Q1 2021 Cornerstone Building Brands Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the cornerstone building brands one Q 'twenty One 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 to ask a question. During the session you will need to press star one on your telephone please be advised.
Is that today's conference call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference call over to MS. Gena Basket cornerstone building brands, Vice President Finance Investor Relations. Please go ahead.
Thank you.
Good morning, and thank you for your interest and cornerstone building brands. Joining me today are Jim Metcalf, Chairman and Chief Executive Officer, and Jeff Lee Executive Vice President and Chief Financial Officer.
Please be reminded that comments regarding the company's results and projections may include forward looking statements that are subject to risks and uncertainties. These risks are described in detail and the company's SEC filings earnings release, and our Investor presentation. The company's actual results may differ materially from the anticipated.
<unk> performance or results expressed or implied by these forward looking statements. In addition management will refer to certain non-GAAP financial measures you will find a reconciliation of those non-GAAP financial measures and other related information and the earnings release and Investor presentation, located and the investors section of our web.
Right and.
He referenced and our discussion today towards EBITDA means adjusted EBITDA and any reference to prior year period means the prior year pro forma period. Please note, we will be referencing our investor presentation throughout today's call.
Today's call is copyrighted by cornerstone building brands, we prohibit any use recording or transmission of any portion of the call without our expressed advanced written consent.
Throughout this presentation management may also refer to pro forma financial results such results gives effect to completed acquisitions and it's such acquisitions were consummated prior to the periods presented with that I would like to now turn the call over to Jim.
Thanks, Dana good morning, and thank you for joining us.
We're excited about 2021, and our solid first quarter start.
I'm proud of the outstanding job our team has done to successfully manage through a dynamic market environment and capitalized on strong market conditions.
Our commitment to execution and value creation for all stakeholders resulted in record net sales and EBITDA growth.
Demand for residential products were strong during the first quarter.
Overall company net sales increased approximately $145 million or 13% over a healthy prior year as a result of volume growth and price.
Volumes were 9% higher despite three fewer shipping days and the weather impacts and the south.
Volumes from Windows, and siding segments were 16% better than the first quarter and 2020.
Also on a comparable ship day basis residential volumes were favorable by more than 20%.
Steel prices are at a record high.
Which we believe is partially influencing our demand within the commercial segment.
As we discussed during our last call the rate of incoming orders has accelerated as customers try to get ahead and further steel increases pulling some demand forward.
As a result volumes were slightly favorable to prior year on a comparable ship days basis.
In addition, our team achieved record first quarter EBITDA of $139 million, a 42% improvement over last year exceeding the top end of our guidance range.
Our sales supply chain and operations team have done an excellent job, leveraging our scale and agility and our customer relationships.
Successfully navigating through the demand related challenges they work closely with customers and suppliers to increase availability and ship more volume.
We continued to successfully deliver margin expansion and the quarter.
EBITDA margins were 11% of net sales a 230 basis point improvement over the prior year.
This is our eighth consecutive quarter of year over year EBITDA margin expansion in all segments.
We are focused on our strategic priorities of profitable growth and operational excellence, which include safety.
Quality and continuous improvement and our commitment to elevating the customer experience.
As a result of our stronger earnings and financial discipline, and we reduced our net debt leverage ratio to 4.6 times approximately a half turn better than the first quarter of last year.
Jeff will be providing more details around our recent actions to strengthen our balance sheet and advance our capital allocation strategy.
Overall these record results demonstrate our ability to leverage our scale and our market leadership to capture the strength and our end use markets.
And I'll turn to slide four.
The residential momentum continues to be strong with solid underlying fundamentals that support long term sustainable growth.
March U S housing starts totaled $1 7 million units on a seasonally adjusted basis.
Repair and remodel activity also remained robust and the first quarter supported by rising home equity high personal savings rates and a limited resale inventory.
With these encouraging tailwind our residential market outlook is very favorable.
