Q4 2020 Earnings Call

Good day, ladies and gentlemen, and welcome to the American Woodmark Corporation fourth quarter 2020 Conference call. Please note today's conference is being recorded today May 26 2020. During this call. The company may discuss certain non-GAAP financial measures included in our earnings release, such <unk> adjusted net income adjusted EBIT.

Adjusted EBITDA margin free cash flow that leverage and they just said, yes per diluted share.

The earnings release, which could be south on their website American Woodmark Dot com includes definitions of each of these non-GAAP financial measures the companys rational for their usage and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures. We will also use our website to publish other income.

They shouldn't that may be important to investors such as investor presentation.

We will begin the call by bringing the company Safe Harbor statement under the private Securities Litigation Reform Act of 1995, all forward looking statements made by the company involved material risks and uncertainties, they're subject to change based on factors that may be on the company's control.

Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward looking statements.

Such factors include but are not limited to that was describing the company's filings with the securities and Exchange Commission and the end report to shareholders. The company does not undertake to publicly update or revise its forward looking statements even experience or future changes make it clear that any projected results expressed or implied.

Well not be realized I wouldn't I like to turn the conference over to Scott Corporate Senior Vice President and CFO. Please go ahead Sir.

Good morning, ladies and gentlemen, welcome to American Woodmark Sportsbook works, all that's cool I keep are taking time to participate joining me today scared off can chairman CEO, Jerry will be able to work through the quarter and I'll add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions here.

Okay and good morning to you all.

That's not begin to pick on my comments were fourth fiscal quarter works lots were of all those families employees shareholders English them, all and again this call I certainly hope that you and your family it doesn't mean safe and well then some testing at the time.

Finally, a ball face the challenges are running a bit and sensible also tearing for the safety of agreement on board.

Pardon me I feel American Woodmark I'd be very fortunate that you've been allowed heard me Macquarie Smith has no central supplier to the housing industry.

He provider our employees have risen to the challenge.

Well before in each state or.

If you are teams in every one of our sites one about modifying our operations ultimately workflows, keeping any mentality faces important he's bringing them every teacher, yet safe working done.

In the students extreme buffer that we had been able to continue to run our operations even supply the critical housing industry.

The grateful we did experience a two week disruption in our Mexico operations.

Nothing to do with our ability to operate safely, but was tied to the state mandates to spend all operations not being the central.

At the time to getting the Bahar, California, primarily only identified business is tied to food to help industry do so through standards is being critical.

Our team worked very aggressively with local and state government officials, leveraging our longstanding positive relationships clothing, identifying the safety standards being put into place not free operations in communicating importance over supplied to the U.S. industry.

You were one of the very first business is allowed to restart due to this effort.

Hi, David the trucking did impact our yesterday stock you. She does plants in late April in early May I mean, very pleased to say that all operations have been sort of in store.

With regards to our net sales for the fourth fiscal quarter, we were down 3%.

Switching their operations impacting net sales by roughly $8 million in the quarter.

Our to the back a couple of 19, we were experiencing solid mid single digit brake business.

Looking to sales by channel you did have significant variation within new construction regard binge below 6% of apparel year.

Goodness I couldn't be a direct business comped very favorably Walgreens, Pts business in southern California continues to Comped negatively.

As a nation wide he passed a colder 19 became more evident that he became the fastest in closing I'd existing stores.

Fish test kits older shown by region, the South East, Texas, South West and then California had to spend it's kinda doesn't come through.

As we look for Debbie's I was hoping they decline in new starts.

She most confident deploying varied by region.

A number of buildings have shifted focus to first time homebuyers and opening price point homes.

Our credit it's frightening low interest rates, even strong credit reports with younger buyers. It grew to be generally more positive business like more pricing.

As if that came as forecasting I mean demand is going to be extremely difficult until we get a better sense or the macro impact on your role Kim.

They do need to restart another central doesn't since the next couple of months it'd be very critical nothing to pick the path forward for the U.S. economy.

We do believe the underlying fundamentals are strong support long term sheets family grew up in each classroom, there's a matter of funding.

Inventory levels are the new construction, even existing homes remains at record lows.

As such the recovery begins you feel new construction would be domestically. In addition, with existing home inventory levels. So no, particularly at opening price points first time homebuyer demand they actually walk through due to the security of the decline in new construction.

As always we will continue to leverage our direct relationships with our builder to talk with maybe a business.

With regard to our new construction Pts business opened 19 are the only answered. The first thing we can you already challenged market in southern California.

Competitors have also gotten aggressive Wisconsin.

The market appears to have recently study we are working to evaluate this business and mining alignment with a long term strategy.

Looking at our remodel business, which includes our home center and dealer distributor businesses revenues and things like 8% to prior year.

No Sir home center business was down 6.3%.

All the remodel platform was a hardship by dependent.

Actually Jody a major order within home center requires that store visit and interface for they design.

With consumer staying at home store traffic in our space is greatly impacted.

I'm trying to ask we have established new seven within retail partners to leverage our internal design capacity to switch where they think techniques design in transaction.

Made either on there also comes at a higher price point, which is challenging as consumers are now more conservative on the discretionary spend on marketing good islands.

On the positive start picking business can see wont very nicely something but the good news for the quarter. Despite the disruption them operations with customers working remotely and spending more time that youre finding that they are willing to spend and they cost shoot that are more projects as such we're seeing strong to being a lower lifestyle cabinet business and expect to contain.

Experiences into the future.

Yes. It does give you a distributor business, we were down 4.2% for the quarter.

As with home centers in the demand has been maybe we need.

Many of you don't really was a forced to shut down for exactly remotely using anything video services within Siemens.

