Q3 2020 JELD-WEN Holding Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the job holding Inc. third quarter 2020 earnings Conference call.
At this time all participants are in a listen only mode. After.
After the speaker's presentation, there will be a question and answer session.
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Now I'd like to hand, the conference over to your Speaker today Christine Cho. Thank you. Please go ahead Sir.
Thank you good morning, everyone. We issued our earnings press release, this morning, and posted a slide presentation to the Investor relations portion of our website.
We'll be referencing during this call I'm.
I'm joined today by Gary Michel our CEO and John Legere, our CFO.
Before we begin I would like to remind everyone that during this call. We will make certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided our forms 10-K, and 10-Q filed with the SEC.
Joplin does not undertake any duty to update forward looking statements, including the guidance, we are providing with respect to certain expectations for future results and statements regarding the expected outcome.
Pending litigation.
Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance the.
The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to the most directly comparable financial measure calculated under GAAP can be found in our earnings release and in the appendix to this presentation I would now like to turn the call over to Gary.
Thanks, Chris and good morning, everyone. Thank you for joining our call today.
Since we talked last quarter, improving housing fundamentals in the United States and Europe led to accelerating demand for our products and sequentially improved pricing.
In addition to the pandemic weather events, including Hurricanes and wildfires presented new challenges for us to manage.
Because some of our facilities were in the wildfires Taz, we experienced limited short term facility closure due to air quality, but suffered no physical damage. These.
These facilities are back online and meeting customer demand.
Unfortunately, some gel when associates suffered extreme personal property damage and home lost due to the wildfires, but thankfully all are physically unharmed I'm.
I'm extremely proud of how so many of our people came together as one team to provide fellow associates much needed assistance to help them on the path to recovery.
Thoughts remain with everyone affected by the Hurricanes and wildfires and globally the ongoing effects of the pandemic.
Regarding the pandemic, we experienced some isolated operational disruptions in the third quarter and despite the rise in the number of COVID-19 cases around the world only a small number of gel one associates have been diagnosed with the virus and thankfully all have before are now recovering.
I attribute this containment to the continued focus on safety and enforcement of protocols to protect our people and business partners. Our first value is safety and our associates embrace it.
I'm pleased to announce that we once again delivered quarterly financial performance ahead of expectations through disciplined execution of our strategies and actions taken to offset any market challenges.
We delivered both revenue growth and margin expansion in the third quarter through profitable new customer acquisitions and sequentially improved price realization.
Operational improvements continue to deliver benefits through the ongoing disciplined deployment of the gel with excellence model or job and the footprint rationalization and modernization program.
On page five you can see highlights of the third quarter, including a 200 basis point core margin expansion versus prior year. The result of delivering a 20% increase in adjusted EBITDA on 1.9% revenue growth.
This strong operating performance is the result of productivity price realization and profitable share gain.
Notably, we delivered sequential margin improvement across all business units and regions.
In North America, our customer segmentation work and improved operational capabilities are delivering results you may recall from prior communications that a primary focus for us is increasing penetration with key customers and channels and profitably growing our business.
In the quarter, we secured a significant commitment with a national homebuilder for both doors and windows in the southeast and South Central U.S.
We also secured additional share gain through our national channel partners across the country in both doors and Windows. We expect these share gains to have an immediate impact on our topline growth and profitability.
We also realized higher price sequentially from Q2 to Q3 and the price changes deployed earlier this year are holding.
During the third quarter, we implemented off cycle price increases in certain products and regions due to strong demand and increased utilization of our assets. In addition, we have already communicated price increases across our product portfolio for the 2021 building season in North America.
In Europe, we delivered the fifth consecutive quarter of year over year core EBITDA margin expansion.
We saw markets reopened and stabilize contributing to increased demand and sales growth across all of our major markets. We.
We delivered the strongest revenue growth in Germany, and the UK supported by profitable share gains.
Productivity savings from manufacturing efficiencies sourcing initiatives and pricing are delivering to the bottom line.
The Australia housing market continues to be challenged by demand headwinds and the impact of COVID-19 restrictions. Despite these challenges in the third quarter, our Australasia segment delivered market share gains and delivered positive productivity in this down market.
Oh, good 19 related restrictions in Victoria were recently lifted and we expect to see demand in that market return in the coming months, our new Sera Bond, Indonesia plant is fully operational with joinery Dore production and painting operations that will support growth in markets around the world.
Liquidity remained strong, giving us flexibility and allowing us to invest in our business for future growth.
Page six shows the progress, we're making through our rationalization and modernization programs. These projects are designed to lower costs and increase capacity, while reducing total manufacturing square footage in every region.
