Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 U.S.P. Industries earnings Conference call. At this time all participants are in listen only mode. After the speaker presentation, there will be a question and answer session.
Ask a question during the session you want me to press Star one on your telephone.
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After a short pause I will turn the conference over to your Speaker Mr. Dickoff Senior Vice President of business outreach. Please go ahead Sir.
Welcome to the fourth quarter 2019 conference call for Universal Forest products now known as U.S.P. industries hosting the call today, our CEO, Matt Missad and CFO, Mike Cool.
And Mike will offer prepared remarks, and then the call will be opened up for questions. This conference call is available simultaneously and in its entirety to all interested investors and news media to our webcast at Www Dot U.S.P.I. Dot com a replay will also be available at that website through March 20, Onest 2020.
Before I turn the call over to Matt Missad, Let me remind you that yesterday's press release and today's presentation include forward looking statements as defined in the private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections.
These risks and uncertainties include but are not limited to those factors identified in the press release and into filings with the Securities and Exchange Commission.
I will now turn the call over to Matt Missad.
Thank you Dick and good morning, everyone. Thanks for joining us on a special lottery number day to 20 2020.
Well, we are more than halfway through the first quarter of 2020 and focused on our future performance. It is a good time to review the fourth quarter and year end results for 2019.
At the beginning of 2019, our goal was to be exponentially greater than before and I am delighted to report that our team did an awesome job.
They set unit sales Records EBITDA Records S Records and during the year a market cap record for U.S.P.R.
They certainly deserve a curtain call for their performance.
Thank you you up the industry's team.
Mike will provide more financial details in a few minutes, but I would like to give a couple of highlights.
Fourth quarter unit sales were up 6% overall sales revenue was 998 million for the quarter up 1.2% from 2018.
EBITDA for the quarter was up 12% to 70.9 million versus 63.3 million in 2018.
Year to date EBITDA was 317 point Threemillion versus 265.6 million in 2018.
Earnings per share were 61 cents versus 50 cents in 2018.
As you know we used gross profit dollars per unit as a tool to measure performance because it takes out lumber market pricing has a variable.
We're very pleased to report that gross profit dollars grew by 14.2% more than double our unit sales increase.
2019 had many favorable trends with a strong economy in a more typical lumber market.
Our managers operated very well in that environment.
We also recognized that we have areas we can improve.
In fact as part of our new market structure, we have identified at least $20 million an annual improvements we expect to achieve over the next two years.
These areas include eliminating unprofitable sales and products.
Improving project management and speed to market with new products.
Gaining market efficiencies through automation specialization and consolidation.
And growing value added sales more quickly.
Now I'd like to discuss or individual markets, starting with the overall lumber market.
During the fourth quarter random lengths composite index was up 4.8% over 2018.
While the southern yellow Pine index was down 12% from 2018.
This trend has continued in 2020, thus far with the current composite index up 7.7% over a year ago, and the southern yellow Pine index down 17% from a year ago.
Our yearend inventory levels were nearly $70 million lower than year end 2018.
The more stable lumber market did not allow as many prebuy opportunities as a year ago. So we have reduced our investment in inventory ahead of the seasonal spring selling season.
In the retail market, we saw excellent unit growth of 10% while sales were up 6.9% a few of the drivers were one the increased sales of our decorators products in decking and railing, which continue to take market share.
Two we also saw good unit sales growth with our big box customers as well as are independent retailers.
We continue to drive our extended product line to independent retailers, but at only scratched the surface with these customers.
Three we're growing our pro wood fire retardant product called Prowood fr. Both in the Midwest and the northeast and plan to expand further in 2020.
Fourth the outdoor Central's line of outdoor products will be adding capabilities in more mixed material projects and expansion of our offense products.
And the construction market. We also reported steady growth overall with unit sales up 5% led by a 9% unit growth in commercial construction in concrete forming.
Our backlog remained strong for site built components and we continue to add capacity in the markets we serve.
Manufactured housing units increased 4% in Q4.
We continue to promote value added items and more sales per unit built by adding product lines to our offerings.
Unit sales in the industrial market were up 2% for the quarter.
We continue to rationalize our product offering by focusing more on designed engineered and manufactured sales.