Hi, Steve waters are lifted and given that the board the arm and hope to see some pick up the winners.

Overall, the people live within normal demand will be suppressed.

He needs and again, it's called the future want aggressive dependent upon getting again younger generation into existing team with venue.

My opinion has not changed however, the timing the show me like Mike said, the Nike and the lack of available like Boston system.

Okay, and you can keep your baby dependent upon the overall healthy economy forecasting that week by week, because we work with them you kill dealer partners on creative means a lot more business.

Moving on to go smoking finished the quarter, 18.9% <unk>.

We continue to be impacted by the on one cost associated with our particleboard supply disruption in Paris, as well just recall skewed to the isolated suspension of Barbara ABR operations. In addition, the tremendous work not acquire operations included shape work environment impacting the pure plays into that Cindy.

Our teams are working to their flows while maintaining our safety standards.

Most of our adjusted EBITDA margin, we finished the quarter at 13.4%.

Looking at that level, we had originally planned on however, given the pacsun disruption over 19, we're pleased with this performance for our fiscal year 20, adjusted EBITDA margin was 15.3 person as a remainder you have spoken to numerous cost headwinds this past year I'd love to be locations open savvy in California.

But there's certainly moved is a onetime discrete caused any do you expect their core workable cost too much capacity continues to come online in U.S.

Lastly, we generated $36.8 million of free cash flow through the 50 years and pay down $96 million and that will also funded you beat your stake project for the company.

In summary, although accounting into our fiscal year I'm proud of their team performance. We have managed through the pandemics extremely well while safely operating with minimal disruption you teach out now is gaining I understand you know the nice were impacted the virus and U.S. economy and overall industry.

Forecast in the future is extremely difficult to say movies continued advancement from spending unemployment rates in the continued impacted the buyers and sellers all makes her but it's all future.

Currently we remain nimble and logistically dipping in the direction the industry.

I believe in Mexico, the days or tell us a great deal.

Although businesses are starting to reopen Amy will see surge in many areas. Most businesses are not be heartening to lever they had purposes and stuff.

In addition to the mutual in consumer spending will not be it the same level that was because it may nineth, particularly on the higher clients discretionary items.

Freshwater caught up in our industry will be impacted degree is and will be the most challenging the forecast.

Good luck strengthen the builder channel what does it put us at least legal alphaform need it wasn't there new model. In addition, we're extremely pleased that we're in negotiation with the acquisition of I've tried to offer Soc product into retail space as well as your ordinance product into construction.

Stock more price cabinetry, or they didn't want to be less impacted with movies and demand into the future.

For me, it's clear to us is that regardless of the near term challenges and continue to have it cleared isn't easy will not be focus on the future.

I would get there has changed but not where we are taking this doesn't.

In fact, they feel that they didn't have created a new opportunities for those manufacturers focused on connecting with consumers and leading agree new England.

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Maybe I missed your already discussing the long term impacted that can be in mclean or industry, including the convention.

She urban area in the suburbs.

Okay, and new would positively impact single family builders eat or drink business as a number one supplier.

Only time will tell however, I can assure you that you will be well positioned to gain share when it comes in turn.

The more near term, we are managing their cost structure, England gene or better in stock offerings.

Our first fiscal quarter, we are expecting revenue to decline, 15% to 20%, including the impact of the disruption ever operation earlier this month.

Performance will be stronger and better in stock and Weve been maybe even though the decamillo in fact on adjusted EBITDA is expected to be 40% to 45% for our first quarter once again, including the impact of the suspension of operations.

Looking forward as I have stated is very difficult to forecast or revenue. However, we do expect incoming order rate to improve throughout the fiscal year.

Within the economy as a whole I expect we'll see an improvement in overall consumer spending.

Let me walk through careful to fully understand the demographics that all on doing spending and what they're spending money on this is particularly true as it relates to forecasting because another business.

We remain optimistic of U.S. economy, and pulled out of this problem extended decline.

There are a key sector will be impacted very good.

With our diverse product offerings are sure you fully leverage our superior customer experience to capitalize on all the opportunities.

In closing I want to send them incredibly helpful. Thank you to all employees suppliers. In addition to companies that continue to keep operations wanting goodness in them.

Can I tell you how much I appreciate quality with that I. Thank you and I will turn back over to Scott himself an entrance.

Sure.

And that's what had wants for the quarter.

Net sales were $399 million, representing a decrease of 2% I'm, saying for last year.

Adjusted net income was 22.5 million dollar for dollar 33 per diluted share.

For fiscal year versus 31.5 million dollar for dollar 87 for sure last year.

Adjusted net income was negatively impacted by lower sales terrace particle board supply disruption costs.

Expenses related to the temporary suspension of operations more component in Mexico.

In addition, lower interest expenses were offset by successfully software write all in an unrealized loss on FX forward contracts is $1.1 million related to fiscal year 2021.

Adjusted EBITDA was $53.4 million.

13.4% or net sales compared to 63 point more involved or 15.7 person that fills in the same quarter <unk> fiscal year.

For the fiscal year ended April.

<unk> net sales were $1.650 billion represent an increase of 2.3% to this incurred last year.

Adjusted net income was $111.8 million or $6 into do nonsense.

Sure.

For fiscal year versus $119.7 million 6009 cents per diluted share last year.

Adjusted EBITDA, Elsner and $36 million at 14.3 person enough sales compared to $244.9 million or 14.9% enough sales for the same period the persistent here.

The new construction market remained strong during the fourth quarter fiscal 2020 demand dropped for them because of 19 packing business until the first quarter fiscal 2021.

Recognizing that 50 to 90 day lag between garden cabin insulation Euro market active in single family homes was up 21% for the financial fourth quarter.

However single family completions for the fiscal fourth quarter were pulling through person.

