Q2 2021 American Woodmark Corp Earnings Call
American Woodmark Corporation second fiscal quarter 2021 conference call.
Today's call is being recorded November 20 for 2020.
During this call the company May discuss certain non-GAAP financial measures included in our earnings release, such as adjusted net income adjusted EBITDA adjusted EBITDA margin for.
Free cash flow and that leverage and adjusted EPS of per diluted share.
Our earnings release, which can be found on our website American Woodmark Dot com includes definition of each of these non-GAAP financial measures.
Companies rationale for the usage and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures.
We also use our web site the publish other information that may be important to investors such as investor presentations.
We will begin the call by reading the Companys Safe Harbor statement under the private security litigation hack of 1995.
Oh for look at statements made by the company involve material the risk and uncertainties and are subject to change based on factors that may be beyond the company's control.
According to the company's future.
The performance and financial results may differ materially from those expressed or implied and any such forward looking statements such.
The such factors include but are not limited to those described in the Companys filings with the FCC and the annual report to shareholders. The company does not undertake to publicly update or revise its forward looking statements and even if experience or future changes and make it clear that any projected results expressed or implied.
Hi, there and will not be realized.
I'm not like the turn the call over to Mr., Paul So him checked Vice President and CEO. Please go ahead Sir.
Good morning, ladies and gentlemen, welcome to American Woodmark, the second fiscal quarter conference call. Thank.
Thank you for taking the time to participate joining me today as Scott Caldwell, President and CEO, Scott will begin with the review of the quarter and I'll add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions Scott the.
Thank you Paul and thanks to everyone for joining us today for our second fiscal quarter earnings call and I Hope and you and your level and continue to remain safe.
Our team did an exceptional job of delivering results and the quarter.
Our second quarter sales were up 4.8%.
Within new construction or business declined 7.4% versus prior year as we felt the impact from covert related restrictions and prior periods darts are.
Our Timberlake direct business Comped positive low single digits on units, while our friendless Pts business continued to comp negatively in southern California.
Our national builders optimistic for the remainder of our fiscal year do the strong order growth over the prior months.
Capacity of the manufacturing and trade base to keep up with demand rising prices and potential cover the related restrictions could slow future build rates lots supply and community count growth for also key indicators were watching closely.
Our incoming order rates for the Timberlake business increased throughout the quarter building backlog of across our NTM platform.
As a reminder, we level load our production and the MTO platform.
Our incoming order rates across both the new construction and remodel businesses exceeded shipments for the quarter.
Our teams have been increasing production levels, which will drive incremental sales and our next fiscal quarter and improved backlog levels.
Looking at our remodel business, which includes our home center and independent deal and distributor businesses revenue was up 14.1 percentage of prior year.
Within this our home center business was up 18%.
Our made to order model platform recovered during the quarter and delivered a low single digit positive column.
Our stock business was up over the 25% is pro and DIY demand increased.
Frameless offering also returned to strong double digit positive comps as well.
With regards to our deal and distributor business, we were up 8.6% for the quarter with our core waypoint offering up double digits.
The man has improved with dealers and distributors reporting elevated consumer and builder interest, especially within the value of stock segment.
The ability of dealers and manufacturers to support the demand and the quarters Creed of backlog of previously noted the will take in the calendar year 2001 to relieve.
Our adjusted EBITDA margins for 14.5% for the quarter with EPS of $1.31 and adjusted EPS of $1.97.
Our cash balance improved for $97.1 million at the end of the prior fiscal year.
The $112.6 million at the end of the second fiscal quarter and the company has access to an additional $93 million under its revolving credit facility.
We made of 40 million dollar debt payment and the quarter, bringing net leverage below two times adjusted EBITDA of 1.98.
In addition, our teams modified our credit agreement to allow for a $100 million of the unrestricted cash to be utilized and our covenant calculations.
As I stated last quarter of the company remains well positioned to take advantage of the favorable housing environment.
Consumers are spending more time of home consumers have additional discretionary funds the spin at home and existing home sales and single family starts of improved.
I do have some of turns about price appreciation new construction impacting demand short term for the long term fundamentals for growing single family starts remain intact.
Our focus will be to take advantage of these trends by permanently improving efficiencies across our footprint and investing wisely and the future.
