Q4 2020 Aaon Inc Earnings Call
Okay.
Good afternoon, ladies and Johnson and welcome to the ADR and Inc. Fourth quarter sales and earnings call. There will be a question and answer period. After managements. The brief presentation. This call of last approximately 45 minutes to and our I would like to turn the meeting over to the Mr. Gary fields. Please go ahead Sir.
Good afternoon.
And I read the disclaimer to begin with forward looking disclaimer to the extent any statement presented here and deals with the information that is not historical including the outlook for the remainder of the year such statement is necessarily forward looking and made pursuant to the safe Harbor provisions of the Securities litigation.
Shouldn't reform Act of 1995.
Such it is subject to the occurrence of many events outside of <unk> control that could cause <unk> results to differ materially from those anticipated. Please see the risk factors contained in our most recent SEC filings, including the annual report on form 10-K, and the quarterly report on form 10-Q.
So I want to thank all of the employees of Aon and for their.
Safe behavior, and due diligence with regards to Corona virus, we have.
And temperature checks and wellness exams as well as of when.
When the clock and they certify the they are safe and symptom free. So again, we want to thank those employees because we've had very very good success with our experience with the crown of ours.
And I turn the call over to Scott is the Orange and our Chief Financial Officer. Thank you Gary I'd like to begin by discussing the comparative results of the three months ended December 31, 'twenty and 'twenty versus December 31, 20, and 19 net sales were down four eight per cent to $116 7 million from 122.6.
Millions of net sales for the quarter are down primarily to our planned Tulsa plant shut down during the last week of December 2020 per plant and.
Machine maintenance as well as for a deserved employee holiday break our gross profit decreased 6.8 per cent to 33 9 million from $36 4 million as of <unk>.
<unk> of sales gross profit was 29, 1% and the quarter just ended compared to 29, 7% and 2019 due to the planned shutdown and Tulsa and we saw an increase and repairs and maintenance expenses, along with lower overhead absorption selling general and administrative expenses increased.
<unk> of 11, 5% to $14 6 million from $13 1.002 million 19. Additionally, as a percentage of sales SG&A increased to 12, 5% of total sales compared to 10, 7% and the same period and 2019 SG&A is up due to increases.
And profit sharing and employee incentives due to the increased earnings.
Income from operations increased 10, 7% to $25.7 million or 22 percentage of sales from $23 2 million or 18, 9% of sales in 2019 and.
Come from operations is up due to the $6 4 million pretax gain as a result of insurance proceeds received in November of 'twenty and 'twenty, our effective tax rate increased to 26, 6% from 25 point and 6% net income increased to $18 9 million or 16.
To percentage of sales compared to $17 3 million or $14. One per cent of sales in 2019 net income included $4 $1 million related to insurance proceeds.
And earnings per share increased six 1% to 35 per share from 33 per share. The insurance proceeds mentioned previously amounted to eight cents per share.
Now for the comparative results of the year ended December 31, 'twenty and 'twenty versus December 31, 2019, net sales were up nine 6% to $514 6 million from $469 3 million net sales for the year are up due primarily to our increased.
Production of rooftop units and full realization of price increases put in place and prior years.
Our gross profit increased 35 per cent to $155 8 million from $119 4 million as a percentage of sales gross profit was 33% and the year just ended compared to 25, 4% in 2019 moving.
Experienced decreased material costs and improved overhead absorption seller.
Selling general and administrative expenses increased 16, 2% to $65 million from $52 $1 million and 2019. Additionally, as a percentage of sales SG&A increased slightly to 11, 8% of total sales and the year just ended from.
The 11, 1% and 2019 SG&A expenses are up due to increases and our profit sharing program employee incentives and the onetime donation of $1 million to $5 million to win the Fred Public school and the owner of our founder Norman as Bjorn said income from operations increased 52.
Percent to 101, 8 million or 19, 8% of sales from $67 million or 14, three percentage of sales in 2019, our effective tax rate increased to 22 five per cent from 19, 9% in 2019 of our tax rate.
And it from additional credits we were able to capture.
Net income in 2020 increased 47% to 79 million or 15, four percentage of sales compared to $53 7 million or 11, four percentage of sales in 2019 diluted earnings per share increased by 46, 1% to $1 <unk>.