The April incoming order rate is approximately 20% higher than last December and over 15% higher than April of 'twenty and 19.
The pace of recovery.
Coupled by industry wide labor shortages and supply chain disruptions have caused extended lead times and growing backlogs.
We continue to attack these challenges and remain focused on our service value proposition.
Solidifying our position as the partner of choice for our customers.
We've also been actively investing and new product offerings and process automation that will generate profitable growth over the long term.
Additionally, these investments are helping to expand our national footprint and strengthening our customer value proposition.
For example, we're investing $10 million and our Sacramento, California Windows facility.
This investment will enhance our west coast presence position us to capture more market share and increase our capacity by approximately 50%.
As I mentioned earlier the outlook for the commercial market is improving and we believe we are positioned for growth.
The architectural billing index reported positive growth for the month of March reaching its highest point and over a decade.
This is a positive indicator of future commercial activity and as a reminder, low rise commercial construction projects typically lag residential markets by approximately 18 to 24 months.
We are also experiencing a strong pace of incoming orders across all products within the commercial business and backlogs are starting to rise.
We feel that the continued rate of steel cost increases have accelerated market demand.
While demand is strengthening challenges exist on the supply side, particularly as I mentioned steel that's impacting our business.
Supply shortages due to demand and curtailed production have resulted in some supply chain disruptions and rising input costs.
Our team is committed to meeting the needs of our customers and we have plans that leveraged our scale and flexible manufacturing footprint to maximize service, which has led to increased costs throughout our network.
And response to this inflationary environment, we are continuing to take price actions across all of our businesses.
We are committed to price discipline and expect our actions will offset inflationary cost impacts over 2020 one.
However, margins will likely be slightly compressed and the second quarter.
We feel we're taking the necessary actions to combat these cost increases.
We continue to lean into a continuous improvement culture to help maintain our strong profitability and track record of margin expansion.
During the quarter, we made advancements towards being a cost advantaged manufacturer and achieved approximately $25 million of structural cost savings.
We're on track to realize our cost savings target of $75 million to $80 million for 2020, one strengthening our manufacturing footprint.
Our improved cost structure and liquidity positions us to take advantage of the improving market sentiment.
This includes making balanced investments in key growth areas to ensure we are deploying capital where we can drive the greatest long term returns for our shareholders.
We have advanced our strategy towards profitable growth and operational excellence with the acquisition of Prime Windows systems headquartered in Denver, Colorado.
This acquisition strengthens our market leadership position and windows and doors by expanding our west coast presence and our product portfolio with new product offerings and structures up to 15 stories.
I'd like to welcome the Prime Windows systems team to cornerstone building brands family.
We also took actions to improve the company's capital structure.
We refinanced all of our credit facilities, and Jeff will provide more detail and a moment.
These actions strengthen our balance sheet and provide a meaningful opportunity to advance our strategic priorities for growth.
Now if you could turn to slide five.
We're excited about the growth opportunities ahead of us.
Our 2021 priorities of advancing our strategy.
Elevating the customer experience.
Operating with excellence and maintaining our financial discipline and are positioning us for sustainable growth and value creation.
We will continue to advance our strategy by investing in innovation and targeted acquisition opportunities like Prime Windows systems.
We have a well defined product innovation process that is centered around reducing complexity.
And <unk> offering better performing products, such as lighter materials with easy installation with an emphasis on labor savings for our customers.
We remain committed to elevating the customer experience.
We pride ourselves on maintaining strong customer relationships does.
Delivering exceptional service and being the partner of choice.
As Jeff and I have mentioned on each call, we are committed to maintaining financial discipline and reducing our net debt leverage ratio by three quarters to one turn this year through.
And through higher earnings generation with our ultimate goal of two to two two and a half times in the future.
By staying focused on our priorities, we expect to grow our market leadership and deliver long term value for all of our stakeholders.
Now I'd like to turn the call over to Jeff.
Thanks, Jim and good morning.
