Q2 2020 Gibraltar Industries Inc Earnings Call
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A question answer session will follow the formal presentation.
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Good morning. Thank you very good morning, everyone. Thank you for joining us today and thank you for waiting for the call to begin with me on the call a Billboard Wager, Baltimore Industries, President and Chief Executive Officer, Jim Murphy, Gibraltar, Chief Financial Officer. The earnings press release that was issued this morning as well as this life threatening.
Jason that management will use during the call both available in the Investor in so section of the company's website Gibraltar one dot com.
I've never done like to the presentation. The earnings press release like presentation contain forward looking statements with respect to future financial results.
Statements are not guarantees of future performance and the company's actual results may differ materially from anticipated events performance or results expressed or implied by these forward looking statement.
Walter if I did you treat these risk factors detailed.
Filing, which could also be accessed through the company's website. Additionally, gibraltars earnings press release walks contain non-GAAP financial measures.
<unk> GAAP to adjusted financial measures have been appended to the earnings release, that's why.
Now I'll turn the corner build off highway Bill.
[noise] nice fairly good morning, everybody and thank you for joining our call today, so real well late.
A storm hits it goes to you did about challenges getting everybody on today.
We start with I hope you and your.
Your families in prison co workers are keeping safe and healthy.
Yes, it has or a pandemic continues I'll start today with an overview of the second quarter results and then.
Eight other execution plans and then Ted will review, our Q2 results. They don't come back to some thoughts and the rest of year, including.
Updates on some key strategic initiatives and then we'll open the call for questions, Let's turn to slide three our Q2 over years before we I'm sure the results of the corridor.
Oh I do want to first thank our entire team and their families for their effort and dedication resilience and frankly resourcefulness since the been endemic began I also wanted to take our board of directors for their ongoing guidance and support it's been a difficult time for everybody.
At our families and friends, both mentally and physically and.
Yeah, everyone has been challenged to this pandemic everyone has a story.
Specific challenge and I continue to be amazed.
Well the team has responded yeah, we talking a lot entirely about how important each day is how everyday truly matters. Both at home at work and import sustained balanced folks are what we can control and and doing it as well as we can.
And I'm I'm very confident our team and our ability to keep moving forward.
As we discussed during last quarter's call April was a challenging month, which didn't make it difficult to understand and predict economic impact other pandemic in the quarter, particularly for residential but building products and industrial businesses. However, we started to see positive end market demand developed in early may.
Which then continued into June as consumers spent more time nesting at home and working on repair remodel projects as well a renewable business continued to make good progress at a solid renewable energy market.
And I think collectively these two trends really helped us offset.
More than offset slowdowns and other end markets.
Early on as a pandemic unfold unfolded, we made two key decisions.
First we implemented our pending operating protocols, which we continue to execute adapt as a pandemic moves into a next phase and second we kept our team intact, we transition to manufacturing lines to make masks Sanitizer, then provided P. P to our team and their families you know keeping our team together along with.
Or a pandemic operating protocols that he has allowed us to respond to quickly.
To a much of the changing demand a sport our customers in a timely manner and and do so while improving operating forwards at same time.
As a result, our Q2 revenue increased 8.8% over last year, adjusted EPS up 15% at our backlog increased 14% $277 million.
Furthermore, we delivered operating margin improvement of 200 basis points on a GAAP basis 730 basis points on an adjusted basis.
So, let's turn to slide four [noise] I've shown this before but we executed our operating playbook in the second quarter and a we remain very focused on executing our plans moving forward I think the current phase or the pandemic.
Requires ongoing discipline in diligence and we will continue.
To support C.D.C. mandates all our customer requested protocols are facility reconfigurations and zoning to maintain social just insane or shift management approaches temperature check sanitization protocols employ tracking and follow up.
As well as visitor policies. We will also continue our internal communication cadence.
Across organization.
Sure and implement a lot of best practices that we've learned during this time and adapt accordingly.
Yeah, we've been fortunate to be the position of readiness.
As our customers have request for need support in hindsight I think having her team intact has given us the opportunity to grow with customers and respond to a bit better what others may not have able to do so.
That being said as the pandemic continues to spread our top priority still remains our people.
Keeping her team safe as we can and staying disciplined intelligent execute or protocols and processes and finally, our communications across the organization.
We're going to continue to operate facilities and offices as we had been.
And then we'll reassess this approach or later in the year or early next year.
Now, let's turn to slide five and a well have timber gear the consolidated financial results.
Thanks, Bill and good morning, everyone I'll take us through our consolidated and segment results.
As Bill mentioned our April results were initially impacted by economic disruption caused by the pandemic followed by sequential increases in the markets served by our residential products renewable energy conservation businesses as we move through the quarter.
Consolidated revenues increased 8.8%.