The investments are being made and product technology and labor.
New finished colors and door styles will launch and February along with needed Discontinuances, the will allow us to refresh and simplify our lives.
Technology investments within the ERP cloud solution provider of the gun in the finance procurement functions, allowing us to operate as one company become more efficient.
Ongoing investments and labor wages retention and absenteeism programs will continue allowing us to meet our customers needs.
With respect to cope and 19 recent vaccine development should allow for the nation to get back to a level of normalcy and calendar year 2021 for the meantime, we have to navigate surgeon case counts of restrictions by states that could impact demand and labor.
In closing I couldn't be prouder of our employees and what they have accomplished.
We're executing on our vision and strategy for American Woodmark and our teams are making it happen.
I will now turn the call back over to Paul for additional details on the financial results for the quarter.
Thank you Scott the financial headlines for the quarter net sales were 449 million, representing an increase of 4.8% over the same period last year.
Adjusted net income was $33.5 million or $1.97 cents per diluted share and the current fiscal year versus $31.2 million or $1.84 for diluted share last year.
Adjusted net income was positively impacted by higher sales.
Leveraging of our fixed costs and benefits from our actions taken in the first quarter and.
Additionally, we incurred restructuring charges related to the closure of our humble manufacturing facility for 2.8 million that were partially offset by an unrealized gain on the foreign exchange forward contracts zero point $6 million.
Adjusted EBITDA was $65 million or 14.5% of net sales compared to $63 million or 14.7% of net sales for the same quarter of the prior fiscal year.
The combined home center, and independent dealer and distributor channel net sales increased 14.1% for the quarter with home centers, increasing 18% and dealer distributor increasing 0.6%.
The remodel business is showing strong signs of recovery as people are more comfortable allowing access into their homes to install cabinets as well as the increased demand from the DIY and pro customers.
The new construction sales channel lagged the market demand of during the second quarter of fiscal year 2021, recognizing a 60 to 90 day lag between start and Kevin installation. The overall market activity and single family homes was up 9.5% for the fiscal second quarter.
Looking at the start date of that extends the lag time to 90 to 120 days, we saw a 2% increase in the stars during the same period.
Shifting focus to completions during our second fiscal quarter, we saw the 0.7% declined year over year, which further supports the timing impacts.
New construction net sales decreased 7.4% for the quarter.
Timberlake direct business Comped positively and units, which was offset by a mix shift to lower price products and negative comps and our famous business.
The company's gross profit margin for the second quarter of fiscal year 2021 was the 20% of net sales versus 20.3 reported in the same quarter of last year.
Gross margin and the second quarter of the current fiscal year was negatively impacted by higher material and logistic costs investment made in our locations for PPD and safety measures combined with wage and retention programs the.
These costs were offset by increased sales, creating leverage of our fixed costs and our operating platforms and a onetime benefit received in the quarter related to an employee retention of credit of zero point $8 million.
Keeping our employees safe during the is unprecedented time times remains a key focus for every one of the company.
Total operating expenses were 11.6% of net sales and the second quarter fiscal 2021, compared with 11.8% of net sales for the same period and fiscal 2020.
Selling and marketing expenses were 4.8% of net sales and the second quarter of fiscal 2021, compared with 4.8% of net sales for the same period of fiscal 2020.
The ratio of net sales remained flat as a result of higher launch costs and incentive expenses offset by leverage created from higher sales and the second quarter fiscal 2021, and a one time benefit received in the quarter related to an employee retention credit of $1.7 million.
General and administrative expenses were 6.7% of net sales and the second quarter of fiscal 2021, compared with 7% of net sales for the same period of fiscal 2020 the.
The decrease in the ratio was primarily driven by the leverage from higher sales lower spending and the impacts of our actions taken in the first quarter fiscal 2021.
There was some pressure and our general and administrative expenses related to a one time legal charge of 1.5 million offset by an employee retention credit of zero point $4 million.
In total for the company received and and play retention credit of $2.9 million.
Both of these discrete events for onetime in nature.
Free cash flow totaled $57.4 million for the six months of the current fiscal year compared to $66.1 million in the prior year.
The decrease was primarily due to changes in our operating cash flows specifically cash outflows from customer receivables and inventories as the result of the increased sales demand.