Our relentless drive for exceptional results led to another quarter of record earnings and year over year margin expansion. We continued to deliver strong financial performance by leveraging our national scale, and expansive product offering which highlights the strength of our business model.
Starting on slide seven net sales were approximately $1.267 billion, 13% higher than pro forma prior year, reflecting continued strength within the residential end markets and improved pricing in response to rising commodity and other manufacturing costs.
There were three fewer ship days in the fiscal first quarter of 2021 compared with 2020.
Adjusting for the difference and days net sales were 18% higher than the prior year.
Yeah.
We generated $139 million of adjusted EBITDA 41 million more than the pro forma first quarter 2020, driven by $29 million from higher volumes.
Adjusted EBITDA margin was 11% and increase of 230 basis points from pro forma prior year.
This improvement reflects our success and effectively managing through a dynamic raw material environment, while staying disciplined on executing our strategy towards profitable growth.
Across all our segments production constraints for commodities, such as PVC resin and steel and aluminum have driven steep cost increases.
In response, we have raised prices across our portfolio.
Mitigating substantial impacts to our financial results.
At the end of the first quarter inflation cost did outweigh price by approximately 5 million inflationary.
Inflationary increases are occurring at a steeper rate and continuing longer than originally anticipated, resulting in a time lag between when the costs are incurred and the offset from revenue.
We expect price mix to offset inflationary impacts through the cycle.
Additionally, as previously communicated the impact of price offsetting inflation slightly compressed gross margins despite.
Despite the margin headwind, we're able to deliver our eighth consecutive quarter of year over year, adjusted EBITDA margin expansion across all segments.
Operational excellence is fundamental to our business model and market leadership position.
We continued to transform our cost structure and improve the way the work gets done.
During the quarter, we realized approximately $25 million of structural savings, which helped to mitigate additional cost we incurred to serve our customers.
Such as expedited freight and overtime.
As a result of our ability to consistently deliver on our cost savings initiatives, we were able to favorably impact manufacturing operating cost and SG&A.
We are on track to deliver 75 million to $80 million of operational improvements in 2021 with over 70% of the savings targeted in cost of goods sold.
Now, let's look at our business by segment.
Turning to slide eight.
Overall financial performance for the Windows and siding segments was strong.
First quarter net sales were approximately 20% higher than pro forma prior year with 16% driven by demand and.
Adjusting for our fiscal calendar and average daily run rate, our net sales were up approximately 27% versus pro forma prior year.
During the quarter order momentum was strong as wholesale and retail demand outpaced prior year driving higher ship volume.
The pace of recovery within these segments has been supported by the positive fundamentals and the new construction and the repair and remodel markets.
As mentioned along with the positive market momentum, we have experienced increased commodity cost maintaining price discipline to offset inflationary impacts has been a key competency for cornerstone.
We have announced several price increases across our portfolio to stay ahead of the rising costs.
We remain focused and disciplined and consistent execution. These segments generated record first quarter financial results during a very dynamic environment, continuing our trend of delivering year over year adjusted EBITDA margin improvement.
As Jim mentioned, we are taking cost actions to advance our strategy and positioned towards long term growth.
We recently completed the prime Windows system acquisition, and expanding our market opportunities and the vinyl window and door markets. Additionally.
Additionally, our investment and the sacramental, California facility deepens, our market penetration and advances our relationship with strategic national customers.
We intend to continue to invest and the windows segment through organic growth and with strategic acquisitions that will drive margin improvement and expand our geographic reach while remaining committed to our net debt leverage goals.
We are also investing and the siding segment.
We intend to drive organic growth through product innovation, and new product development and attractive adjacent product lines. Additionally.
Additionally, as the only national turnkey provider of stone solutions, we are committed to further strengthening our leadership position with tuck in opportunities such as the Cleary and create a stone acquisitions that took place.
We remain optimistic about the market recovery and positive momentum in the residential end markets, which will create long term sustainable growth for cornerstone building brands.