49 per share from $1.02 per share at this time I will turn the call over to Rebecca Thompson, our Chief Accounting Officer and Treasurer.
Thank you Scott.
Looking at the balance sheet, you'll see that we had a working capital balance.
$161 2 million versus the $131 5 million at December 31, 2019.
The restricted cash totaled $79 million at December 31, 2020.
Our current ratio of approximately $3 seven to one of.
Capital expenditures were $67 8 million up eight 2% from a year ago.
Capital expenditures in 2021 the <unk>.
And at least $77 million.
The company had stock repurchases of $31 million during the year ended December 31, 'twenty and 'twenty.
Shareholders' equity per diluted share at $6 61, and December 31, and 2020 compared to $5 and 51 at December 31 2019.
Now I'd like to turn the call back over to you and our CEO and President and Gary.
Good afternoon, so I'd like to talk about sales.
And products.
The.
Primary design are much more conducive to adding improved indoor air quality measures such as Merv 13 filters UV lights and bipolar ionization all three of these technologies have been recognized by the Ascher, a pandemic task force to be.
The contributory to mitigating airborne viruses such as coronavirus.
We've had some pressure on raw material pricing.
We have materials purchased on contract.
R and good lock step with our recent price increases as far as when that equipment hits the plant floors. So they were both coincide to merge together.
We believe that our price increase that went into effect January 11th.
For the foreseeable future.
Handles the.
The known and price increases that we see coming.
Q2 Q3.
Water source heat pumps.
Still had pressure on our business because of our.
Original design product, which is a very fine product is really at all.
Positioned well for new construction, but not positioned as well for replacement of lot of the units that need to be replaced are configured slightly different.
So we have designed a whole new line of water source heat pumps to supplement what we currently build that are more compatible with the current installation configuration.
And it's looking like somewhere between.
The late April to early June is when those products will be out in the marketplace ready for installation.
So we've been working on updating design on.
Products, that's a constant.
Endeavour.
We've introduced more and more variable frequency drive compressors into units.
Primarily and of rooftop units and one of the key areas that we're focusing on is the electrification movement, that's taking place across North America with regards to heating.
So we are.
The very close to having air source heat pumps available.
And a huge range from two tonnes to 230 tons and.
And they will operate at very attractive.
Low ambient temperatures.
So the the.
Water source heat pump.
We're working on the same variable frequency drive compressor technology and those and we have already introduced some of these.
Sizes, and we're introducing more and we believe that air source heat pump the water source heat pump technologies are going to be more widely used by a bigger base of.
And installations than has ever occurred in the past.
And Longview.
We doubled the production capacity with the addition of of 220000 square foot building to add to the existing 234000 square foot building.
And when we did this our sheet metal production equipment was about 125% increase over what was.
In the of.
Original installation.
Oh.
I just received a photo of about 15 minutes ago of the first finished unit coming off of the new line and the new building.
And so were terming this soft start up and.
And net were.
Running duplicate manufacturing processes, the old building and the new building and this allows us to vet out the new building without compromising our.
Commitments for delivery.
We've been meeting relatively well with the existing building, but what we've found is the demand for the products, they're far exceeds the capacity of the older existing building. So the timing for the new building as well and I would say, none too late or non too early.
Just about right on time.
Demand is considerable for that product and we're real proud to have this new manufacturing facility coming on board in and alignment with that demand.
Looking at various business segments.
Commercial and retail.
We've seen some pressure on those we've seen some pressure and office buildings, but we've also seen some improvement in medical and healthcare and surprisingly education has been good for us I see lots of indicators from.
Dodge and Abi and other places that say that education, particularly K through 12 is not got as much going on.
Think that our equipment being more desirable than most of our competitors with the regards to the corona virus or virus period mitigation procedures the way they integrate so.
Nicely into our equipment is bringing more opportunities to us for education we.
And we've already seen considerable orders for those and our sales representatives tell us their pipeline has a very robust supply of education opportunities.
Manufacturing is holding about steady for us.
And don't see anything really.
Material as far as up or down lodging is materially down.