While deemphasizing pure commodity sales.
In spite of the lower growth rate are over all profitability once again improved.
In 2020, each of our segments will have a more dedicated focus on developing and implementing new products. We expect this concentration to result in a greater number and greater sales volume of new products in the future.
New product sales were 110.7 million for the fourth quarter and 539.8 million for the year.
We will sunset 126 million of 2019, new product sales, which establishes a base of 413.8 million from which to grow.
We are targeting 475 million and new product sales for 2000 Twain.
Obviously, we will continue to sell the products, which we have sunset they just won't count as new product sales.
A few highlights for new products include dimensions project panels, which continue to gain traction in more locations.
The decorators voyage involved decking products and our decorators railing systems are going well and our favorites of our certified installers and their customers.
You FP edge accident boards as well as spacious pattern and trim are expected to grow at a much faster pace in 2020.
New products in the construction market include more complex and assembled component products available for our site built and factory built customers.
We also have opportunities with new architectural products in the commercial and multifamily customer base.
We expect to gain a larger share of total projects by adding some of these interior components to the products and services, we already supply.
In the industrial market new products include more mixed materials.
Including steel plastics, and corrugate to solve customer needs and developing proprietary products to create new solutions in the transportation space.
Core SGN, a increased 7.4% above our unit sales growth target. However, it declined as a percentage of gross profit to 56.3% compared to 59.9% last year. As you know the fourth quarter has lower sales volumes, which also causes fixed SGN a to be a higher percentage.
Production labor continues to be one of our biggest challenges recruiting and retaining employees is critical.
We continue to look at better ways to meet the challenges our employees phase from benefits to transportation and strive to become an employer of choice in the locations in which we operate.
Our goal remains to provide our employees with solid long term future with many opportunities for growth.
In the fourth quarter, we added benefits, including performance bonuses and enhance portal one k. match for hourly employees.
We expect this will help us continued to provide better opportunities for these employees.
The opportunities for growth include the exciting new organizational structure, we implemented on January Onest. This new structure organized by markets and business units instead of geography will unleash the full power of our team to meet customers' needs and position our facilities to get more in depth with the markets. They serve.
We believe this will help us grow faster and more profitably in the years ahead and will lead to better capital allocation and utilization.
While our previous structure served us very well and getting us to 4.5 billion in sales our new structure has the capability of getting U.S.P. industries to 10 billion in sales.
Speaking of capital allocation, we're pleased that our board increased our dividend by a pro rated 25% and plans to pay a quarterly dividend going forward.
We still maintain a principal capital allocation model with the goal being to maximize ROI, while providing the best total shareholder return over the long term.
Each of our segments has identified and prioritize their growth runways within their segments.
Capital allocation decisions will be made on the metrics described above with priority given to proprietary value added products and services end market expansion in new markets and consolidation in existing markets.
We expect more significant acquisition activity in 2020 in our identified growth runway.
Where acquisition opportunities do not present, a reasonable ROI, we will look at greenfield and other methods to achieve our objectives.
Including our typical acquisitions, we expect to achieve a unit sales growth of four to six percentage points above positive GDP growth.
EBITDA growth in excess of unit sales percentage increase.
Now I'd like to turn it over to Mike Cole, who will provide more details on our financial performance.
Thanks, Matt starting with highlights from the income statement overall sales for the quarter increased 1% with a 6% increase in units offset by a 5% decline in selling prices unit growth was primarily organic and consistent with results achieved in prior.
Our quarters.
New products continue to be an important driver for our growth in gross margin improvement, especially for our retail business.
We're pleased to report new product sales growth of 16% for the quarter as we beat our annual goal the 525 million with nearly 540 million and sales a 13% increase over last year.
Breaking down our sales by market sales to the retail market increased 7%, resulting from another strong unit increase of 10% offset by a decline in selling prices of 3%.
Our unit growth was primarily organic and driven by a 14% increase in sales to our big box customers, including a 15% increase in sales of new products, and a 56% increase and our decorators branded products.
Moving on to the industrial market our sales to these customers declined 4% driven by a 2% increase in units, resulting from recent acquisitions, which was more than offset by a 6% decrease in selling prices.
