Q1 2021 JELD-WEN Holding Inc Earnings Call
Hello, and thank you for standing by and welcome to channel when first quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during this session you will need to press star one on your telephone.
You require any further assistance. Please press star zero and please be advised on today's call is being recorded I would now like to turn the call over to Kristy jokes Tibet <unk> of Investor Relations. Please go ahead.
Thank you and good morning, everyone. We issued our earnings press release, this morning, and posted a slide presentation to the Investor relations portion of our website, which we'll be referencing during this call.
I'm joined today by Gary Michel our CEO and John Linker, our CFO.
Before we begin I would like to remind everyone that during this call. We will make certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act and 1995.
These statements are subject to a variety of risks and uncertainties, including those set forth and our earnings release and provided and our forms 10-K, and 10-Q filed with the SEC.
Gelled, one does not undertake any duty to update forward looking statements, including the guidance, we are providing with respect to certain expectations for future results or statements regarding the expected outcome on pending litigation.
Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.
The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to their most directly comparable financial measure calculated under GAAP can be found on our earnings release and in the appendix to this presentation.
I would now like to turn the call over to Gary.
Thanks, Chris Good morning, everyone and thank you for joining us today.
This morning, we're going to focus on just a few things first our multifaceted growth platform with a successful track record of earnings growth compounding cash flow and capital deployment.
And our well defined strategy and business operating system that are driving transformation and delivering profitable organic growth and.
And third how these coupled with the market and operating momentum coming into this year deliver great first quarter results.
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On our last call. We discussed how we are executing a disciplined plan to accelerate organic growth expand margin and improve cash flow, while allocating capital to optimize shareholder returns and had been creating a premier performance culture as a competitive advantage.
The underpinning of our strategy deployment is our business operating system the gel with excellence model.
Jim as we call. It is the systematic way that our people work within the company to deliver our strategy globally.
This holistic approach is anchored in the very essence of a lean problem solving culture. The practice of continuous improvement development and respect for people and the identification and elimination of waste weed.
We've made great progress across each of these strategic growth drivers and we are seeing consistent outperformance and the areas where Jim has been deployed.
The combination of commercial strategies, delivering innovative products and services and a differentiated and superior customer experience coupled with operational excellence is delivering growth and margin expansion.
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Our North America team use Jim and demand planning tools to effectively manage supply chain and labor requirements and the value stream and significantly reduce windows lead times to under six weeks, while competitive lead times are currently stretching to as much as 24 weeks the operational stability.
And best lead times in the market are delivering profitable growth and a superior customer experience.
And our German team apply Jim to produce industry, leading delivery opportunities as well and.
And this new program, we provide our expansive designs and configurations of interior doors and door frames with industry, leading lead times of 15 days and in some cases within 90 days.
The value stream focus on cycle time reduction delivers and unmatched experience for our customers and delivers growth in both cases, we are improving customer service and overall satisfaction and increasing effective capacity.
One more operations example, with commercial implications is the redesign of a west coast U S plant to add capacity using gem value stream and production planning tools and our new operational design is intended to add capacity and industry, leading service levels with a 70% reduction and.
And inventory increasing inventory turns by two times and delivering more than 40% productivity with just the first stages deployed.
And the continuous improvement problem solving mindset applied to customer and channel partner opportunities is the essence of our premier performing culture, and it's easy to see how applying these principles across the enterprise should continue to deliver standout performance going forward.
As John will detail on a few minutes. In addition to our strong track record of earnings improvement through Jim by using these tools consistently across our operations to eliminate waste. We have also built a multi year track record of working capital improvements and high cash flow conversion.
Identifying commercial opportunities to meet customer unmet needs has led to several innovative product introductions and Australasia, we launched the element store collection a range of architectural entrance doors inspired by regional influences and customer desires for style and sustainability.
Designed to be produced and our new Surabaya, Indonesia operations. The elements collection features solid construction and stylish design from sustainably sourced timbers and open air aligning with Joe and his commitment to innovation and sustainability.
In addition to the sustainable content and the elements product itself. The cera bond production facility, where this product line is made was designed with sustainability and energy efficiency and mind. For example, the seara bond facility uses only recycled rainwater to meet the needs of the plant's operations and since <unk>.
<unk> and 2019, we've operated completely without groundwater or municipal water.
Another exciting offering is the new smart entrance door offerings and Europe initially launched for the hospitality industry. These door systems post embedded capabilities to produce security and safety through keyless hands free entry using the guest smartphone with central and remote management.
Future enhancements and expansion of our smart entrants portfolio will provide new innovative solutions to our commercial and residential customers worldwide.
These are just a few examples of the progress that we've made and deploying our operational and commercial strategies across the enterprise and we're excited about the results.
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Our first quarter performance is a direct result of this ongoing focus and consistent execution of our commercial and operational strategies over many quarters and years.
Core revenue grew six 4% versus last year with strong performance and all three segments as a result of volume growth and price.