1.6% was organic growth and strengthen our renewable energy conservation and residential product segment offset the decline in our industrial and infrastructure segment.
We also generated 7.2% growth from our recent acquisitions of apex supercritical, which was completed in the third quarter was 29 team.
And thermal energy solutions, and Delta separations, which were completed in the first quarter of 2020.
Spill noted backlog at the end of the quarter was 277 million up 14% from the prior year and 7% from a previous quarter driven primarily by a renewable energy conservation to a lesser extent our infrastructure business.
Consolidated GAAP operating income was up 30.1%, an adjusted operating income increased 20.6% in the second quarter.
Second quarter 2020 operating income included 1.2 million of not direct investments in a safety and financial security of our people directly related to covert Nike.
Oh.
He did GAAP and adjusted <unk>, 36.1% and 15.1% respectively.
Improvement from last year was result of organic growth and continued execution in our core renewable energy and conservation and residential products businesses.
Mark margin expansion in the industrial and infrastructure products as well as product and service mix better price material cost management and ongoing benefits from operational excellence initiatives.
Now, let's review each of our three reporting segments, starting with slide sets, the renewable energy and conservation segment.
Segment revenue increased 29.3% with organic growth of 4.2% and 25.1% growth from the acquisitions of apex supercritical thermal energy solutions adopt a separation.
Organic growth was driven primarily by strong demand in renewable energy market.
Cannabis growing and processing markets were down in the second quarter. It's the pandemic caused some issues with access to capital for our customers in these markets and as the industry continues to mature and adjust to regulations.
Strong margin expansion in the core business was driven by volume leverage strong execution, continuing productivity improvements and the mix of product and services, which was partially offset by softer demand for Canada strong solutions.
The margin expansion in our core operations was offset by losses generated from our recent acquisitions due mainly the weak demand cannabis processing market. So while there have been a few integration challenges integration overall is expected to be completed on time to deliver targeted returns.
Second quarter 2019, operating income included 2.3 million, an incremental costs incurred in the field to improve durability getting sure performing commercial tracker.
We entered Q3 with strong backlog across the segment up 15% from the prior year as we gain further participation see strong customer demand.
Backlog for renewables is up 25% for the prior year quarter from continued strong end market demand and growing your processing is up 7% driven by our recent acquisitions.
Let's move to slide seven our residential product segment.
Residential product segment revenues increased 7% from last year result of strong repair and remodel activity. Its homeowners began to nest during the pandemic.
As well as participation games with key partners.
Adjusted operating margin increased 400 basis points are result of consistent execution better price material cost management continued benefits from 80, 20 simplification initiatives and volume leverage.
Let's move to slide eight to review, our industrial and infrastructure products segment.
Segment revenues decreased 14.4% driven by lower demand for core industrial products during a pandemic.
The infrastructure business was comparable to last year's quarter and its backlog grew modestly.
Adjusted operating margin was up 490 basis points through continued strong execution, producing sizable industrial margin expansion.
Her price material cost management favorable mix and continued execution on 80 20 initiatives.
And now let's move to slide nine titled strong balance sheet provides resilience supports growth to discuss our liquidity position.
Oh.
All right at 36 million of cash from operations during the second quarter, driven by higher net income and reduced investment in working capital.
During the quarter, we sold the tour 24 business, a multifamily service offerings in our residential product segment for $2 million.
And invested 2.4 million in Capex.
At June Thirtyth and as of today, our revolver remains undrawn.
Given the 121 million in cash on the balance sheet at an Undrawn 400 million dollar revolving credit facility, we've got solid liquidity.
To weather the economic impacts of the covert 19 pandemic, while continuing to invest in operational excellence growth and the development of organization.
We resumed active M&A discussions and continue to remain laser focused on managing working capital.
Now I'll turn the call back to Bill.
[noise] Nice 10, let's move to slide 10.
Titled outlook.
Confidence is building, but it's certainly remains.
I'd like to comment on trends, we're seeing in our markets in businesses effectively really up through the end of this past month July.
Let's start with our renewable energy conservation segment, our renewable energy business contingency good momentum in a growing end market and sales and backlog for the business are very solid.
We continue to invest in our solar business and recently launched Sunflower second generation tracker solution and also acquired intellectual property support our solar cannot be business, you know growing business, our largest segment vegetables and produce continues to see solid momentum and growing backlog I think the addition of thermal energy systems a leader in there.
Its market.
Has been very positive for us at our integration plan has done is on schedule as well our second largest in our growing business is the Canada segment and during the quarter the market slowed as customers pause to assess the situation, but we expect a marked improvement in the second half based on recent project bidding and in order activity.
Yeah for both renewables and growing businesses as it relates to this pandemic were also closely monetary and state local pandemic related mandates that.