Moving on to our commercial segment on slide nine.
Net sales for the first quarter of 2021 were $423 million essentially flat to the same period last year.
Adjusting for the average daily run rates volume was favorable approximately 1% versus prior year, which signals improving market sentiment.
The commercial segment generated record first quarter, adjusted EBITDA of $53 million, despite the lower sales and dynamic inflationary challenges.
The team has done a tremendous job and leveraging the accelerated cost savings they captured last year to drive operational efficiencies and manufacturing and SG&A.
Additionally, we have effectively manage the impacts of rising steel costs.
For the quarter inflation outweighed price and mix by only 7 million due to the rapid responses by the team.
We have demonstrated our ability to navigate and these inflationary environments over the years most recently in 2018.
Within the commercial segment prices set at the time of order, enabling us to pass through higher costs, while passing through higher cost generally protects gross profit. It may dilute gross margins in this segment we.
We do expect to realize price mix over inflation for the year.
Just as our Windows and siding segments have the commercial segment has been able to deliver eight consecutive quarters of year over year adjusted EBITDA margin enhancement as a result of strong cost management manufacturing efficiencies and structural improvements to delayer the organization.
Positioning towards long term growth, we have taken actions to advance our strategy within the commercial segment.
We continue to invest and automation projects to simplify the production process as well as and ecommerce capabilities that will enhance the customer experience.
We remain optimistic about the positive market sentiment for the non residential end markets.
Turning to slide 10, I'd like to make a few comments about our our foundation for growth.
The company embraces a continuous improvement culture.
We are focused on optimizing cost and building greater brand equity to fuel growth solidifying us and the cost advantaged manufacturer.
Additionally, we are intently focused on investing for growth in the core business through capital expenditures for grant organic growth initiatives and M&A opportunities, which we believe will deliver the highest returns for shareholders.
We anticipate the full year 2021 capital spending will be approximately 2% to two 5% of net sales.
Free cash flow was a use of cash of 1 million and approximate $30 million improvement over the same period last year, primarily from higher earnings.
Finally, we are focused on positioning for growth with an emphasis on deleveraging our balance sheet as a result of our profitable growth we have reduced net debt leverage by over a quarter of a turn from the end of 2020 to $4 six times adjusted EBITDA.
We remain committed to our balanced capital allocation strategy as we move forward.
We recently took actions to strengthen our capital structure and further position the company for future growth.
We have refinanced all of our credit facilities meaningfully extending our debt maturities, while maintaining our covenant light structure using.
Using available cash from the balance sheet and proceeds from the upside Upsized term loan we fully redeemed the 645 million principal 8% senior notes, reducing our annual interest cost by over $50 million a year.
We will continue to focus on driving value through the execution of our capital allocation priorities, which includes investments in our core business margin enhancing growth investments and debt pay down.
Turning to the second quarter 2021 outlook on page 11, and we expect net sales to be between 1 billion and $375 million and 1 billion and $425 million and approximate 30% increase versus last year at the midpoint with volumes and price and mix.
Beating equally.
Strong market momentum within the residential end markets, improving commercial sentiment and positive price mix, coupled with unprecedented backlog support our revenue guidance.
The prime window system acquisition is included in our guidance range.
We expect adjusted EBITDA to be between $185 million, and 200 million and approximate 21% increase versus last year at the midpoint.
The midpoint of our outlook implies an adjusted EBITDA margin of 13, 8% and anticipates inflationary cost offsets by price in dollars, but slightly compressing margins.
Our first quarter performance demonstrates our relentless drive for exceptional result, and a passion for superior execution, our solid foundation on the actions we have taken to strengthen our industry leadership, our positioning cornerstone building brands for growth.
We continue to capitalize on the favorable market trends and stay focused on executing our growth strategies.
And now I'd like to open up the call for questions.
If you'd like to ask a question at this time. Please press Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please press the pound key first question comes from Lee Jagoda. Please go ahead.
