Q4 2020 Earnings Call
Greetings and welcome to the C. S. W. Industrial think fourth quarter 2020 earnings call.
At this time, all participants are to listen only mode.
Question answer session will follow the formal presentation.
Everybody wants require operator assistant started conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's my pleasure to introduce your host Adrian Griffin, Vice President Investor Relations. Thank you you maybe yet.
Thank you Doug Good morning, everyone and welcome to DSW industrial fiscal fourth quarter 2020 earnings call. Joining me today are joined the Board Chairman Chief Executive Officer.
Yes, I mean, industrial and James Terry Executive Vice President and Chief Financial Officer.
If you're not received the earnings release is available on our website at Www Dot DSW industrial Dot Com. This call is being recorded a.
A replay of today's call will be available and details on how to access the replay or in the earnings release.
During this call.
Forward looking statement.
These statements are based on current expectations and assumptions that are subject to various risks and uncertainty.
Actual results could materially differ because the factors discussed in todays earnings release and in the comments made during this call as well as the risk factor section of our annual report on form 10-K, and other filings with the FCC, we do not undertake any duty to update any forward looking statement.
This call will also include an analysis of adjusted operating income that is an earnings per share, which are non-GAAP financial measures of performance.
These non-GAAP measures should be used as a supplement to and not a substitute for operating income net income and earnings per share computed in accordance with GAAP.
For a more complete discussion of adjusted operating income net income and earnings per share see our earnings release.
I will now turn call over to Joe or.
Thank you Andrew Good morning, Thank you for joining our fiscal fourth quarter conference call before.
Before we discuss our results and outlook, we'd like to extend our sincere wishes for full recovery to everyone. It's been affected by Copel 19, and also expressed our gratitude to the many frontline responders diligently working to ensure the safety of our communities.
I would like to also welcome James Perry to our team, that's our executive Vice President and Chief Financial Officer as you read our April press release, James has been serving a consulting capacity for the last few weeks, ensuring a seamless transition.
We're extremely pleased to have James as a part of our executive leadership team.
He brings a wealth of experience and a demonstrated track record of success that I expect we'll continue here at CES Wi.
Given the current environment I will expand on our response to the current pandemic make a few comments on our fourth fiscal quarter in fiscal full year 2020 result in financial performance.
And discuss our outlook for fiscal 2021.
Well, then hand, the call off the James for a closer look at the numbers.
Preparing our remarks for this quarter, we're reminded of our earnings call at February where we proactively addressed the then current state of the virus.
Which has led to the pandemic induced economic environment, we navigate today.
In a short three months since our last call. Our team has responded with unwavering professionalism to the rapidly evolving business environment.
In difficult times, we affirm our core values and our capital allocation strategy, our commitment to be good stewards of your capital is resolute.
To accomplish this goal we are focused on four objectives treating our employees well serving our customers well.
Effectively managing our supply chain and positioning the company for sustainable long term success.
I'm very proud of our teams demonstrated commitment to our core values teamwork citizenship and respect as we rally to support the health well being a safety of our colleagues and communities, while maintaining business continuity and supporting our customers through a relentless focus on accountability excellence and integrity.
All of this position see us Wi Fi for long term success and is consistent with our core value of stewardship.
Employs deserve our utmost respect and sincere gratitude they've shown tremendous resiliency encouraged throughout this period.
And together, we will address the challenges of today and work toward a stronger tomorrow.
Expanding on how we treat our employees, we remain steadfastly committed to our employee centric culture, where the safety of well being of our southern hundred employees, our top priorities and we have redoubled our efforts in this regard as a pandemic unfolded.
A few examples of our enhanced actions include procuring and requiring the use of additional personal protective equipment, ensuring incremental cleaning and sanitizing my worksite.
Modifying work schedules and processes.
Initiating employee health screenings.
Urging working from home where possible.
Restricting business travel and making paid emergency sick leave available.
We have a highly experienced management team on board of directors comprised of accomplish leaders adept at managing through economic cycles.
Since inception, our management team has demonstrated a commitment to building and maintaining conservative financial position, including a strong resilient balance sheet ongoing access to capital and ample liquidity.