We have good visibility to achieving our commitment of $100 million savings from our footprint rationalization and modernization program. We continue to invest in this program and as you can see on the chart made additional progress identifying and initiating additional phases of the program.
Well with the positive productivity realized from Jim initiatives, we have a pipeline that will deliver margin expansion into the foreseeable future. As these programs move forward, we are deploying equipment and processes that have been proven in earlier deployments. For example, we will begin executing the next phase of our North American.
Erika door modernization program in early 2021.
We have significantly adapted our business this year across the board always keeping our focus first on safety safety of our associates and our partners and working with channel partners and suppliers to adjust their businesses for mutual market success.
Challenging times tried organizations to focus on key critical issues to assure sustainability and growth.
I've sold very proud of the engagement and the resiliency of our associates, who have demonstrated their commitment to our values and to our business operating system to deliver innovative solutions and processes and continuous improvement in service to our customers our partners and each other.
It is our associates give me the confidence the gel when we'll continue to grow and we will emerge from the effects of the pandemic and even stronger more resilient enterprise and our history proves that out.
We were so excited to celebrate our sixtyth anniversary in October.
As many of you know Joe we started as a small family business in Oregon and through the vision of our founder Dick when has grown into the global leader we are today.
Through October we commemorated key milestones in our history and highlight its long tenured associates from around the world.
Our company is built with the contributions of our associates and I look forward to working with them to continue to deliver world class products and unmatched service to profitably grow the company. It is truly an honor to carry on this legacy and lead such a dedicated team.
I'll now turn it over to John Linker to review, our third quarter financial results in more detail.
Thanks, Gary Good morning, everyone I will start on page nine our.
Our third quarter financial results demonstrate continued execution in a challenging operating environment as we delivered meaningful improvements in revenue earnings margins cash flow and liquidity.
Strong performance is a direct result of running our playbook consistently over multiple quarters, focusing on our strategy and our continued investments in our business operating system.
Third quarter net revenue increased 1.9% to 1.1 billion.
The increase was driven by the favorable impact of foreign exchange, our core revenue was essentially unchanged.
I'll be delivered core revenue growth in both Europe and North America. This was offset by continued Australasia housing market weakness and coated lockdown restrictions adjusted EBITDA margin expanded 170 basis points in the quarter to 11.7%.
While core adjusted EBITDA margin, which excludes the impact of foreign exchange and many recent acquisitions expanded 200 basis points, a strong step up and sequential improvement compared to the second quarter.
The combination of a favorable impact from price realization execution of our structural cost reduction programs and productivity Tailwinds from Jim initiatives. All contributed to the strong margin performance. The positive margin drivers were partially offset by ongoing volume mix headwinds in certain geographies and channels such as volume.
Australasia and mix and the North America retail channel.
Page 10 provides detail of our revenue drivers for the third quarter as I mentioned in the previous slide our consolidated coal revenue was flat comprised of another strong benefit from price of 3% offset by a 3% headwind from volume mix.
Please move to page 11, where I'll take you through the segment detail performance.
Net revenue in North America for third quarter increased 1% driven by a 6% increase in pricing, partially offset by a 5% headwind from volume mix in certain products and channels note that both pricing and volume mix improved sequentially from the second quarter.
As demand in North America has certainly improved for both residential new construction and repair and remodel we did see different dynamics by product and distribution channel across the region as follows.
And our U.S. retail repair and remodel channel revenue increased low single digits with growth in both doors and windows.
And this channel while unit demand increased overall revenue was impacted by continued unfavorable mix shift towards greater activity and stocks to use and lower activity and higher priced special order skews.
We attribute this mix shift primarily to contractors and builders pushing to complete open projects with available stocks use to avoid waiting on special order lead times and such an uncertain environment.
As well as our retail customers working to restore inventories to target levels.
Our U.S. traditional wholesale channel, which typically supports new construction.
Revenue declined mid single digits as low teens revenue growth and doors was offset by headwinds in windows. We believe that the traditional doors revenue performance represents share gain in some of our key markets.
And our U.S. door distribution business revenue was approximately flat in the quarter were growth in certain markets was offset by lower special or demand through the retail customers that this channel also serves.
And finally, all other channels in North America, including Canada, and other products netted to a low single digit revenue growth rate.
Europe revenue increased 8.1% overall and 3% excluding the impact of foreign exchange.
Core revenue growth was comprised of 2% volume mix and 1% pricing.
We believe our performance exceeded market growth from the quarter demonstrated by mid single digit local currency revenue growth in both Germany and the UK walkover.
<unk> case growth has accelerated in Europe over recent months, we continue to see good demand for our products.
Australasia revenue declined, 4.5% overall and 8% local currency.
As prior year, although revenue did improve sequentially from the second quarter.
