequentially normally there is a little bit of assayed from.
Turning to the December quarter.
What actually drove.
It sounds like price cost was the main driver there could you give some color on wood pricing, we gave guys able to go out and get little bit surprises here and there were you able to push back on the manufacturers what was able to what allowed you to get that and could you kind of give us the progression of how that's trended did did gross margins get.
Better as you went through the quarter and you exited with the better gross margin, which bodes well for the March quarter. Just wonder if you can give us some color a little bit more color on on.
What's driving that.
Sure. This is Joe I'll kind of dive into that when a little bit Kevin for you. So.
So you're absolutely right all of that sequential gain.
As primarily all the result of more favorable kind of price cost that really was the big driver.
It was a piece, which we went into the quarter, knowing we wanted to achieve and do so I've got a lot of focus and attention through.
Additionally year right normally during this period, you'll see prices get a little bit kind of more constrained in there and that's usually why you'll also see a little bit on the price cost be a little bit more challenged during this quarter. The gross margin start to go down.
Our benefits were both we just saw a good quarter all around and the price cost element to it in all came through a combination of.
Price being better than we had normally seen and then also costs being better than traditional as well too. So we put a lot of focus into it. It was a balance of both of those pieces that worked well in our favor again, it's not all where we want to yep.
Let's be clear, we still have a lot some work to do on that one, but it's clearly trending in the right direction. There were no real trends kind of by product line. There were no real trends kind of by month, either that would give me an indication that you know it was trending one we are now there. It was just pretty solid consistent performance across the product lines in right through the whole quarter as well too we kept the.
Because right on it and it worked well.
Okay got you and then in terms of back to the bottom quintile targeting here.
Looking for 30 to 60 million over over time in terms of savings.
What.
Other investments that you need to make like will there be.
Maybe cost that come first and then there's the benefits come later that you need to make and is that 30 to 60 million you expect to benefit is that a net number after any type of investments that you might need to make in terms of whatever it might be staffing and whatever.
Just wondering if you can talk about the costs associated with that.
Giving those.
Those targets.
Thanks for question, Kevin This is Julian again.
So I don't see any additional costs I think the way we words targets. These is moving costs that perhaps we would have spread across.
All the branches, particularly around things like training.
The resources refocusing Bam more on those branches to give those branches the best opportunity I don't see a large unique investment.
All of our branches are now on.
Our systems.
There may be some areas, where we would invest in some improved.
Opportunities at an individual brands I don't see that is significant.
A significant opportunity a significant drag on on all costs in anyway.
I think bids we will see some additional costs associated with reinvesting in our Otcs network early on as I mentioned.
And Denver, but that should have a broad impact on that market and improve operations in a in that market anyway, including.
Some of the underperforming branches that might be a might be that.
But fundamentally.
I would say, it's a reallocation of resources versus additional resources and that 30 to 60 million is is a gross number.
But like you said I don't see a particular cost associated other than redirecting resources that were already deploying.
Your next question comes from Garik Shmois Loop capital. Please go ahead. Your line is open.
Hi, Thanks question, just like complimentary.
Segment that you saw a weaker pricing there could you cited some softness and still sounds in wallboard and given the improvement in demand or mix expected, which will lag what would your outlook beyond the on the pricing side would you anticipate affirming or would there be continued deflation looking forward.
Yes, first I'll take the question regards to the complementary piece and what we saw in there you know the interesting part on that decline in revenue a complimentary. It really was in just a few key areas. It wasn't a across the board as I mentioned, we saw in steel studs. We saw in lumber we saw in wallboard. So just a few key categories, where you saw.
Slight volume declines plus also some of the pricing as well too that fell into both of those two categories.
So on that so that was it it was very focused that way second part of it. Our go forward look to it you know I don't know we have is specific to you at this point in time on what we would expect those but those categories to kinda do going forward there all of weighing different elements of what happened to price right now for the spring sessions I think it's still too little bit too early to call.
Comment on that right now.
Okay. Thanks, and just following up on gross margins.
Providing quarterly guidance for the two quicker the historical exciting Q1 to Q2, you do tend to see about call. It 100 basis points sequential decline in gross margin that would get you roughly flat year on year.
Is that.
Fair assumption.
Use in in the second quarter or is there something done much different discover.
Yeah, you're right that's traditionally that the trajectory that you see between the first in the second quarter. So I don't think Thats a line assumption that make the market seem pretty similar.
Great. Thank you.
Your next question comes from Mike Dahl with RBC capital markets. Please go ahead. Your line is open.
Hi, Thanks for taking my questions.
First question I wanted to go back to that.
The fiscal 20 guide for a minute and I think there's a wide range of consensus out there and I think to Qiss earlier 0.1 Q came in at the quite have the street. So are you are you, saying look at the range and there's a ballpark in there and that you're comfortable with or are you, saying quite literally.