A builder channel net sales increased 4.6 person for the quarter.

They want to frame direct builder business Comped positively this was partially offset by price and mix executive comps or frame this business.

Your model business felt the impact to stay closures much sooner than under construction business with home centers woman shoppers in hours.

Any deals have been closer physical locations.

Despite interest rates remain low existing home sales increasing during the first calendar quarter 20, twond dilution unemployment rate increases will negatively impact be calling in for quite some time.

I combine considering independent dealer and distributor channel net sales decreased California personal for the quarter.

Home centers, decreasing 6.3% deal distributed and producing 4.2%.

The company's gross profit margin for the fourth quarter fiscal year, 2020, and 16.9 person that sales with a 21.4% reporting the same quarter last year.

Gross margin the fourth quarter was unfavorably impacted by tariffs.

$9 million.

<unk> cost impactful in her particleboard supply disruption of $1.3 million expenses related to the temporary suspension of operations circuit protocols in Mexico.

We estimate of sales loss related to 2019 operational systems into approximately $80 million.

Approximately $4 million, an EBITDA impacts, which represents both a wall sales margin corresponding coffee love it.

We get knocked treated these costs as an adjustment to either though.

Happened in airports and all of our operations currently opening locker.

Year to date gross profit margin was 19.9 per cent compared to 21.1% for the same period in the prior year.

Gross margins for the current fiscal year was unfavorably impacted by terrorists or $6.4 million that coughing passwords, her particle board supply disruption or $4.2 million.

People get written the possibilities are a california facility move to $2.4 million.

Principally related to the temporary suspension of operations are component plants in Mexico.

Total operating expenses were 12.1 person enough sales in the fourth quarter fiscal 2020, compared with 11 point not listen that's all for the same period fiscal 2019.

Selling marketing expenses were 5.2 person that fills in the fourth quarter.

20, compared with 5.3 person enough sales for the same for fiscal 2019.

The Grace you hold flat to the car you're spending adjustments and that's for sales decline.

General and administrative expenses were 6.7 net sales in the fourth quarter fiscal 2020.

There was 6.6 or something that's also the same criticized for 2019.

Recently, where she was driven by the de Levered from lower sales.

Free cash flow totaled $136.8 million for the current fiscal year compared to 151 point $500 in the prior year decrease is primarily due to a one time tax burden physicians in the prior acquisition.

Because inventory accounts receivables.

Leverage was 2.12 times adjusted EBITDA during the fourth fiscal quarter of the company paid down $6 million its term one.

During the quarter as a reminder, during the term loan debt maturities until December 2022.

In closing I want to take our teams for their efforts to maintain or food safety. During this pending I can find ways to do their customer.

For the year, we're pleased with the deliver positive sales gross margins were challenged tariff costs related to the move our California facility I'm stuck to Particleboard supply disruptions consists of $4.2 million expenses related to the temporary suspension of operations in our component plants in Mexico.

Lastly writes a lot things anticipated the employees was the child in the most of this club customers into our employees.

The impact due to the impacts of kind of the 19 evolving macroeconomic uncertainty in the currently modeling hoegaarden environment.

Able to provide the fiscal year 2021 hour.

Our vision and strategy remains unchanged and start to take market share during the trial of uncertainty.

The couldn't be detrimental margin management or parties for our teams.

For the first fiscal quarter Readably, we believe demand trends could result in sales declined approximately 15% to 20%.

Detrimental margins of approximately 40 to 45 persons who worked to offset the inefficiencies associated the safety measures taken across the corporation and better macro capacity coming on.

Our expectation to approve upon the decremental margin way in future quarters.

This concludes our prepared remarks.

To answer any questions you have it's fun.

Thank you so much ladies and gentlemen, if you'd like to ask a question. Please secondly, pressing star one there's telephone keypad. If you think that speakerphone. Please make sure Guinea assumption is turned off tell your signal to reach our equipment. Our first question today will come from a Truman Patterson with Wells Fargo.

Hi, Good morning, guys and thanks for taking my questions I I Hope you all are safe.

First question, Thanks for breaking out there and the buckets of the costs the particle board the Mexican disruption costs tariffs etcetera.

How should we think are these going forward I I'd imagine with their operational costs should start to roll off and the tariffs you use going forward and you know.

How I'm thinking about this is your 40% to 45% decremental operating margin I would imagine that that's probably the fiscal one cues probably go door low watermark and it should improve going forward just wanted to understand how you're thinking about it.

Yeah. So on the related items tariffs will certainly start to laugh because it can be left for the school, we're going fold particleboard supply disruption cost over $4 million for your.

Escalation, they've got a reduced considerable isn't shift into the future could be as long as refer to that number ongoing slid actually be a benefit would be the comparison year over year I think the biggest challenge for us.

The next couple of quarters premiums related to to give a 19. The overall demand environment really only going to be able to look forward into this first quarter.

Severe because it's such a sharp drop right out of the gain on the demand side. So our teams are working rapidly mitigated offset you expect that 40% to 45% range to be appropriate for the first fiscal quarter.

Okay and associated with that demand decline, how is the industry pricing and promotional activity trended you know the past couple of months and do you expect that you know starts and intensify going forward.

Okay, and that's carried for most part of in fairly stable on pricing you know there were starting to see a some asking a price succession out there, but the reality is it should prove to be holding pretty steady like now 70 send me an indicator of a supply versus demand in the future and.

Thank God and our world, particularly in the you know the new construction market with the service, we offer and Oh, I think the where we're sitting with regards to our ability to supply the builders versus some competitors I don't see challenging pricing right now the once again similar to Scott's comments on predictability. If that's it's obviously, if we move into recession.