And net new starts in particular.
We are seeing a fair amount of replacement and upgrades.
There's a couple of other areas that we're seeing.
A decent amount I don't know that you would categorize it as entirely material, but a decent amount of.
And <unk>.
Acceleration and the and the vertical market and Thats datacenters and grow facilities.
Recently.
The the election. This past fall there were additional states that enacted.
Marijuana laws, rather they were medical or recreational but there was additional states and theres already been business come in the door for us relevant to grow facilities to serve those states that have that net new law.
So at December 31, our backlog was $74 4 million versus $142 seven a year ago.
A lot of that reduction it was kind of lines going in different directions production was coming up considerably our production rates and production capabilities were substantially greater than the year before and bookings had slowed down and all.
Although Q.
Q4 bookings were 6% above.
2019, Q4 bookings so we did see it begin to turn around we had a price increase that.
And that went into effect January of the 11th anytime we have of price increase we always see a pull forward of orders of surge. If you will and it usually takes about 90 days to see that ripple settle out and so here. We are at 60 days and so I don't think its entirely settled out yet, but it's looking pretty good.
As of February one our backlog was 103 8 million.
We've seen consistent decreases and Abi, although what came out yesterday had strengthened a little bit over December and the inquiries had strength in for a couple of months.
So.
The other thing I want to mention is that the the normal correlation between the Abi and our activities has been historically.
Very relevant, but we're not seeing quite the relevance now and.
And I think a little of this has to do and Ive talked to quite a few people.
There were a lot of projects that were designed but when coronavirus hit the pandemic hit the.
And they hit the pause button.
And recently several of these projects they've hit the go button, while that doesn't necessarily generate of billing from and architect because it was already designed and there will be some architectural services that'll be built but it might not be.
In accordance with normal practices. So we're seeing those those projects come off the shelf and that.
And that's been.
A nice pleasant surprise for us.
Our lead times are about as good as they've ever been and that's due to the increased capacity.
And in Tulsa.
And we've added.
Several of our 700 any sheet metal manufacturing machines.
As Scott mentioned earlier.
Earlier in his part of the presentation, we had some holiday shutdown for maintenance and we were able to get some heavy duty maintenance on some other machine. So our fleet of south of the nieces and the best positioned.
Position, it's ever been and for production.
Number of sheet metal parts, we could make on a daily basis, what we've been doing is managing that production capacity versus what we believe would be the peak demand and the goal was that we could produce in accordance with the peak demand and not extend lead times, while we're currently and that position.
And things look good through 'twenty, one and with some additional.
Machinery that were installing here plus bringing the new building online and long view, we see the ability to stay ahead of that curve.
For everything that we can foresee for at least the next two years.
And all.
The remainder of 'twenty one.
And on a high level basis.
I believe that this quarter.
Again, the price increases is probably altering what we would normally see.
So it's looking very nice right now, but I expect that to soften just a little bit due.
Due to the fact that a lot of these orders were pulled forward.
When I talk to the sales channel about their pipeline, there's a lot of optimism out there, but it's looking more like second half of the year is when we might be on a path to something.
Worthy of discussion.
In the meantime, we're just going to kind of move through here and we've got a nice backlog right now so and we can run at a nice clip.
And SG&A in 2021 is going to be up a little because of insurance premiums.
I think that there was a lot of property casualty loss and the the entire industry.
As Scott mentioned, we had of a claim for hail damage on our roof that was considerable and so are our insurance went up considerably.
And we werent able to travel much in 2020, so we'll be traveling a bit more and.
And we'll have some pretty robust marketing events going on so I look for SG&A to be up just a little bit.
The weather that we had.
A week or so ago and.
And tell.
Tulsa, and and long view caused us to have.
So the shutdowns I mean, we had no power and people Couldnt get to work I mean, there was the ice on the roads and.
Very dangerous conditions.
So in total that looked like about 90 days.
With the capacity management.
And it's event and the snow of about nine days and Tulsa and I think long view was similar and maybe just a little bit less so.
Hum.
We're probably going to.
Have our sales affected by that a little bit this quarter although.
We're at full throat right now.
And the.