We continued to demonstrate this through our $18 million of cash on hand as of March 31, 2020, and full 250 million dollar availability on our revolving credit facility.
Our entire team is focused on the factors, we can control and we remain well positioned to capitalized on both organic and external growth opportunities as they emerge.
Turning to how we serve our customers we provide high quality products and services to professional tradesmen that are used to repair protect and maintain homes and commercial buildings and materials critical to the continuity of essential businesses and critical infrastructure.
Our operations have been deemed essential across the U.S. and other global locations.
Providing our customers with high quality high value products and services as the foundation of our success.
Our customers that want to thank and rely on us during good times and bet and as a result, we have earned their loyalty.
With respect to how we manage our supply chains in order to be good partners with our customers. We must also have reliable suppliers with minimal sourcing risk.
Over the last several years, we've worked diligently to continuously improve the quality and reliability within our supply chain.
While we have not experienced tissues to date, we are evaluating opportunities to further diversify the locations where our products are made which will help ensure consistent supply chains going forward.
Turning to how we position our businesses for sustainable long term success are sustainable business model drove strong results throughout fiscal 2020 with outstanding top and bottom line growth, resulting from increased volumes across both segments and contributions from our recent acquisitions.
The growth in cash flow generated by continuing operations enabled us to return $34.6 million to shareholders through share repurchases and dividends during the year.
To reduce our debt during the year end to end the year with cash on the balance sheet and the full revolver capacity available.
In addition, we paid our regular quarterly dividend early earlier this month, and we expect our strong financial position to support dividend continuity.
Our capital allocation strategy continues to guide our investing decisions with the priority to direct capital to the highest risk adjusted return opportunities within the categories of organic growth.
The strategic acquisitions, and the return of cash to shareholders through our share repurchase and dividend programs.
Due to our strong financial position, we will continue to invest in financially and strategically attractive growth, including expanded product offerings bolt on acquisitions and increased marketing expanding sales footprint.
All of which drive our strategy of targeting long term profitable growth.
I'm pleased to report our results for the fourth fiscal quarter, beginning with consolidated revenue of 98.5 million, representing 7.7% total growth compared to the prior year of which 3.7% was organic growth for the fiscal full year. Our consolidated revenue was 385.9 billion or.
10.2% total growth.
5.9% was organic.
Organic revenue revenue growth was driven by our team's focus on new product introductions and market share gains.
Customer specific programs targeting share of wallet growth and investments in our sales and marketing organization, including personnel product training and performance based compensation.
During fiscal year 2020, we realized growth in both our industrial products and specialty chemicals segments and across all end markets we serve.
We also completed the successful integration of our two most recent acquisitions.
Fourth quarter adjusted earnings per diluted share were 83 cents, just a 10.7% increase over the prior year period, but 75 cents.
For the fiscal full year, our adjusted earnings per diluted share were $3.20, which was an outstanding increase of 15.5% over the prior year of $2.77. This.
Just continued growth in earnings per share as a result of leverage from increased sales ongoing benefits from commercial team initiatives and the outstanding performance of our recent acquisitions.
We have remained true to our capital allocation strategy with our recent acquisitions accounting for 430 basis points of incremental fiscal full year revenue growth.
Additionally, in the fiscal full year, we returned approximately 50% of net cash provided by operating activities to our shareholders.
Taking a look at our quarterly segment performance sales on our industrial products segment grew by 11.9% for the quarter and 14.1% for the full fiscal full year of which 5.3 and 6.7% organic respectively.
Fiscal full year organic sales growth was predominantly associated with volume growth in the Hvdc uploading end markets, partially offset by modest declines in the general industrial and rail end markets.
Our performance in volume were strong in fiscal year 2020, we would remind investors that are industrial products business fluctuate from quarter to quarter with distributor order flow and whether it's highly correlated to the installation volume of new or replacement air conditioning units.
The industrial product segment delivered 7.7% increase in quarterly reported operating income to 13.6 million and there were no adjustments in either period.
For the fiscal full year, the industrial product segment, adjusted operating income increased 14.7% to 55.7 million and remain highly profitable with a 23.7% operating income margin, which was just about flat with 2019 fiscal year.
There were no adjustments to segment operating income in fiscal year 2020.
