Q4 2020 Huttig Building Products Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to stay and buy and thank you for your patience.
[music].
Okay.
Good morning, and welcome to the HUD and building products fourth quarter, 2000, and 'twenty earnings call.
And just since we'll be in a listen only mode until the end of the call. When the company will have a question and answer session.
To ask a question. During this session you will need to press Star then one on your telephone.
Please limit yourself to one question and one follow up question.
Please be advised that today's conference is being recorded.
I would now like to turn the conference over to Philip Kite, Vice President and cheapest and National Officer, Sir you may begin.
Thank you and welcome to <unk> fourth quarter 2020 earnings call.
With me this morning is Jon bravely price.
And and Chief Executive Officer, and Bob Purion, Executive Vice President and Chief operating officer during the call today, and we will discuss our fourth quarter and full year 2020 operating highlights and financial results. He will also provide commentary on the current business environment, including the impact from the pandemic and the progress we've made across a number of cash.
Assets of our business and 2020.
Following our prepared remarks, the operator will open up the line for questions. Let me take a moment to remind you that today's discussion reflects management's views as of today and may include forward looking statements actual results could differ materially from those anticipated hunting disclaims any obligation to update information discussed on this call because of developed and developing.
And current afterward.
In addition to the extent you are listening to this call and replay information could have already changed additional information about factors that could potentially affect our financial results is included in the earnings release issued yesterday and in our <unk>.
Filings with the SEC.
During this call and certain non-GAAP financial measures will be discussed and.
A description of any non-GAAP adjustments and reconciliation to the most comparable GAAP measures can be found and the earnings release issued yesterday and on the company's website at www.
Dot com.
Today's call is being webcast live and is being recorded and you ask a question. It will be included in our life transmission and any future.
Use of the recording you can replay the call on the Investor relation page of our website.
And it's my pleasure to turn the call over to Jon for opening remarks.
Thank you Phil Good morning, and thank you for joining our fourth quarter and full year 2020 earnings call.
After my initial comments I will turn the call over to Bob and Phil to discuss operating highlights and our financial performance after which I will share final remarks before opening the call for questions.
Moving into 2020, and we're confident that the disruption to the disruption from the implementation of our growth strategy was behind us and that we would generate meaningful financial improvement throughout the course of the year.
And then in mid February.
And while still generally viewed in the U S is nothing more than a common flu like fibers, we recognize that COVID-19, and would likely poles and significant threat to the U S economy, and ultimately to our business.
While we continue to execute our 2020 business plan and the senior management team immediately began developing a comprehensive COVID-19 readiness and response plan.
By the end of February we implemented the initial priorities of the first version of that plan across the entire organization.
Over the course of the next 30 days, we developed financial models and contingency plans to mitigate the risk COVID-19 pandemic and begin executing the most critical and highest prioritize component of our plan.
While the pandemic had no impact on net basis until late March.
Our first quarter results were solid with year over year sales growth and a significant improvement and profitability.
By the end of the quarter. It was clear that our COVID-19 plan would dominate the activities of the entire organization for the balance of and potentially beyond 2020.
Our actions were early and aggressive and by the time, we began to experience a precipitous decline in sales in April we were well into executing every aspect of our plan.
By the end of the second quarter, the housing market began to recover and combined with the results of our earlier actions, our Q2 financial performance and liquidity has markedly improved over 2019 setting the stage for what would become a solid year for our organization.
During the third quarter, while the housing market continued to them currently and many of our competitors and benefited from rapidly escalating commodity wood prices, we were hindered by extensive supply chain challenges and a tight labor market.
Simultaneously, we accelerated the branch restructuring activities announced in Q2 and began executing a broad product line rationalization project across the entire organization.
Despite the headwinds that began late in the first quarter and to a large extent continued through today, we built strong sustainable momentum through the second half of the year, which helped drive our improved financial performance.
The early recognition and aggressive actions taken to mitigate the strength of the pandemic.
Along with the dedication and fortitude of our associates.