It could impact our existing are featured project schedules.
Our processing business is still dealing with a soft market. Although we started to see more activity in June and early in the quarter in a market is dealing with the pandemic and its impact on customers access to capital for equipment purchases in the market has also received itself as industry continues to just to regulations and.
Consolidated mature.
We expect the market to continue to recover in the second half and really build momentum as a dividend 2021.
We're actually <unk> integration plan with apex, supercritical and Delta separations, and I think we'll be ready to move forward with strength in speed as the market recovers.
And our residential building products business the market remains healthy.
As a customer weekly point of sale results indicate ongoing demand for products you know as mentioned earlier consumers working from home indoor nesting continued to execute repair and remodel projects.
Yeah, which we believe will continue at some level going forward, our direct to homeowner business, which experienced a significant slowdown going into April really saw strong recovery in may and June.
As our dealers were able to adapter sales process to to meet you know homeowners requirements for it in person interaction at to hold the.
Demand in this business remained steady and and a as with our other project based businesses. We are monitoring state local pandemic related mandates that.
Could impact existing or future installations of these products.
Our industrial business will continue to experience a slow market during the second half, particularly for core products. We do expect architectural perimeter security project business to me.
To be more active as long as stable indoor local regulations allow project sites to remain open.
No our infrastructure business should remain steady, particularly if we have more clarity of state federal infrastructure spending plans in the second half.
To summarize a as we see things today.
We are confident our second half will be stronger than our first half.
But I do it remain concerned with the current state of the pandemic the impact.
The next round of government stimulus.
And the economic impact both May have they tell me MVS.
Not just on overall economy, but also our markets and customers I think we all learned in the second quarter, how swiftly things can change.
And this kind of environment and so as a result, we've decided our quantitative guidance will remain suspended.
And a little we will revisit this obviously the next three months.
Let's move to slide 11, I want to talk a little bit about or pillars, you know our long term goals remain the same.
Accelerate growth improved profitability utilize assets more effectively and deliver higher return on invested capital.
We continue to do that during the quarter, Yeah, we're focused on.
Our operating colors as a reminder, business system portfolio management organization development, and we have actually continue to invest in all three.
So far throughout the year.
And our business system, we continue to work on the business investing improve earnings and fund critical growth and profitability initiatives. We've also implemented or continued new operating protocols for today's environment Weve intimate business continuity protocols for today, I think as well as for tomorrow.
Oh, we've made key investments in our digital I T processes and tools S&P implementations are on track CRM initiatives in a few of our businesses in a variety of E commerce investments to support a few of our platforms and then we've just had really intense focus on monthly execution, and then try and find ways to accelerate additional 82.
20 initiatives.
From a portfolio portfolio management perspective, our effort remains focused on asset optimization and integrating our recent acquisitions as we plan and then continuing discussions with companies to build out or platforms for our strategy and finally got organizationally really our main focus has been keep where team safe healthy it intact.
And beta position to execute responded customers better than anyone in our markets and also continue adding in top rating talent across organization.
Which brings even more for broader perspective diversity of thought experiencing competency to the team.
Yeah, I'd say, although this year has been challenging it I think it will continue to be I do believe we're in a good position with a healthy balance sheet to keep investing in our strategy to deliver better performance in the second half of this year.
As well as over the next 24 to 36 months I think the flexibility to adaptability, we are building into our business.
And our focus on execution or a really helping to support our markets and customers.
And still deliver improved growth profitability.
Asset optimization and stronger return on invested capital.
As I opened a with today I just want to read Eric how proud of our team and how grateful I am for their ongoing support dedication to each other.
As well as the company the community and communities, we operate in our customers and of course are shareholders and with that we'll open the call for questions.
Thank you.
This time, we will be conducting a Christian okerstrom.
If you'd like to ask a question.
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Thank you good morning, everybody.
Good morning can't area.
I'm doing well try to POC what was a.
You know [laughter] gorder in a lot away so.
Hi.
The two areas I want to focus on our first I'm just going to be the renewal renewable segmenting growing I guess, that's how that's how you will be a.
Categorizing itself.
Renewables in your slide deck, you set up 16% year over year is that correct [noise] disliking understate chubb tracking that correctly.
Yeah, we had HM.
Organically, we were up and it was driven by the renewable energy. So we gave that growth number.
Okay. So that now [laughter] because you have lot of acquisitions in the growing you know earlier this year.
Can you just highlight what the mix is again, you know where we are in a kind of run rate for that segment in terms of whats renewable and growing if you could.
As reset that for us given all the acquisitions.
Yes can we expect it to run.
About half and half.
It's not quite there yet, but it's it should drift to that direction.
Okay.