Volume accelerated sequentially from the fourth quarter and this momentum continued as the first quarter progressed, we are entering the second quarter with strong backlogs and good visibility to near term demand and all three of our segments first quarter adjusted EBITDA increased 31, 4% delivering our four.
And with consecutive quarter of margin expansion.
Cash performance was also healthy as we continued to achieve high cash conversion and compounds. This cash flow over time through disciplined capital allocation.
In the quarter, we repurchased approximately 810000 shares and built a robust pipeline of M&A opportunities John will give more detail on the quarter and a few minutes.
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Sheldon has embodied the spirit of possibilities since 1960, when our founders purchased a small mill in Oregon that they would build over time to a global building products leader. They remained inspired to deliver high quality products and to make a difference to people and the places they called it home and.
Just a few weeks, we will publish our inaugural environmental social and governance report detailing the framework for thoughtful strategic initiatives that will increase the benefits, we're able to offer our customers associates suppliers investors and the communities, where we work and live.
And developing this report we evaluated guidance from the sustainability accounting standards Board regarding key topics that are relevant to our industry and we conducted a materiality assessment to prioritize ESG topics that we believe are most important to gel when stakeholders.
We have always been conscious of waste and sustainability within our facilities. It's good business to reuse as much material as we can and mitigate our waste streams and order to save cost.
We've also been committed to meeting high standards for energy efficiency, and our facilities and for our customers through the products, we design and manufacture.
We're a long time energy star leader, and Joe and products, which are critical products for energy efficient building designs meet or exceed local regional and national efficiency standards worldwide.
Our expanding ESG commitment is essential to achieving the exponentially larger impact we know is possible.
And our report will outline our work and the path forward relating to sustainable supply chain and circular economy energy efficient and sustainable product portfolios and innovation and research diversity and inclusion health and safety transparency and governance, we look forward to sharing our ESG journey and commitment.
And with you as part of our Investor Day on May 18th.
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Yesterday at our annual meeting shareholders elected three new directors to the board. These new directors increase board independence bring rich business experience and their own right and coupled with our existing directors and even greater diversity and viewpoint to support the execution of our strategy.
We welcome Tracy and Dave as we say, thank you and farewell to stormy by Europe as she retires her dedicated and meaningful service over many years is greatly appreciated by the board and our associates.
Now I'll turn it over to John Linker to provide additional detail on our first quarter results.
Thanks, Gary and good morning, everyone I'll start on page 10, our first quarter financial results demonstrate the power of our multi faceted growth platform and extend our consistent track record of execution.
With meaningful improvements in revenue margin expansion and cash flow.
This strong performance is a direct result of investing and our strategic growth drivers over multiple quarters and the ongoing momentum of Jim <unk>.
First quarter net revenue increased 11, 6% to $1 1 billion. The increase was driven primarily by a 6% increase and core revenue as well as a favorable impact from foreign exchange.
Notably all three segments delivered core revenue growth with broad based volume growth and improvements and pricing.
Volume accelerated sequentially from the fourth quarter and through the first quarter as well.
Gross profit margin expanded 140 basis points benefiting from pricing realization operating leverage on increased volume structural cost reduction programs and productivity from Jem initiatives.
Reflecting the strong operational performance adjusted EBITDA increased 31, 4% and year over year.
Core margin expansion of 160 basis points, which excludes the impact of foreign exchange and any recent acquisitions.
This was our fourth consecutive quarter of core margin expansion, demonstrating the consistency of our execution.
Page 11 provides detail of our revenue drivers for the first quarter on.
Highlight pricing realization of 4% and <unk>.
And mix growth of 2% for combined core growth of 6%.
Taking into account that our first quarter accounting calendar had fewer shipping days and last year, the reported 2% growth and volume mix normalized for shipping days would have been approximately 5% to 6%.
Total core growth normalized for the impact of shipping days was approximately 9% to 10%.
Please move to page 12, where I'll take you through the segment performance and more detail.
Net revenue in North America for the first quarter increased nine point Europe percent, driven by pricing volume growth and improvements and mix.
Demand and book to Bill remains quite healthy.
<unk> got to deliver accelerated revenue growth and 2021.
North America core adjusted EBITDA margin expanded 420 basis points to 12, 5% driven by pricing productivity and operating leverage the margin improvement was nicely distributed across all major product lines.
Well there are many examples of stellar performance and our North America segment. This quarter I'd like to highlight the strong improvements demonstrated by our North America Windows business.
Revenue increased and the low teens percent and margin expanded over 200 basis points, but more importantly, this performance was accomplished while maintaining industry, leading lead times and Gary already noted.
Europe revenue increased 13, 9% overall and 4% excluding the impact of foreign exchange.
Both pricing and volume improve versus prior year, with North Europe, and France, leading the revenue growth for the segment.
For the seventh consecutive quarter Europe delivered core margin improvement with an increase of 30 basis points year over year from strong productivity and pricing.