Net leverage was 1.98 times adjusted EBITDA at the end of the our second fiscal quarter as a result of our increasing cash balance and decline and debt position.
The company paid down $40 million of our term loan facility during the quarter. As a reminder, there are no term loan debt maturities due until December of 2022.
Due to the impacts of COVID-19, and the evolving macro economic uncertainty and the current remodeling and homebuilding environment. We are unable to provide a full fiscal 22021 outlook.
Shifting our focus onto the third quarter of fiscal 2021, we expect committed to upper single digit net sales growth versus the prior year. This growth rate is very dependent upon overall industry economic growth trends and consumer behaviors.
Margins will improve based on the increased sales volume that will create levers within our operating platforms.
We will continue to invest back in the business through wage programs continue to launch new products and started our journey on our financial and procurement system consolidation with with one of the leading software providers we've.
We expect adjusted EBITDA margins for the third quarter of fiscal 2021 to increase versus prior year results, but remain below our current.
Second fiscal quarter.
The company had very strong operating cash flows for the year, which led to a $40 million paydown of our term loan facilities.
Free cash flow generation and continues to be a strength of the company. We ended the quarter with our cash position as of October 31, 2020 at 112.6 million of cash on hand, and access to $93 million of additional availability under its revolver liquidity and margin management, our priorities for our teams.
In closing the strong performance that was executed in our second fiscal quarter was a direct result of the hardware for all of our employees, who make it happen every day this.
This concludes our prepared remarks, we'll be happy to answer any questions you have at this time.
Well now begin the question answer session for asking the question you May Press Star then one on the touched on the phone.
For use in the speakerphone, please pick up your handset before pressing the keys.
If anytime your question has an interest in it like the withdraw your question. Please press Star then too.
This time, we'll pause momentarily to assemble the roster.
First question comes from Garik for most of loop capital. Please go ahead.
Thank you.
Just wondering just given the lag between the backlogs and delivery rates.
It seems like you're expecting and flashing sales growth and the third quarter, but how long of usages store ltchs and normalize and so that you will be able to catch up with and stuff.
Delivery times versus the order rates.
Yeah, we think it will take until the end of the calendar year to fully catch up so that we better match our demand.
Production.
We've been making significant progress throughout the the prior fiscal quarter by the time, we get the January we think will be matched and caught up and get the nearly tons of back to the normalized rate as well as the and stop platform get our customer inventory levels for the rate they need to be at.
Okay and.
With respect to the the sales or should we sort of quarter.
Maybe walk through the different categories.
You bet.
What's driving the question relative to the the.
5% gross.
Share when you when you take a look at each of the respective channels of the trends are going to be fairly comparable for the discussion. We just had around fiscal Q2. So new construction certainly has accelerated when you look at starts and look at the lag we still felt some of the impacts of the start of our quarter related to the code of shutdowns back of the very of being a summer.
For we've now lapped that so now we're seeing the strong demand read through from the starts that were up significantly at the end of the summer. So we'll see new construction growth as we push for on the remodel side, both our home center and dealer distributor business. Both returned to positive gross inside of Q2, we think that carries forward again has come.
Tumors are willing to invest in their home and the spending more time, there and then finally, our stock business, which again, the kitchen and Bath pro.
Pro and DIY demand there has been tremendous we were up over 25% and Q2, we think the opportunity for continued growth there remains high and part of that is giving our customers in stock levels up to the appropriate level. We think when we do that it creates additional PS Pos opportunity as well for those customers going forward.
Thanks, and just one last question was just on the day to order with the home centers. It seems like this.
For the last quarter Utica are you expecting that to improve the comp positive the.
This time.
Well.
Do you think the you're you're seeing the just a step function change and improvement and made to order some centers and.
How sustainable is the.
Ladies and sort of.
Yes, I do think theres the step change function there with the consumer behavior, we've definitely seen millennials now back in the marketplace as it relates to new buying either new homes are existing homes as are doing that we're seeing and millennials engage and projects like of remodel project of their kitchen there.
There were questions over the last year and two to three years as to whether they would go that population would go to home centers, we're definitely seeing that we're seeing that and the retail and data that millennials are going to home depot and those to do those types of projects are also going to dealers, but definitely over indexing and and home center. So we're seeing that as an opportunity the.