Turning now to our specialty chemicals segment sales grew by 1.6% for the quarter and 4.7% for the fiscal full year, all of which was organic.
Fiscal full year sales were driven by higher sales of consumable products into all end markets.
Well performance across all end markets continue to improve in fiscal year 2020, we saw a slight decline sales volume at the end of fiscal fourth quarter due to pandemic disruptions at the volatility in the energy markets.
Segment operating income was 5.5 million compared to 6.7 million in the prior year period.
After adjusting for a $1 million trademark impairment adjusted segment operating income was 6.5 million in the current fiscal quarter.
There were no adjustments in the prior year period.
For the fiscal full year, the specialty chemicals segment, adjusted operating income increased 11.3% to $24.9 million and drove a 100 basis point improvement in operating income margin to 16.5% in fiscal year 2020.
As we began our fiscal year 2021, we expect most of the end markets, we serve to experienced temporary but significant demand degradation, resulting from the pandemic disruptions.
While we generally do not provide guidance were mid term expectations. In this environment, we do want to provide additional clarity around our current expectations.
We think about the year in two halves and our current expectation is for revenue and earnings in the first half of our fiscal year to be meaningfully lower than the prior year period.
With some recovery expected in the second half I.
I want to remind our investors that we are fiscal year.
The began April was when we discuss has of year, we were referring to our fiscal year, which was which does not match the calendar year.
During our fourth fiscal quarter, we observe district distributors building their inventory levels and as such we expect some underperformance in the first quarter fiscal 2021 as a natural result of distributor destocking driven by economic effects of the pandemic.
Furthermore, we are not immune to macroeconomic changes and thus we currently expect that our second fiscal quarter will declined sharply from last year.
And then we expect our results will rebound.
Beginning in the fiscal third quarter.
As a reminder, our fiscal third quarter is typically been our lowest level of profitability for the year of the year.
Due to seasonality.
The negative impact on our full year profitability through margin through potential margin erosion is expected to exceed the decline in revenue.
While we have implemented several temporary cost reduction measures across the company. We've made a conscious decision to continue to invest our employees, we have not reduced our full time employee workforce due to the pandemic.
This commitment to our full time workforce provides us with the best opportunity to meet our customers' needs as the economy reopens and demand increases.
Anecdotally large distributors and certain end markets that we serve at publicly discuss declines of 15% to 20% and our decline has exceeded those levels in the first six weeks of our first fiscal quarter due primarily to the Destocking effect that I mentioned previously.
As our products are more geared toward residential applications are rebound in areas such as hvdc in plumbing could be helped by the large number of individuals working from home entering the annual peak sales season, and normalization of distributor inventory levels.
As always we are monitoring demand through both macroeconomic data and more importantly, direct conversations with our customers and we will remind investors that circumstances are very fluid.
No one can accurately predict any companies results will be impacted by the involve evolving market dynamics. This constant contact with our customers provides us with improving visibility on the range of expected performance in each of the end markets that we serve.
Our products are utilized hvdc repair and the installation of new and replacement units and as such we expect near term sales into this end market to decline, partially offset by potential to increased sales of our environmentally friendly decontamination products, such as coil cleaners, along with new product introduction.
And the integration of acquisitions.
Similar to our HPC market outlook near term sales into the plumbing in market are expected to decline with long term demand for products driving end market growth as the installed base continues to grow with general construction.
Within our architecturally specified building product end markets, we continue to see bidding activity and backlog stability.
But the rate of bids turning into orders has slowed down in the last few weeks.
We will regularly review this projects within the backlog and assess risk of project timing appropriately.
By targeting growth and education healthcare and commercial office construction in pursuing cross selling opportunities and new product introductions. We continue to believe in the long term outlook for this portion of our business.
We acknowledge the potential for project delays in certain jurisdictions have constraints and delays, but one bright spot for us in this end market is that we're seeing some competitors, who are unable to deliver product or install that product due to them being shutdown or having issues with their supply chain.
So we have won several orders due to our consistent ability to manufacture and deliver products during the past two months.
And the rail energy mining General industrial end market. We continue to expect long term end market outperformance, while acknowledging near term headwinds as industrial companies reduce planned capital expenditures global rig count softens and railcar traffic has declined in some areas.