One of the highlights from the quarter from Europe, with the productivity realized and our U K operations directly as a result from the deployment of Jem.
And one of our largest facilities and the U K, we conducted multiple rapid improvement and kaizen events and the first quarter, resulting in significant increases and quality and cycle times as well as productivity savings.
In addition to strong cost productivity and the quarter. Our team also debt a pipeline of future productivity projects to drive ongoing margin expansion and all sorts of pricing actions as a result of material inflation and to and further enhanced our returns profile of the U K business.
Also our laser revenue and the quarter increased 19, 2% overall, and 2% and local currency versus prior year.
And benefited from accelerating housing demand and the government stimulus homebuilder program.
The Australia housing market is showing strong demand and therefore, we expect further growth from this segment is 2020 one progresses.
As a result of this improved revenue performance, our Australasia segment delivered core margin expansion of 200 basis points from solid productivity and operating leverage.
Turning to page 13, I will highlight our working capital performance, where we had demonstrated sustained multi year improvements directly as a result of Jim.
The deployment and consistent execution of our business operating system improves customer experience and enables growth through cycle time improvements.
This also allows us to lean out our working capital deployed accelerating asset velocity.
2018 to 2020 net working capital improved 160 basis points as a percentage of sales.
And get 2021 and the trend continues with the first quarter down 80 basis points compared to prior year.
And this track record demonstrates our ability to maintain a high cash conversion, while also accelerating future top line growth.
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Operating cash performance and improved $11 7 million compared to prior year.
While overall cash usage in the quarter was consistent with our normal seasonal working capital build cycle.
The balance sheet remains healthy and net leverage remains steady at two four times and liquidity was strong and 990 million and.
We are focused on deploying cash and a disciplined returns focused manner and compounding that cash over time.
With that I'll turn it back over to Gary who will provide closing comments Gary.
Thanks, John.
And the momentum we brought into the quarter further accelerated for us to deliver strong financial results.
We're seeing the benefits of our operational execution share gains and strong market fundamentals, which gives us confidence that our strong financial performance will continue throughout 2021.
The effects of accelerating input cost inflation are expected to be more than offset by price and favorable markets are expected to continue to provide a growth tailwind.
North America residential new construction and R&R markets continue to expand with strong housing starts and permitting numbers and strong Rmi remodeling index and continuing to increase and the quarter.
We expect growth to continue across all product categories and through all channels, including share gains highlighted earlier.
Europe markets continue to be stable across our served markets and we will enjoy growth as a result of regional share gains and project business growth.
Australasia markets had been strengthening as a result of the homebuilder stimulus and Australia for the last two quarters and are expected to continue as well.
As a result of increased visibility from these tail wins and strong first quarter results were raising the full year outlook for 2021.
We now expect to deliver full year revenue growth and the range of 8% to 11% increase from the previous outlook of 4% to 7% due to FX rates recently completed pricing action and strong volume momentum and.
Additionally, we now expect adjusted EBITDA of $505 million to $535 million increased from the prior range of $480 million to $520 million. A result of improved pricing realization higher volumes, partially offset by increased inflationary pressures.
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This is an exciting time for gel wind and here's why.
We have a multifaceted growth platform with a successful track record of earnings growth compounding cash flow and capital deployment.
We have a well defined strategy and business operating system that are driving transformation and delivering profitable organic growth.
The breadth and scale of the gel wound franchise, including leading market positions powerhouse brands and unparalleled global footprint is unmatched and our disciplined execution is delivering consistent results and our strong balance sheet and accelerating activity to deliver our bold ESG ambition pause.
<unk> us for continued growth and financial performance and a sustainable way.
We look forward to sharing more with you at our Investor day on May 18th.
And you again for joining us this morning and for your continued interest and gel one.
We will now be happy to take your questions.
At this time as a reminder, and it seems I'd like to ask a question. Please press star one on your telephone keypad.
And that is star one on your telephone keypad and your first question comes from Truman Patterson from Wolfe Research. Your line is open.
Hi, Good morning, guys. Thanks for taking my questions.
So first just wanted to dig in on the raw material and likely from transportation cost inflation commentary could you just give an update on your inflation expectations across the portfolio either on a percentage basis or dollar headwind.
Cadence that ends up impacting.
European L. Moving forward and then Gary if I heard you and you said that the price cost dynamics should be favorable should we expect.
That price cost to be positive and each quarter and moving forward or is there some timing discrepancies.
Good morning, Chairman and as John I'll kick us off.
Yes, I mean, just general comments about inflation and to start we are seeing pressure and millwork and vinyl rather and logs and lumber and freight would certainly be some of the highest categories that were feeling the pressure and.
That said, we as mentioned on the call we've taken proactive pricing actions to get ahead of us and.
Multiple regions around the world.
And so those pricing increases or multiple second round price increases are taking effect and in North America this quarter.