This decline continues to really drive into an extended the time period than its that's really going to be difficult to predict it but right now we're holding steady and we're not.

Predicting any type of a price declines in our markets.

Okay. Okay, and then final one for me I'm just on your professionally installed business.

Karen versus the DRD, while you know it's possible that you know many homeowners aren't allowing them the pro contractor into their home to install cabinetry kitchen, and Bath et cetera, I guess, how is that business turned it over the past couple of months I'm have you started to see you know that business and proven alone.

Homeowners, allowing those pros into their.

Homes and you know just some of the moving parts as you look out the next couple of quarters with that business specifically.

Yeah, it's very much a really good question and I did not have specific comment on on the pro side, but yeah. It's a very similar situation and that's that's all the impacting you are in our markets, where that's the consumers like willingness to go into the stores Saddam designer or you know the fact that they don't want people come in their home to do a measure.

Our definitely do a regatta kitchen and install those are all.

I'll, just say headwinds right now for the iron ore market. The that were aware of them kind of built into our outlook already which is why we feel new construction is going to outpace the earn on market you know as far as what really be tons of it I think you know, obviously pros get very greater than and you already have with regards to contractors and so forth. So I think there right.

Very closely with consumers and you know there are obviously being screened offering services a certain times of the day to minimize contact with the homeowner.

And so forth, but it is it is a foreseeable challenge which is one of the that's the reason we have our market as you know sitting in the greater in back right now than new construction.

Okay. Thank you all I appreciate it.

Thank you Karen.

Thank you. Our next question will come from Derrick Smile, but its capital.

Hi, Thank you.

Just wondering just somebody once you 15% to 20%.

So you're starting.

Well, it's the provider.

Right.

Sorry.

Social stock.

Oh, sorry.

And what do you expect me to see the worst of the quarter's state Sparks, though we're more portfolio. We're just getting beside me housing.

When cabot's dose.

Because things have visibility.

Actually start to see.

Oh, yes.

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Yes.

Okay give me one sorry, you broke up a little bit somebody did you get to close that question, yes. The guarantee of its really hard good to hear you on that I'm going to try to phrase. The question and then we'll respond to it I think your question was very specific around first quarter and what our demand expectations were around the end channels and if we thought.

Starks would impact this quarter or the next quarter.

Oh, yeah, yeah, exactly so if you could break out the quarter, you know with respect to different channels at an all six director visibility just give them don't lags starts when cabinets comes Curt could go into construction.

Yeah, So new construction, obviously like to combat. It was that's been running strong you know the early indications where the builders are really focused on closing out existing starts so Scott communication in his notes. We typically have it's not 60 to 90 day leg.

I mean I went out when they homes have started to when we actually see the revenue on the on the cabinet side.

So I'll sell those homes. There were started two three months ago continue didn't push through.

And what we really been looking for and trying to anticipate is there a significant wall coming or going to fall off and obviously starts to reduce released in April. So we're seeing a decline, but same time within that you're going to see some significant variation I can comment in regards to price point.

It's a instruments question even on pricing one reason remoxy no significant change in price on new construction. You are seeing then moved down in price, but it's not price concession on our part so we are seeing.

The increase strengthen opening price point product in our market, which is our ordinance product groups. We can fulfill you know a profitably.

So we are seeing those builders Neal sunbathers were already strong enough market and we're seeing some you know some have been reported Austin per my comment on on first time homebuyer credit rating and so forth that they are seeing some steady flow of the first time homebuyers at that lower price point and the also seen a number of the other part.

Others that have a try to make it very soon that's going to swing the past couple of months into getting into new subdivisions, increasing their portfolio of opening price point homes as well.

So the extent to that it's really difficult to predict going forward. Obviously, we're watching the permit data are watching start data very very closely as well as a you know we have boots on the ground on frontline working directly with builders were going to builder sentiment.

And so forth. So you know like I said in my notes, we do anticipate the a builder to remain stronger and you know as far as specifics, obviously can't give you specifics because I don't know right now I mean were.

We we have a you know like I said, we're running based on the backlog right now and that delay but same time. We are seeing starts continue you know many brothers shifted to sell one belt one.

But same time, you've done an opening price point builders are typically a jump in the spec homes. Good you're going to go about subdivision themselves back home. So that was once again be a positive for for our business because we get the sale or even for a you know they've got the epicel. So.

Not understand say were somewhat more optimistic on builder relative to our in our but a the exact percentages of the impact we I really can't tell you right now other than what we see in the next next month or so let's right now we see no new construction remaining fairly a fairly good.

Okay, great. Thanks for.

Billion dollars and cost savings or what the heck of salary reductions here just that.

Starting immediately in the first quarter.

Just how should we think about.

Their cost savings through fiscal 21.

Yes, it will start inside the first quarter or be pro rated it won't be helpful. You can't tickets and divide by four quarters and calibrate it that way because they'll start inside the first quarter.

Second quarter.

Actions.

Okay and then just this last week to sell the framework piece, yes business. It sounds like you're considering something some additional actions. There. If you could provide any color on what you're looking to do a true to right size that business.

Yeah, I mean, right now to lots on the table that initially were just understanding the market I'd said thats really occurred that steadied out you know so we're just looking at that night dynamics or the industry, where competition and some are competition does have manufacturing local to California. So there obviously more focused on uncovering overhead costs and and so far so we.

I've seen some aggressiveness on pricing, but once again is all that steadied out.

So I think like five strategy, we're really looking at where demand starts to shift then.

That are going to be in multifamily single family aren't and really what our competitors respond to that versus I respond. So so nice they strategically it's not like anything drastic as I said looking at our competitiveness and.