The other thing that I would mentioned would just I would just be around imports and as we've seen again the important data fall come out of China net imports down out of the Asia Thats create an opportunity for domestic manufacturers and domestic retail outlets. So you're seeing I believe and increase.
At the home center, both and special order and stock as a result of that.
Great. Thanks, very much and have the August yeah. Thanks, you too.
The next question comes from Truman Patterson of Wells Fargo. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
The first wanted to touch on a little bit more on the the capacity issues or potential issues constraining.
And your ability to service demand the and I'm asking this a little bit of because I thought last quarter. You. All gave the impression that new residential would be pretty solid it was down and I think you said, 7.5%. So I'm, hoping the understand some of the.
The market share dynamics, there, whether or not any imports you know are starting to play and that at all but also.
Single family starts are now up 30% in October.
You all have the capacity to service that does the industry.
Have the capacity to the service side, just trying to understand the moving parts there.
Yes, so the couple of questions the near term and I'll try to unpack. The the first lets talk maybe more holistically about capacity I think you are asking about and our business.
So the specifically in our business and our platforms and there's really two areas. The the drop the capacity question for US one is labor and we certainly talked at length about that and the prior quarter call and say that's continuing we have made progress. The labor continues to be a challenge both the attraction and retention of that also just the components supply base. So it's not just our.
Ability to make but all the parts and pieces. We're buying is our supply partners capable of doing that that's been the work that's been ongoing inside our fiscal second quarter and will continue till the end of this calendar year to get us and the better positioned to be able to match our production to overall demand as you think about market share of that was the second question you had in there around.
New construction on our Timberlake side and no share losses, there and the fact that and do more optimistic and say and likely taking share over the over.
Over the summer timeframe, we have lost share in southern California, with our frame us business, though so if I kind of separate that out that's been a different topic and we certainly talked about that as well over the last few quarters, but on the direct platform. The no share erosion loss issues. There can the overall and new construction industry absorb the 30% comps for.
For a long period of time, I think thats going to create challenges for all involved it's not just the cabinet discussion and seamless appliances roofing, it's all the categories as well as just the builders and sells for.
We're certainly scaling our operations to ensure that we can produce the product and and make sure. The we've got the install capacity in place.
And to see how the the comps are actually read through.
For the builders and how quickly does the I guess the the question there would be the does the lag stays 60 to 90 or does it start to move out and Paul and see whether we're starting to see a shift there we'll see how long the the the lag time carries into the first part of next year and that'll tell you whether or not they're able to absorb that type of increase.
Okay. Okay. Thanks for and then just following up on the cabinet imports I understand year to date, you know outside of China is still not necessarily healthy, but we've seen total imports recently I think are up like 60% and August and September if my numbers are correct.
Are you seeing no import competition start to come into the market in the past, we'll call. It three months or so if so which which channels are you seeing it take place.
Yeah I'll take the second part of the question for so we're not seeing any incremental import.
Challenges and many of the channels at this point in time, especially of the last couple of months that you just highlighted going back to the import data itself the through September.
The data I saw was in China still down the almost 60% definitely see the increases with Vietnam, Malaysia, but still and total down about 6% through that nine month period, which is about a 370 to 75 million dollar shortfall and Thats, where we intimated there has been opportunity.
The trade and domestically for dealers distributors and the home centers to grab that share.
Okay. Thanks, guys.
Yes, thanks for him.
Next question comes from Steven Ramsey Thompson Research Group. Please go ahead.
Good morning.
Maybe just start with the Timberlake mix can you share a bit more on the mix shift how it impacted.
Q2 sales and margin and and thoughts.
How that evolves and now in Q3, and and if Theres thoughts beyond that.
And no additional details really the to provide around that Steve and other than the just talk about the introduction of our value line. So origins and Thats that something we certainly highlighted coming out of the acquisition. It was one of the key synergy drivers. It's a private it's a profit improved for the business, but it does come at a lower price point so.
As we rotate and move more consumers to that space or grab more share in that it does have an impact and the mix equation. So thats. What you are seeing inside of the quarter and I would expect that to be something the continues as we as we go forward.
Great and and then can you share more on.
Regarding dealer and distribution.