So I'd say in general to answer your last question first yes, we're still favorable price cost for the full year.
But order of magnitude from the original guidance that we gave back in February and so on what's embedded in this current outlook on the total increase and inflation both material and freight.
$35 million to $40 million magnitude in terms of total full year impact, but again.
We believe we have more than offset that with the pricing actions that we've put into the market.
As we said Truman and our prepared comments.
Price cost remains remains favorable and we feel we've got that under control and.
Really supports.
And we're sport and supports our guidance rise.
We expect to see margin expansion every single quarter and.
And we have been delivering that over a period of time now.
And obviously, we've got some on.
So a little more difficult on comparable in the second quarter given the benefits on the cost last year as we were.
Battening down the hatches and little bit for COVID-19, but that.
We're more than offsetting that at this point.
But and when we do expect to see margin expansion and continued throughout the year.
Okay. Okay.
That's definitely encouraging.
And then Gary I know you mentioned in your prepared remarks about improving capacity and your western facility, but just big picture could you give us you know.
On a lay of the land if you will and each of your three segments about your ability to increase production levels from from here over the coming year.
And we look we've just been hearing industry wide supply is very tight and clearly it doesn't make sense to ramp production at.
At the risk and product quality, but just wanted to get your broad overview and each of the segments.
Yes so.
Good morning, and great benefits.
Our business operating system and the deployment of general across the entire enterprise is the ability to increase cycle time improved throughput and add capacity within within our existing footprint.
On the rationalization and modernization program that we started two years ago. It has also been key to deploying those lean tool in.
And in a bigger and better way using not only some automation and modernization pool, but also looking at.
And how we operate.
And how we make doors, how we make windows everywhere.
The example on Westwood.
A story to talk about just how much we can get out on one value stream.
And you think about our windows business today.
We are we are operating.
On a at a competitive advantage quite frankly with our lead times on vinyl window compared to a market today that <unk>.
2015, and 20 week lead times on Windows, and we're able to offer things and a $6 six to eight week lead time, which we still like to be better than that but competitively we're able to perform there. We're applying these same tools to our door business and North America, our businesses and in Europe and Australasia.
The market and Australia had been soft it is now bouncing back and we're seeing the benefits of the rationalization work, we did there and the Jem deployment and Australia is we're able to on and use our are more efficient footprint. There are more efficient operations to grow on Europe.
At the speed on the market rebound there as well so it's it's and.
Size wise.
And <unk> deployment of Jem and we're really excited there is still plenty of.
Plenty of room.
And I always say true and we're in the early stages.
Because there is just the opportunity to hit our value streams over and over again.
At our Investor day on <unk>.
Up in May we're going to.
Talk a little bit more about how we pick the value streams that we spend the most time on it and how much more opportunity there is.
Hopefully you'll stay tuned for that as well.
Okay. Thank you for your time and I appreciate it.
And your next question will come from Matthew Bouley from Barclays. Your line is open.
And everyone congrats.
Congrats on the results and thanks for taking the questions. So really interesting commentary there on windows, Gary just on that improvement and the lead times.
It seems like you're already starting to see some of the benefits of that with the low teens growth and in the quarter can you just elaborate a little on.
One just how youre knocked those lead times down, it's probably hard to do that and Windows and general and then today, even more challenging given the demand out there.
But then going forward just how to think about the potential for additional share gain and that category. Thank you.
So thank you for the question again.
And really taking a look at and you have a few years ago. When we were having and we had issues keeping up with demand.
We applied and.
And we applied our our business operating system and the tools of lean into to our operations and Windows and we started by.
By doing very basic things that we're looking at the value stream mapping it out.
And and applying tools like.
For real lean.
For leading nerds like me on profit pools.
Tools like <unk>.
Paradise for production looking at modeling, how we build windows looking at the supply chain and really looking at how we organize the work to setup and standard work to build windows and each of our plants and then working continuously to improve the cycle time to meet the demand.
And that we see it from our.
<unk>, so being able to build a feeder lines being able to build all the supply chain into that it's not it's not on Theres really no silver bullet and other than applying these tools over and over again and understanding where the bottlenecks are and the value stream and eliminating those one at a time until you get.
<unk> flow through the system and are able to meet the demand.
Timing for us happened to work out fairly well, because we were on improving and significantly our operations and windows and.
Timely and demand was increasing so we're able to maintain that.
Six weeks is probably not.
The desired state, but competitively right now given the demand for vinyl windows.
And it will maintain that and we.
We believe there is upside for us to continue to grow.
And Matt I'll add on one item as well and addition to the benefits that you saw on our first quarter results from the actions that Gary mentioned and we are.
Our and making some selective.
Capacity expansion and investments and vinyl windows, and some automation investments and a few of our plants, which will add incremental throughput capacity. In addition to sort of the organic and about <unk>.
Past expansions that Gary just described.
Great.
Helpful detail. Thank you. Thank you both for that and.