Sales to new customers during the quarter, where nearly 7 million and offset lower demand from existing customers, which resulted in flat organic growth.
Given our higher capacity utilization, we continue to rationalize the business, we take seeking to maximize our sales of higher margin value added products.
This along with lower lumber prices has significantly improved our profitability, which I'll talk more about in a minute.
Our sales to the construction market increased 1% due to a 5% organic unit increase offset by a 4% decline and selling prices.
Within the construction category unit sales increased 9% to commercial construction customers, 4% to manufactured housing and 3% to residential.
Strong unit growth to commercial was primarily driven by IDXX in our concrete forming business in the southwest.
Moving down the income statement fourth quarter gross profits increased by 20 million or 14% exceeding or 6% growth in unit sales as our profit per unit improved.
The overall gross profit increased was comprised of a 9 million dollar improvement retail gross profits and a 10 million dollar increase in industrial.
Favorable labor and overhead cost variances added 3 million to gross profits, but this amount was offset by losses uncertain construction projects.
Our gross margins increased 190 basis points to 15.8% this quarter.
Referencing the last table in the press release, which reports our income statement as a percentage of sales based on last year's lumber prices. We believe 80 basis points of this increase was due to the lower level of lumber prices this year.
The remaining 110 basis point improvement was driven by favorable changes in product mix organic sales growth and leveraging fixed costs and lower lumber costs on sales of products, we sell with a fixed price.
Continuing to move down the income statement SGN expenses, excluding bonus increased almost $6 million year over year, but was down almost 5 million sequentially from Q3 and was 3 million under our internal plan.
Accrued bonus expense increased by almost 6 million year over year, primarily due to an increase in our bonus rate as results of the increase in our return on invested capital.
We continue to focus on lowering our SGN as a percentage of gross profit, which mitigates the impact of lumber prices on sales and compensates for our favorable change and product mix. We're pleased to report that arrest Genie as a percentage of gross profits dropped from 60% last year to 56% this year.
Driven by these positive factors, we're pleased to report that again, our operating profits increased by more than two times that our increase in unit sales.
Moving onto our cash flow statement, our cash flow from operations for the year totaled 349 million and was comprised of net earnings and noncash expenses totaling 259 million and the $90 million decrease in working capital since the end of last year.
Working capital dropped this year as result of selling through inventory, we bought Opportunistically in Q4 last year.
Lower lumber prices. This year have also contributed to the decline.
We measure our cash cycle to assess our working capital management and for the fourth quarter. It improved to 55 days compared to 61 days last year.
Investing activities consisted primarily of capital expenditures totaling 85 million, including expansionary inefficiency related capex of almost 31 million.
Notable areas of spend in 2019 include projects to replace our capacity in South Florida.
Resulting from the sale of our mentally facility last year.
Expand capacity and enhance the productivity of our decorators decking product line did a favorable demand trends and share gains we've achieved and several projects to expand manufacturing capacity to serve industrial customers and achieve efficiencies through automation.
We've also spent 39 million so far this year to acquire Wolverine would northwest factory finishes pellet USA and the remaining interest owned by our partners in United Lumber and Integra.
Financing activities consisted of 38 million in net repayments on our revolver and 3 million in payments and other debt. We also paid over $24 million of dividends at a semi annual rate of 20 cents a share an 11% increase over last year.
With respect to our balance sheet and capital structure, we had 5 million in a net surplus of cash at the end of December compared to 202 million in net debt last year.
The strength of our cash flow generation and balance sheet provides us with plenty of capital to grow or returned to shareholders. Consequently, our board recently approved a plan to pay dividends quarterly instead of semi annually and increase the quarterly rate by 25%.
Our highest priorities for capital allocation are currently capital expenditures and business acquisitions based on opportunities and the strength of potential returns we see.
As a result, our targeted capital expenditure spend is $100 million next year.
That's all I have in the financials, Matt. Thank you, Mike now I'd like to open it up for any questions you may have.
Ladies and gentlemen has never mind due to ask a question you will need to press star one on your telephone to withdraw your question press the pound.
Please standby wildly compiled acuity roster.
My first question comes from Caden mentor out with BMO capital market.