Specific potential opportunities to offset near term softness include expansion of sales into international energy markets Transit rail. The continues its regular routes moving essential workers to and from their jobs each day.
And improving consumer demand for finished goods.
Which will necessitate industrial demand for our consumable products.
Regarding our cost control measures, we continue to focus on pursuing operational excellence, which includes making our cost structure more flexible and competitive.
We reduced certain profit sharing incentives and benefits as well as discretionary expenses such as consulting travel entertainment. Additionally, we have a flexible labor structure at certain facilities that utilizes temporary labor to manage stronger demand periods and we've been able to adjust this labor as demand improves.
Or declines.
We do not expect these cost reductions to fully offset the impact from the expected revenue decline in the near term.
But there are additional cost measures available to us if the decline in revenue has a longer duration currently anticipated.
We are focused on long term sustainable value creation, we've made a financial we've made financial and strategic decisions in the years, leading up to this event that allow us to continue investing in our business for growth and to gain market share.
To accomplish our long term objectives, we are willing to temporarily except slightly lower profits in the near term. So long as by doing so we are able to generate greater profits in the intermediate and long term.
In summary throughout fiscal year 2020, our team delivered strong topline revenue and adjusted operating income growth year over year, driven by organic initiatives and successful acquisitions.
During the year, we demonstrated our ongoing commitment to disciplined capital allocation with $34.6 million returned to shareholders via dividends and share repurchases.
Combined with our strong resilient balance sheet liquidity position and cash generation, we continue to be position for long term growth and profitability that endures through economic cycles.
With that I'll turn the call over to James for a closer look at the numbers.
Thank you Joe and good morning, everyone.
Im honored to be on the see us Wi team now as new CFO.
The week since I joined in a consulting role of appreciated the high quality of the people across the company.
The commitment of everyone to our core values and the opportunities that are businesses have for long term growth and value creation.
Ill look forward to working with the investment community as we share our vision and plans.
As Joe mentioned earlier, our consolidated revenue during the fiscal fourth quarter of 2020 was $98.5 million the 7.7% increase over the prior year period.
Higher revenue was driven by increased sales in both our industrial products and specialty chemicals segments due to 3.7% organic growth into acquisition related revenue.
By end market increased organic sales were driven by the Hvdc in general industrial end markets, partially offset by the energy rail and architecturally specified building products end markets.
Our industrial product segment posted revenue of $60.1 million, which was up 11.9% over the prior year period.
Organic revenue accounted for 5.3 person to the increase is driven by increased sales volumes in HPC and plumbing in markets, partially offset by declines in the general industrial and architecturally specified building products and markets.
Our GAAP segment operating income increased 7.7% to $13.6 million there were no adjustments to GAAP results in the current or prior year periods within this segment.
Our operating margin as a percent of revenue was 22.7% in the quarter 90 basis point decline over the prior year due to negative mix.
As mentioned in the past few quarters, our trailing eight quarter book to Bill ratio is greater than one.
In the architecturally specified building product backlog currently contains a portfolio of quality projects that match well with our strengths.
Moving to specialty chemicals segment revenue was $38.4 million, a 1.6% increase over the prior year period, all of which was organic.
Sales growth was primarily driven by increased volumes in the general industrial and architecturally specified building products end markets.
Partially offset by declines in the energy and rail end markets.
We continue to be pleased with achieving mid teens operating income margins a level that matches expectations indicated a number of quarters ago.
During fiscal full year 2020, our total sales growth, including contributions from an acquisition into the Hvdc end market.
13.7% or $14.4 million.
In the plumbing end market sales increased 8.6% or $3.2 million in the year as we've continued to experience solid demand for our products and benefit from cross selling across traditional hvdc customers.
Our sales of building safety products into niche architecturally specified building product end markets grew 15% or $14.7 million during the fiscal year, including contributions from our recent acquisition.
Fiscal year 2020 was a solid year for our mining rail general industrial and energy and markets, which grew 9.562 and 1.6% respectively. Despite rapid declines in demand late in our fiscal fourth quarter.
Moving now to our consolidated results in the fourth fiscal quarter.