And and interesting as well.
The second one I'm just curious on on the volume outlook, a little more I guess, maybe stick with North America.
And clearly.
Quote unquote easy comparison here and the second quarter, but you know even as you get to the second half I would say the volume comparisons for the segment are.
No not as difficult for job one as we might be seeing elsewhere and in the sector. So just any sense of how to think about the progression of volumes just given the kind of surge and residential demand here.
For you guys in North America. Thank you.
And so we did increase our full year revenue outlook as referenced on the call.
From 4% to 7% to 8% to 11% in terms of revenue.
And in terms of the components of how that breaks down and certainly there is some additional FX <unk>.
Translation and there is some additional and pricing from the pricing actions, we took and.
There's definitely some additional volume from what we're seeing both in North America, as well as Australia, Asia and that market turning around.
I don't want to get overly specific in terms of exactly what volume assumptions. We've made just because there is an interplay between price volume and mix throughout the year, but I think it's fair to say that.
Embedded in that midpoint of the guide is a nice pickup and volume mix and North America would be leading the way in terms of the three segments.
And for sort of what's embedded in our volume guide for the full year.
Understood well, thank you John and thank you Gary.
And your next question will come from John Lovallo from Bank of America. Your line is open.
Hey, guys. Good morning, Thank you for taking my questions. The first one is on.
On Capex it looks like you guys pulled in and the outlook just ever so slightly curious if this is tightening and sort of timing related and are.
Along those lines how are you feeling about the current door skin capacity and when you guys working on building any more additional capacity on that front.
And so on the Capex front.
And guidance is really just the timing issue and we.
And we just didnt get everything spent and the first quarter that we expected to so I would just trimmed it down slightly.
But we've got we see a nice pipeline of investments for the year.
Mixed between capacity expansion type investments, particularly and exterior doors and in North America, we're making some investments to support that business.
We see some nice productivity projects to autumn do some automation and see some productivity and.
And then also of course on some maintenance and sustaining type of.
Estimates as well so we feel pretty good about our ability to deploy this.
Capital outlook and in a way thats accretive for shareholder value.
Yeah on the on the.
<unk> side without being too specific by and we try not to be too specific on.
On actual plants or anything like that but we are applying the same type of.
Of energy that we applied for Windows and doors door assembly to our skin businesses as well and we're seeing the same kind of on cycle time improvements and and <unk>.
Throughput and improvements as well and adding capacity, where we can clearly that's a major input components of our door business and one net debt. We watch very closely based on on demand and we see for doors John.
Okay. That's helpful guys and then there was a mention of a robust pipeline of M&A opportunities I'm curious if there's any color you can provide on and sort of the product focus maybe on the size of the potential deals and how multiples look at you know and at this point with demand being where it is.
Yeah. So I think John we are pretty enthusiastic about the M&A future I mean, we've got a good track record. We did 15 bolt ons as you know from 2015, and 2019 took a bit of a pause over the last couple of years to sort of integrate and a.
Great what we bought and then a bit of a pause during the COVID-19 disruption and we spent quite a bit of time over the last year doing some more investments and strategy on where we really want to play and where we really want to grow and starting to cultivate.
And fill up the M&A pipeline again after that caused that I referenced so.
I'd say the most attractive opportunities at this point would be and North America and Europe.
Windows and doors at this point largely close to the core.
And that would be.
Add some value to our portfolio.
Over time, we believe that gelled line is a fantastic platform for growth and that there is a opportunity to look at.
Open the lens just from sort of a core door and window platform to high high performing and interior and exterior building products and general and.
And we plan to step from more light on that and our Investor day and in a few weeks.
Sounds good thanks, guys.
Your next question will come from Phil Inc. From Jefferies. Your line is open.
Hey, guys, a mid single digit volume growth on a same day basis and North America is really impressive John did I hear you correctly, you expect volumes to kind of accelerate from this pace here.
The reason why and I ask just given some of the door skin and capacity constraints you have I'm just trying to gauge what type of bandwidth do you have on volumes in North America broadly is that like a limiting factor just because certainly we're seeing a lot of growth across ready right now.
Yes, so certainly the second quarter, we would expect acceleration and volume over the first quarter largely just because we're comping quarter last year, we had facilities.
Sort of shutdown for free.
The majority of the.
Quarter and certain regions and so we got a favorable comp there that would imply volume acceleration and as we think about the back half.
And what's possible on sort of Q3, Q4, and terms of North America volumes I would say that.
On the order of magnitude something similar to what we've delivered and the first quarter.
And is doable.
Like I said on the prepared remarks, but the pipeline looks good demand is good book to Bill is good order intake is good. So I mean, you're right we got to be selective around where we do choose to take volume we want to make sure. We keep our lead times healthy and the and the business continues to perform and service our customers but.
As of right now we do.
Not seeing any volume headwinds four for North America business and at this point and the year the commercial.