The Australia housing market remains challenged and the impact of cobalt has delayed the recovery we were expecting to see in the second half of 2020, our largest market of Victoria faced Kobin related lock down measures, creating headwinds for our businesses there that offer supply and install services. The Victoria lock down was recently lifted and we will continue to monitor the reopening process.
Yes.
In June the Australian government announced a stimulus package to Incent, new home sales and renovation projects. We anticipate the stimulus package will help slightly offset some of the housing market challenges. However, the latest housing forecast show a further decline in new housing starts through 2021.
Moving to earnings in the third quarter overall.
Overall margin expansion was driven by continued strong price realization benefits from cost actions savings from the deployment of gem tools and continued execution on our footprint rationalization and modernization program.
These factors more than offset margin headwinds from volume and mix looking.
Looking into Q4, we have good visibility for these positive margin drivers to continue driving year over year margin expansion.
North America, adjusted EBITDA margin expanded 380 basis points year over year with improved profitability and all major business lines, including doors Windows in Canada, and a nice improvement sequentially as well.
Europe delivered a fifth consecutive quarter of core margin improvement with an increase of 230 basis points year over year due to strong productivity cost reduction actions and improving volume.
Our Australasia segment delivered solid productivity and cost controls offset volume weakness on a year over year margin decline the sequential trend improved.
That's you know increased $20.5 million compared to year, primarily due to charges taken for legacy litigation matters, partially offset by cost reduction actions leased.
Please turn to page 12, where you'll see a quick snapshot of our balance sheet and free cash flow performance.
We ended the third quarter with total debt and cash equivalents of $1.8 billion, and 605.8 million respectively up from 1.5 billion of debt and 226 million of cash at year end 2019. These movements reflect good cash flow performance and the proceeds of our notes issuance in the second quarter, our net leverage ratio.
Decreased to 2.8 times down from 3.1 times tracking closer to our mid term target of two and a half times or less.
Year to date free cash flow improved 83.4 million compared to the first nine months of 2019 243.7 million demonstrating the power of Jim.
Invested 66.9 million of capital expenditures in the first nine months of 2020 down 37.7 million from the same period a year ago.
Well, we took a pause on capex in the second quarter during the height of cobot uncertainty, we're now investing at a normalized rate and attractive high return projects.
Turning to page 13, our global liquidity currently stands at 953 million. It consists of 605.8 million in cash and $347 million, an undrawn credit facilities. This level of liquidity is the highest ever for the company.
With that I'll turn it back over to Gary who will provide closing comments Gary.
Thank you John.
I'll comment briefly on our business outlook and then open the line for QNX.
While uncertainty remains elevated around COVID-19, and overall macroeconomic conditions in the fourth quarter, we expect to build on our solid operational performance and improving visibility to deliver both revenue growth and margin expansion.
In North America, and Europe, we expect fourth quarter core revenue growth of low to mid single digits, which is also consistent with our preliminary October results.
In Australasia, we expect continued core revenue headwinds in the fourth quarter, However, with Victoria reopening demand should improve sequentially.
Fourth quarter margin expansion will be supported by pricing and productivity, partially offset by mix and the restoration of targeted SGN a investments.
Given these factors and assuming no new significant COVID-19, Lockdown restrictions, we now expect full year 2020, adjusted EBITDA in the range of 435 million to $450 million.
Jelled win through our associates in commercial and financial performance has proven our agility and we believe that our strong fundamentals and business strategy. We will continue to deliver results as we manage our business through the current market disruptions. We are also preparing for the longer term and making strategic investments.
Smith that position us for future growth.
As I reflect on the year I want to acknowledge and thank every gjelten associates for their adaptability and focus on customer needs that have delivered results. This year and will assure a successful close to 2020 and set us up for continued growth into the future.
Before we wrap up and open the lines for questions I'd like to note as all of you are aware that today's election day in the United States I hope that everyone on the call with a registered voter has the opportunity to cast your vote with that we'll open the line for questions operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press, the pound or hash key [laughter] standby when we compiled bikini Rochester.
And your first question here comes from the line of Truman Patterson with Wells Fargo. Please go ahead. Your line is now open.
Hey, Good morning, guys Nice results first you know it seems like every north American you know window and door manufacturer running it elevated capacity, but it doesn't seem like there were any manufacturing inefficiencies during the quarter that you know kind of come up.
In the past it can you just walk us through what you've done a you know over the past six months some of the processes you put in place as you ramp your capacity from you know essentially zero at the start of.
Cove, it almost full capacity today, and I'm really thinking I mean, they're just a lot of moving parts in there right you're doing Jim initiatives. The global footprint rationalization, you know I'm, just hoping you can help us get comfortable that maybe some of the one off window manufacturing headwinds you know over the past several years just won't occur.