Consolidated gross profit increased 4.4% to $44.7 million driven primarily by increased sales and recent acquisitions.
Gross margin as a percentage of sales declined 140 basis points to 45.4% as compared to the prior year period, primarily due to an increase in cost of goods sold.
Consolidated operating expenses in the current quarter of $29.6 million were higher than the prior period by $2.8 million or 70 basis points as a percent of sales due to the trademark impairment additional personnel related expenses in selling general and administrative costs related to acquired businesses.
Consolidated GAAP operating income for the fiscal fourth quarter was $15.1 million on million dollars decrease over the prior period as the $1.9 million increasing gross profit from higher sales volumes was offset by the $2.8 million increase in operating expenses just described.
Fiscal fourth quarter adjusted operating profit primarily adjusted for these solution of the trademark impairment was $16.3 million a slight increase over the prior year period.
The effective tax rate on continuing operations for the fiscal fourth quarter was 16.7% in the rate was 22.2% for the fiscal year due to the release of a resort for certain uncertain tax positions offset by adjustments for prior tax returns and state tax expense net federal then.
Buffett.
We expect our tax rate to return to normal range of 25% to 27% in fiscal 2021, assuming there are not any onetime items.
GAAP net income from continuing operations in the fiscal fourth quarter of 2020.
It was $13.4 million.88 per diluted share.
Compared to $13.6 million or 90 cents per diluted share in the prior year period.
After adjusting both quarters to exclude onetime items into apply normalized tax rate adjusted net income from continuing operations improved 9.2% to $12.5 million or 83 cents per diluted share compared to adjusted net income from continuing operations of 11.5.
Million dollars or 75 cents per diluted share in the prior year period.
For the full fiscal year GAAP net income from continuing operations was $44.8 million or $2.95 per diluted share compared to $46.1 million or $2 96 per diluted share in the prior year period.
After adjusting the current year period to a normalized tax rate in to exclude onetime items. The most significant being the $5 million after tax noncash charge.
32 cents per diluted share in the fiscal second quarter to terminate our us qualified pension plan.
Adjusted net income from continuing operations improved 13.3% to $48.7 million or $3.20 per diluted share.
In the prior year adjusted net income from continuing operations, which was adjusted to exclude onetime items into implied normalized tax rate was $43 million or $2.77 per diluted share, resulting in an increase of 15.5% on adjusted earnings per share.
Moving to our cash generation and balance sheet.
Our net cash provided by operating activities from continuing operations increased to $71.4 million in fiscal year 2020, compared to $68.2 million in the prior year period.
I will remind everyone that in the prior year operating cash flow reflected a $10.4 million deferred tax benefit related to the disposition of our coatings business that did not repeat.
Excluding that one time benefit in the prior year, our operating cash flow was up 23.5% due to our continued its strong operating performance.
We ended the quarter with cash on hand of approximately $18 million and had the full $250 million of borrowing capacity available on our revolving credit facility, which provides us ample flexibility to fund our growth and capital allocation strategy, including acquisitions.
With that I'll now turn the call back to Joe.
Thanks James.
As I stated in my opening remarks, CFW has a strong and sustainable business model built upon operating businesses that have decades of history.
Skilled employees, who provide a competitive advantage.
Experienced leadership team.
Strong balance sheet.
In a set of core values guiding our actions, we have deep long standing relationships with our best in class distribution partners.
We have a network of proven suppliers and strong balance sheet with ample liquidity.
Low leverage.
No near term maturities.
In difficult times, we returned to our core values and we also confirm our capital allocation strategy.
Our commitment to be good stewards of your capital is resolute to accomplish this goal. We are focused on these four objectives to treat our employees well to serve our customers well to manage our supply chains effectively and position our company for sustainable long term growth and profitability.
Let me take this opportunity. Thank all my colleagues here to see us Wi.
Collectively own approximately 50, 555%, sorry, 5% of CFW through our employee stock ownership plan.
And also thank all of our other shareholders for their continued interest in and support of our company and with that operator, we're now ready to take questions.
Thank you we will now be conducting a question answer session.
If you like to asked a question you made a press star one on your telephone keypad.
Confirmation total, indicating a lot of as any questions you.
First start to realize we're a little good question from the Q.