Commercial excellence work that we've done previously on.
Segmentation of customer base and channel really paying off on and we continue to work on capacity.
And throughput.
And through <unk>, where where the balance sheet can support that growth. So we're we're already looking ahead of that and and planning for it.
Excellent.
Last year and mix was kind of a headwind just because you saw outsized growth on your retail channel and and certainly.
You saw a big D shape recovery and demand just curious if youre seeing any nuance or improvement on the mix side.
2021 has started off this year.
Yes so.
And.
The traditional the traditional cycle and that business as well.
And more stock units and the first quarter.
And building up of the season, so right now we're starting to see that special order demand pick up somewhat and the mix moving a little more favorably, but sell through at retail continued on.
The yen and the out is about equal right, we're keeping up with point of sale, we're still trying to build up.
And the build out to.
Seasonal norms at the point of sale. So there is still a little bit of a mix mix issue there, but it is starting to improve there is still hasn't been really the type of specials promotions because the the stock units have been flowing through so nice, but we are seeing that as a cash.
And then four on for our businesses here.
Thank you I appreciate it.
And your next question comes from Josh Chan from Baird. Your line is open.
Hi, Good morning, Gary John and Chris Thanks for taking my questions.
You guys mentioned that the demand kind of accelerated two and a quarter I was just wondering I assume that you saw that and North America as well so within that segment I was wondering if you could give some color as to what kind of driving the acceleration is it the new construction and channel improve.
Improving because of the of the housing starts improve and that we'd seen.
Yes so.
Really what we're seeing and North America as well, Australia has been strengthening as well over the last few quarters after a long period of.
Tough markets down there.
Stimulus programs around homebuilding and.
R&R.
Markets has really been taking off and we're starting to see.
Youre, starting to see moves and Australia as well so we're pretty excited about that market starting to to come back to life and it's a real opportunity for us the work that we've been doing.
And we gained share should accelerate that growth in North America housing fundamentals remain remained strong area and short term debt and quite frankly over the horizon.
All of the basic fundamentals of housing growth here still still apply and we're probably seeing a little more of that millennial buying going on and we're seeing on house creations.
Household creation still outpacing completions. So we feel good about that and we're seeing RMC business pretty pretty good and R&R, which tends to be fairly stable has been robust over the last 12 months or so and and we continue to see that.
And as evidenced through that retail business. So.
Month to month day to day comps are still there and we're excited about those.
Yes, I'd just add on and certainly the retail channel as Gary mentioned, and North America and needs to be strong sell through was greater than our sell in to them and so that continues to be a strong channel on the resi new construction side.
<unk> were 10, and 12% I think and the quarter. So certainly completions and the market are not keeping up with the starts debt homebuilders have been reporting. So I think there continues to be a little bit of a lag here.
On sort of that starts to completions and we would track more with completions and then we would restart in terms of our revenue.
And then just a reminder, we do have and we do have a small portion of our North America business through our distribution business that services non resi and commercial on that market of course is a little bit lighter than <unk>.
And so if youre trying to do a blended average of sort of where we play and you do need to take into account that you know a portion of our North America revenue and it does have some exposure there but in general.
Yes.
We saw that demand sort of trajectory continue to move up as the quarter progressed.
And that's encouraging to hear and.
You guys mentioned earlier about the sort of the M&A strategy kind of sticking to the core and then maybe eventually kind of brought in and out a little bit could you talk about sort of the strategic or financial metric that youre going to using thats going to evaluate new acquisition opportunities just kind of put a little bit of a finer point on on closing.
Yes.
So that's a great great question and a great setup for our our Investor day on May 18th we will certainly share the work that we've done on.
And looking at.
How gel and how gel and growth and what our positioning and as and we'll share quite a bit of detail on that coming up on May 18, but if you think about that.
That we've been doing to to be a reliable operator and be able to provide a differentiated superior customer experience and the building products based on that that's our primary focus looking at how we can solve problems for.
And that exists for our channel partners for builders.
And Hawaii.
And as another area, but.
And really understanding that our core being able to provide logistical support and being able to reliably meet the needs of our channel partners will provide innovative use of material.
Net.
That matter and building homes, primarily and to a certain extent in that and the multifamily and light commercial space is really where we're looking and.
We've done a nice job.
Of demonstrating and we will continue to demonstrate our ability to meet those demands and those customers I really look forward to being able to share even more with you and a couple of weeks and.
And Youll see it as a really exciting time for us to use.
Kind of use our franchisees our capabilities and and.
And help our customers grow as well.
Great. Thanks, guys and I look forward to the analyst day.
And your next question comes from scale Macquarie from Goldman Sachs. Your line is open.
Okay.
My first question is you know obviously given the severe weather events that we saw on the quarter down in Texas, you know people have been seeing some issues in terms of some of the raw material procurement can you talk to any impact that you saw there and I guess with that as you.