Going forward.
Well, Thanks, Truman and great question, obviously through kind of the last six or seven months the other Ben.
Various issues here and there that we had to deal with mostly related to COVID-19, and quite frankly, mostly related to your post post any governmental or municipality shutdowns, which are you know kind of behind us.
Mo, mostly related to absenteeism and the ability to get labor into the plant, which.
Which is an area that we've been working on but what we've been seeing and you can see it certainly in the margin expansion and the consistency of our performance is the work that we've done on our modernization rationalization as well or deployment of Jim further into the organization with diagnosed with deeper deeper take up and and better use.
The tools, we're seeing you know consistently sequential improvement in our operations here, we talked about it certainly in North America door business quite a bit. We're you know we've talked about some of the moves we made a modernization, but really weve been sequentially improving the performance in our windows business in North America up or.
Wow that are over here at this point, we've seen that improve them and just continue to get better and better with our ability to meet demand and ER and you know when the things that quite frankly are our past history and our.
Mine.
Okay. Okay. Thanks for that and then in North America pricing was up 6% I believe you said that you actually realize some sequential improvement as well is that is that just realizing you know the prior price hikes from earlier in the year and then you know going forward in north.
America, you all have announced you know a handful pricing initiatives I think you know some competitors have followed suit could you just discuss what some of those are the timeline for implementing and you know whether or not you know some of your largest competitors have really followed a you off.
Searcher Minister on their pricing in North America and in the second quarter was the preferably of 5% and we reported 6% in the third quarter I attribute that just doesn't have good realization and just everything sort of sticking nothing really new incremental went into place.
And the third quarter that would have benefited third quarter result, as it relates to sort of going forward. Certainly we're now we're always looking at all aspects of our business, where we need price to offset terrorists or inflation or expected inflation and certainly looking at the balance of supply demand and.
Utilization of our assets and so as Gary mentioned in the prepared remarks, we did have some off cycle price increases that went into place in a couple of business lines in the in the quarter and that we really again didn't see any benefit in the third quarter and then we've also announced the price increases are really around the world.
Not not just in the U.S., but looking ahead to 2021 buildings. These and trying to get ahead of you know ahead of a any anticipated inflation or tariffs or any supply chain disruptions. So yeah in terms of.
Where we are with that it's still pretty early in the process I don't I don't think we really want to give forward looking guidance around price other than to say you know at this point, we would anticipate and 2021 to be another favorable year, a price cost tailwind, but it's probably a little too early in the process you have to kind of give you clear visibility on.
In terms of you know what sticking in which channels at this place, but we're actively working on that process around the globe at this point.
Yeah, Yeah, I know that that's absolutely fair enough.
Just one follow up on that competitors have largely followed suit with your old actions.
But for the most part again I'm not I'm not aware of anything where we're seeing you know competitors are not taking price up for next year.
Okay, Thanks, and good luck in the upcoming quarter.
Thank you.
Your next question comes from the line of John Lovallo from Bank of America. Please go ahead. Your line is now open.
Hey, guys. Thank you for taking my questions as well.
First one you know this.
And this is challenging but when do you anticipate that volume and mix could could turn positive again in North America I mean, it seems like the stock versus made to order headwind could improve but I guess you know how are you thinking about the wholesale channel and that getting back up to speed.
Yeah, we're starting to see some improvement on in in the channel and that's really where we're talking about the the mix situation, which is as you said the the move to higher stock versus a special orders in the retail channel, we see some movement there, but there continues.
To be a very strong sell through of the stock units. So you know the there's kind of a double.
A double trigger there number one as stock continues to flow through building up those inventories.
In keeping those style is a place for the Knicks game as well so even as special orders continue or start to improve.
We still have done the restocking of shelves, which is a benefit to us but inside it's still still plays out on that so I think as the season starts to take off into next year and we'll start to you know things stabilize a little bit more people are more comfortable with your projects, taking a little bit longer getting exactly what they need rather than.
Trackers, providing only whats available in stock I think we're going to see that.
That makes a big number change.
Yeah, I'd just add on that.
I'm, certainly looking very near term sort of fourth quarter and even in the first quarter I would anticipate still having some mix headwinds just given the magnitude of sort of where retail inventories are relative to where our retail customers want them to be but certainly as you think about 2021 as a whole we wouldn't be thinking.
About North America, and a positive volume mix as a tailwind to our results and not not being a a headwind overall for the year for sure.
Okay. That's good news and then you'd like to get to Q you guys successfully pulled out about 20 million that she day and I think the outlook was for about 5 million per quarter in the second half of the year can you just if I may have missed this but can you just tell me what the pull out was in Threeq you what you expect.