And then that customers on renewable you know you're you're obviously, bringing a backlog in this segment and I do think you know as this segment outgrows. Your traditional segment. This is increasingly Vicki area for your business. So if we could go into built since you're putting out this backlog of up 15% renewable Andrew.
Rolling.
Have different growth rate, how should we think about that backlog it as it relates to.
But.
I don't want to say, you know forward quarter or quarters conversion, but I mean, it's obviously, you're putting out there for reed.
How should we think about that backlog translating to.
Kind of growth rates that we see and how has.
Code that impacted the conversion of that.
Backlog versus what you would have expected traditionally.
Yes, I would say that you know versus the cobot impact and this has been.
Not so much as it relates to the solar business the renewable business the backlog a that we've generated continues to flow as we would typically see into sales. Yeah. There's been some you know starts and stops with just permitted and things of that nature, but for the most part it's flowed relatively.
A consistent with what we've seen prior to the pandemic [noise].
On the.
[noise] growing side, you have to break that down a little bit further [noise].
There's two markets as we talked about a really our largest as produce and and which is vegetables and leafy Greens and section that backlog continues to grow just like a renewable does and you will start to see we got into that business beginning the year with acquisition a thermo.
Coupled with a relatively small presence we had so I think the you know based and order activity in backlog. That's building now you know that going to translate into.
Sales going into the second half and then it gives us decent momentum going into next year. The area that has that slowed it's a little harder to predict where I think cobot has been more impactful.
Is the cannabis end market or the kind of us market for growing and processing.
So as I mentioned earlier in the call.
That market really paused and we we anticipated that that happens to be where we have our our two or three acquisitions, which is the two processing ones.
And I would consider that market a drag on overall results and as a result, [noise] art two businesses dragged along with it.
But not the same time, you know if you're looking for something positive as we always do and spend a situation like there's this gave US a lot of time to work on integration and probably do it a little bit quicker than we could have done otherwise so.
No that's coupled with the fact that you know we're all remote so we're doing a lot of the integration remotely, but we're able to get a a good chunk of that done.
Prior to covert and then follow up with Ah things are virtually so it feel like we work really hard on the business, but are what markets are kind of step back up in and recover accordingly. So the backlog has really been built around renewables.
A growing a piece associated or act produce.
And less so on the on the kind of aside yeah and I if I could ask just one more question you know I'm in northern California by her Santa Rosa <unk> what are your acquisition.
There's no real way for me to get to get senses that without you commenting on it specifically so that written.
That conversion you know related to the candidates end market is that you mentioned capital constraints I mean there.
Some of my understanding of consumption I, just reading press article. So it is that people have spatial issues why is it related northern California.
Counties doing something related to manufacturing costs, obviously highlighted a lot of that concern in the past could you just give us inside if that you know if your view that market's changed given what we've seen and the constraints your face yet sorry, sorry to go into that deeply it's just I can't get on that answer I don't think can communicate.
It publicly otherwise thank you yeah no that's okay.
No the markets got a few things going on in and one was a pandemic. So you know like a lot of interest because people paused to figure out what was going to happen here you've got to a very.
Immature market to start with and you have a lot of small private companies that are.
In it and as a result on those pandemic head trying to understand remember early on.
Most of these companies were not deemed essential.
So yeah I wrote it was circling the wagons to see make sure. They preserve a capital Accordingly, and then you know month or so later than they were deemed essential so there's a lot of start stopping going on because of the pandemic.
And you have a lot of small companies across a variety of states are trying to work through it and each state was a little different in terms of whats essential what's not so that was very disruptive in the second quarter I think people circle. The wagons and said you know lets batten down the hatches until we figure out the landscape here.
So that was you know item number one and a you've got some ongoing regulatory things that are evolving to a in the marketplace that will work itself out throughout the year and I think that's another thing that the industry is trying to work through and and and we knew that was coming as well.
And so as a result of both of those theres a bit of a resetting. So I think it's a you know remember for a lot of these small companies you know banking has been a challenge and access to capital as has been a check has not been a shout at this point because as you know it's been moving so quickly now you you put a stop and because of his pandemic it becomes.
A challenge pretty quickly and we're starting to see that work itself out. So I would consider the structure of the market. Okay. I think the Ah Ah theres a bit of pause obviously over the last Ah you know five six months and that's starting to work itself out yeah, but it takes a little more time, we started to see more activity.
In June significantly more activity in June and what we saw earlier in the quarter and I just think it'll take some time for that to that resetting process to to work itself out and I think going in the 2021, you'll see a you'll see things running similar to the before so.
I I, we don't feel a whole lot different about the market and we're still positive about what we're trying to do and what we want to do.
You know like everybody else, we're working through it.
Right now and we're able to offset it or what's going on this market through some other things we're doing in rest of our business and some of our their end market. So it's a reflects all I got it. Thank you so by the.