Good morning, Matt Mike.
Thats on a strong.
Good morning, keen thing when thinking.
Maybe to start off.
More on the retail side.
Really good.
Sure.
As you.
Anyone.
From your customers in terms of you know.
Yeah.
They have demand outlook as you get ready for the spring construction season.
You know I'm off it was driven by the gains that you also in India.
Any 19.
As you look out.
As you lap some of those.
Volume growth.
Maybe just help us understand.
What kind of underlying demand trends youre seeing.
Yeah that said the good question Keaton. So as we look ahead for the next couple of years, we still see that the repair and remodel projections are very strong our customers are very bullish on the market condition. So we expect the demand profile to at least be what it's been absent some other crazy stuff going on.
Economy, and then we look at that as a good steady growth pattern for us.
We still see a lot of different opportunities some of which I outlined to take more market share and to get share gains.
Not only with big box, but with independent retailers. So that's a big area of focus for US we've talked about that in the past, adding additional products and services to the independent retail mix to go along with our core product lines. So we see that as good growth. So again, we're very optimistic.
With that we do know that some of the new decorators gains from last year, you're right, we'll lap those probably in the second quarter.
We expect again to have continued continued share gains both in big box and elsewhere. So.
We're still optimistic at this point.
Got it that's helpful and then just remind us.
Does the headroom you have in terms of capacity in the in the Decorators line then.
Yes, so the decorators line, we earned in the process of adding capacity, which will be on line by second quarter and so we will have ample capacity for 2020 2021.
With pro would we still have.
Very ample capacity throughout the country. There are some areas, where it's probably a little tighter than others, but.
We feel very comfortable with our capacity there we have plenty of room to grow with pro what.
That's helpful and then.
Turning to capital allocation you touched on it but.
I mean, obviously balance sheet as isn't a great shape.
You said M&A pipeline is pretty strong if you can just talk about where you are seeing most opportunities you know talk more devaluation Richard late in the past you've talked about valuations have been quite rich. The y'all have been more conservative and then you know just finally apps and money.
You know how do you think about.
Cash on the balance sheet.
You know versus returning cash to shareholders just trying to get your perspective on that thank you.
Well, that's a multiple of questions right Derek Eaton I'll try to I'll try to address them, but so as you look at the M&A pipeline. It is a robust pipeline and again, we do have a principal callout capital allocation model and it's important for us not to overpay, because obviously, it's difficult to earn a return when you do that so.
We've been very selective with each of our business units and new segments. They are they are very focused on runways that they can drive their business growth through so we are targeting acquisitions in those runways to help us grow.
If for whatever reason, we don't think that we can get a reasonable return on those types of investments.
As I mentioned earlier, the idea will be that we will either greenfield or come up with other methodologies to still go after those runways. So we will utilize capital in what we hope is the most efficient way possible, but we are going to be dedicated to moving towards those runways and expanding our growth in that fashion.
Having said that we obviously, we don't want to load up our balance sheet with a bunch of cash there's no sense for us to sit on cash.
We want to be very conservative in how we look at it we'd like to have plenty of dry powder for acquisitions and growth.
But by the same token thats one of the reasons why we looked at the the dividend increase.
We think thats appropriate to return some of that capital to the shareholders.
But I'm very confident that our team has.
Identified some great uses of capital.
It's a matter of deploying it responsibly and properly over the next several months and several years quite frankly so.
So we feel good about it today, but long term our goal is not to sit on cash.
Okay.
Is it fair.
In the mix materials.
The most.
Likely M&A growth.
Yeah, I think that Theres, certainly part of that Theres also ancillary products that I think.
We continue to look as I said for proprietary new products, New solutions things that are different in unique that that we can bring to the market and we can scale them quickly throughout our network.
We feel like we are position very very well now to do that better than we could in the past so that's where our focus is.
Very helpful. Thank you a good luck.
Thank you.
Thank you.
Our next question comes from Steve Chercover with Davidson.
Thank you good morning, everyone Morningstar weren't if.
So first one just about lumber you didn't do a large pre buy this year.
And now its rising sharply except for in the South So are you getting what you need.
Elsewhere, and how does that dynamic.