John I'll be a day kind of initiatives around Gen and your efficiencies will you able to kind of better offset some of that impact and and perhaps get through a little bit easier.
Yes, so clearly we're not immune to any of the issues.
Related to the to the shortages of supply disruptions from the Gulf, but that being said we do have.
Just the nature of our supply chain, the breadth of it and our vertical integration and capabilities and substitution capability and probably I'll.
Have isolated us a little bit from the.
Affecting customer customer deliveries.
Primarily the chemical supply issues out of the Gulf.
Luiz and and.
And homes, we have alternatives for both of those well we have the ability to source and two.
And <unk>.
And to manufacturer glue that we need for the door processes.
Internally and we've been able to.
We've been able to just offset that that issue that's actually improving at this point the supply those chemicals, though.
We expect that to be a non issue.
Forward and on the phone side, we've been able to substitute.
Alternatives that have kept us flowing and and allowed us to keep up with order demand.
Okay, Alright, that's helpful and.
My question is you know John you highlighted the work and and the improvements that you've seen and working capital and.
And as we think about this year and obviously given the fact that your inventories are still below normal on your it sounds like you're still working to catch up some of your customers how should we be thinking about the working capital this year.
We see inventories kind of being more of a factor and that versus normal and just any other thoughts there.
Sure.
So certainly for us to support the volume growth that we've got embedded in the guide there is going to be some level of working capital investment to support that.
I think it would be consistent to think about it is and on a percentage of sales basis.
And if we were growing.
We were growing volumes.
And every dollar of volume just apply sort of low teens percentage of sales to that in terms of the working capital investment needed to support it.
That said I mean, we're.
Jim is allowing us to really lean out cycle times, and and amount of inventory that we do keep on hand.
Continues to improve and so as we think about sort of over a longer period of time and all.
And the opportunity to continue to chip away at that and.
We know the investment and working capital required to grow the business. That's what we get really excited about is we got the ability to grow the top line. While also leaning out the working capital investment, which should translate to a pretty attractive cash conversion story over the over the longer term beyond 2021.
Okay. Thank you both for the color good luck.
Sure.
And your next question will come from Mike Dahl from RBC. Your line is open.
Okay.
I have two follow ups.
The first one is on the cost side and John I'm not sure. If I heard you correctly, but thank you reference on Truman's question on cost inflation for $35 million to $40 million sounded like debt was incremental to the prior guide, but even if I kind of take that combined with your prior commentary.
I think and maybe my numbers are off but I think it is implying kind of 3% on Cogs.
For the full year could you clarify that because but if that's right. It just seems a little low given the magnitude of inflation, we've seen and a lot of things.
Yeah.
Roughly two 5% of sales it would be sort of the expectation for the.
And the material and freight inflation that we expect to see for the full year. So yeah, the $35 $40 million was incremental to the prior guide.
The inflation that we expect to realize after the benefits of our sourcing team and the actions that they're taking and certainly I agree with you. There if you read headlines on steel and millwork lumber or anything else the market inflation.
And is higher than that but what I'm conveying is what we expect to actually realize and the P&L. After our after the efforts of our procurement team.
Okay got it and that's helpful and good to see.
The progress on the procurement side.
And then my follow up is on the revenue side I understand you don't want to get too detailed into the breakdown.
And if I'm looking kind of high level. It looks like FX would probably contribute a few points on the price just based on what you've been journey.
Generate in the past couple of quarters and the increases that you've gotten the market seemed like you are kind of mid single digits on price that day.
The 8% to 11, and then for the full year it doesn't seem to imply a heavy lift on on.
On the volume side, you seemed fairly optimistic so I guess, what I'm trying to parse out is kind of how youre thinking about.
Whether it's kind of market share or if there's some conservatism baked into that or if you just have different assumptions behind.
Whether it's FX or price.
Yeah, So I mean at the midpoint revenue.
Guide went up about four percentage points 400 basis points.
I think debt.
FX is certainly a piece of that we we don't necessarily we can make our own assumptions around sort of what you think FX rates today will flow through for the year, but we have taken on FX up assumption up slightly from the original guidance, we've taken our pricing assumption up slightly from our original guide and we've taken our volume mix assumption.
Up.
More meaningfully from the original guide, but as I mentioned before.
And there is some interplay between price volume and mix and we want to make sure that we.
And have some room to two.
And to execute on each one of those items and yes. There is there is an opportunity to outperform.
The volume guide that we're giving given you here today, but.
Still sitting here on the second quarter, and we want to see how the year progresses.
Okay fair enough that helps thanks.
Yes.
And your next question will come from Steven Ramsey from Thompson Research. Your line is open.
Hey, good morning, and this is actually Brian Biros on for Steven. Thank you for taking my questions I guess first one.
Yes can you speak to any regional differences, you're seeing across North America, maybe if one region is significantly outperforming or underperforming.
And if any part of the U S is kind of the best positioned for growth growth going forward from where we stand today.