Since obviously, we completed acquisition of our as high a couple of years, though we've been very focused on improving near the the whole quality system related to our Pts business focused on the supplier or customer experience.

Improving our logistics system and so forth. So there's a lot of things that go into that mix when I say strategic a that we're continuing to evaluate so.

I think the big questions how much do we.

How much are willing to invest in the short term versus where we feel the market's been though in the near term.

Okay makes sense, thanks, again and best of luck.

I guess.

Yes.

Thank you. Our next question will come from its Steven Ramsey with Thompson Research Grant.

Good morning, I guess, the as the sales outlook question and maybe another way.

I guess what in market, what specifically would you say are the big factors that swing you from the low end.

To the high end and how much of this it is the outlook is informed by a trends to date.

Informed by what trends are.

I'll make for and they are.

Hey trends as far as the the key things we look at yeah. It really varies between our in our in a in new construction you break our and our down by whether it's what I call made to order or special order.

Whether its stock so as they you when we talk about aren't aren't a child's as our north really talking about the special order business.

And that's that's all the challenges Mary talked about where its consumers and you'll likely willingness to go into stores, it's the pro going into the home.

I think that for the foreseeable future that business is going to have some challenges. We are like I said, we're very.

Aggressively and creativity working with bolt dealer, they and their home Center partners.

Your out the ways to serve that the that market.

Including even the a the pro side of it so were they have a very invested interest obviously to try to get that business back on the growth curve.

And we're working with them on that when it comes the stock business. So.

Good thing is I think like you're seeing out there you know where there is a short term gain or longer term, but consumers have been spending on I'll say low dollar tickets are an arm. So it's as simple that home repairs and remodels.

On our stock business, which is a cash and carry a kitchen and bath Vanity who's been running a strong and right now where we're expecting you have to continue to run strong well into the future.

That's just really based on you know, even even going back to the one of our strategic.

Reasonings for the acquisition of our size at lower price point is much more resilient when you get into downturns in recessionary type environments. So it's a it's a it's smoking good I think the barrier one that we're obviously very very focused on and and I'd say, it's it's just difficult to predict is a special order are an arm and you construct.

Can you know the indicators are reluctant there you know overall similar to the remodel in context of consumer spending consumer confidence you know real GDP growth in America.

And so forth, but I.

I think theres a lot of other variables that impact a new construction as well, including you know credit availability and and obviously what happens with unemployment rates and so for me up to now now say, mostly unemployment has not.

Had a significant factor on your opening price going home consumer.

The big concern as a lot of the central companies that have ramp for the past couple of months there now starting to see the impact of the macro and micro affected the or the economy, you're seeing some starting to to make some reduction unfortunate to term line with overall demand. So the question is how does that impact the economy and impact our new construction.

So it's just it's so hard to give the you know you two or three variables that we could just track and say that these are key indicators even in may that that we're watching because it really is a short term outlook right now that that we're trying to just focus on and then a good thing is we are fairly nimble you know when it comes a to our in our.

Are you know we do run on backlog.

That's a so were fairly predictable out you know 30 days or so.

On the stock, that's really too big and basically by the man, we build inventory and sell through and so it's really point of sale data that we use there so.

Yeah, we sat better a better data to give you something we're all going to be watching very very closely as why we're all very hesitant to give out de type outlet because there's so many variables with America opened up right now states opening up.

We'll see what happens with current viruses that are W. Is a slow recovery is a fast recovery.

Thank you know every time inside the different answer in somebody's going to be right, where we're trying to trying to be a new as realistic as possible and take advantage of everything we can line, where we go through this.

Great and then pitching on investment.

And capex shifting priorities, especially talk about in the last few calls this time of transition with customer preferences are shifting a and then the strong fundamental demand for housing broadly you know with the shifting going on.

How are you changing were priorities for investing.

Yeah. The good thing later or not or is there.

I've got a year ago I start communicating our new I, we do expect your visions, we got 2025 vision and then.

In.

The most.

An important aspects of that vision are definitely alignment with where we need to take this business even post a cover 19.

Really focused on the digital aspect and you're facing with you in consumer improvement over our customer experience recognizing that you are future consumer is going to be changing drastically as we get into younger generations and how they shop, where they shop you know what attributes they feel are important.

I think a cold in 19, it's only going to expedite that transition.

To the need to be able to interface digitally.

I think the Challenger Bank has it's pretty easy you know say easy you know relative to many other things that go out and set a date.

Company and digitally connect with a consumer and selling.

It's into them.

A hard part it's how you service and so how do you take that consumer manage that entire customer experience, including you know getting their existing kitchen out and getting the new kitchen, and that's where the extent experiencing the big takes it down fall and that's where pros obviously your challenge. So I think all that is we started evaluating that strategy.

In years ago, we've already started investing that we're working on future state products were working on or digital strategy.

In the good thing is those are in alignment with I think everything we've we've been focused on thus far so I can't say, we're reducing that where problem, we certainly making strategic choices internally on prioritizing projects from a capital perspective.

Same time I would tell you we're not de prioritizing the most important.

Aspects of our strategy and our vision, we're going to move ahead, and we're getting team to capitalize on what we feel the opportunities aren't coming October 19th.

Great. Thanks for the call.

Thank you.

Thank you. Our next question will come from David Macgregor with Longbow Research.

Yes, so thanks for taking the question and thanks for the detail on the core that's helpful.

I guess I'm, just trying to get a sense as you talk about the 40% to 45% Jack levels for the first quarter and that's obviously given all the uncertainty in the environment, that's as far forward as you'd like to talk about right now but.

We're trying to think beyond that I guess, you know ticking up the decrementals apart.

Yesterday I guess in particular, how much are going do you have to flex there.

And.

What I'm guessing, there's a little bit at the time requirement there it's harder to be nimble, maybe with some of those.