Hi, good morning, and good quarter.
Good morning Lee.
So I guess, Jim clearly if I look at all and every raw material out there it seems like over the last 12 months, they're higher.
But specifically things like lumber or you know one of the outliers I guess the good news for you guys. As you don't use a ton of lumber, but that being said is there any way to quantify you know looking at your various product categories, both non res and rise how much more competitive you guys have become as a.
Bulk of lumber may be increasing faster than steel or aluminum or resin.
Thank you Lee.
I think what we really like about.
Our product portfolio, particularly on the residential side when you look at our vinyl windows.
And as a perfect fit for what's happening in the residential market as you have the flight to the suburbs of the entry level homes are first time homebuyers, you know theyre looking at cost and our windows really fit well for that that portfolio is what as well as our vinyl siding.
For the sustained sustainability standpoint, as well so we think as you can see with the increased volumes, we're having particularly on our residential side.
It is a perfect fit for whats happening and the macroeconomics of residential and we're pretty excited about over the next year or so we think it puts us in a competitive.
Our position over other products and then you go on the nonresidential side, you look at lumber versus steel.
It's a different type of construction.
Steeled is less waste on the job it's engineered.
It is it is a product that we think is more.
Sustainable for the environment. So we think that's very that's very important for on the nonresidential side, particularly from a from a durability. So we think we're positioned both residential and commercially with with steel one on the commercial side versus lumber as well as our vinyl portfolio both windows and.
Siding.
No that sounds great and then just one more for me can you give us an update on the most recently announced price increases by segment and then the timing of any additional known price increases you plan to put through and I guess lastly.
And how far away from sort of an equilibrium do you think we are in terms of how much more you need to catch up and each of the various product categories over the next six nine months.
Yeah, Let me, let me just break it and residential and commercial mode on the residential side as you know we have a pretty strong backlog as we're talking about so the price increases that we have announced and put into the system will start flowing through even more and the second quarter, we haven't fully realized all of our price appreciation on the residential side.
Both windows and siding that had been announced in the market on the commercial side, it's really and as you know the commercial business really well it depends on the buildings are cycle was much longer and in fact, we announced a 15% increase just this week on the building segment, which.
With the long lead times will won't be impacting the financials until the second half of the year because of the long lead times of buildings components, we have.
Introduced numerous price increases and as you know that's a shorter lead.
Lead time in weeks versus months.
So we have our price increases in the components of arena as we speak.
Great. Thanks, very much I will hop back in queue.
Thank you Lee.
Next question comes from Joe Julio Romero with Sidoti. Please go ahead.
Hey, good morning, Jim and Jeff.
Good morning, good morning.
So I wanted to start out on your commercial segment.
Certainly on the operating profit line better performance than I expected can you just remind us last year, what you did there.
And the commercial segment in terms of delayering footprint rationalization et cetera, right and you know from your expected cost Takeouts. This year, how much of that amount is focused on commercial.
Yeah. Thank you very much Greg Great question as we talked over the last couple of quarters, we not only de layered the organization, but we had a tremendous focus on manufacturing efficiencies and we're really proud of the team on the commercial side of the efficiencies of manufacturing, but also we were very proactive on.
And on staying ahead of the pricing as I just mentioned on the last question that that Lee had so we've really set up the commercial business for this year as we as we mentioned there. There is some we believe there is some pull forward and the commercial business.
But we feel with what we're seeing with the architectural index and some of the infrastructure spending that the government is talking about we feel pretty good about the second half of the commercial of the commercial business.
We're really focused on on price over inflation as we said there and there's going to be some slight compression and the second quarter, but we think the back half for the year with some of these price increases that we announced are we're really will really help the margins of the commercial business.
And Julio just to give you a little bit of of breakdown by segment. So a lot of our focus on cost outs inside of our Windows segment, and there's a lot of opportunities a lot of automation that we've put in place and we will continue to realize those benefits in 2020 one.