Directly resulted and the significant improvements and our financial performance and liquidity position that we achieved in 2020.
I am very proud of the entire organization for all of the operating and financial improvements we generated in the year.
Of all of the improvements we generated in 2020 and.
And especially proud of the results, we generated and successfully resetting our cost structure and working capital requirements, which establishes the foundation for a more profitable future.
I'll now turn the call over to Bob to discuss our operating highlights, including our strategic initiatives.
Jon Good morning, everyone I will provide an update on our operational and sales initiatives and discuss specific factors that affected our fourth quarter operating performance. Phil will then discuss our fourth quarter and full year full year financial performance.
Despite the ongoing challenges and fluidity created by the pandemic, we were able to achieve efficiencies and our operating platform that will service well into the future.
And we took early and aggressive actions to reset our cost structure and working capital requirements, we progressively and conservatively added resources as necessary to support the increased sales momentum as the market has stabilized and the second half of the year.
While successfully managing through the challenging business environment in 2020, we simultaneously developed executed and completed several restructuring and product rationalization projects.
Based on sales trends and our current operating position, we believe that outside of normal seasonal or variable adjustments that our cost structure and working capital levels should generally support our 2021 sales projections.
Turning to our operating results as the market stabilized late in the second quarter and grew and the second half of the year, our sales trends followed culminating in a two 3% year over year reported sales increase and the fourth quarter.
Full year sales were up two 4% compared to 2019 levels.
2020 sales were impacted by a number of headwinds, including one the pandemic over the past year. The pandemic has and devastated the global economy, while the U S. Economy has generally fared better than most the second quarter decline and GDP was the single largest quarterly decline and more than 60 years.
This is an indicator as to the degree of business disruption and uncertainty created and the early stages and the pandemic.
Our second our second quarter sales were 12, 1% lower than the prior year period, which offset our first quarter growth and affected our full year sales performance.
Two restructuring activities.
And any late in the first quarter and running through the end of the third quarter. We were engaged in several corporate and field restructuring activities that affected our sales and the second half of 2020.
Third product line rationalization.
This is a consistent practice for hunting, however, we developed and executed a more aggressive companywide process. During the second half of the year to create capacity and increased focus on our and our growing strategic product categories.
Our strategic category, generally and more complex and generate higher margins as compared to certain other products we sell.
Through the broader rationalization process, our sales were negatively impacted as we no longer replenished our promoted these items as part of our regular offering.
Margins were also negatively impacted as we move product and below normal margins and some cases and began to aggressively liquidate the inventory.
For supply chain disruption.
We have several key product categories that continue to be impacted by supply chain disruption, eliminating our ability to procure products consistent with levels of demand.
Based on discussions with our supply partners. We believe this disruption is temporary and some cases, our suppliers are and the process of adding additional capacity. However, we expect some level of supply chain disruption to continue through the first half of 'twenty, 'twenty, one and potentially longer.
And fifth flavor shortages, we continue to experience labor shortages in certain markets, where we operate these shortages have resulted in longer lead times on our higher margin value add production orders quickly and a negative impact on sales and overall margins.
Continue we continue to aggressively recruit additional personnel is ongoing demand for these products remains high.
We estimate restructuring and product rationalization activities impacted fourth quarter sales by approximately $11 million or approximately 6% of prior year sales.
On a full year basis, we estimate these these projects affected sales by approximately $27 million or approximately 3% and prior year sales.
It is difficult to quantify the impact of supply chain disruption labor shortages and longer lead times on our results, though we expect the impact of revenues was similar if not larger than the aforementioned impact from restructuring and product rationalization activities.
With regard to our strategic initiatives, even though the pandemic environment slowed momentum and some cases and some cases, we were able to achieve continued growth and certain key strategic product categories.
Discussed and our most recent earnings call. In addition to our National growth strategy. We have established branch level sales initiatives based on local market opportunities.
These initiatives are designed to generate profitable sales growth, while addressing the needs of our locally based customers.