And for Q and as we progress into 2021 admin fee you anticipating something to this as she needs spending to come back up to come back on as you guys invest in growth.
Sure.
So there's a there's certainly a couple of moving pieces and the S. DNA line this quarter.
GAAP results are we do have a fairly significant charge for the legacy litigation related matters, which has been adjusted out of the non-GAAP.
Results underlying that we did continue to see some.
Good cost saves and some of the discretionary items around TNT and I travel and entertainment and discretionary spend that we can defer until we got good visibility around where where the market is heading in this specific quarter. There were some year over year headwind from variable compensation items that were at.
Tailwind in the third quarter of last year. So like I said, a number of moving pieces that were trying to control you know asking as tightly as we can thinking forward to next year I'm. Certainly you know as you think about some of these I've seen a expenses that we took out next year I'm sorry, with it we took out this year in terms of yeah coated related items from our furloughs in style.
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Reductions and things like that that we did early on in the second quarter to look out for what might happen with co that there's probably a a base of about 40 million that is going on before we even think about sort of discretionary spend and which projects. We want to invest then next year. That's about 40 million that's going to come back in a that you know that will be.
Just not lapping what you know what we took out in 2020. So it certainly affects the S. DNA go up next year and when you know in addition to that we're planning to make some target investments investments to grow the top line of the business as well.
Great. Thanks, guys.
Your next question comes from the line of Matthew Balmy with Barclays. Please go ahead. Your line is now open.
Good morning, Thank you for taking the questions. So back on the North America volume mix down five yeah. John you gave some great details about the the channels. There I guess number one are you able to quantify how much those mix issues actually did impact that volume mix number and also.
I'm, sorry to hear about that the impacts of the wildfires to your team, but it but are you able to quantify the impact of operational disruptions within that as well. Thank you.
Sure the the North American mix headwind in the third quarter, we would attribute approximately $10 million of EBITDA headwind from that most mostly related to that stock special dynamic as well as just some of the overall other channel mix dynamics compare.
For the third quarter of last year. The wildfires headwind was was pretty minor you know I'd say, maybe a couple of million dollars of sales in the quarter just towards the end of the quarter is because we had some temporary shutdowns. We also had a little bit of downtime in some other facilities related to hurricane, but yeah were maybe.
Maybe a couple million a a revenue or not nothing significant.
And nothing ongoing as Gary mentioned in his remarks.
Okay. Thank you for that secondly, a higher level one on the on the footprint rationalization, just with this level of demand and recovery.
No our you've seen this with some other companies, but does it make any sense to.
Sort of or is there any impact to the timing around rationalizing the footprint to I guess, so basically are you positioned to still deliver on this type of market growth, while rationalizing capacity in parallel.
Yes, so as we've talked about this a lot you know the rationalization modernization program over time, you know certainly in the earlier stages, we did a lot to de risk the timing and de risk. The activities. We were learning about the new equipment, new processes, you know really deploying a.
Yeah, deploying our best practices, but designing what our standard work would be and what the deployment look like so we kept on you know refining capacity through you know through the changes yeah. We continue to be able to do that the benefit of our modernization, particularly north American door is.
Adding capacity, you're really changing from a batch a mentality of manufacturing to single piece flow, which gives us a lot more flexibility gives us a better cost position and increases our overall capacity. So you know the better the faster we can get there the better and now that we're using proven processes.
And proven equipment things that we've learned how to time to learn about it really de risks that that capability, we kind of know how to turn it on and off but again, we keep the redundant.
Pasadena facilities that we would otherwise float up and running until we have the new facility.
Ready to roll so that's kind of how we've taken a look at that and Ah and that's how we've been modeling it out we really wait until we have a proven line are prudent line in place before we take that out I don't anticipate that you know demand in of itself with the.
Labor programs, they are pretty well laid out and data and we kind of know how to get after it would just be when we take redundant capacity out.
Got it thank you Gary Thanks, John.
Your next question comes from the line of season Mcclary with Goldman Sachs. Please go ahead. Your line is now open.
Thank you good morning, everyone.
Good morning, we're done.
My first question is just you know can you give some color on what you're seeing in terms of input cost you know, especially maybe we're hearing about inflation in transportation and some of those areas. How are you thinking about that going forward and perhaps how is that reflected in the guidance that you're giving us for EBITDA.
Certainly, there's there's pockets of inflation and it really varies quite a bit depending on which category and which region. In the world. You are talking about you know as it were as it relates to Uh huh.
You mentioned freight and North America, you know were largely under contract at this point and so at least for the next couple of quarters.