Adjustments, how should we think about that sort of going beyond first quarter.

No that's not much got to answer detail lab I do want to give you this little bit of strategic decision. We made similar to what we made during the last another great recession as you aren't touch points with our customers are very very critical.

So we have made a decision that you know, although we have taken some reduction on yes, United side. Our sales force side. We are you able to say, it's very important notes can you continue to to keep that contact with our customers and continue to invest in our customers investment strategy and so far so.

The decision we made in this last cutting back in a busy decision will continue to make sense just little bit different study to play for us, but at same time I think a those because I go back to the great recession, we came out of that.

Well I understand why we strategically and making that decision.

Yeah. Thanks, Sharon so when you look at the selling general administrative expenses, you're right. It typically there's going to be or a higher fixed elements related to this.

Take care categories, but she also look back over the last couple of years at the business and see what that rate than we did a nice job managing that another thing that appropriately on the upticks and downticks on volumes now as we look forward are we taking actions, yes, we've taken actions even now sat in a in the release with reductions in force.

And we've had to process inside the first quarter. So we'll take some time for those to catch up and we'll see the benefit structure.

In future quarters, but ER in absence of that it would have been a tougher slate because it would have been significant leveraging across his DNA categories.

Right.

Right Okay.

Thanks for that and then you talk about the particle board, which is helpful.

Sort of step back Wong from there and just talk about in broader terms raw material costs for the year ahead are you seeing inflation deflation how should we be modeling.

Yeah, I'd say, that's probably a wall to a wide open question as well.

The broken the word andr inflation or anything else, but at this point in time, we've seen more lumber prices principally down versus prior year.

I hope and expectation is that that's the main thing that kind of status quo particle board would certainly talked about.

Okay and over the last a year with respect to transportation fuels moving to a favorable status versus prior year.

Still see contracted rates for the prior arrangements fill a slight uptick versus prior year. So it depends on the category, but I don't sit here today thinking that rals are going to be our big issue going forward I think it's more the demand discussion.

Okay.

And then final question for me it just labor availability are you feeling the pinch points within your own production.

I realized on the installation side, that's a separate discussion, but just within your own manufacturing operations are you feeling the pinch in terms of labor getting people back into their plants.

The degree to which that might be a disruptive to them all right now.

Oh, yeah. The good thing is since we really never shut down we not asking people to come back I think it'd be much tougher if we had a folks that were in a layoffs scenario. We were not declared a central and then you had to get back a copper anything right now like many in the non essential manufacturers are trying to do.

So we we maintain our are running status, which kept our employees a fully engaged.

Yeah, we're seeing that Ive to say what do you typically are seeing with other manufacturers in this environment you know plug in 19, and certainly impacted you know some people are just from the psychological perspective, and so the turnover up slightly shirt as a good things are managing through that.

Hi, Scott mentioned on a on SDMA, where you know obviously, we are variable costs in the manufacturing platform, we are aggressively managing that as well and the good thing. Although we have had some no I'll say limited reduction imports is out there.

We're just using the attrition as a means to demands are variable costs. So that's something that we're pleased they pay attention do but for the most part with something we're managing through a effectively.

That one I policy commented on your overall impact productivity just related to covert 19 and react really out of operations. There is some.

Headcount or just a.

Impact in there as well with regards to Oh, some turnover as well as just a increase in.

Absenteeism, but but nothing that were not managing through I can tell you that.

Right. Okay. Thanks, very much the stay well.

Thank you. Our next question will come from 10 wash with Baird.

Hey, guys get out good morning, Thanks for the time and hope you guys are safe.

I'm a big picture question in a couple of follow ups, but maybe just on the overall kind of cabinets industry and the health of the itself.

You think coal that puts more stressed on on some of the smaller players.

Just given the capacity and liquidity do think that could could benefit new overtime.

And then I guess as as a secondary part of that question.

Do you think just the absence of Chinese cost in the market will help on the RMR sided needs. It just think that the demand levels.

You know could remain suppressing up but you don't see that.

Hey, Tim first question on the small players of.

She is something that where we haven't seen impact yet it's just looking at the macro impact of the economy. It certainly is taking a tougher toll on smaller business about their.

It's my team I, obviously talks that we that's the last thing we want that happened in any one of our competitors in this business and.

You know that logic says is based on the macroeconomics as the yes, they're going to probably struggle more I'm just from a a fixed overhead perspective, and many then played a higher price points. So most of your smaller players out there and the semi custom space, which is taking a much bigger hit.

During during this downturn than had lower price point product so.

Yes have we taken or will we see an impact on that we have certainly not forecasted that and <unk> and I've said don't hope so because.

I see that means if somebody gone on business, which I don't wish on anybody.

Well monitor closely I think it's going to be hard to hardly show and it's not going to have a sniffing impact on say the near term demand just because of its dismissed can shift down in price point.

Where a dealer business right now is already a our rate down youre seeing.

Down in price point, even dealer if you start to see some local regional semi custom business I can certainly impacting your business you know, but right now it's not something we're predicting or cost they have not talk a whole lot about.

Your second question on China.

Right now it's a the way we're best you predicting or I guess I'm, realizing some of the benefit from China and talking with our home Center partners is.

Not only we get the advantage of moving to move down in price point, but we do feel that some of the upside that we're seeing a in the stock, particularly stock kitchen business is related to the a the Chinese tariffs.

It's hard to or you know to to put a value on that and to quantify it.

But we definitely feel along with a several of the factors. It is contributing to the the increase in our stock business.

I think it's you know the price point that was playing out there and we've said all along is kind of two buyer as long as buying it because I just want to cheat cabinet. Another was a true semi custom buyer that was as buying them because it was all plywood and and offers from the features of our semi custom product in America.