Kind of play through I think the South is where you do most of the pressure treating you're getting.
You know is conducive to.
Good gear, a good stuff just how you'd like it to be.
Yeah, So I think Steve you're very in tune to the lumber market and we look at this it's really two different market. So far this year.
The composite market, which if I look at kind of Canadian SPF and SPF in general that that has risen.
But the southern yellow pine market is actually not been that strong it's softer in it.
Well below.
Yes today, so as you look at that there wasn't really a great by an opportunity. So we are buying for needs one of the great things about our company leased but I feel is that we have the ability to source different products, we have the ability to substitute different products and so we can we can buy.
Aerial substitute demand and give our customers the best value.
I feel really good again for us the.
Stable lumber market or slightly rising slightly falling is not really a big concern we look at that more as a pass through type item.
It's sharp swings that tend to be things that will cause us some pressure points for a little bit but.
Our goal right now is to utilize the products that we can at the best price point provide that value to the customer and as you pointed out that southern yellow pine market.
It is still set up very well at least at this point. So we don't we're not really concerned about that and we'll react as we always due to market changes.
So just summarize the kind of parabolic rise in SPF is is manageable because so much of what you require is is offset by the weakness in the southern yellow pine.
Yes, I think Thats a fair statement.
Okay, Great and then you know I know you'd ever blame weather for anything, but I think the weather and 2020 is far more conducive to both site built and presume presumably do it yourself project. So any early observations on the impact of a mild winter.
And I are starting to try to get ahead of me aren't yet.
I think if we look at that last part of 2019, I think certainly having reasonable weather conditions.
Was it was a good thing for us and in Q4 and right now we try not to make excuses for it and we also.
We do have to acknowledge sometimes it's better than others. So.
Right now I don't really have a.
Feeling as to what it's going to be for the first quarter I don't I don't see that spring has started early necessarily so still a lot of rain and other things and other parts of the country. So.
I guess, we're taking a wait and see approach on that but I think we're positioned well right now.
Yeah, what would what I'm trying to get ahead of you I just want to know.
The winning streak can continue and my sense is the answer would be yes, so and finally, a quick question on the new structure. The focus on end markets as opposed to geography make it more difficult to cross sell.
No actually I don't think it does I think the idea will be what we have is more specialization.
At the business unit and segment level.
Facilities themselves are still responsible for their bottom line performance there are going to still focused on serving the customer and make sure the customers taking care of quality manufacturing delivery all of those types of things. So we feel very good about that different different sales groups different product experts.
We'll be able to sell through the same customers.
And be able to deliver it together still but the whole idea is instead of having.
One one individual salesperson try to try to learn and understand 30000 skews.
They now have the ability to specialize in focus in really be a great solutions provider for their customer.
And sorry, one other question on that line that the 20 million.
Incremental profit opportunity is that front end loaded or is there is or low hanging fruit how should we.
Phase that in.
Yeah, I think it's a it's going to be kind of pro rata throughout the year.
It will be for this year and next year as we look at these are things that we've just identified that we know we can improve on.
And I would say they are low hanging fruit, but it's not it doesn't all happened in one quarter.
Okay terrific. Thank you. Thank you.
Thank you. Our next question will come from Julio when they're Alison Jody.
Hi, good morning, everyone.
Thanks.
What did ask if you could provide the mix of value added sales commodity for the fourth quarter.
Yes, 70%.
I'm, sorry, what was the number 70% value add.
Okay, excellent and I guess within value added.
Can you maybe to low which product line you see can continue to be outside growth drivers in 2020, and what segment primarily belong to.
Well I think Thats a great question, when we probably don't have that granular level of detail, but I can just I called out several items that I thought were areas that we can grow well.
The retail side I called out decorators, and U.S.P. edge products I think those still have great growth runways for them.
In the factory built space.
There's there's a number of items there in terms of additional items that we can increase our sales per unit built a two to the manufactured housing and the factory built marketplace on the industrial side, it's those mix material areas, where by consolidating and.
Proving design engineering.
And construction techniques, we can actually bring away more value to the customers. So I still feel very good about the number of conversion opportunities. There. So that that to me is a big growth area and then additional products in the industrial space to go along to the same customers.