Look at what the prior average consensus was and that's the number that you think you can achieve.
So I think the way Joe characterized it not comments was the we're comfortable with occurrence range of street estimates in sales and EBITDA. So we're not.
We didn't say Wow.
Guiding to specific one was saying we were in that range and I believe that.
That's street ranges around the $490 million range to the 525 billion dollar range or something like that so and EBITDA on EBIT D.A.
Revenue was 7.1 to 7.4 billion roughly is where I think the street ranges there.
Okay that makes sense just wanted to clarify that.
And then the.
Second question I guess, maybe just around the branding initiative.
I think is certainly simplifies things.
Yeah, probably from your standpoint and.
Certain degree from your customers and grow their partners I was wondering if.
If you could talk through aside from kind of a simplification exercise and go to market as kind of one team.
One dream are there any financial benefits to the beacon from from doing this and if so could you kind of talk through.
Yeah, what may or may not impact the piano from us.
Aside from that you know initial onetime costs I mean.
Sure. Thanks for the question Mike So.
Couple of areas I think that we'd like to Tim I think in the in the long run certainly we believe this is.
Focus on on growth.
Certainly our research indicates that as.
Our customer base grows there is the ability to go from region to region and be served no anecdotally. We've always got a story of a customer that moved into another region that was looking for beacon and was unable to find it. Despite the fact that we had a branch in that location.
Under a different brand name. So we certainly believe that there is there's topline opportunity.
On the other side I think that there is a couple of things from an investment standpoint, I mean, we had.
40 difference.
Brand names, we had to make sure that it's the web sites well maintained but we were producing literature with all of that.
That branding represented.
And as that became not just a financial challenge, but also a resource challenge you mean, the number of people that have to work on a mad and maintaining it so while it's difficult to quantify specifics, we certainly see some.
Cost benefit that should come through from the maintenance of all of those and we would redeploy those resources into building our capabilities and differentiating.
In the marketplace and we certainly see some benefit from that so while we believe ultimately.
Topline is is the most important for us and differentiating it and creating that scale across markets, we certainly see some opportunity.
To be efficient with or without marketing spend as time goes on as well.
Okay, great. Thanks for that.
Your next question comes from Michael Rehaut with JP Morgan. Please go ahead. Your line is open.
Hi, This is a lot on for Mike I wanted to get to the drivers of that better cost outlook in the second half and I was wondering if you're baking any benefits nine or regulation and the expected cost deflation that topic here and also without asphalt prices do come down.
How much do you think could flow through in terms of price reductions for manufacturers and is there a timing lag for when these kinds of out of it could flow through to European out. Thanks.
Thanks for the question like and so our point of view on the years, we said the first half of the you we were looking apps.
Storm related comps, where the market would decline year over year.
And as such that creates.
Obviously that creates some headwind for us in terms of the sales volume.
Going forward.
We would we would characterize it as a more robust you in the second half of the year as the storm impact sort of works its way through the system and we get the benefit of what we believe is an improved.
Repair and remodel market and new construction.
That coupled with.
What we believe would be a lower inflationary environment I mean last year was a particularly challenging inflationary environment with several price increases coming through our ability to keep up with that was certainly a drag that compressed.
Hi, Jim is going forward, we don't see that happening so much better ability for us to both repair the margins that we currently have and maintain the margins that we that we want going forward and like I said, not so much of deflationary environment, but not an inflationary environment.
Regardless I'm a 2020 I think we see that is a.
Probably at a twofold impact in the long run it's a it's a change in fundamental pricing potentially.
But I just don't think that's how the economics work. So really it's a short term impact is they going to be a rapid change in asphalt pricing and I. Just don't think we see that coming through at today, either so I think we're going to see.
More difficult comps in the first half of the year.
We're very pleased with our first quarter margin, where we thought we would see some we feel good performance representing flat sequential in fact, we saw slightly better than that that was good we would expect to see.
The sort of traditional seasonal decline in the first quarter as a into the markets, particularly soft and gates get reset and then working our way into a more robust environment in the second half of the with what we would expect is certainly lower inflation than prior year, we'll continue to work in our mind.
Agents in our value proposition in order to drive our margins to an improved overall result.
Great. Thank you and then I was also wondering on next in the quarter, if there any headwinds or tailwinds that products geography channels or funding mix expectations you have for the full year.
Sure so for the first quarter.
Year over year basis, there was a bit of a slight kind of mix negative can impact to us, but not that material sequentially not a big kind of difference from mix to it.
So as I think about going forward for the rest of the year I don't really foresee there being a big kind of mix shift in impact in any of the future quarters second through fourth in there. So I don't think you'll see much of a change in that regard to it.
Thank you.