Gross not as strong as home centers in the second quarter do you expect home centers the still outpace.
Dealer and distribution.
Going forward and then should there be.
No.
Economic shut downs in the U.S. and the coming months do you think the dealer channel is more prepared to handle that during this timeframe is there enough business for them in.
Backlog to Steven keep the ongoing should they have to shut down the stores.
Yeah, so on the demand side of it.
NPAC, our dealer distributor business, the waypoint brand, which is our principal brand and get a market at and the dealer space. It was still up double digits, which was more consistent with the special order business and the home centers. So I think theres. The line, where we continue to see the weakness and challenges have been and the distributor space. So I still think the the dealer.
Business overall should be able to perform pretty well consistent with what we're seeing in the in the special order homes and our categories.
As we look at shutdown impacts overall, our dealers better prepared for that I would say they should be based on the living through that but more importantly are customers prepared for that our customer is going to be willing to go spend time on the dealers are they going to allow folks and their home. We certainly saw that open up and it was.
For more willing to do that towards the back half of the summer and current time period, but does that mindset starting to pivot away with some of the shutdown I don't know yet we're going to have to see how that shakes out but half of think that all parties are better prepared to go through a second round of shutdowns and the did the first time.
Got you and last quick one for me on the launch cost impact.
You called out for Q2 is the cost headwind.
Sales I'm, sorry, you called out for Q3, so the cod cost headwind the sage following Q3.
It does are there other mark.
Marketing expenses to take its place or is this the source of better margins in our quarters.
Steven just kind of reflecting back into our Q1 call and now so we do really product launches in two periods of time, one receivable and our Q2 and then we'll see it and our Q3, our Q3 expected launch costs will be higher than they were in Q2, and that's really kind of directionally. The will of guidance, we'll give you there.
Great. Thank you.
Again, if you have a question. Please press Star then one.
Next question comes from Justin Spear Zelman. Please go ahead.
Hi, Good morning, guys appreciate it.
I wanted to dig into that piece, yes, brainless business and southern California, and if you can give us for a status update and maybe give us an idea of how big that business is and how much of it it fell in the quarter.
Yes, so it was down pretty substantially inside of the quarter of Steven and we've talked about our frame of business, sorry, just and sorry.
Frame us business the last couple of quarters and quite frankly, it's not really met our expectation post acquisition. This is an opportunity for us to think about expansion of that product category outside of so Cal where we've had some specific challenges in the market. So Cal is around just the product offering price.
Price and logistics, we have been and working through the product space and we actually do have a number of new colors that are launching in February. So that's inclusive of our frame list of line. When we talk about product launches. So we are pushing that through we are looking at any of the price of logistics and complexity of that product offering and what not.
And we have to take that outside of southern California, there are certainly opportunities and markets like Phoenix.
Dallas, Houston et cetera. So that's what we continue to work on from a strategic standpoint.
Yes, I guess, what what changed because I know of this has been kind of as you mentioned, it's been an obstacle the performance I guess since before the pandemic, maybe like what what took place or what detail can you provide behind the scenes that have led to those headwinds.
Yes, I would say, there's there's a couple of things and that specifically around our our effort to grow that outside of southern California. That's been a capacity issue internally and we've talked about it and just kind of prioritize and put the resources on it so thats on us and we've done that over the last quarter, where we've dedicated and the sign team to work through that.
At the.
The other part of the question is around product and and and we stay relevant in the market and.
And we got behind on launching some products over the last couple of years that put us at a disadvantage from and did standpoint.
And losses, and some share there and southern California, So I'd say that was the the biggest driver.
Perfect and then I guess on the in terms of the on the trends of about it on the single family versus multifamily for I can you I guess is.
The the Timberlake kind of a good idea of what the single family look like and that is that a good kind of break down that low single digit numbers or maybe more detail you can provide and those distinct trends between single family multifamily.
Yes, so timberlake the proxy their single family. That's the vast majority of the business that we do there the real the the only significant multifamily business, we do that PC EPS line of the frame us offering and southern California, So Timberlake direct will match up with single family.
Okay. Okay, and then lastly for me and Joe in terms of the incremental margin pressures that every one of the thing.
I guess, if you were to snap the line and look ahead, recognizing there is a lot of moving pieces here with the Pts business as well.
