Q1 2021 Huttig Building Products Inc Earnings Call
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This is the operator today's conference is scheduled to begin shortly please continue to standby. Thank you for the patients again todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Good morning, and welcome to the of Heidrick building products first quarter 2021 earnings call.
Participants will be in a listen only mode until the end of the call and the company will have a question and answer session.
I would now like to hand, the call over to pay the Kate <unk>, Vice President and Chief Financial Officer. Please go ahead Sir.
Yeah.
Thank you and welcome to how the first quarter of 2021 earnings call with me. This morning is Jon <unk>, President and Chief Executive Officer, and Bob Carey Executive Vice President and Chief operating officer during.
During the call today, we will discuss our first quarter of 2021 operating highlights and financial results.
And we'll also provide commentary on the current business environment, putting the impact from the pandemic and the continued progress we have made across a number of facets of our business.
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 they are.
Include forward looking statements.
Actual results could differ materially from those currently anticipated and holiday disclaims any obligation to update the information discussed on this call because of the developments that occur afterwards.
In addition to the extent you are listening to this call on replay information could have already changed additional information about factors that could potentially affect the financial results is included in the earnings release issued yesterday and.
And our filings with the SEC.
During this call certain non-GAAP financial measures will be discussed.
A description of any non-GAAP adjustments and reconciliation for the most comparable GAAP adjustments can be found and the earnings release issued yesterday.
And on the company's website at Www Dot Dot com.
Today's call is being webcast live and breathe.
If you asked the question it will be included in our live transmission.
And of any future use of the recording you can replay the call on the Investor Relations page of our website.
Now it is my pleasure to turn the call over to Jon for <unk>.
Thank you Phil Good morning, and thank you for joining our first quarter 2021 earnings call. It has been just over 60 days since we reported our fourth quarter and full year 2020 results for our call today will primarily focus on our first quarter financial results.
Before I turn the call over the bomb and Phil I will provide some initial comments on our first quarter performance and the market.
And the meaningfully improved every key financial metric and the first quarter as compared to 2020.
Sales of our company wide strategic product categories grew approximately 14% and.
17% on a same store sales basis gross margins increased 120 basis points to 21, 3%.
Our expense ratio decreased 200 basis points to 17, 2% operating.
The income margin increased 320 basis points to four 1%.
And our adjusted EBITDA margin increased 320 basis points to four 9%.
Aided by strong demand and the residential construction markets along with a disciplined approach to pricing and expense management, we generated record first quarter results since first being publicly traded in 1999.
For the quarter total housing starts grew approximately 10% to 360000 units.
Do you think the negative impacts of COVID-19 has had on the residential construction market pales in comparison to many other industries.
That said the pandemic has thrown the global supply chain into unchartered waters, creating severe shortages of products across a multitude of industries, including the U S residential construction market.
Organizations that rely on the supply of products that require global Ocean freight services face greater supply chain challenges and organizations that primarily sourced products in North America.
And understanding and organizations product offerings and the level of supply related challenges in today's environment are important for prospective of top line results.
And now I'll turn the call over the bonds to discuss our operating highlights and initiatives. Thank you Jon Good morning, everyone. I will provide an update on the operational and sales initiatives and discuss the southern the factors that affected our first quarter operating performance fill and then discuss our first quarter financial performance.
We remain focused on growing our strategic product categories price management, which is critical in this environment and improvement of our operations to reduce the experiences and create capacity and continue to leverage our leaner cost structure.
Sales of our strategic categories grew 14% and accounted for 107% of our total growth for the quarter.
We have frequently discussed the importance of our strategic product categories as well as our plans to rationalize lower margin non strategic categories.
During the quarter sales of our non strategic categories declined nearly 12% and part due to product rationalization and.
As a percentage of total sales company strategic categories grew from approximately 45% the 49% and non strategic categories declined from nearly 22% to 18 per se on a year over year basis.