Yes, surprisingly one of the things that we were looking at.
Particularly the the RMC business is actually picking up.
Across the country right, even in places where.
12 to 18 months ago, where maybe even somewhat depressed.
<unk> is seeing a general kind of a general across the country.
Favorability and markets I guess is what I would call it the R&R business supporting that as well.
Aye.
And there's no call out one area is point addressed.
Rest up I mean were pretty looking at and it looks pretty consistent across the country.
And then a quick follow up I guess would be interested to hear how you guys would describe the labor environment currently and if that is meaningfully impacting your business either from limited production or increased costs and if youre seeing any impact on your suppliers or customers kind of stuff as well.
Yes, I mean, we're not immune to the issues of debt.
And we've certainly talked about them and the path.
Past quarters debt.
And certain markets and certain areas there are.
There are issues and getting labor into the plant, but that being said all of our plants as of this morning around the world are all operating.
And.
And bill able to operating full capacity with the exception of.
Really two and Indonesia, which are under still under a bit of a government.
Throttle that being said, we've had to make some alteration and our.
And the way that we operate the plants based on on the.
On the people that we have there.
So we are meeting our demand and we are able to using our gen playbooks operated either different different shift timing.
<unk> throughput and the lag for that we're operating at the most productive level given the.
The demand and the people that we have the operating plan.
We have made some modifications and and premiums and and how we are hiring and different communities and it's not.
And I don't want to give the impression here that this is a widespread every single plant.
And the world problem, it's not.
It's isolated and a few communities and a few places and.
And we've been able to work through that and even and move work around and we've had two so yes.
Yes, it's something we're working through but just like everything and whilst we thought we got it.
Got it under control and not something that.
That is particularly worried some at this point and so it's something we're working through.
I appreciate the color. Thank you.
Yes.
Okay, and if anybody would like to ask a question. Please press star one on your telephone keypad. Your next question comes from Reuben Garner from the benchmark Company. Your line is open.
Sorry about that guidance all my questions have actually been asked so I saw the best out of the queue, but congrats on the quarter.
Thank you thanks Robyn.
And your next question will come from Michael Rehaut from Jpmorgan. Your line is open.
Hi, Good morning. This is a lot home and on for Mike. Thanks for taking my question.
So first I was hoping to get a couple more numbers on the volume mix and North America, but really just focusing on this quarter and just maybe some quantification of the pieces.
I was wondering if you could break out what pure volume growth was for this quarter and then also how much of a negative mix headwind.
From stock versus special orders was this quarter.
Sure. So the reported 3% volume mix and North America, which on a days adjusted basis.
About 6% to 7% that we talked about I would say that that was pretty much all volume the mix impact year over year was negligible and the quarter.
And later the stock special dynamic is there, but there was not a headwind to our performance in North America and the quarter.
Great. That's really helpful. And then second and I was wondering if you could provide more color on the north American door results this quarter.
What was our revenue growth and margin expansion there.
Okay.
Yeah, I'd say as we said in prepared remarks, we saw a nice growth and margin expansion across all of our products and North America.
And in terms of doors I would say grew sort of in line with the segment performance.
And some very nice margin expansion year over year as well so.
And nothing really unusual to call out about doors versus windows margin expansion on our performance and the quarter all sort of similar with segment performance.
Okay, Great and just lastly on.
All three segments saw pretty solid margin expansion. This quarter. So I was just curious if you could provide some more color on your expectations for margin expansion sort of by segment for the full year and.
And driving to that 70 basis points for the full year.
Yes, I think North America is going to be the outperformer in terms of the overall segment margin expansion and I'd say, we do expect grew.
Gross margin expansion and all three segments of FERC pretty nice magnitude, but depending on sort of the COVID-19 costs that we had to absorb from from last year is that we're lapping that can certainly impact the magnitude of the EBITDA margin expansion, but I would say North America would be the standout and.
And just to call out as we progress into Q2.
We do expect.
Gross margin expansion pretty nice gross margin expansion and Q2, but.
But we are lapping $35 million or so of onetime benefits that we had last year and SG&A and other income related to furloughs and subsidies and some other items. So as you think about margin progression through the year that will certainly.
The overall margin expansion on a little bit and Q2, but we feel very confident about our deliver ability to deliver gross margin expansion as the year progresses.
Thanks very helpful.
I have no further questions. Thank you I'll turn the call back over to our presenters for closing remarks.
Well. Thank you all again for joining us today, our strong performance and the first quarter definitely is a demonstration of our multifaceted growth platform delivering consistently and with the market dynamics that we just talked about and the execution of our strategy and the deployment of our business operating system, we expect those.
To continue for the remainder of the year, we look forward to sharing more about our strategy and our expectations on may 18th at our Investor Day, We hope that you all can join us and again. Thank you for your interest and gel one and we look forward to sharing our progress and coming quarters.
Thank you everyone for joining us today. This will conclude today's conference call you may now disconnect.
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