Can you off that.
And with me.
Maybe even more than offset as you think about price and volume in the environment.
Can you offset these headwinds from from pricing and productivity levers.
Yes, So you know and Paul's comments, he talked about our outlook as we thought about the the third quarter and we certainly think will expand margins off of the prior year, just not as robust the perhaps as what we saw and Q2. So we do believe we have the opportunity for improvement specifically around inflationary considerations, we do watch that closely and if we see commodities and move.
Yes.
And the direction and allows us to get day pricing in the past, we've been able to accomplish that.
The answer is certainly different by channel and how quickly. It takes you to go get it but over time, we've been able to get commodity increases back the pricing.
Thank you.
Next question and from David Macgregor of Longbow Research. Please go ahead.
Yes. Good morning, everyone. Just for first of all and that last question how much forward visibility do you have right now on things like.
The raw materials and the other components and the logistics costs.
Yes, David we're seeing the kind of in the marketplace out there is there is a little bit of pressure on our hardwood lumber supply.
No kind of refresh your memory is we do primarily sourced from the east coast with the fires around the west coast of did create a little bit of challenges and some pricing pressures that are out there that will continue until more supply comes back and in the marketplace and has out there. The remember from last year, we had pressures around the particle board charges and things that nature. There is another and mill.
The coming on line later this year that we expect that will relieve some of those pressures out there. So we're not projecting those to be really significant headwinds for us one of the the concerns that we do have is around freight and logistics charges, we're seeing concerns and international shipments and containers coming in as well as domestic freight carriers the charge.
The increases and just the availability of those freight carriers that are out there today.
Right.
Okay. Thanks for that.
Can you just you were talking earlier about your stock cabinet business can you just talk about kind of that the home center cash and carry business and so what you saw in terms of cadence through the quarter of the cash and carry this.
Yes, so again that Scott business was up over 25% for us for the for the regular that the kitchen and Bath. So we saw strong demand trends throughout the quarter.
It was consistent throughout the quarter the 25%.
I don't know what the exact number less high individual month, but I'll just say it was strong throughout the quarter.
Okay. Okay.
And then just how are you thinking about capital allocation heading into next year and realized like the just a little bit early to be talking about.
20 to and one yet, but I missed the interest kind of at a very high level of how you're thinking of philosophically about use of cash and and and.
Part of potentially M&A growth and organic growth.
Yeah, I think any of our capital allocation that's out for Craig the really of remain unchanged. Our primary focus is going to be really deleveraging our debt position the asking the our first and foremost priority of that's out there today, and we will look back and giving investments back into the business through digital investments. We started our finance of procurement journey now how to the cloud based solution out there.
It's a really kind of joint ourselves as one operating company and gain other efficiencies through that channel, but really our overall capital allocation will still stay at roughly the 2% to 2.5% guidance that's out there.
And thanks.
Sorry.
And now the M&A if there is a strategic fit that would outpace our of kind of our debt pay down and our internal investments we would consider it but as of right now our priority is focusing internally right now focusing on our core.
Right and you mentioned the leveraging is your priority or what is your updated thinking you're out of the target on leverage.
Yes, so Paul and I were having this conversation here earlier this week, so when we announced the transaction three years ago. When we acquired our aside we intimated that we could get down close to one of the half times by the end of the I think COVID-19, so it's taken us a little bit longer to get under two primary reason for that is we did opportunistically do.
And stock repurchase I think the new fee post the acquisition and then obviously cove and pushed us out from a timing perspective. So we're now under two times I think as you as you push ahead, we probably get closer to that one of the half times.
And as we start to approach that if we don't have.
Incremental organic investments or M&A investments certainly share repurchase would come back up into the conversation.
Great. Thanks, very much and good luck for grid all day.
Thanks.
The next question is for Tim on the terms.
Oh Baird. Please go ahead.
Hey, guys. Good morning, Hey, good morning, Tim.
I have a couple of I have couple of follow ups and then just just one bigger picture is that your question. So the the follow up just the on the margin sequentially I'm kind of not being quite at the the key to leveling and Q3, that's really due to just normal seasonality right. The there's nothing the kind of think about in terms of moving parts of that.