Your next question comes from Philly with Jefferies. Please go ahead. Your line is open.
Hey, Thanks for squeezing me in.
Organic growth has been a little more choppy for you guys. Appreciate a big part of your strategic focus going forward Julien just kind of re accelerate that element any big buckets, you want to call that would be a big driver in do you see pricing being larger element of that story or is it really more to demand side.
Thanks for the question Phil.
Both those are important I did say in my prepared remarks, though there were two elements to it that I think you picked up on I'm glad to say the first was the overall activity level I mean, we've got in 110000 customers a portion of that represent.
A significant opportunity for us to make sure that we're picking up the foam calling.
Those customers asking for the auto staying after that order. So there is certainly that level of activity.
I also mentioned in my remarks that's.
We would spend.
More time focused on.
Analytics and deploying tools to enhance our overall pricing capabilities.
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We are both developing and deploying those tools today.
I do think that its overall pricing needs to be a significant focus.
For us in terms of topline growth.
I think that so we can do those in parallel.
I think one other things that we have to be in short of is that we have to build our service proposition to be differentiated in order to really capture the value and build out pricing capabilities.
Along with that so it is.
Certainly pricing will be a focus area for us.
Certainly that's something I feel very comfortable with with my history and.
But also the activity level and driving topline driving things into the funnel.
It is significant really opportunity for us.
That sounds.
Excellent and then just in terms of all this change you're looking to implement.
Well require new talent from the outside kind of execute your vision and are you going to implement any new metrics, whether its senior management or further down the chain in terms of properly lighting.
Your first on their comp I guess ultimately to your strategic goals.
Yes, obviously I mean first of all our strategic review is initially about sort of defining and scoping what the opportunity is and then the second piece of it which we really still working on is sort of quantifying that opportunity.
As we go through that final one what I expect to come out of there.
The focus areas in the metrics that will drive that and naturally will will set a very high bar for the talent.
In terms of both development of our talent internally and potentially.
And in additional talent to.
To complement occurrence.
People.
Thanks, a lot appreciate the color.
Your next question comes from Jay Mccanless with Wedbush. Please go ahead. Your line is open.
Hi, Thanks for taking my questions. The first one what's in your depreciation going to be.
No I think at that.
Before.
You sign that number three real quick.
Yes.
Yes.
So looks like for the full year I think the first quarter, we ran around $19 million in depreciation will be somewhere around 76 million for the full year.
Okay.
I appreciate the Nols.
Amortization, but part of it.
I'll I'll read your mind on your second question here. So the amortization was roughly 45 million in the first quarter and for the full year it'll be somewhere around 178.
Great.
Then my second question.
With four months under your belt for the fiscal year I would've expected, maybe a little more certainty or a little more forcefulness around your guidance and how you're thinking about the rest of the year is is the is.
Mike for is the hesitancy I perceive around the strategic review and where you guys are going to go with that or are you seeing a more competitive marketplace as the spring season gets underway in certain parts of the country.
So Jay this is Julien.
I don't think we saw its still very early in the year. I mean, this is really the slow part of the year.
And obviously, we were still working our way through winter in the northern Northern States I would say that overall, we've seen we've seen good activity I think the way we would characterize the first four months of the year was kind of inline with what we anticipated I will say we just.
See quite a sharp slowdown around the Christmas time period.
The holiday time periods Christmas new year that was shrine that bounce right back.
So I don't see.
Anything in a in the first few months of the year that would indicate a more competitive environment in terms of.
I think the question are asking are we seeing.
That happened I think we're seeing sort of the market we expected.
It's always a little difficult at this time of year to predict.
How they use going to shape up it's still very early.
You know obviously, we've we've laid out what we believe is a flat environment.
We've said that we believe that the streets.
Estimates for sales and EBITDA or in line.
Yeah, and its I wouldn't characterize it as a kind of a fairly normal range a full guidance for.
Okay. Thanks for taking my questions.
Hey, Jay one last a technical thing for you by the way this amortization number that I gave that's case than our current level of all of a up kind of trade name amortization that we do when we finalize the write off of those trade names that will change that amortization piece of it and we'll get just new numbers out there so stay tuned for that and then finally.
The write off and get the amortization I'll update you then.
That concludes the question now I would like to turn the call back over to Mr. Francis for his closing comments.
Well, thank you all for joining our call.
You know I really believe that.
Our first quarter represents a step forward for beacon and we're well positioned as the building product leader in empowering our customers to build more.
We were restoring our focus to our existing exteriors and interiors products business, where we really see substantial opportunity for both sales growth and margin enhancement.
I really believe the future if a beacon is bright.
Appreciate the continued support of our customers suppliers employees and from the investment community as a whole. So thank you for listening to US. This evening have agreed.
This concludes today's conference call. Thanks for joining you may now disconnect.
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