Yep.
Our next question from Daniel Moore.
<unk> Securities. Please go ahead.
Good morning, Thanks for taking the questions Bill and Tim I'm, just a clarification I think you said twice Bill I'm confident that age two will be stronger than each one.
Topline margins GPS all three.
Yes.
Okay gets some directional help so thanks.
And then I want to focus on the margins start with Red the strongest margins, we've seen in those businesses and in quite sometime.
Maybe a little bit more detail into the jump and how sustainable are high teens low twentys operating margins going forward.
So so Dan I'm. Good question. If you recall, we came out of Q1 with them in residential about 130 basis point improvement and that you talked a little bit in the last call about the work that we did in 19 and continue to do.
So I guess my point, there's I think we're starting to build some momentum.
And in that segment or to get us back, where we think we should be in <unk> and beyond hopefully so I I do think or our ability to continue to improve is is is very valuable and doable. That's our expectation I think investments we made last year and continue to make now that will help that we've put a new leader in play.
Place a year ago inside the organization I think we've done a tremendous amount of work top grading talent and and adding key positions that we didn't have.
So this is one of those stories, where yeah, we had good end market demand.
That helps obviously, but we also made investments throughout the last six months and all of last year that it put us in a position to operate much better than we we could have otherwise so.
I you know I'm excited about the segment I think we've demonstrated to demonstrate to ourselves what we can do so what we thought we could do and and and you know I think we're just getting started so to speak.
I would not tell you that we're going to improved 40 basis points every quarter forever, but.
Well the teams did a nice job.
Obviously the end demand has helped we've had good mix we've had good price cost management and you know and recognize two this is all in the midst of haven't do.
Also a managed shifts much differently at our factories much differently, which isn't the most effective way, but but we've been able to offset all the things associated coding and still bring bring things across the finish line.
The biggest thing also for us and.
People may or may not recognize that we didn't make this decision sometime ago to keep our team intact and when things moved and they moved quite quickly we were able to response I do think theres a participation gain.
Going on here, we do know that for sure with a couple of their key partners. We're excited about that and I think we're in a good position to continue down that path as well. So it's a combination of a lot of different things.
Helpful and nothing unusual in terms of mix that would be difficult to sustain are not repeatable.
No not really I mean, it's a.
You know, we [laughter], we within each of the residential businesses I would say a <unk> been pretty solid in terms of mix year over year quarter over quarter.
With across the business is probably our you know we've talked in the past our most challenged business a in residential is that our more commodity like business, which is building accessories are roofing accessories and that is a business that has really.
I'll turn things around everything I, just talked about earlier, where we made a lot of changes remember also that when we went into the quarter [noise].
We had a very a difficult outlook for our direct to consumer product line, that's the sonesta and gutter helmet products that we sell through dealers, but really it's a direct to consumer sale in that did not look good going into April that turned around significantly in may and June.
And that's that's a good margin business and and a that was helpful in the quarter as well, but we almost got back to last years levels effectively in two months versus a versus having three months because April was pretty much a net very active.
So are you getting that team executed extraordinarily well to do what they did in two months relative to last year, which doesn't three months, we feel really good about that and I think that demand is is still there going forward, but not the pace. We saw last couple of months, but it's still pretty steady.
Helpful and similar question for industrial and infrastructure, you know I think that jump was even more impressive given the topline headwinds. So again was that mix away from industrial was it all 80, 20 sustainability et cetera, any color there great Yeah, I would say in industrial.
It was a really just pure execution and.
Team continues to do well there we've made two investments to help a in some of the but our core businesses and within industrial or with some capex I think that that's helpful. Not huge but very helpful. In terms of how the teams they'll execute.
Our premier security in architectural businesses, which are higher margin within the overall industrial business.
Has helped.
As well.
So I guess, you could say, that's a little bit of mix, but.
Overall, I think it's just been a a continuation of the work that the leadership team has done there starting last couple of years on the infrastructure side same kind of story really good team put it in lot of good a process is a lot of 80 20 work going on there and I think.
As Weve is our manufactured product in that business continues to be relatively strong we've been able to find ways to drive margins up with way, we execute from how we make it all the way through the whole bidding process. So just a lot of I'd say, a lot of blocking and tackling a to be honest and not rocket science, but just stay laser phone.
So what we're doing and taking one day to timing and make it everyday matter.
Okay, maybe one more if I could speak it in a just expectations around working capital and cash generation as we look to the back half of the year.
We expect.
Modest improvements in working capital I'd say.
We've done a fair amount a year over year, we'll continue to be a little bit better and continued generate cash certainly.
You know historically, if you look second half of your is really the stronger.
Cash flow period for us.
We don't expect any change to that.