It is something that we're really pushing on at this point, we expect there to be some really good results there over the next several years.
So.
Hopefully that addresses your question Julio.
Yes, that's certainly helpful and it gets us on the M&A side right. The at Phoenix, putting on us as a percentage of gross profit has had a pretty nice step down for the year.
Given the 20 million in annual improvement that you called out over two years I mean.
Should we kind of expect that same step down or.
Or what do you think it maybe you could argue.
For that Essien eight percentage up as a percentage gross profit going forward.
Yes, that's a terrific question I think as we look at the yes DNA in general our goal obviously is to have our SGN a growth be less than our unit sales growth.
I think for at least this year and probably part of next year I don't expect that to be reduced a lot as a result of our restructuring process, but I do look at us being able to leverage that more so that in the future will be a lower percentage. So.
The areas of the $20 million that we called out.
While some of its SGN a a lot of it is not so.
I wouldn't expect there to be a huge percentage change this year or next year, but it will be a steady decline as a as a result of unit growth.
Excellent thanks for taking the questions and best of luck in 2020.
Thank you Leo.
Thank you My next question will come from Rueben Garner with benchmark.
Thank you good morning, everybody.
Good morning, Ruminant Rubin.
So let's see.
Maybe.
Gross profit. So this year you got its grew gross profit relative to your unit growth and I think if my math right roughly two and a half times Oh I know there was a lot of drivers of that this year, how do we think about that metric as we move into the 2020.
I mean can you can you sustain you know doubling your unit growth on the gross profit line or was there some.
I know that lumber help.
To some extent early in the year, what what are the factors to kind of puts and takes as we move into 2020 sure I think as you kind of look at things first of all I'll probably.
Try to talk in terms of gross profit dollars and not necessarily gross margin. So if we look at gross profit dollars our target as I outlined before as we want our EBITDA growth.
To exceed our unit growth and.
And I think Thats, a fair way of looking at it overall, so obviously the gross profit dollar growth needs to be in that range as well.
I don't know I don't know what we're capable of doing at this point is kind of difficult to predict I wouldn't say, two and a half times as kind of a new standard.
But I would say that we would be disappointed if we don't.
We don't significantly exceed our unit sales growth with our gross profit and our EBITDA.
Okay Fair enough and then on the.
Organic growth side a couple.
Segments, this year that kind of decelerated industrial and.
You know manufactured housing within the construction space how much of the deceleration that you saw in those two categories were you know U.S.P. specific where you were maybe walking away from business.
And how do we think about the growth in those areas that we as we move out the 2021 deal.
Yeah, I think as you look at it I don't have the specific data to be able to tell you what what that percentages are there, but you're right. There's two different aspects going on one is some of our industrial end markets slowed a little bit in 2019.
We expect that May continue, but the the other part of our sales.
Process. There is we were trying to look and rationalize some of the capacity issues, we have as well as some of that some of the challenges for as I mentioned commodity type sales, which tend to carry lower margins and.
If they're not part of an overall sales strategy. Those are things that we will be emphasize so we might in fact sacrifice some sales dollars.
For better profitability and one of the things that I was very pleased about in Q4 was even though the sales growth was nominal what best the profit growth was very significant in that market. So.
I think that strategy is working I think the team is doing a great job as they try to approach that we expect to do more of that and we're obviously looking for more end market headroom as well so.
I think they've got a good focus and excited about what I think they can accomplish in the industrial side.
Okay, Great that's very helpful and then.
Sneak one last one in Mike can you clarify what you said the growth rate was for for decorators in the fourth quarter and then do you have the numbers for the full year and I guess, what the total dollars that have got greater revenue was for 2019.
Yes.
Fourth quarter growth of decorators branded products was up 56%.
For the year decorators branded products reached 200 million in sales.
Of that.
I think 155 million as decking and railing.
There are other products in the other deck accessory products that make up the other 55 million.
Or 40 perfect drink.
Thank you for that and congrats on the twin 19, and good luck there was this year.
Thanks, Thanks Rubin.
Thank you. Our next question comes from Jay Mccanless with Wedbush.