Our sales and strategic categories are generally at higher margins as compared to other categories and we expect our efforts to shift product mix towards non commoditized products will drive the overall desired results.
Some highlights related to several of our strategic initiatives include adequate fasteners.
And warehouse fastener sales grew 44% and the fourth quarter and 32% for the full year.
And this growth was achieved despite restrictions and supply shortages created by the pandemic.
A significant portion of the fastener sales increase has come from additional market share gains as we convert more core and targeted growth customer segments to our other grip packaged nails and screws program.
Sales gains have allowed us to successfully reduce and right size inventory levels and this fast growing category.
Secondly, prefinished stores sales and pre finished doors, which is a key value add service proposition for our customers was negatively impacted by continued labor shortages and extended lead times.
Spike the underlying challenges fourth quarter revenues increased over 2% compared to prior year, while due to the headwinds described earlier full year sales were down approximately 3%.
This is an important area of focus as we work to address underlying issues with our lead times.
And third deck rail and trim sales were up nearly 26% and the fourth quarter and up 13% for the full year, despite the challenging environment.
This was one of our key strategic categories experienced and supply chain disruption and as a category with continued high levels of demand and the markets we serve.
These are just some of the highlights related to our strategic growth initiatives.
From a working capital perspective, we are extremely pleased with our performance, which combined with improved operating results has contributed to significant incremental liquidity.
We have adjusted to operating our business and a much leaner fashion and the right size and our inventory levels at the outset of the pandemic for perspective, our inventory levels are down $33 $7 million or 24% compared to a year ago, while volume levels have and have improved to exceed prior year sales.
Yes.
Going forward, we will continue to manage and adjust our inventory as demand dictates and continue to focus on improving our turns and now I'll turn the call over to Phil to discuss our financial performance.
Thank you Bob and his answer.
Dissipated and COVID-19 pandemic, along with other factors discussed on this call and kind of negatively affected our sales.
However, through early and aggressive actions taken at the outset of the pandemic, we were able to drive and overall improvement and our operating results and liquidity relative to prior year across virtually every key financial metric.
Fourth quarter, 2020 sales worth $104 6 million, which was $4 2 million or two 3% higher than the fourth quarter of 2000 and.
Adjusted for the impact from restructuring and product rationalization activities. We estimate the sales increase was eight 3%.
For the full year 2020, net sales were $792 3 million, which is $19 7 million or two 4% lower and 2019.
Adjusted for restructuring and product rationalization activities, we estimate sales increased approximately one 1% as compared to 2019.
The pandemic most affected our second quarter sales, which were down 12, 1% with some trailing impact as we move through the second half of the year.
As Bob stated earlier, our sales were also affected by supply chain disruption across several key suppliers and by labor shortages, which length and lead times to our customers.
Impacts from supply chain disruption and labor shortages, and it's difficult to quantify but will be additive to the 2020 adjusted growth and.
As we look to 2021, a year over year sales run rates were higher and January however, severe weather throughout much of the country did impact us and February.
Gross margin was 22, 1% of net sales during the fourth quarter of 2020 compared to 19, 7% and the fourth quarter of 2019 and.
Improved gross margin percentage reflects the favorable impact from our focus and higher margin sales opportunities, including from our strategic sales initiatives. For example sales from our fastener program to price a higher percentage of our overall sales and 2020 as compared to year ago and generated higher margins than in 2019.
These gains were partially offset by the sales product mix and higher margin value added categories were more significantly impacted by supply chain disruption and labor shortages.
Gross margins were also impacted by restructuring and product rationalization activities and as we've reduced inventories and less than normal margins.
<unk> were completed and the second half of 2020 and are expected to improve our overall margin performance as we move forward.
For the year 2020 gross margin for 21% of net sales compared to 20% a year ago net.
And the same factors as previously discussed impacted our year to date margins, but were mitigated by pre pandemic margin performance, including 120 basis point improvement and the first quarter 2020, and by the impact from our focus on higher margin sales opportunities.