Senior leadership team meeting yesterday, and we're looking at a little stronger production towards the end of the quarter. It won't make up entirely for what we lost but its not going to be considerable.
So.
Just to kind of wrap that up.
Sure.
I think.
That should help some of your modeling purposes of.
But I'll open it up the questions now.
And as a reminder to ask a question star one of your telephone keypad. If you would like to ask of the telephone question price Star Hollywood and the number one.
And our first question comes from Brent Thielman with D. A Davidson.
Hey, Thanks, and great afternoon.
Good afternoon.
Sure.
I guess, a few things here Gary.
Some pretty significant escalation in steel and copper.
And the other endpoints you talked about the price increase.
I guess the two part question are you evaluating another price increase just given what we're seeing here year to date and then what.
How should we think about the impact of margins through the first half of the year as youre catching up to that.
So we had enough steel contracted at a stable price much lower than today's spot market price that would carry us all the way through Q2, so it's not going to have any effect on the first half of the year at all.
The anticipation is that once the surge kind of subsides, a little it's a little bit like our price increases.
And there's a surge of buying for steel because of lot of industries are coming back online and our anticipation is that before we need to go into the market and contract for more steel that those prices have moderated a bit if they don't then we'll have to consider something different but we've got plenty of time to evaluate.
Evaluate that because of the amount of steel that we've already got contracted and in the house. So I don't see it as being anything thats.
A management issue. So we're not considering another price increase at this point because we can't foresee.
And if anything that caused that.
All of it to our purchasing.
And.
Okay perfect.
The new water source heat pump.
<unk> the become available kind of spring maybe early summer.
Do you have all of your available capacity.
The dependent potentially produce those new products.
And have surplus capacity when.
And when we built that light and we built it for a run rate that's about maybe three times, what we're running now 335 times, what we're running now.
So yes that was one of the key things I mean.
And the pressure to that is I'm paying depreciation expense on that stuff and I'm not getting the production out of it currently.
And I'm very excited about getting these other products put together so I can absorb the depreciation expense more efficiently.
But what.
What we have done is we have run this line at the fastest speed, we can run it to see what we could do.
And then we have trimmed the number of days that we run it because as you are aware, we manufacture 355 days a year on a normal year seven days of week.
No.
Oh, we've proven what that capacity is it's not a speculative how many units can we build and.
And all we have to do to ramp up that production. At this point is just add days that we turned the switch on.
Okay.
Yes, some of the areas that you've.
Talked about seeing better signs and data centers warehouses.
And I guess in particular.
And I guess, some sense that that those areas and were pretty good for you.
Through 2020, maybe I'm wrong.
But maybe what's causing the pickup there.
Well they were good for us, but they are picking up and I think it might just be the as.
As the virus comes a little more under control and they can actually get out on these projects and do some work.
That's probably what's what's happening I think the desire to build those projects was there all along but I don't know that they can demand and the projects and that appears to be what's improving it.
One of the.
Large online retailers.
They want a very aggressive lead time, but it's interesting that they take weeks and weeks and weeks of speculating when they turn the switch on to do that and I think that was them getting construction crews put together, but once they get that done and they turn the switch on and say go.
It's a very short lead time and.
And so this capacity that we've built into this business over the last two or three years.
The accommodates that very well.
The first three projects, we did for them we.
One particular online retailer, we were able to deliver each one of them one week early and so that made quite an impression on them and that might be the other reason that that particular customer is giving us more attention now.
Okay.
And any.
And the indoor air quality opportunity been hearing more and more about that around the industry and you obviously are well aligned to it and any.
Yes, particular wins you can point to.
And I'm just trying to think about how quickly that piece is kind of grow and four yeah. Yeah. Yeah. I will so there was a school district, and Texas that I'd mentioned before that they bought 567 units from us last year and.
And they were putting some of these mitigation procedures in before we'd even heard of Corona virus.
Because their orders took place or they're there.
<unk>.
Set up for the orders took place and in the fall of 19 and the orders themselves didn't come in until like February of 'twenty, but they already had the mitigation procedures put in so they.
And I don't know what kind of crystal ball they had but it was a good one.
And same school district awarded US 811 units the other day and again that was because of our ability to provide.