This plan and intentional mix shift as a result of and our ability to successfully replace sales of the lower margin non strategic products with increased sales of strategic categories, whose average shipping margin 510 basis points higher without incurring meaningful incremental operating costs.
Considering the restructuring and rationalized product sales and 2020 same store sales were nearly $8 million higher than our reported sales growth increasing our total same store adjusted sales growth of 10% on a year over year basis.
Our strategic building products category significantly outperformed all of our categories and the quarter.
Historically, the first quarter and is our strongest quarter for direct sales, particularly of composite decking and railing share products and we are we grew our direct business and the quarter.
In addition, the vast and the market has been the specialty strong the supply is tight due to the lack of ocean freight capacity.
Lastly for the past three quarters, we like many other companies and many other industries have not been successful and filling open steelmaker positions and extension of our ability to grow beyond the supply shortages.
For the quarter composite decking and railing trim sales increase of 29% other.
The fastener sales increased over 40% and prefinished exterior doors increased 5%.
While we are pleased with our growth and strategic and building product categories. We are disappointed and whats the fabrication door sales, but we are currently taking actions to improve our performance and this critical profit category.
In addition to achieving strategic category sales growth and meaningful category mix shift. We also grew our shipping margins and both the building province and door categories.
Well, we are generally pleased with our sales performance for the quarter, our total growth opportunity remains meaningfully hampered by products of labor shortages.
Because of the majority of the products, we sell require ocean freight services and because we do not focus on commodity wood products and are primarily manufactured in North America, we are experiencing and extended lead times and our purchase allocation with the majority of our largest suppliers.
The day, you successfully managed from the challenges ensuring that we maintain adequate inventory to meet the needs of our committed customers and are selectively pursuing profitable growth with new customers.
While we do not the math.
We anticipate that the non-GAAP the grow in the near term. We also do not anticipate narrowing and suspected and was named relatively unchanged for the balance of this year.
The amount of time required to manage the rapidly changing price environment and increased exponentially.
We've done a good job of managing and implementing price changes and as a result, our shipping margins contributed 50 basis points of the 120 basis point improvement, we achieved and our gross profit during the quarter.
Operational improvement initiatives contributed another 30 basis points of the improvement primarily through better management of operating variances.
Despite challenges many of the initiatives that we've been working so hard to achieve our simultaneously crossing of the tipping point from trending well.
Two making a noticeable contribution to our improved performance now I will turn the call of the Phil to discuss our financial performance. Thank you. Bob We are pleased with our first quarter financial performance, which has yielded solid results across virtually every key financial metric.
And we are not of commodity driven sales organization. Our top line performance has not benefited by some of the strong tailwind and realize for some of our competition and today's market.
Other and we faced strong supply chain headwinds and as discussed earlier on the call.
First quarter 2021, net sales for $214 7 million.
Was $11 7 million from five 8% higher than the first quarter of 2020.
Adjusted for the impact from restructuring and product rationalization activities totaling $7 9 million.
We estimate the total sales increase was 10%.
The impact from the supply chain disruption and labor shortages, and it's difficult to quantify but would be additive to the 2020 adjusted growth.
Across our national strategic categories, our largest sales growth and some of the fastener and composite deck rail and trend categories.
And as we move into the second quarter demand levels remain strong with favorable sales trends to date.
Gross margin was $45 7 million and the first quarter of 2021 compared to $40 9 million and the first quarter of 2020.
As a percentage of sales.
Gross margin was 21, 3% and the first quarter of 2021 compared to 21% and the first quarter of 2020.
The improved gross margin percentage reflects the favorable impact from our focus on higher margin sales opportunities, including our strategic sales categories. As these lines represent a higher percentage of our overall sales as compared to a year ago.
For example sales from our fastener program for pricing higher percentage of our overall sales and the fourth quarter of 2021 as compared to a year ago and generated significantly higher margins in 2021 as compared to 2020.