Perfect <unk> jump back with any follow ups. Thank you.
Next question from Walter Liptak Oxy for example is great.
Hi, Thanks, Good morning, guys.
Right or wrong wall.
Congratulations on the good quarter I wanted to see if I could get to talk a little bit about some of the residential trends in July.
Got it sounds like the business continues to work to pick up and I think in the past there was concerns about labor issues I Wonder that's changed at all.
And how that might impact the second half.
Yes, So oh I'd say through July you know each of our businesses. That's the within residential yeah, we had to.
Four groups if you will.
We continue to see.
Similar demand profiles as they did coming out of the quarter or the second or the last.
You know two thirds of or the quarter for for the second continued to from a demand profile into that through July and.
And we're monitoring that every week. So as I mentioned you know we one thing is we get access to point of sale data from all our big box and even love the wholesaler snow week to week. So that's really point of sale data on our products that are actually selling so good news is it hasn't been much if any inventory build.
Oh that tells us that there is inherently demand at the consumer level or whether that's contractor home homeowner.
And the you know right now it feels like a that's going to continue will continue at the pace. We saw it a couple of a couple of the businesses in June.
Do you think through normal seasonality, that's going to slow down a bit.
Which I anticipate that what happened, but that's something we see every year, but right now with <unk>, we feel pretty good about how Q3 shaping up for the residential business.
In terms of labor or.
Getting access to it.
A lot of our businesses repair replace and.
We've seen a in the second quarter.
When you start thinking about that its.
Interesting to note [noise].
It's a combination of homeowners in the case like our mailboxes and so forth.
Which had been strong and then.
When you get into our direct to consumer and you have awnings and gutters that's a different.
Set of and installation folks.
And then you get into our ventilation and roofing accessories, that's a different set of folks in terms of a contractor or contractors.
So far we have not seen a that be a problem whether that ends up being one uh huh.
Six months from now at three months from now it's hard to say at this stage I think there's a lot of a lot of things to think about over the next six months that I think everyone's got their mind I wanted to have a pandemic, we have a national election coming up.
And along with that you're going have all kinds of noise around that at both sides of that.
But right now we're we're not seen anything.
That says that we're going to see a dramatic shift.
Or one way or the other leased in the immediate term in yeah, we can probably see out as far as anybody else maybe.
[laughter] a month or so but.
That's that's kind of where we are right now.
Okay, great and.
Switching over to our infrastructure and industrial you know.
The margins are we're really good right and just the a question about sustainability or the structural changes now that have happened.
Hi.
Are we are new level profitability.
Yeah, you know.
It's it's been a long slog for the teams at both of those businesses over the last three years to kind of put themselves in a position that deliver what they've delivered.
Not just from Q2, but no I think strictly we've shifted up in terms of how we operate you're clearly a infrastructure and we have little more demand that we had a couple of years ago. So that's helpful and if we can a contingency that I'm confident the team.
Has the ability continue or on the pace. It is a again, we've made investments in that business with some key people and.
And a lot of works going down in process. I think you know the operating things of that business is better and I think it's.
It's a more sustainable than it would have been otherwise and industrial side.
It really is a tale of a couple different stories as we said you get the core business.
That's a more macroeconomic driven a lot of respects and that's still the bulk of the business and then you have permits security and architectural a that inherently the more profitable business and if we can mix that way more.
That would be helpful, but [laughter].
Our work and we're working that pretty hard but internally in terms of how we operate the team is I think really got a cadence as well so they know how to operate really well in this environment and I think that's showing up yeah couldn't get some demand which were not really anticipating the market to recover in the next six months for core industrial Yeah, obviously, that's very helpful. But.
When you have that kind of reduction in demand and still deliver what they've done clearly there they're able to do some things a quite differently today than before so I would say yeah. We've made a shift in how we operate.
And wed like to get some demand more demand on that business. They could really do some interesting things that if we could get a poor, but unfortunately markets not cooperating as much as we'd like right now.
Okay, great and kind of along those lines as you know we've seen M&A.
And the.
Mourn the renewables and conservation segments, I wonder from with a profitability coming up in industrial infrastructure.
If there's opportunities that you're looking out in that are you gonna stay.
Oh, you know kind of him at least growth of your parts of the business parameter.
Yeah, I know, it's a it's good question.
This entire pandemic and <unk>.
That's impacting so many different industries and and how people are thinking in and challenging paradigms and such so.
Yeah, we'll see how things work out I'd say right now we remain focused on what we went into the pandemic with as it relates to acquisition targets and we kept all of those discussions or.
Warm.
And and continued them. So I don't think there's a shift and our thought process from six months ago. Today in terms the end markets that we want to participate in and grow out there you know grow and build our our platforms and.
Okay. Thank you.
Mhm.