Most of those customers right now I'm just aren't buying so it's not like they shifted away from the Chinese product that there's none of their buying period, because it's a constant that price point and most folks just aren't remodeling there they're doing a complete kitchen remodel right now so.

But we didn't do believe we're seeing that uptick in our stock because of the Chinese care.

Okay. Okay.

And then just just two follow ups.

I guess on the overhead reductions <unk> million.

Fully permanent or is there any sort of temporary or that's variable and talk to that if demand will come back faster than you think.

And then the second follow up question I have is just really on your order rates in may, but where business is there anyway to kind of put a little more being worried about was actually see one waterside in April.

You said on incoming demand.

Just incoming orders on the my daughter Center.

Yeah.

On the layoffs is no I mean right now they are defined as permanent layoffs of only thing that would all to that as if we got back in the aggressive growth phase and.

And Oh, we had to go out in rehired, but right now those are permanent layoffs.

For for students circulation.

Got to the orders on the I can't really say much more than than what I've already said you know incoming demand right now is.

You know is stronger in the new construction and not as calm and our NRE and.

And you know our you know I'll share back more managing our backlog successfully right now so we have not gotten ourselves in a situation where on backlog is adoption ethically and and we have holes in our schedule. We are running full in our schedules are Saudi our team has done a very very very good job.

The scheduling our manufacturing operation and adequate supply in our our demand saucer, we've had a more significant shift in new construction much shorter lead times.

But it's a it's altering very well with regards to our manufacturing process. So incoming right now is I'll, just say properly balanced with our production.

Okay. Okay, that's all the color and at the local media.

Thanks, Dan.

Thank you next we'll hear from Julio Romero with Sidoti and company.

Hey, good morning, Colby folks are doing well I just wanted to make sure I got this part of the guide right.

40 to 40 foot 40, or 45% incremental in the first quarter inclusive of the beginning of that it going at an annualized reductions or is that kind of pre savings like assuming you get.

You had none of that cost reduction benefit in the first quarter.

That would be inclusive of the benefits associated with having said first quarter.

Okay. Okay.

And you mentioned your facilities all back on line over the plants are fully operational.

Could you speak to maybe the utilization rate, you're seeing either maybe on an absolute basis or for relative to maybe just talk part here.

Well I'd, just say gateway supply in line with overall production haven't talked about for our revenue we don't get into specifics with regards utilization just because obviously it gives an indication to our our competitors are our capacity isn't and so forth. So I'll just say right now where we're running a.

Somewhat I'll say fairly especially given the current environment.

Most of our operations. We did have a you know I'll say people shifts running and we've scaled back on some of those the.

Right now it's a hard to say we have we have room to go grow but the same time I'm utilizations are not having a significant impact on or efficiency.

Got it appreciate the color thanks for taking the questions and stay healthy.

Thank you William.

Thank you next we'll hear from Justin spare was zelman and associates.

Hi, Good morning, Thank you guys just.

Just wanted to save you can unpack the home improvement and the new construction revenue trends versus the prior year in April and May.

I mean there.

I would say they're down [laughter].

Construction of course, we talked about our comps on your construction was up positive.

Combine your construction will or 5%.

But a hard hard bounce and that's when compared to last year as far as train goes.

As we commented our in ours indefinitely.

I will say it's trending.

Let's say stuff right now the say is fairly steady goes down significantly over prior year, a new construction is a big question right. Obviously, we had a good to go down into the fiscal year.

Most of predicting you know if you look at Starbucks, obviously bond or close to 30% single family mostly predicting.

Pretty good decline in new construction right now in the saying, where we are faring fairly well in that space just given the move down in price point in our direct to builder.

Market that we have so.

We're going to me if you look at the way injuries trending we expect to trend better. So we should over index the industry like we pretty much every quarter.

Okay and then the other question for me just on the on the decremental margin.

But thinking about the cost to what I guess, how much about how much benefit from costs that we're right where absorb last fiscal year not repeating this year, you mentioned particle board, but what about the P.S. costs than any other.

Costs it that don't repeat that should be good guide for this next year.

Yes, certainly throughout the full year, you don't have the California facility moves repeating so that's kind of said so think about half from competitive standpoint.

Particleboard supply we already mentioned that we expect that are likely be closer to a third of what we saw was good.

Prior year.

Tariffs continues to see you're kind of lapping that show, it's not going to be an incremental piney point, it'll just be absorbed and.

Right.

Okay. So what so wouldn't decremental margins be normally I know, there's a lot of special things going on right now a lot of inefficiencies, but what what would you normally planned for in terms of Decrementals.

And we haven't typically provided guidance around an incremental decremental margin over the last couple of years post acquisition and I would just steer you to the remarks around the first quarter and again.

Mr. Certainly as you know you look at this stage I competition, it customers and there's a lot uncertainty out there. So at this point until we can see into the into the first quarter, we feel reasonably comfortable with the range of estimates around that.

And we'll just have to me to monitor the next couple of weeks or months, we'll see how that plays out for future future quarters.

Yeah.

I understand that I guess, maybe coming at a different way the 8 million dollar cost reduction effort offset.

What you think will be their productivity headwind from a virus assuming that all of your operational stay up and running if that is that kind of what you're trying to achieve with where those cost reduction efforts.

No I mean, obviously at the cost reduction effort with just a line rest DNA, whether all by him and then we manage the operations acing align that with volume separately as a variable cost you had the fixed overhead cost piece and the plan of course that will be impacted from overhead perspective, but it's not productivity impact a co of it.