Call participants using speaker equipment, it maybe thats sort of pick up your handset before for us in this starkey.
Your first question comes on line of Jon Tanwanteng with.
With CJS Securities. Please proceed with your question.
Hey, good morning, guys. Thank you for taking my questions.
Good morning job.
For the first one I was just wondering where you guys seem the most pressure or.
Conversely, maybe resilience of strength in any of your end markets heading into the first fiscal quarter.
Yes, I mean, it's been.
Down overall, John So I will say any particular weakness I will say that early on in the first six weeks the quarter here I think industrial architecture specify building products the showed resilience or projects already underway.
That folks are actually rushing to finish and.
That that's been the area we've had the best reports from the field I would say.
Our installation teams in Florida are working overtime right now, we we kind of went into a bit of above.
Plan were no overtime, no new hires that type of thing when the pandemic hit and I've had to approve overtime for those guys down there because we've got installation projects going on and their business is really really doing well right now but overall.
Theres weakness across the board I wouldn't say theres any individual area that so any weaker than any others.
Okay got it do you have any exposure to hotels or restaurants or any.
Large retailer installations.
Yeah, we've looked at that it's very minimal there are couple of projects on the books for hotels, but no retail that we're aware of and that is not bad historically, a big part of our business at all.
Got it Okay, and Joe you mentioned broadly the first half for you would be the weakest.
Any sense of whether that the first fiscal quarter or the second is going to be the trial for you guys I do see right now.
I really don't John we're we've.
We've been working hard on that tried to discern but at this point. We're just we're not in a position to to make any any estimates on that.
So we're really looking at the year or two halves of the slope of the of the recovery in the second half is also kind of up for estimate here, but.
But at the same time I think we just need to think about two halves first half down second half beginning a recovery and John This is James It I want to highlight what Joe mentioned in his remarks.
Our commitment to keeping our full time employment, where we have at right now and not making changes due to the pandemic allows us to take advantage of those rebounds, whether the regional or in the end markets. As you mentioned, so we're well positioned if.
We wake up in the troughs behind us than we're ready to take those orders and producing a lot of our competitors have not been in a position due to balance sheet issues or otherwise to do that so we're well positioned for the recovery that this economy reopens.
Got it Thats helpful. I was going to ask could you maybe give us a little bit more color on both.
The cost cutting attempts that you have done on the SGN a in the Cogs side, what kind of quarterly savings are you expecting.
Given the magnitude was I guess the volume declines that you're seeing do those efforts.
Do they enable you to keep your incremental and Deco my second metal margins, where they happen.
Yes. This is James.
We're not going to be able to provide specifics on that it's meaningful but the actions. We took in the start of the fiscal year with that in April some of those are the profit sharing type things on the employee benefit side. So while we've been able to maintain employment and benefits some of those profit sharing things the well for the employees look like a good opportunity to to maintain employment, but but curtailed as.
For now those are decisions that are temporary in nature. The we could look at later in the year and obviously next fiscal year as we expect the economy has reopened so they are meaningful to the bottom line and thats across the board for the company not one in particular class or another.
We've done a lot of things as we as Joe mentioned, obviously things like travel some of Thats, taking care of cell. So we've really been careful with discretionary expenses consulting those type things thats on the SG naylon yet the thing that Joe mentioned was.
A good portion of our workforce is on the temporary side and well those are jobs as well, we always scale it up and down with seasonality and so those are people that are on a benefit plan and those type thing. So we're able to really maintained that full time workforce and know that that temporary labor forces. Therefore is this things pick up and then can scale down as we normally do so thats kind of a flood.
Well that we've always had Joe mentioned overtime. This another place we're being very careful so lot of these things, we're going to be able to restore as things pick back up and as we think that make sense, but for now we pulled some of the levers theres more levers we can pull.
But we're watching very closely again as we see domain changing week to weaken as we get into the month of the quarter in the quarters of the year, the rail to scale up and down but demand.
Okay got it.
And James just to put you on the spot maybe a little bit Joe can you talk about the timing of the CFO transition.
In the middle are pretty dramatic situation just.
Just talk about the reasoning in the planning that went into that.
Yes these things.
Don't come about quickly oftentimes and so this was a.
More.