These corona virus or I'll, just call them virus mitigation, because it's all buyers, it's not specific crowd of ours, but the virus mitigation procedures that we're able to put in the units for them. So that that awarded as the 811 units on that one particular project that one school district. They are in North, Texas. So we're very proud that they've come back.
They've been buying units from us I know for certain 12 years and they prefer us and.
And we have delivered for them.
This past year, delivering those 567 units. It was a very critical very short time frame and we were able to meet all of their needs and we received a lot of accolades for that as well. So that's one in particular there is others that are of similar.
The people in Chicago people, and Colorado and people and Pennsylvania have all told me similar stories.
Okay.
Okay, well, thank you very much and best of luck of the quarter.
Thank you.
And our next question comes from of Julio Romero with Sidoti.
Good afternoon Julio.
Hey, good afternoon, and Garry and good afternoon Scott.
And our commitment.
My first question is just on the trend of inquiries I think you mentioned bookings are up 6% of year over year, but could you speak to inquiries and how those trended throughout the quarter.
Yes.
So Q4, they were up 6% currently they are up quite a bit more than that but I can't really analyze that correctly because of that pull forward from the price increase.
We had and <unk>.
Sales team meeting yesterday afternoon to get an update on that and the the enquiries are surprisingly stronger than what we had anticipated. If you go back to when we were putting our budgeting process together back.
And the fall.
We didn't anticipate as strong as what they are telling me. The pipeline is now now that pipelines not and order in my book it's the.
Either and order and their book or a potential of high value prospect for them.
But our sales channel is is surprisingly.
Pretty optimistic.
Okay.
I wanted to dig a little further into the commentary about.
And why your product portfolio is translating into good orders for education, and I think you talk about maybe your.
Some of your products in particular are conducive to that.
The mitigation strategies and.
Let me speak to that and and does that give you any.
Advantages into other subsectors of non residential construction.
Well it potentially Julio let's let's look at the education first so education has always been a very good audience for Aon equipment.
And they own and operate those buildings for a long time, so the value proposition that we put forth to them.
And they analyze those very thoroughly and.
And we've been working on the sales channel for several years now and.
And improving and.
Their best practices implementation and sharing best practices and part of that is.
What are these values that the school district, and the AAR and equipment and how do we get more and more people to hear that story and understand that story, so I think that.
You start off with the fundamental of Aon was always the unappreciated value.
Provider to those kind of.
Purchasers.
And you more capably share of those best practices as to how you present that and.
And we have modeling tools and things that help with that so the sales channel themselves have become more efficient at telling that story then.
And then you add onto that so every manufacturer that we compete against has the same mitigation strategies available in portions of their product portfolio, but in particular in the smaller tonnage units. These two through really 2010 units is kind of the focus for those.
We're the only ones that have a broad line of.
Very capable equipment with no.
And modification to our basic approach and in order to put the strategies in if you were to take the majority of our competitors and there are two through 2010 units, it's fairly onerous for them to put all of this in and and efficient manner. They can put it in there, but it's not and in efficient manner. So again, when you get to someone that has value.
The conscious theyre looking at the operating cost as well as their owning cost of the units as far as how long the last so it all factors into the total owning cost experience and and it just favors us substantially and Thats just the design that'd be equipment that norm and the team before me.
Built into this it was the strategy all along not necessarily thinking that we would have these mitigation strategies, but this was an approach that gave a much better energy efficiency utilization of the air moving component of the unit.
Okay.
Maybe I'll dig into some of the the line item guidance you gave.
You mentioned and SG&A, we expect it to be up a little bit because of the insurance premiums.
Should I think about that as a percentage of sales basis or by some dollar amount.
Any additional color there would be helpful.
And I'll, let Scott and do that when I think of it. Please.
<unk>.
As we mentioned, we got a large range.
The <unk> settlement last year, and we have to go out and get renewables and so our renewals were significantly more steep than they are.
And I had been and prior years. So it is a noticeable amount we are talking roughly about $2 million of additional premium that we're going to be seeing due to the higher cost for ensuring of property as well as liability et cetera.
And that's not even counting what might ultimately flow through for medical expenses. This year.