The margins were also favorably impacted by operational improvements of <unk> management, and lower provision for excess inventories as we continue to manage stock levels. The.
Accretion of our gross margin percentage is more pronounced considering we had a disproportionate increase and direct sales and the first quarter of 2021 as compared to 2020.
These sales are at lower margins and compared with when compared to warehouse shipments.
Operating expenses decreased $2 1 million to $36 9 million and the first quarter of 2021 compared to $39 million and the first quarter of 2020.
Personnel costs decreased $600000 or two 7%, reflecting workforce and other adjustments made to our cost structure.
These cost reductions were partially offset by higher incentive compensation driven by improved operating results.
Non personnel costs decreased $1 5 million or eight 9%.
Operationally, the first quarter of discretionary spending such as travel and advertising was curtailed due and part of the Panther.
Additionally, our bad debt provision improved and the first quarter of 2021 and pandemic related disruption began to subside.
Higher insurance costs for property and vehicles, partially offset the reduction and operating costs overall, the cost structure was levered against higher sales volume as a percentage of net sales operating expenses were 17, 2% and the third quarter of 2021 compared to 19, 2% and the first quarter of two.
<unk> thousand 20.
Operating income and the first quarter was $8 8 million compared to an operating loss of $7 6 million a year ago adjusted for the $9 5 million goodwill impairment charge in 2021st quarter 2020 operating income was one 9 million.
The strict working capital management and improved operating results, we were able to significantly reduce debt levels on a year over year basis.
Pursuant the terms of our senior credit facility and we also achieved lower interest rates based on improved liquidity levels. As a result, our first quarter interest expense declined 600000 and from $1 $3 million and 2020 to 700002 thousand 21.
As a result of the foregoing factors.
And net income of $8 1 million and the first quarter compared to a net loss of $8 9 million and year ago adjusted for the $9 5 million goodwill impairment charge and 2020 adjusted net income was 600000.
We generated adjusted EBITDA of $10 5 million during the first quarter of 2000, 2000, 22021, Triple the $3 5 million reported and the first quarter of 2020.
Turning to the balance sheet, we had total debt of $115 2 million at March 31, 2021, compared to $149 9 million a year ago, a reduction of $34 7 million.
As previously stated the decrease and debt is primarily due to improved operating results and lower inventory levels as compared to a year ago for.
From the overall liquidity perspective, total available liquidity increased $30 million.
The $85 4 million at March 31, 2021, as compared to $55 4 million a year ago.
We are pleased with our first quarter financial performance and remain optimistic as we move through 2021 of our initiatives continued to take hold and bring a meaningful impact to our results.
Operator, we will now take questions.
Okay.
Thank you.
The ask a question you will need the press star one on your telephone and again that Istar and then the number one on your telephone keypad to withdraw your question press the pound key.
Please stand by while we compile the Q&A roster.
Yes.
Okay.
Peter as it appears that there are no questions and the Q I am going to proceed.
Yeah.
Go ahead please.
Our focus on driving profitable sales growth of our strategic product categories improved various management and disciplined management of the expense structure contributed to record first quarter operating results as a public company.
We have been successful and making sustainable improvements and the execution of our sales growth and margin expansion initiatives.
These improvements have resulted and our ability to leverage higher sales volumes of our highest margin product categories across and improved expense structure.
On the strategy and plan works new levels of financial performance can be achieved and one of the highest margin categories also possess the greatest opportunity for future growth new levels of financial performance can be achieved for many years into the future.
And our performance will not be possible without the commitment and dedication of our entire team of associates I am proud of the entire organization as our collective efforts have created a very bright future for our company and our stakeholders.
I want to thank the entire team for their hard work fortitude and dedication to providing exemplary service to our customers.
I 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 speaking to you again, when we report our second quarter results.
And this the operator those are local.
Go ahead please.
I can say that concludes my comments.
Thank you speakers. This concludes today's conference call. Thank you for participating you may now disconnect.
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