Two things to think about 10, they're one of you got the seasonality down. So Q3 is always our typical weakest period, but also back and Paul's remarks, he talked about the GRC and then legal onetime events that was a tailwind of about 30 basis points inside the quarter, that's onetime in nature.
Okay, Okay, that's fair and.
And then just with the closure of humble could you talk about when you start to see the benefits of that hitting the PML.
Yeah, we're seeing that currently Tim we closed the operation so.
So we are realizing that now as we speak.
And then the the bigger picture question. Just you started at the scene home sizes or the the average size of the home increased.
Do you think cabinets and and Woodmark should benefit from more square footage and a home or do you think it's the kitchens are staying the same but we're adding a bedroom or some of that I mean is the is that a content opportunity for you as you kind of look out 12 to 24 months.
Yes, I think it is an opportunity to him I haven't seen data yet the supports thats occurring but historically when there has been larger homes it's created.
Larger spaces for cabinetry product, whether that be mud rooms laundry spaces.
We are certainly the kitchen spaces. So if we see that rotate back up and I think we're on when we got here three or four of the downward trend of the size of home as we see that start to move back up and certainly should create content opportunity for our business.
Okay. Okay, great. Good luck on the rest of the year guys and how the holiday.
All right. Thanks, Tim you did.
Again, if the gross.
Please press Star then one.
Next question comes from Leo Romero of Sidoti. Please go ahead.
Hey, good morning, just staying on that topic of your margin outlook.
You said, you expected margins up year over year, the lower than 10-Q, but yes.
That's a pretty wide range so.
I don't know if you could give us the sense of incrementals year over year. The way I'm thinking about is last year. Your your margins contracted despite higher sales. So that kind of leads me to believe that your incrementals this quarter on a year over year basis might be on the stronger side.
And we certainly had some onetime hits last year looking back and inside the Q3 time period, there was a bit of the particle board disruption and we were also moving at facility. The rehab now out in California, So that creates an opportunity to drive stronger Incrementals I think we still got some unknown challenges in front of the US right. It's just the beginning of the quarter we.
I don't know exactly where coded and restrictions are going to push us as we go forward. So that creates a little hesitation on you know, giving you an exact number you're right. It is a bit of a range, but I think that's also a function of the volume of getting a pretty wide range on the the volume there as well can be mid to upper upper single digit sort of just trying to give you some.
Boundaries to be able to operate within.
Yes, no that's fair and.
And I guess on.
On your technology investments I guess, you gave us a little bit more behind the veil and on what you're thinking about ERP cloud solution can you maybe dive a little more into the expect.
The expected expenses timeframe and maybe the opportunity there.
And the nothing beyond.
The prior color that we provided on and that we have started the project. We're hopeful to you turn on our finance and procurement functions about a year for now that's our target and go live date. So any of the activity between now and then I'll begin up and running and then on the back side of that is when you would expect to see some of the efficiencies.
Okay got it and then just last one for me is the on your vision 2025 plan. One thing you guys talk about often is prepping for a shift in consumer behavior, and thats always evolving, but I guess, given where we are today its been a for while the year. We're in late November can you maybe speak to anything notable.
Of you're seeing in regards to consumer behavior over the 12 months.
Yes, certainly the the use of the digital technology tools to assist in the volume process. We saw that really early on.
Whether you talk about the builders and their use their use of tools and when folks couldn't go to the actual showrooms or go to the job site to look at home. So we saw it there we see it as well and the visualization tools that we offer on the front end and many of our customers web sites for purchasing standpoint. So we saw the we've seen an uptick in activity there.
Well, we're exploring and continue to work on is how you make that ultimately turn into a transaction. So how do you get card the card capability and link that directly into the retailer. So if you're at home and you go through that process of designing a kitchen or a lay out how do you make that a seamless experience of it when you go to whatever outlet you go to the easily.
Transitioned into on the order and you get a you get a price and the bill off of that so I think that's accelerated and that's something we're continuing to spend time and energy on.
Great. Thanks for taking the questions.
And as I did not see that there is anyone else waiting to ask the question I'll now like to turn the line back over to Mr. join the SEC for any closing remarks. Please go ahead Sir.
Since there are no additional questions. This concludes our call. Thank you for taking the time structures and participate.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
[laughter].