Thoughtful transition that began of.
Planning several months ago, and so yes by the time, you get tied to actual announced the transition we're in the middle of of an interesting economic time, but.
Still I guess just.
A great opportunity for us to continue to evolve as as a company James brings a wealth of experience of nine years of public company CFO experience from a larger company industrial company with.
Multi core business a lot of complexity and so very pleased to have him here.
I think that.
He will be.
Fantastic thought partner for for me and for the Board as we think about how do we grow as a result of this of this economic.
Downturn, how do we take advantage of our balance sheet, how do we deploy our capital to to come out on the other side much better and stronger.
And.
And grow through this this is.
We've always said, we're not we don't wish for recession does this horrible but.
Given our situation there will be opportunities for us and so we want to be able to take advantage those opportunities I think James is the right Guy that help us do that.
Got it and just to follow now Thats Atlanta, but are you willing to use your balance sheet at this moment to take advantage of situations and are those becoming more apparent or is it just more prudent to sit on that until maybe some the uncertainty goes away.
I think we're still in a little bit of wait and see mode were constant contact with acquisition targets. We're in constant communication with the.
Brokers and bankers in those types of folks I would say today. The outlook is we don't have enough visibility going forward on.
The broader economic.
Of the.
Reopening if you will and what the slope of the rebound is going to look like in the second half to be able to.
Be comfortable committing large amounts of capital at this point, so I would say, we're still in a little bit of a wait and see mode.
And I think sellers' expectations will have to be adjusted and you'll need to see a quarter or to have results to kind of understand what the demand degradation might be for some of these businesses but.
I think we're sitting in a great spot and I feel really good about the.
The potential to take advantage of opportunities that will come out of this this downturn.
Got it thanks, guys appreciate it.
Thank you John.
Our next question comes from the line of Joe Mondillo with Sidoti and company. Please proceed with your question.
Hi, good morning, everyone.
Turning Joe.
Thank you.
So Joe can you just clarify when you were talking in your prepared commentary regarding the outlook you mentioned, a 15% to 20% decline could you clarify what that's referring to if that's just in general across the company or have a particular business.
Thats actually generally across this does the categories that we serve the industry end markets that were picking up from other.
Earnings reports and industry data that type of thing and so I'd say broadly speaking our customers are saying that they're down 15% to 20% and at this point in time six weeks into the quarter were down more than that we think primarily due to risks to the destocking.
Of their shelves were full theyre going to sell what's on the shelves first and not reorder until they really have to have and so we're seeing that effect.
Okay.
And.
Just could you help us maybe understand the trajectory of how the last two two and a half months have have gone.
Essentially I'm just curious.
Are we sort of mainly in on a directional basis, mainly in a stabilization standpoint.
And do you have any businesses that are still directionally actually getting worse on a week to week basis, and vice versa any businesses that you're sort of actually seeing a little more positive week to week any I know the.
John asked this sorta as well and you answered building products, but are you seeing any sort of positive.
Trends given with several states many states actually.
Opening up over the last few weeks.
Yes, I think we are again back to the architecturally specified building products.
Business.
We did not see the immediate downturn, we saw in some of the other businesses again projects were ongoing halfway through and installation of smoke curtains and a building they're going to.
In places, where it's at all possible. They were they were finishing up those projects and pushing us to get those completed and so.
So that continued on to let's say in the month of April.
The phones were not ringing.
Very very.
Often and some of our other businesses. The I do feel like there has been stabilization since that time things of comp down spirits are a little bit higher and I would say overall.
We don't see continued deceleration at this point.
And so were taken that as positive and again it as we talk to our customers that seems to be the general theme that we're hearing Joe. This is James is really really is as we said a week to week thing is as temperatures arising that coincides with people stay three opening and people getting more comfortable with folks coming into their house for repairs and installations on the aged specs out.
Especially so as Joe mentioned, the Destocking has been happening destocking turns into restocking so as a phone sort, bringing his as inventories get low on the distributor side, we've made sure to keep our inventory levels as such we can meet that demand. So our people are producing the product we have ensured our supply chains are there as we mentioned looking to diversify those but weve.