Our next question is Fabio I mean, obviously got TNK <unk>.
[laughter].
Hey, Good morning Hope you all are well.
Good morning, who they are how are you working.
I'm. Good. Thanks, So I wanted to start on solar business I think we've seen increased sentiment in the space. So I was hoping you could talk about maybe to current market Tailwinds you're seeing its all is what maybe Gibraltar is uniquely doing in that area.
Yeah, you know so the market itself. We see is continue to be quite a solid and and that's again, mainly community solar is where weve [laughter], we're well positioned and.
In a leader and and so I think I've said it through some calls as well as through last.
Earnings discussion.
Where we're starting to see a more apart theirselves is our ability to respond even quicker and I understand what those opportunities or even better. So that's implementation of our CRM system that we rolled out.
Oh.
Maybe nine months ago, and so I think the visibility and access to more of the opportunities.
Our ability to respond quickly.
Which has been I think something that we've been pretty good at making that even much more of a [laughter] a.
[noise] a win for US I think as helped us gain say participation. So we got a good market, we're getting some participation.
And I think thirdly, we've got.
Things like our canopy business, which we don't talk a ton of out but it's a really good business for us we acquired some IP. This year that we think will be a nice different greater for that business going forward and that will help that even grow faster. So there's a lot of things going on across the the solar business that that we like it I think I mean.
Right about where we're heading and let me set how we're operating you know, we're executing better and and ER and the growth is there and I think the margin prove it will continue to come in.
And some of the investments we've made in technology.
Well the beta so, Florida second generation tracker for US, which are now just starting to decelerate in pull orders and on after a pause as everyone knows [laughter] or the canopy IP that we've acquired a with a partner I think is a good it really help us go forward. So.
Yeah, I'd say, that's a that's how I'd summarize it.
Okay and.
Can you give us any additional clarity on the on the integration challenges that you maybe seeing on the Canada side I know you mentioned some some softness in the overall market.
But I think earlier in response to Ken's question, you talked about some accelerating some integration initiatives because at the end markets slowed down so.
Could you maybe help me square away those two statements and.
Has anything changed relative to what maybe was originally thought.
Yeah.
So I think Theres, a first and foremost there's a market that is that has slowed right. We will I think I understand that from integration perspective remember only on the processing side of the businesses integration really is the front end.
I wasn't necessarily a backend where we had planned a consolidating facilities and all that these are you know large companies to start with but it really is about combining the front end and that's where we've done a lot of our work so.
Having to leadership team come together with two different organizations, we just launched a common ERP system for both of these now and the same eat ERP system, We've launched a new CRM system at both are on sets those kinds of blocking and tackling things that we had planned to do.
That we were able to accelerate and pull forward it would've been.
Easier to do those things if we can physically you know get on planes and go see each other and and ER and that's where I think some inefficiencies or more.
Hi, more of it but we effectively have been able to bring forward some things as the market has slowed.
As I just mentioned, it's just been.
Even lot easier to do if we if we didnt have a pandemic I guess is the boy a from an integration perspective, So that's where my comments come from.
Okay. That's really helpful. I appreciate that.
I guess it just on the residential side I think you talk about roofing products rebounding as well as the gutters and owning business.
How about the postal and parcel business can you maybe talk about the run rate for those products as you exited the quarter.
Yeah, Yeah, I'd say, all four businesses contributed nicely to the growth rate you see it very pretty consistent for the segment across each of the four businesses.
I think the you know the two that started out slow.
In the quarter, we talked about was the direct to consumer audience better business. That's one really picked up a second two months and then ventilation.
I started out no and then it accelerated significantly in May and June the postal business and our roofing accessories business were pretty solid throughout the entire quarter and I would suggest a lot of this nesting that we see that we will continue to see yeah as people were finishing up their home improvement projects, whether its painting.
Center out new yard or what have you mailboxes.
And the flow through of that demand, particularly through big box because they were open or continue to stay strong during that time. So people, we started to see replacing mailboxes or upgrading mailboxes. So I would say a roofing accessories and postal and parcel have been consistently a solid and.
And and I think a we continue to see that.
That through July and hopefully that will continue through the quarter, but.
Yeah, they had a at a pretty good run like roofing accessories.
Helpful. And then just my last one is.
I could you give us what percentage of sales the either for the resi segment or or your company overall went through the home centers to Q.
[noise] Oh I don't.
Yeah, not something we disclosed.
[music].
But I would say you know.
Ramsey it's certainly.
Significant like the too.
The largest sales channel.
In resi is <unk> home center, and then wholesale.
We have a smaller direct to consumer business in there.
Some of that mailboxes go through a different distribution channel.
But it's yeah, but.
I would add one other thing too so so who they when you look at this business. It's interesting I mentioned earlier that we've been making a lot of investments and our ability for E commerce. So.