Yeah, I was going to those contracts hold would not anticipate a significant hit from any freight inflation, but in terms of looking at you know looking forward into 2021 or things that we're working to mitigate at this point would be a metal. So I think aluminum had a sort of a pretty much an all time low you know here recently.
So that metals in general are coming back logs, and we don't buy a lot of lumber, but we do buy logs and process them in our sawmills. That's an area of inflation of concern a mill work as a whole on particularly on not only the inflation, but we are seeing some anti dumping countervailing duties.
Impact from.
Some of the the impact of a government decision around a mill work coming out of China I'm. So there's certainly some pockets that that they'll be are watching I'd say at this point, it's manageable and that's why we've tried to get ahead of things with our pricing actions. So I I would think about inflation in 2021 certainly being.
More than it Wasnt 2020, but we believe you know if we're successful with our pricing strategy, we should be able to.
Offset that completely.
Okay. That's helpful. Thanks, and then.
Question is just you know Gary you mentioned in your comments that you are thinking about the next phase of your restructuring program as we look to 2020 wine can you perhaps give us some early color on what to be expecting from those efforts. How we should think about them flowing through and you know just where we are in this process and what's moving to this next stage.
Represent.
So we've been giving progress reports every quarter on a a kind of where we are in terms of the deployment we've done a.
Quite a bit.
Well, we've done some area in every region of the World, obviously with what's going on in Australia, We probably pulled some program sooner than we might have otherwise gone too to offset.
The market conditions, there, we bought smaller projects in Europe, and we had some some real focus that we've talked about before in our North American business, particularly in the modernization of our portions of the door business where.
Where we are as I said in the earlier comments and we showed in the presentation is we're taking what we've learned in the early first phases of the North American door modernization and we're now deploying that further into North America. So while we expect to commence or kind of the next phase of that and early part of.
2021, and we'll start to see probably benefits from that later you know late in the year, but we feel pretty good about that we have identified really kind of that next or you know.
Next next group of projects and those are kind of teed up and a and we're in various stages. The plan. So that about I'd say two thirds or so of all of the $100 million that we've committed is pretty well understood and and laid out in a project plan. So that you know we're kinda.
It's really now looking at the last piece of that funnel and you know we expect you to see you know kind.
Kind of that fill out over the next 12 months as we're working through the deployment of what we've already identified.
Okay, great. Thank you good luck with everything.
Thank you.
Your next question comes from the line of Tim Lungs with Baird. Please go ahead. Your line is now open.
Hey, everybody good morning, nice job on the margins.
Maybe just first on channel inventories is there a way to frame for us maybe what the channel inventory position to look like you know relative to normal and I'm not sure. If you want to think of like weeks of inventory or things like that just trying to understand how much some of the inventory restocking you know could help here over the next couple of quarters.
Yeah, I mean, we've got the best visibility into our sandal inventories with our retail partners and I would do it varies by product line and by by customer, but I would say right now compared to the same position as last year those retail inventories of stock.
Views are down in the five to up to 20% in some cases, a down versus versus prior year. So you know certainly still.
Still still quite a bit of room to go through to resolve all that we do have less visibility into you know where channel inventories might be in the mid of traditional wholesale distribution channel, but my my gut is there's there's probably not a lot there right now just given the demand that we're seeing from from that channel.
Okay. Okay. That's helpful. Thanks, and then as you look at Europe I'm, just just on the quarter I mean, any any particular regions that were stronger than that than the rest of the continent and have you seen any impact you're just near term for many that shuts out that has happened over there.
Yes, so we saw it so in the third quarter stabilization really opened up I'm really of all markets and where we saw strength was a particularly in the kind of Germany central Europe, a little bit in the North and then obviously as the UK and France open back up.
Now where we are today you know kinda second second piece. The the question is are you with new new Hoeven 19.
Activities going on we don't expect them to if they're short lived as a as they've been announced I'm, we're not expecting or you know too much or.
You know too much effect on our business you know as manufacturing and certainly construction continues to be a to be open open and a and we're able to support that we will continue to monitor that and if it goes on for a longer period of time, you know could.
Could could have different effects, but today, we're seeing a seeing that our industries and certainly our our operations are you know and as you know in a good position to stay open and to continue to produce.
Okay. Okay. That's that's good to hear good out to look on that so your guys. Thanks for the question. Thank you Tim.
Your next question comes from the line of shelling with Jefferies. Please go ahead. Your line is now open.
Hey, guys. Your Fourq guidance implies some modest slowdown into momentum you saw in Threeq you can expand on some puts and takes it sounds like you're expecting a little more growth out in North America, and other productivity pricing still seems.
It seems very sustainable.
Hey, Phil.
Volume mix in the fourth quarter, Yes, we will still be a headwind fear to prior year left that I had when it was in Q3, so kind of getting better Australia is still down year over year, but I think you know Gary gave sort of the projected sales.