Operating expenses decreased $7 5 million or 17, 2% and $36 1 million and.
And presenting 19, 6% of net sales and the fourth quarter of 2020 compared to $43 6 million or 24, 2% of net sales and the fourth quarter of 2019.
Personnel expenses declined $2 7 million, primarily due to the reset of our cost structure, which was accelerated by our COVID-19, bringing us and response plan, including workforce reductions wage reductions and suspension of contributions under our employer sponsored benefit plan.
Substantially all of the wage reductions were restored and the fourth quarter.
Higher incentive compensation driven by improved operating results offset some of the benefit recognized from our recent cost structure.
Non personnel expenses decreased $4 8 million and advertising and promotion travel and other discretionary spend was curtailed and we recognize more milk costs and rationalize space and equipment needs.
Insurance contract call and fuel costs were all lower during the period.
Year to date operating expenses exclusive of the <unk> 5 million restructuring charge recorded in the second quarter and.
And the $9 5 million goodwill charge, we reported and the first quarter decreased $20 million from $165 $6 million and 2019 to $145 6.002 million 20.
Personnel costs decreased $11 6 million, primarily from the aforementioned discount reduction actions commenced and the second quarter as well as lower medical claims costs.
Non personnel expenses decreased $8 4.002 million 20, primarily due to the curtailment of discretionary spend as well as other factors consistent with our fourth quarter expense decline.
As a percentage of net sales, excluding the $1 5 million restructuring charge of $9 5 million goodwill charge, our year to day operating expense ratio was 18, 4% and 2020.
3rd% to 24% and 2019.
Operating income and the fourth quarter was $1 million compared from operating loss of $8 million a year ago.
For the 12 months ended December 31, our operating income was $2 8 million.
Adjusted for the $1 5 million restructuring charge and $9 5 million goodwill impairment charge year to date operating income was $13 8 million compared to an operating loss of $3 6 million in 2019.
Through strict working capital management and improved operating results, we were able to continue to significantly reduce debt levels.
Pursuant to the terms of our senior credit facility and we also achieved lower interest rates based on improved liquidity levels and.
As a result of our interest expense declined over 50% on a year over year basis, and the fourth quarter from $1 4 million to 600000.
On a year to date basis interest charges were $3 6 million compared to $6 6 million and a year ago.
No.
Okay.
As a result of affordable and we reported net income of 300000, and the fourth quarter of 2020 as compared to a net loss of $9 4 million a year ago.
Year to date, we incurred a net loss of 900000 and.
And compared to a net loss of $21 3.002 million 19.
Adjusted for the $9 5 million goodwill impairment charge and a $1 5 million restructuring charge in 2020, and adjusting for the $11 $8 million cash charge in 2019 to increase our valuation allowance year to date net income was $10 1 million in 2020 compared to a net loss of $9 five.
And a year ago.
We generated adjusted EBITDA of $2 $4 million during the fourth quarter of 2020 as compared to an EBITDA loss of $4 9 million and the fourth quarter of 2019.
For the 12 months ended December 31 adjusted.
Adjusted EBITDA was $20 1 million compared to $5 2 million a year ago.
Turning to the balance sheet.
And total debt of $94 1 million at December 31, 2020, compared to $136 $8 million, a year ago and reduction of $42 7 million.
As previously stated the decrease and that was primarily due to improved operating results and low working capital levels as compared to a year ago, largely driven by lower inventories.
Cash provided by continuing operating activities was $7 1 million and the fourth quarter of 2020 compared to cash provided a $16 8 million and the fourth quarter 2019 given.
Given the early and aggressive actions to reduce working capital levels more cash flow benefit was recognized and the second and third quarter sales compared to last year.
On a year to date basis cash provided by continuing.
Activities was $42 8.002 million 20.
Moving to $6 6 million for 2019, representing a $36 $2 million improvement and underlying cash flows.
From an overall liquidity perspective.