Inflows and so far I mean, we're working to try to continue to improve that but it's just so unpredictable. It because we don't know I mean, just like every other manufacturers out there in America in a world today. It's yeah. We're we're managing this day to day and we're taking temperatures very employ walks in the door, where you really safe your employees comes first period and.

And what you know don't know is the unpredictability of for what it's right, but if a city or time, we operate in what happens if we have outbreak in the plant. We just it's very difficult to predict those things and you know we feel extremely comfortable and confident with the safety we put in place to be.

Yes, I have some concerns with the state's opening a opening backed up and peoples I'll say not.

Properly watching their behaviors and by highlighting some of the a the safety expectations and and then potentially getting coven 19, right. So how does that impact your operations hasn't got consumer confidence consumer spending houses to me variables to really predict out there. So we're managing our costs appropriately obviously, our cost structure right now is in alignment with the.

Our current estimates of bouncing between where we are today versus where we think this is going to go in next few months versus knowing that we want to continue to invest in our I'll teacher outside of your vision and yeah. Our goal always going to go into any recession munis or something where you know I think they were not used to govern 19, but we're used to recessions in this industry and very cyclical and.

And we know how to run the company during a downturn recession and more importantly, we know how to run this company into two really mean, when you come out and stuff and then that's absolutely we're going on during this time.

That's helpful. I think that last question a follow up just in terms of thinking about all the complexity in recent years associated with anti dumping duties and trade situation and I just got the pandemic disruption.

You think this plays out for a product I guess productive capacity shifts the next cycle, particularly.

Looking at imported product versus domestic production, but that stock product that's doing so well right now how do you think that unfolds in the a in the coming years.

Yeah make for a game get great case studies underway right. Now. So you reported last last call that you saw this year shifts I'm trying to into Vietnam and other a other Asian country.

Always going to have a I'll say a competitors that went to play the the international sourcing low cost sourcing.

You know, we we truly believe that we have a strategic advantage by keeping our investments local.

Because our customer experience is so critical and like I keep saying is that it's easy to supply cabinet.

Extremely difficult to create a positive customer experience and you think about American woodmark in our position in the investments that we have a in our total infrastructure, including our direct to builder that we can leverage on the direct to consumer.

The one that few companies out there you only company out there can offer you know national type of customer service and experience. So I think anything you see shifts you're going to see Oh. So you think about the equation for semi automation, you're going to see probably more investment.

And in capital intensive operations over time, just because you know people going on like line as to operate and don't want to come in work in the manufacturing plant and so I think companies with a strong balance sheets, particularly those with a larger economies of scale are going to have an advantage in the future.

I think it's a there's going be a lot of lessons learned from October 19 to the impact to the psychology of the consumer the psychology of the worker and and obviously, we're a very active and our strategy thinking about how we're going to modify this business and how we're going to make investments in the future and.

I think we're well positioned to take advantage of those.

Thank you guys.

Thank you.

Thank you won't pick up all of Premier Truman Patterson with Wells Fargo.

Hey, Kerry thanks for.

Thanks for those thoughts and thanks for taking my follow up just a couple quick ones.

Your largest competitors rotated aggressively towards the value product just want to understand and the seed industry dynamics here. It sounds like you know you haven't seen them you know putting pressure on pricing.

Were they gaining market shares are coming from other U.S. manufacturers as at the lack of Chinese product in the market just wanting to understand.

You know the moving the moving parts there.

Yeah, the keeping pattern UGI products, you're talking about least fund we know is an important product that's what they're leveraging the dealer business. So it is a replacement for what was imported from China is coming from other other sources, you know mills agents horses.

It's something that we told investors all along that it's easy for us it's easy for on competitors again into that a supply chain as isn't so desire.

We continue that migrated that there's a short term play as we work on future state products, you know to import even pod, we can certainly do it.

And we'll keep you informed to that so most of that share that they're talking about being gain in the dealer world as a direct replacement for that low price Chinese product.

Where we actually do not have a price offering you know that's comparable it's all plywood. Its you know that since the spacing vaccine brought that's an important from from China.

Let's now shift into other other Asian countries that they're not importing so.

It certainly is a.

Opportunity there taking advantage of you know we strategically take a different approach we're working on future State Hi Tech solutions.

But same time I will say that we are aggressively evaluating our position and for a short term bridge, if we want to get into that that supply it's not difficult to do so it's something that were well continue to evaluate.

Okay. So it sounds like the Chinese imported product is going away. However, you know other countries in southeast Asia are fairly rapidly, replacing that Chinese supply is that accurate statement you know.

Maybe some.

Exactly what's occurring there how quickly you think that that supply can be replaced.

Yeah, so they actually stagnant warehouse capacity as a key issues and so there's a lot of capacity and John when there's going to take quite some time, but like capacity in Vietnam and other legal and other countries.

Yes actually report on our last call that we've been quite amazed at how quickly and investment has shifted.

Two two other Asian countries, not only thumb I'll say manufactures and local companies within those countries also Chinese companies have aggressively aggressively shifted their production you know to other countries outside China is it.

The amazed us and how quickly that's occurring out there. So covert 19 is certainly delayed some of that but but it's still continues and are expected to continue just because its a.

It says a lot a lot of money there, but once again long term, we continue to feel like we can't compete against that with a future state solution without having to take on that risk of international supply chain.

Okay. Thank you I appreciate it.

Okay.

And just a reminder, ladies and gentlemen, it is fair I want ask a question at this time and we'll pause for a moment.

And as a final reminder, its star one to ask a question.

And as I do not see there anyone else waiting to ask a question I would like your conference back over to Mr. corporate for any closing remarks. Please go ahead.

And since there are no additional questions. This concludes our call. Thank you for taking town dissipate.

Thank you and again that does conclude our conference for today, we thank you for your participation.

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