And the investments that we're making will continue into 2020, two as well for windows spin.
And specifically for our commercial business, there's about 30% of our cost savings will be derived from our commercial business and most of that will be inside of the cost of goods sold line item for the for the business, but a lot of great initiatives right. There's a lot of projects that are out there that make us more efficient make make it safer for.
And our employees and we'll also take some of the labor out on jobs that traditionally people don't want.
Where we have a lot of of we work in and immaterial errors that are associated with those so a lot of good projects, there and they're all in place and.
And.
In many cases, the equipment has been ordered and so we feel good about debt debt cost out initiatives.
Got it and just to just to be clear that 30% of all.
The cost Takeouts focused on commercial and that would be for this year.
That is correct, yes, he's got the we got the cost out guide of about $75 million to $80 million worth of cost out and about 30% of that is going to come from our commercial business.
Okay, Great and I guess.
The $7 million unfavorable impact in the quarter and commercial Jeff.
Jeff I think I heard you say in your prepared remarks, you expect price cost neutral for that segment for the full year and.
Based on on Jim's commentary I guess, you expect continued headwinds next quarter, but maybe just to make up and the back half of the year is that fair.
Yeah, that's correct as we as we go forward with our price announcements what took place really inside of the first quarter was a sharper curve than we anticipated and our price announcements. They got out there still just continuing to rise and rise and so with that we had a little bit of pressure as we go into Q1 and Q2, but we've managed through this.
And the past if you go back and look at 2018. For example, we saw sharp sharp rise and about 25% inflation inside the back half of 18, and it came down and the first half for 2019 through that cycle, we were able to get margin enhancement and get price over inflation, but in in <unk>.
Harper inflationary type of of environment, it's difficult to kind of catch that inflation as fast as its rising. So we feel good about debt, we think that in the and the third and fourth quarters and particular, depending on what steel does if we see still turn and go back the other direction and that's typically when we start to get the benefits the other direction.
It still continues to linger on and then we've done the right things and made the right actions in place to kind of get debt offset but we wont necessarily see.
A benefit from that until steel turns the other direction.
Okay, and if I could just sneak one more and here just on your recent acquisition of prime window.
You talked about expanding and west coast presence and.
Focus on structures up to 15 stories.
Just thinking about that just if you could talk about how it kind of complement the portfolio as a whole and.
And of those high rise.
Up to 15 storey type windows would be kind of market margin accretive to the overall segment. Thank you.
Thank you, we're really excited about having prime windows join us and just kind of stepping back as we look at acquisitions as we've talked in the past you know they need to be strategic and accretive and.
And.
We're really looking at prime windows as both of those what it did.
It filled a geographic void that we had so that was that was awesome and the Colorado and Washington area.
And the end use markets is very dealer focused which is a higher margin business for you.
And for Rob the Windows business and.
And also gave us a little bit of additional capacity, which with which we do need as well as talent. So we're really excited about having that and that 15 stories is something that we haven't had the product offering to do that so we're going to learn from that there could be some some other opportunities for us but we.
Think that the prime windows. It really it's important it's an important component of our growth strategy.
Really our whole M&A strategy strategy is really to lead the consolidation and key product categories, and and really and fragmented markets and we think we have some some additional opportunities is because we look at the market. So.
Really what it what it does is it fills a geographic void.
Puts us in a market that we have not been in and it's accretive to the overall not only portfolio of the window business, but accretive to the company.
Other exciting thanks for taking the questions.
Thank you.
Next question comes from Kurt Yinger with D. A davidson.
Thank you and good morning, everyone.
Good morning, Kurt.
And just start with kind of competitive dynamics from the residential side and one of your larger peers and windows talked about taking share with the ability to cut down lead times, but.
Look at your growth it would suggest.
Doing the same so I was hoping you could talk about where lead times stand and windows today, and whether you feel like you've been a share gainer against smaller competitors across your footprint and and what you might attribute that to.