Thanks.
Okay, and then I guess just.
On the Capex guidance.
The $70 7 million.
Just thinking about cash flow I guess in general I mean.
Maybe can you talk about how and what do you expect some cash flow for the year and.
As the working capital it can be of usage of fashion and lifestyle some kind of idea.
Well, we're able to fund all of this from cash flow.
And as you saw we had what $79 million and the bank at the end of the year and I think we've built that treasure chest of bit more since then.
That would of been after we pay dividends and had all of our bonus accruals taken out and all of those things. So that was the kind of of the lowest part of the bucket was going to be for awhile. So the.
Profit from operations in the go go into that bucket and and the.
Yeah.
Looking at the way, we've got everything budgeted I think that.
We're looking at ending the year at very similar.
Cash <unk>.
Quantities as I recall right.
And some additional growth and food.
During the course of the year of one of the things, which we to your point the working capital will go up because of our receivables are at probably the lowest point they've been and many years right. Now. So we are going to be seeing some uses of cash during the year, but those will eventually flush out.
That's helpful. Thanks.
Thanks for taking the questions and best of luck and 21. Thank you.
And our next question comes from Jon Braatz, with Kansas City capital.
Good afternoon.
How are you.
Good day and theirs.
There is of school going up a great schools going up three blocks from me I expect to see a on equipment and there.
And I'm going to call James harm and when this is over with the Vcs and make sure. He got it so alright good good.
How much.
Was the price increase effective January of 11.
The 4% across the board I'm, sorry, 4%, yes, sir across the board.
Okay.
And.
When you when you look at some of the other items and maybe component cost of freight and so on.
Are you seeing.
And I assume you're seeing the inflationary trends and in that area too and you know when you look at.
All your all your components all your costs.
Let's say beyond steel and where do you think you might be most vulnerable.
And to some additional increase cost increases over the next couple of months.
So our purchasing department, we've got some personnel that.
And at a higher level and purchasing that came on board over the last year or two and they had some ability to provide me visibility to these cost.
Probably more clearly than what I had in the past it could be that I just learned how to read what they were given me I'm not sure.
But there are nine components materials components. However, you want to term it that comprise about 70% of everything we purchase and they keep a spreadsheet in front of me that they update monthly.
And it tells me what the forecast cost of these things are for the next six months out in front of me.
And right now that.
Thing is flat.
And when I look at those nine.
The materials that comprise 70%.
Galvanized steel stainless steel aluminum and copper.
And coils that we build coils that we buy motors compressors.
Those are kind of those components heat exchanger tubes, I think one of them.
I mentioned copper yeah, so any others nine of them that 70% the other 30% are too.
Small of buckets to really get a trend on them. So what they do is when some of the smaller buckets when they get any notice of it of course, they make me aware of it.
But the the way I looked at it was of the price increase let's say the 4% price increase.
Probably so.
Something less than half of that price increase is going for the materials.
Another component was going for salaries and wages and.
And we adjust those in the fall and then the other part was to.
And help with absorbing some of the overhead.
And I like the insurance.
So we believe the that the 4% price increase will be largely on the plant floor and Q2.
And.
In times past, it's been horribly painful because our lead time was so blasted law Yep Yep.
But now with our lead times.
So good.
And probably averaging out.
I would say is the complete tranche, maybe eight nine weeks.
And so you know if it went into effect January 11th.
Let's just even put 10 weeks on it that that means that Q2, I ought to see by and large the new price on the plant floor and in both plants well that being the case. Some of these material cost don't hit me until late Q2.
And the changes so I think that's what I was speaking to earlier that the timing seems to be just about right.
As far as when I have any additional pressure on pricing and.
And when I get a price increase.
So I think we're poised well oh.
Like I said, we've got a good six months of visibility out in front of us and.
That's always rolling six months.
Every month, they update it and keep me six months in the and the.
Knowledgeable.
Well when I, when I announced the price increase I normally give of about 90 days.
Notice so that those people aren't caught with bids out there that they have secured at a price so I try and protect that side of the business as well and so then if I do that and it takes them 90 days and then.
Given that 90 days and then I've got lead time that sub 90 days see that's why the six months so important.