We've made sure that we've got the inventory in are carrying what our customers need when they're ready to restock as as installations pickup and again, we're seeing the green shoots here and that represents ending total at this point.
Okay, what about oil and gas. That's one you stated in prior answers to one of the questions that you haven't seen one of the Ines any of the industry sorta weaker than the others I would've thought actually you would actually seen oil and gas be weaker than others.
Not the case.
Well I would say two things one is relatively small for us overall, so I wouldnt. So it's not top top mine necessarily but I would say.
Domestically, it's been very very weak, but we've seen strength and our overseas market, we sell that out of the UK into the north sea and the middle East and those.
Our kind of weekly sales reports there have been very positive. So so it's a mixed bag, even there but yes.
Sales of copper cut in West, Texas are down pretty dramatically no question with the rig count.
Okay and that they expect segments prior to the downturn.
You have any did you have a sense of where industry inventories were or would you characterize them as sort of normal or.
Higher than normal any sense of where those inventories were ahead of this downturn.
I don't I don't think I do Joe I would just remind everybody that this hit at the peak stock season, we hit.
Had a lot of stocking orders for the new summer season, and so as we all recall March has a huge month for us. It's our March kind of continued on as normal ordinary course, but that is the season when all of our distributors our customers are going to be stock to the skills for the upcoming summer.
Season so.
I don't I can't say that they were more soft or less stock than we would've expected for this year with the growth we are expecting from last year and all of that but I would just seasonally that as a time of high inventory levels every year.
And in terms of work across the country over the last couple of months.
I'm in New York and of course lot of people are completely shutting off their houses, but I know elsewhere in the countries a little different did you get the sense that maintenance because everyone staying at home everyone's thinking about because of that that people I think are probably most likely thinking about retrofitting certain things around their house and whatnot. So I would think.
Coming out of this you'd see some pretty good demand do you agree with that number one and have has there been areas that really havent completely shut down and there has been.
Inventory destocking through this period as work's been done as people have been staying home and thinking about retrofitting there their houses.
Yeah listen we're very bullish on the long term health of that end markets are it's really our favorite end market. If we were going to invest capital in any end market today that would be the end market that would be highest on our priority list.
Having said that there were.
Again kind of anecdotally, but reports of.
AC contractors that Didnt want to go into People's houses are people didn't want those folks in their houses. So I think that could offset some of that effect that you are talking about over the past month or two Joe, but we do feel like going forward.
More folks at home in the summer months coming up here.
More folks needing their air conditioning to kind of operate at peak with everybody in cramp quarters, I think that could be very good for our business.
So, yes, I mean, we feel like.
And again, our products are used it both in repair and replacement and so and we are geared more toward residential and commercial so I think all of those are good factors.
Okay and in terms of the building products business.
Could you provide us your thoughts what you're seeing what you're hearing in terms of maybe the your order rates projects that are being out there.
I know you said the business right now is doing okay, but thats probably because of.
Of existing projects the architectural billings index just came out for the month of April was below 30.
What are your thoughts on sort of longer term.
Project pipeline for the Nonres cycle.
Yes, we are watching that very closely as well and as you said, we've had relative strength there I would say that.
Our bidding has been active and we've been pleased with that are our backlog that we've gone through and assessed very very.
Soberly.
To determine what we what we think about our backlog and that seems to be holding up well and so really turns its the bidding that turns into bookings, where we've seen the softness most recently Joe and so.
We have seen folks that are just theres not willing to commit to beginning a new project over the last few weeks and so we are seeing that how long that will last and.
What the reopening will do for that I'm, not we're not in a position to predict but.
There's no question, we have seen some softness.
Of bids turning into bookings.
Okay. Great last question just a the discontinued ops income what is that what business is that right.
Related to did you sell off a business within the quarter.
No I think that would have been the old Strathmore business had been via the sale of the sale of the the final piece of real estate from Strathmore that we were we sold in this period and the coatings business.
Okay, all right great. Thanks have a event. Thanks, Thanks, Joe Thanks, Joe.
No more questions any cure wed like to end the call back care management for closing remarks.
Great. Thank you very much everyone really appreciate the time and look forward to speak to again soon thank you for your interest and fee as Wi Fi and just know that we we take the stewardship of your capital very seriously. So thank you.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.