And I'll take that that's a great question and we're really we're really focused on really knocking down our backlog and and reducing our lead times our lead times on windows are probably two to three times.
Longer than normal times, we're very focused as we've said are putting in additional capacity with the Sacramento, California, as we mentioned with additional capacity and Sacramento and the growth of.
Our automation projects that we put in place last year are really helped us with the increase and the first quarter.
Typically when we put it in automation of our 500 series line and to increase capacity anywhere from 10% to 30%. So we're really excited about.
Growing our business, we want to work our backlog down we are not where we should be on lead times, but we feel that we are growing our share with with strategic customers because of our.
Lead times in relation to the rest of the industry. So.
And we're working as we said from a from a labor standpoint. This is not a machine time issue we have the the appropriate.
<unk> capacity there it really gets down to a labor and we're very focused on bringing in additional labor, but more importantly is bringing in additional automation projects. So we can continue to grow our business and outperformed the market and.
And Kurt maybe just to add onto that a little bit as well as we think about our our residential business and I don't know, which competitor you're referring to but as we think about our residential business our volumes and the first quarter grew 16% on a year over year basis, and we feel good about debt right. The like Jim said the capacity that we put in place the efforts that we.
We've put in labor inside of our businesses inside the second half of 2020 enabled us to really.
To get that type of performance of 16% volumes inside the first quarter. So we think we've got great momentum there and we feel like we're going to continue to.
And put emphasis emphasis around some of the things that debt and inhibit us from continuing to get more of debt and as you look at the guide for second quarter, we've guided our residential businesses to be up and around that 20% range and so it's it's showing momentum that we have and we feel that we're where we are.
Doing well when we look at our market presence.
Got it.
And maybe.
Sticking with that point and.
And just putting a little more color on it I mean, if we think about the automation projects, but also the challenges on the labor side.
The windows compare on a year over year basis gets easier in Q2 do you think you can I guess sequentially improve.
Windows revenue as the year progresses.
Demands there or do you feel like you know as.
And we get into the back half you're still going to be pretty tight on what you can do in terms of continuing to grow that.
Yeah, and Curt Let me, let me start that question. So again as we as we look at specifically our Windows segment.
We were up 15% and volume inside the first quarter, we didn't necessarily breakout our guide by segment, but we are up and as I look at the second quarter, It's north of 20% that we're expecting right now inside of our Windows segment. So we do expect that we're going to have momentum inside that business, we've been gaining momentum.
Since the July timeframe of 2020 as we're adding different people into our workforce, we're learning and become more efficient and in some cases, we're paying for extra dollars from overtime etcetera to make sure that we get those shipments out. So we do feel good about it we think that the first quarter results demonstrate our ability to get there.
Revenue up and we continue to see that increasing into the second quarter with our guide that we put in place.
Got it Okay. That's helpful and then on the siding side I mean.
And you've talked about how you feel you're one of the only vinyl players and that's really investing back into the business I mean, how would you kind of characterize your performance here and <unk>.
Q1 versus the rest of the market and and what are you.
Most focused on in terms of potentially growing your share of the vinyl and pie going forward.
And where we're really excited about is our siding business as you can see the results are extremely strong and and they had a we had a record year last year and continue to have record performance, but it's not only investing and the plants, we are continuing to invest and in our siding plants as well and extruders.
But it's also having the good better best portfolio of the luxury vinyl siding.
Side of our business we were really.
We're really happy with the production of.
And the manufacturing team, it's a continuous it's a continuous process manufacturing is very different and windows and we've aligned scheduling we have longer runs so we've been able to ship more and have.
Service, our lead times are longer than anticipated I mean, we're having some we have a strong demand as we talked about but we feel that we are the service provider provider in the industry, it's not where we want to be but we feel that we are servicing our customers.
In a manner with not only.
Get in and when they need it and how much they need it but more importantly is providing a different product portfolios for them, So as Jeff mentioned and.