Total available liquidity was $59 3 million at December 31, 2020.
As compared to $33 7 million, a year ago and increase of $25 6 million.
This represents the highest during the fluidity level since 2006.
Yeah.
2020 was a pivotal year for items.
Slide the challenges, we generated significantly improved operating results, while strengthening our balance sheet and our liquidity position and we believe we are well positioned to take advantage of our momentum and some turning to 2021.
Now I will turn the call Jon for closing comments. Thank you Phil.
It's difficult and challenging as the as the pandemic has been on all of our lives managing the company through the rapidly changing business environment has been equally challenging and.
In light of the threat and challenges COVID-19 posed to the business and focused motivated and galvanized the entire management team to plan and execute the actions that provided the best opportunity to achieve our pre COVID-19 goals for the year.
Throughout the second quarter, as we consistently reassessed and market and analyzed our performance under our response plan and it became clear that many of the actions we took in March and into the second quarter would drive sustainable benefits capable of supporting model moderate levels of future.
Growth.
While strengthening our balance sheet.
By the end of the second quarter. The majority of the actions we executed as part of our readiness and response plan late in the first quarter and early and the second quarter.
Were reflected in our income statement and balance sheet results.
In addition, the housing market outperformed our original projections and the second quarter and appeared to be trending towards activity levels that would exceed 2019.
Entering the third quarter, we were confident that the results of our actions to day were sustainable.
And our efforts shifted from executing and COVID-19 plan.
And two constant monitoring of our performance and control.
The results of our to date actions combined with the better than expected housing housing market activity.
Created the opportunity and capacity to refocus on executing our strategic product category sales growth plan.
For many reasons, our strategic product category growth plan is a cornerstone of our entire strategy.
Our strategic product categories are complex and require scale and value and fabrication services.
And it caused us the greatest market growth potential and the.
And the most meaningful opportunity to differentiate product and the channel.
And the most expedient way to expand our margins.
Despite despite supply chain challenges and labor shortages that negatively impacted all three of our strategic categories and hampered our ability to grow and the second half of the year.
And our same store basis in total we grew sales and expanded margins of our strategic categories and 2020.
For the full year, our strategic product categories accounted and accounted for slightly more than 48% of our total revenue and.
And generated nearly 55% of our total shipping margin.
In 2019, our strategic categories accounted for slightly more than 45% of total revenue and nearly 52% of total shipping margin.
In 2021.
We'll continue to closely monitor and adjust to the rapidly changing environment.
And we will continue to execute our strategy.
Our operating priorities are to continue to focus on our service levels and total customer experience.
Growing our strategic product categories, and expanding our margins and.
And working towards creating a high performing accountable culture with the most and powered and engaged associates.
Operator, we will now take questions.
Thank you, ladies and gentlemen, as a reminder to ask a question you would need to press Star then one on your telephone.
To withdraw your question press the pound key.
Again, its star one to ask the question.
Please limit questions to one and one follow up question.
Please standby, while we compile the Q&A roster.
As a reminder, ladies and gentlemen, Thats star one to ask the question.
Operator as they appear.
I'm sorry is there a pearson and there appears to be no questions. We will proceed with my closing comments.
Thank you there are no questions in the queue.
And the fourth quarter and for the full year on a year over year basis, we successfully achieved meaningful improvements and virtually every aspect of our operating results.
Our expense ratio profitability and liquidity position, our assets best levels and several years.
Looking forward and combining the continued momentum from our strategic initiatives improvements, we've made and the business.
As a cautiously optimistic near term housing market projections.
The future products and all of our shareholders as bright.
Could not be more proud of our associates and I want to thank them again for their hard work fortitude and dedication to providing exemplary service to our customers.
Also want to thank our customers and supply partners for continuing to place their trust in us to care for their business.
Finally, I. Thank you for your ownership and interest and our company and for your participation and our call today.
We look forward to speaking with you again and about 60 days when we report our first quarter results.
Yes.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
And.
[music].
And.
Yes.