When we started tracking sales through our traditional channels, it's always been big box and residential building products residential wholesale or sorry building product wholesalers that really support the residential products business right and.
And that's kind of in the easy way to look at it and really depend on the product for whatever reason the market structured where it's heavy through one and other products. It's heavy through together between those two channels now what we're also seeing during this time is the online portion of sales for all of our products.
Traditionally have gone through those two channels is becoming even more.
Prevalent then then in just a year or so ago.
And there are different online path of distribution, there's BOPUS theres boss theirs.
DTC, there's all kinds of things, where we're working with these wholesalers or big box folks and we maybe helping them go direct in different ways and was not imagine just couple of years ago. So keeping score I guess as my point it gets a little more complicated and that's really accelerate the good news is we've invested well to deal with these various channel developments.
I think that's part of the reason why we've we've been able to.
Drive our participation up a bit over the last year too because we've made some of these investments and we've got more to do well give me wrong, but.
It's a really interesting time right now as we see these distribution channels evolve and technology is obviously, helping that happen versus a traditional way that these products and go to market.
Great. Thanks for taking the questions appreciate it.
We've had a whole lot question Daniel Moore.
Thank you again I'm just housekeeping.
Tim <unk> tax rate in the back half years expected still in the kind of mid Twentys and any capex capex expectations for remainder of the year and maybe preliminary thoughts for 2021 in terms of potential projects et cetera.
Yeah I.
I would say that a tax rate.
The probably just a little bit higher than it was last year in the second half.
Yes, so that mid Twentys range is good.
Capex remainder of the year I mean, if you look at the run rate that we've had you know just get a modestly increase in the second half yeah. I'm wondering if things were doing is improving the ventilation or any other movement in all of our factories to may get a more comfortable for employees who work.
Working with masks on generally show and spend some money on that.
And then I can you know normal levels of spending.
Only to ask about 2021.
But you know I don't see anything.
Different than what I would look at today.
But still a lot of time to go before we got there <unk>.
Thank you again.
Yeah from a cushion from <unk>. Please go ahead.
Thank you gentlemen for your patience they'll be short hopefully.
Right. It's a question for renewables EBIT composition.
Specifically because your second half 19, Ed good comps. So your margin last year in the second quarter was 12.6 and I believe no. If I'm not mistaken you had about 200 basis point drag in there from the tracker costs.
So my question is for the second quarter.
220.
Can we assume given that you had organic growth and you had those tracker costs last year is it reasonable to assume that the organic side.
I've your renewal ball with.
Year over year, which would imply and flat maybe negative margin on the M&A given that it's a large chunk of your sales.
That's a question assumption that I I want you to response, yet and then when if that's the case when do you think the M&A side, recognizing theres a lot you know that Canadian business, you're investing a lot of capital there.
Got you talked about the you know the we'd step with but when would it be realistic to assume that M&A side goes to breakeven or positive margin. That's something we really should expect in the second.
To occur, let's say in 2020 wine.
Realistically, it's just that you had such good margins in the second half a turn.
20, I I've I've said at 19 in that segment I don't want people to be surprised about the composition of the EBIT. Thank you.
Okay.
So Tim I'll, let you got your shot it comment ill make has.
Yes, Ken Yeah, we called out that we had negative margin from the acquisition of acquisitions in the quarter and that organically organic businesses had improved and I think if you'll look back to your point you know we've had pretty good results there for four quarters now.
This core business, we don't see any reason why that won't continue.
On the acquisitions, you know, we expect them to improve as we move through the year.
It's a little early to call exactly where they'll be but better than they were in the second quarter, certainly I don't think we see any scenario where.
You know, it's what we're seeing increases in activity.
But you know we think it'll take a couple of quarters, maybe for that those businesses sometime in 2021 to get back to where we think they ultimately belong.
Yeah I can only.
The only thing I would add to that is it's relatively simple.
Our thermal business, which is fruits and vegetables and inside is is a.
Yeah, it's making money and and really our issue is around the processing market.
And as a processing Martin comes back, which is really cannabis and they can't as we talk to that market starts to recover will recover nice.
With that.
The core businesses that is operating quite well so.
You know that's that's the that's the story.
Thank you very much.
Yep.
Yeah for each they end up my question and occupation Osats tend to flow back kind of a cheaper by saying I'm thinking company.
But as a <unk> wanted to just say thanks again for joining us.
Appreciate everyone's interest in the company, we look forward to.
Obviously talking with you on a some upcoming virtual conferences and non deal road shows.
Scheduled weeks and well give you an update obviously as we on a third quarter call as well so have a great day and again, thanks for joining us.
This conference today country.
Thank you for just a function you may disconnect your lines at this time.
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