Hey, good morning, everyone. Thanks for taking my questions morning, Jamie Good morning, So the first one I had.
Matt going back to what you said about lumber prices currently with southern yellow pine down in the composite I mean, if you froze lumber prices at these levels and took them to the ended the quarter do you think that could produce.
Gross margin expansion that we see you guys over the last quarters.
So I get that the only thing I would.
Take a question with their Jay is kind of the same type of expansion I.
I think this the profile would be very similar I think if you're looking at percentage expansion over prior periods or something like that I wouldn't use that as a gauge, but I would look at is it reasonable to accept to expect those kinds of overall gross profit dollars, yeah, I would say that that would be more accurate.
To expect expansion in the gross profit dollars yes.
So my second question.
No we're talking about the industrial customers some of them being weak or last year was just wondering are you seeing any impact from this corona bars.
Slowing down shipments domestically or for some of your international customers.
We havent seen that so much Jay what would what we are seeing.
Is a lot more requests from customers, who are buying things from overseas.
Two different aspects. One is one is that I don't know how much is attributable to corona virus to be honest.
But in terms of different duties and tariffs.
We're seeing a lot more interest in buying domestic product, which may have been stuff purchased overseas before so that's actually creating an opportunity for us to sell more.
And then.
On IDXX was encouraged to hear that you guys are seeing some growth there.
I think you know is as I get myself back into the company in learning more about it.
Can you guys talk little bit about what you're seeing in that that fixturing market and where are you all are able to find growth because if you just look at the headlines on what's happening in retail it looks pretty dire. So it sounds like you guys have found some ways to innovate and go to new channels could you give me a couple of minutes on that.
Sure Yeah, I think thats. It as you look at a I'd acts in the retail store fixtures in general that that business has changed dramatically over the last few years.
And just patient, Florida, where there's a couple of competitors in that retail fixturing market that went bankrupt last year.
That that created some opportunities, but I think our bigger are bigger goal and push there is been to go to different end markets and to to expand the target markets for our product.
And that that's going well as we as we look at it we're still in a transition last year, we had a number of costs to basically consolidate facilities change personnel do that type of thing. So we just absorb those costs, but I.
I think going forward with the new end markets. If you drive more on things like architectural type items, you look at things like banks in hospitality in multifamily quick serve restaurants those types of areas.
Where there is still very considerable growth opportunities.
Thats, where our focus is and hopefully over the next few years, you'll start to see that that take hold and we think thats still a very good growth area.
Right.
And then the last one just dumb question, but wanted to make sure. We're on the same page here. When you think about GDP growth for 2020 are you guys, assuming roughly 2%, which is what I've seen from some of the other economists out there.
Yes.
Just just wanted to make sure room, saying, yes.
And we are including we are including acquisitions in that number.
Sounds great. Thanks, again, guys alright, thank you.
Thank you we do have a follow up question from Ketan Mamtora with BMO capital Mike.
Thank you for my follow up question just one question.
Hi.
[music].
So.
Right.
The short answer to that is yes, a off of a very small base amount, but yes, we.
Obviously, we're sourcing from all over the world. So we might be one of the one of the parties that's doing some of that.
And is.
No.
Southern yellow pine is right.
Applications.
I think we're seeing concepts.
You know what's coming in from.
Yeah, I think theres, a couple of different things so the European spruce products.
There are more and SPF competitive item than they arent syp item.
So for us are treated products I'm still our species that can be treated such as southern yellow pine.
So it's not really a substitute so much for southern yellow pine, So I think and I don't think is price competitive necessarily with that.
But there are applications, where it does make sense.
And those are the applications that we look at probably others are looking at that too.
Got it that's very helpful. Thank you.
You're welcome. Thank you speakers I'm showing no further questions in the queue. At this time I would now like to turn the call back over to management for any further mine.
Thank you as you can tell I'm very grateful and excited about our teams exceptional performance their hard work in extra effort has put us in an excellent position to continue to succeed.
I know most companies wouldn't undertake such a major structural change when times are good but our team is committed to staying ahead of the competition and continuously improving.
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Not by retiring but by rejuvenating our structure and Reenergizing our team for the next 65 years.
Thank you again for your time today and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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