So am I understanding correctly that in the fourth quarter.
And you Werent really impacted much by the by the cost increases.
Slightly by salaries and wages.
And where they were adjusted and what October weren't they correct, yeah, so kind of salaries and wages got it and that was probably what would you figure of about one percentage of sales about yeah. So the.
And we probably lost and in Q4, we probably lost 1%.
And of gross margin okay.
The margin.
And then the the real problem with Q4 was that we had slowed the production down just a little bit of a lot of things to catch up. So we just couldn't amortize those fixed cost outs.
Okay, Okay, alright likelihood John at the beginning of April when we get the month of March closed up and we can see a good period of time with the price increases our cost structure in place operating smoothly presuming there is no natural disaster in the month of March.
We will be and a much better position to evaluate what we look like versus what the costs are and what we see on the horizon and then the action that we need to take but that won't be until we get into the the beginning part of April okay. Okay, well, one last question again, the surround and steel.
We've heard in some instances that and I don't know maybe its true maybe it's not but.
That's some steel consumers may be put on allocation.
And.
And our.
Mayor already are on allocation.
Are you hearing any possibility of that.
Of that.
That steel and there may be and allocation and you may not be able to get as much as you would like any any any conversations around the around the al al.
Steel allocation.
No and when I read that I believe I read that and the Wall Street journal of month or two ago and.
And Ah.
Really brisk pace tried it down to purchasing and says tell me about the yeah.
And they said Gary you don't have to worry about it things because we already own and the steel to go through Q2, alright that these people actually bring the stelian and warehouse it for us and we keep several millions of pounds of steel on premises. It between our two locations and the each one of these coils of steel ways.
And the range of $45 48000 pounds and Theres quite a few coils of steel sitting here. So I know it's in the low millions of pounds on premise as well and then you figure of what we've got stocked and all of the tower.
How many millions of pounds, you think we have Rebecca and give me a good swag got one.
And it's multiple millions of pounds okay.
One is true.
Yeah 250000.
And.
Yeah, Yeah. So we have a lot of steel on premises and then.
And then they have a lot of our steel that we have already contracted for and bought and their premises right here locally.
Theres 18, Wheeler flatbed pulling up here.
A couple of times of day at least drop and it because they only carry one coil steel and each one because the way 45, 48000 pounds and kind of funny look and see a big 53 foot long trailer with about of what is it about a 10 foot diameter coil.
Eight to 10 foot diameter coil.
Five foot wide, that's all of its own it but he and I used 48000 pounds.
So we have a couple of those back up to the dock every morning, and and set those off.
But no we're not finding any problem with that.
At least on the foreseeable future for the next several months now if we were to get it.
Again, we're thinking that there's a lot of surge because people are starting back up and you know what.
And they are buying more cars and all of these kind of things thats using the steel up and the.
That surge is probably going to normalize before we need to be back in the market and before we need to worry about getting more steel that's our anticipation alright, alright, Gary thanks, so much.
Thank you John.
Yes.
And our next question comes from Chuck Meyer with Mario Sam on the office.
Hi, guys. Thanks, so much for taking my question certainly.
I just wanted to clarify on the working capital for this year what are your expectations on how much free cash flow might be eaten up by getting working capital back to normal this year about the end of the year.
Well, we haven't provided that information and I don't have it handy at the moment.
Okay, because I was just trying to triangulate.
You know what was said in terms of.
Cash at the end of the year being sort of similar to cash at the beginning of the year and if I put together the pieces of net income plus of DNA. This year of I don't know 28, and $29 million I'm not sure of that is right or wrong and and the $70 million of Capex that you laid out and then you know let's assume that.
Hi.
Working capital build eats up $10 million this year to throw out a number.
And that's sort of gets us to what could be if we keep cash flat from.
From now till the end of the year of earnings of around $50 million to $55 million or about a dollar of share.
Triangulating that correctly based on everything you've told us today.
Well I think there are a lot of other factors that go into our cash position by the end of the year in terms of buyback activity that occurs through our 401 K plan the dividends that we pay out and what those might potentially be during the course of the year that are not yet determined.