You know sales a buyer by region and in the prepared remarks in terms of sort of low low single digit type of growth and in North America, and Europe, and then down in Australia. So we feel pretty feel pretty good that we're seeing some sequential improvement, but as I noted were not yet to the point, where we can say volume mix is going to be a callaway.
In Fourq you.
Particularly north America, and price cost should be a tailwind in the fourth quarter, but you know a little bit less than it was in the third quarter, partially because we lap of the November implementation last year of some of the wholesale price increases that went on and then also we're seeing a couple of million dollars of in play.
And from the millwork anti dumping countervailing duties issues productivity to be better and pork you than it was in Threeq you are and and then ask DNA as a slightly up as well as Gary mentioned so at this point, we got really solid visibility to the margin expansion nice margin expansion.
Like we had in third quarter. So you know I wouldn't call it a deceleration or anything like that it's more than anything that's sequentially everything's moving in the right direction.
That's helpful color.
And I guess from a door skin capacity when we look at next year, you know how you set up there or do you get enough supply there to meet demand and assuming trends that we're seeing in resi probably North America is sustained should we expect volume growth in North America and for that segment attract more in line with some of the AD markets again, well look at volumes for the last few years. It's.
Kind of up and down for obviously different reasons. So just trying to get a better handle you play a little catch up next year.
Yeah, we won't yeah, we're not giving guidance yet for 2021, but certainly we would expect that are you know the favorable news that we're seeing in our residential new construction and you can see strength than they are in our markets and talk about.
Earlier in the mix shift back towards.
More.
You know more.
Special Order Hi, Bob type business in the retail space, we would expect those to move favorably and and and provide a a tailwind for growth for us in to 2021, we think we're well structured for that not only on our components piece of the business, you know door skins, and the like but.
Also our ability with our improved capacity and throughput our ability to meet customer demand in our operations both.
In North America doors, and Windows as well as a goal we would expect to see sequential improvements and not in Europe, and and Australasia as well got.
Got it that's really helpful and just one last one for me Gary in your prepared remarks, you talked about.
Some recent wins with a large builder and I think via a channel partner as well can you help us size up that opportunity and the timing of how that kind of ramped up.
Yeah. So we I don't really want to give a lot of specifics on a particular bill on a particular customer, but I would tell you that what's really exciting about that is that again exclusivity you know in markets with with builders for both windows and doors is pretty exciting for us as you know are you know this.
Story is playing out you know we've got the ability to serve all the needs meet.
Not only are you know.
From an operational standpoint, but also you know kinda design and ER and product line standpoint throughout our throughout we offer so we're pretty excited about that we think that you know we're you know we're catching it at the right time as well as you know, we're seeing an upswing in a new home sales and starts.
This is going to play well for us on the other side on our traditional wholesale side no. Its not just not just one channel partner you know, we're we're seeing share of wallet improvements we're seeing.
Some expansions that we've talked about our our customer segmentation work that we've been doing you know really selectively choosing on the customers that are that that we feel are growing that we feel we can grow with that thought value the tailwind proposition our products et cetera, we've gotten very very close with them.
And we believe that these these gains in a in nodes and not full share but also in share of wallet with existing customers is really the advantage for us and we'll see that play out as we go into certainly this quarter, but more more so into next year and beyond.
Okay. Thanks, a lot Gary I appreciate the color.
Your next question comes from the line of Michael Rehaut with JP Morgan. Please go ahead. Your line is now open.
Hi, This is allied home then on for Mike. Thanks for taking my question. So first I just want to clarify a bit on some of the sales trend I think for Windows. You mentioned that you sell windows growth in the retail channel, but then Rodney decline in wholesale channel I was just wondering the dynamics, you're seeing in windows and any of the progress.
You're seeing there and into October.
Yeah, I think that the dynamic there are some of this comes back to our but the story around where channel inventories are right now yeah, we've got and certain product line for violent vinyl Windows. For example in North America now we've got limited limited capacity in certain parts of the country and so as where we are.
Working hard a few you know support our retail customers and get them to the stock levels that they want to be on vinyl in the very near term that that that takes away from potential growth areas and the traditional wholesale distribution channel. So there's a little bit of trade off between using our.
I see here in the short term to you know to support the retail customers what shows up as that both single digit sort of a revenue growth in the window that we talked about earlier, the flipside is yeah, but between sort of or using that capacity for retail that means that shows up as a headwind on other channels and also I'd just say that we're still seeing a lag on the news.
Construction activity no our our wholesale window business typically support a new construction and while we're seeing a lot of great activity in a announcements from homebuilders around orders and that has not yet manifested into revenue for us in terms of increased demand on the on the window side and you can see.