And that leave us with some level of uncertainty as to exactly what that would be we expect that if we perform as well as we anticipate that there would be some growth and our cash position by the end of the year.
Not exactly flat figure.
So we don't try to give forward projections on our earnings expectations.
Gotcha. Okay. Thanks, so much guys. Appreciate it I guess just before I run one more quick question I was trying to triangulate also the reasonably strong bookings related to the price increase in January with your thoughts on the first half being just weak because of Abi and what's happening and the economy.
And such.
When I think about.
The first half.
It seems to me like you know, having sort of flat Q1, and Q2 from this quarter. We just ended it seems like the most reasonable outcome, and then sort of and acceleration into the second half of the year is that sort of what you're implying as well.
Yes.
Okay. Okay. So the 116 and $17 million of sales of sort of reasonable it sounds like for the next two quarters accelerating into the end of the year and you know net of the insurance proceeds we did about 27 cents a share and earnings given the Martin and the 29% gross margins et cetera.
And that all sounds like it's in line with what your view is.
Well I think and Q2 is going to be a bit stronger than what you just portrayed okay. So the acceleration of might happen into Q2 versus Q1, okay. Great. Thank you. So much guys. Good luck.
Thank you.
And our next question comes from Jeremy Levine of private Investor.
Well, Thank you Scott Jerry Rebecca.
Hope you guys are all well and safe and healthy and so of your families of.
We have the 19 years of listening and for questions and now able to ask one so I am going to ask one, but I think it's relatively simple, but my best.
All of you guys and I dunno, abnormous, non accrual or not but and my regards if you will he he's sitting here you know he is okay.
And I hope, you're well hope your family as well.
All good.
Sure.
The question Ive got Gary is would you discuss a little bit about the.
Representatives of the effort on the retail side I know it was off to a good start last year and then of course Covid came along and how does it stand now and what are your thoughts for the for the rest of this year. It's a very small contributor as everybody knows two of the top.
But it's a very profitable business, how does that shape up right now.
Well some of our national account customers that are involved and retail have remained fairly stable. The the retail sector that I see that the softened up a little bit is the more sporadic.
Retail purchaser of.
So you know what.
And again when we look at these national accounts that we've had some of which we've had for many many years.
And there.
Relatively stable.
I don't see any problem with them whatsoever and in fact is one of them has already got as much orders in here and.
And.
2021, as they did for the the last half of 'twenty and 'twenty. So there they are accelerating and they told me it was because they could finally get jobs built.
The there were.
Places that you'd see signs you know this.
This is coming soon and they used to tell you you know the spring of 'twenty one.
They like that and now Theres signs say coming soon and they don't know what that means because they couldn't get construction crews on site now theyre starting to get them onsite and they're starting to accelerate so at least one or two of our national account retail customers is and that boat, but the the more broadly looking at retail.
<unk> is what I'm looking at being a little softer than what it has been historically and.
And a little smaller.
Component of our overall efforts Okay. Gary I also was referring to was the F and on the part of the reps to open up their own.
Retail stores, Oh, Oh, the parts store and yeah, Yeah, that's kind of.
And that's coming up.
And I'm, sorry, that's coming along nicely the.
The the.
I don't have a number of how many parts stores were added in.
2020.
But it was several and there was commitments to add several more in 2021. Additionally, we put on some of some more personnel and the sales management and sales support to.
And to support that business and in fact is earlier today I was visiting with the director of sales and he's going to reach out and make it and offered to.
A person that is significant with the <unk>.
Significant experience in the parts sales business.
He interviewed and the other day and and he's going to reach out for and offer to this young man and.
So we're going to continue to put more and more.
And focus into that because it's materializing nicely for us.
And.
Our representatives of very appreciative of the support we give the guidance we give and this is another one of those share the best practices and share of the stories of the.
Those that are winning with that strategy and it's a very well adopted strategy. Okay. Thank you you guys stay safe and healthy with you.
We will thank you Gerry you did the same.
And as a reminder, that star one to ask a question star one.
And there are no further questions at this time.
Alright, well. Thank you very much for listening today, who will speak to you again in may for our first quarter results.
Take care.
And that does conclude today's call. Thank you for your participation you may now disconnect.
And then.
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