Production, So I think as we as we look into next year I would expect yeah, we would expect to see growth and all of our window channels Woodbine all retail traditional but here in the very short term. It has continued to be a headwind on the traditional wholesale channel.
Got it Okay and then just following up there in the wholesale channel on doors and you mentioned you had sales guidance up low teens I was wondering how that is that starting to reflect can be improved order trends that the homebuilders and do you see that improving further in 14 and is that kind of what you have baked in into your guide.
It's down to.
The low single digit revenue expected and and not for Q4, North America, Yeah, I'd I'd attribute it more to some of the you know the targeted share gains that Gary mentioned, we relate decides to and that traditional wholesale channel align ourselves with customers that want to grow.
With gel one and so we're seeing now with with our with our customers who are in that for a top tier of segmentation, we're seeing growth rate well above that low teens level than traditional wholesale doors. So I don't think that's market growth I think that's just jelled, one aligning with customers who want to grow.
With us on target of parts of the country. So there in terms of when do we see the homebuilder sort of tailwind and that channel again, I think you have more time. It goes on from these orders and when that manifest.
And their revenue for us, it's still a little bit of time to go about here in the in the short term and what we got baked in the fourth quarter is as more of the same a growing with that you know kind of growing what we believe is above market level, but with the top tier of customers in the wholesale channel.
Great. Thank you.
Yep.
Your next question comes from the line of Adam Baumgarten with Credit Suisse. Please go ahead. Your line is now open.
Hey, good morning, Thanks for taking my questions just on the potential for restocking do you expect maybe seasonally it.
It could help to see some benefits starting in the fourth quarter of some of your customers maybe a.
Restocking and that being a slight tailwind for you guys in North America.
You know certainly the the weird.
We're being encouraged to to get there you know where we're probably we're we're doing well to meet point of sale and I think there is an advantage both to channel partners as well as the up to us to ensure that we get those those units up typically when a when point of sale starts to decline.
In the winter months as when we're building those stock units are normally for delivery.
It kind of it you know the first quarter prior to next season I think what we're going to see now is you know first fill the shelves and then you know as we continue to build a you know we'll be in a position to serve a.
The building season, and a and a higher season as it comes in the spring. So yeah I do think that that's part of the.
The that the growth that we're seeing or.
And just to clarify from a mix from profitability standpoint, though it'll it'll help help certainly help revenue with restock or from a profitability standpoint, we do expect to see that you know stock special mix headwinds persist in the fourth quarter.
Got it thanks, and then just.
As your leverage starts to tick down into next year should we expect a return acquisitions and or share repurchase sometime in 2021.
Yeah, I think we've.
We've been pretty disciplined in our capital allocation that we have a lot of really good projects internally.
Hi return, we talked about our modernization rationalization programs and we'll we'll continue to invest in those and we have through this year with you know just a small Paul maybe you know during the second quarter. When there was some uncertainty as we look into next year, we'll continue to to fund those program and we continue to look.
For opportunistic bolt on kind of acquisitions that make sense for you know building out our strategy accelerating our strategy for growth and you.
Yeah, we'll continue to look at those so yeah, I think you're spot on.
Great. Thanks, guys.
Your next question comes from the line of Rubin Garner from the benchmark. Please go ahead. Your line is now open.
Thank you good morning, everyone.
Good morning.
One question.
Question most of my questions have been answered, but just one quick one on the potential for for Prebuy I don't think I heard this discrepancy if you already did I apologize, but given the success that you had with the pricing increases. This year is there any pre buy embedded in your your outlook or is.
Pasadena, so tight right now that that that's not able to take place and maybe it'll.
It will be even stronger first half for 2021, because you'll be.
Selling into the housing strength with the higher price.
Price increases that you put out there.
I think that's correct I mean, I think where we are today as demand has been production demand of kind of match the as I said earlier, particularly in the retail side, we're meeting point of sale and slowly rebuilding inventories there oxide on and then as we see the demand you know continuing to increase in residential new construction.
Well continue to meet that so I don't think that we've modeled in a a pre buy this go around me because I just don't think its is there people are using what thereby.
Perfect. Thank you guys.
And im not showing any further questions that are in the queue. At this time I will turn the call back over to carry Michel for any closing comments.
Well. Thank you very much and thank you all again for joining US this morning, and your interest in jail when.
Our associates are committed to meeting the needs of our customers and partners even in the face of the challenging market conditions that we've seen they demonstrated the ability to perform and deliver commercial and financial results, while ensuring a healthy and state workplace.
As we've done over our 60 year history, we will continue to innovate and grow gel one and we look forward to sharing this exciting future with you. Thanks for joining us please be safe.
And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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