And our prepared comments, we're investing and new product development, we have some some test markets going on right now and we feel that not only investing back in the plants, but investing in marketing customer portals are e-commerce, and and really from a marketing standpoint, it isn't just how.
The product looks but it's also what we provide to our customers to we want to be the easiest siding business to do business with.
And Curt just a couple a couple of numbers around that as well and you can see inside of slide eight as we looked at our siding segment, specifically, a 19% growth came from volume and we felt good about our ability to get debt volume out and momentum inside that business as well as we added.
Capacity from a labor perspective to make sure that we met the demand inside of Q1 and as as we look at the EBITDA one of the things that's really impressive with debt businesses day volume leverage that we're getting there 260 basis point margin expansion.
Gross profit margins were actually down slightly with some other pressures on price and the inflation inside that business in particular, and some of the inefficiencies and take care of our customers with overtime et cetera, but we're able to take out some of the SG&A costs as well to really mitigate some of that so we did see that volume.
Bridge.
And bind with some of the cost out initiatives drove favorable performance for our siding segment.
Okay.
That's really helpful and.
And just my last one on the commercial Simon could you just talk about which and market segments Youre really seeing improved momentum in and and then you know as you.
You talk about.
The views debt.
Customers are trying to get ahead of steel price increases what would you need to seed and grow more comfortable that this pickup and demand.
Demand, you're seeing is really kind of sustainable versus more transitory and price related.
And really the and the end use markets that we're seeing and or I think we've talked about it and the last couple of calls a warehouse and data centers, we're starting to see a little bit of retail coming back, but those are really the key areas the big the big Mega warehouses.
And that are that are supply and a lot of the amazons type of thing.
And.
We're also we also look at the.
Fallout rate of orders so to make sure that our these rural orders. So we track the order fallout rate, particularly on the longer lead time. The components business is much easier to track because that is lead times of one to three weeks, where building is really the trickier one to two really.
And to really identify what is what is a pull forward and what is true demand. We also look at.
Complexity of jobs that come in.
Are they higher complexity jobs or or or lower complexity jobs and do they require engineering. What we're seeing now is a lot of orders that are coming in that customers don't want a lot of engineering. They just want to produce it and get the order in which.
Which tells me that Theyre trying to beat the increase so we there's a three or four metrics. We look to see how much is true demand versus pull forward and and right. Now there is some pull forward, but we were looking at the leading indicators coming back to the architectural index are.
We truly believe historically that.
The light commercial five stories or blow does follow residential by that 18 or 24 months and.
And really that is one of the keys, we look at so youre looking at where residential really started too.
Get strong we're looking at the back half of this year into 2020, two and with that lag effect of light commercial and go into the suburbs following the residential construction.
Alright, well I appreciate all the color guys and I'll turn it over.
Once again to ask a question. Please press star one on your telephone Keypad next question comes from Matthew Bouley with Barclays.
Thanks for taking the questions.
Back to the price cost side are you seeing that inflation and and the shortages and PVC and aluminum and steel et cetera are they outright continuing to worsen.
Today, such that you know future price increases may still be necessary set so we're not kind of and the same boat with with gross margin pressures and the second half or does it appear that these issues have kind of stabilized.
At high levels and pricing just needs to catch up that day one.
It's really a tale of two stories here first on the PVC resin that had a big impact with those storms that we mentioned that.
Really impacted the Texas, the south and southeast market with a lot of our suppliers. So we feel that is working its way out.
So we believe that's probably a second quarter.
Issue that will be going away and don't see that going from a shortage standpoint into the back half of the year.
The one thing that is a really strategic advantage that cornerstone has is our scale and we talk about our procurement, we have subject matter experts and PVC resin and aluminum steel that are very close to our suppliers with our large scale. We we we get.
We get treated and extremely well on steel we follow the index.
As Jeff said it really you know we're looking at steel costs will continue to go to increase but we're very we look at that leading indicators there and stay ahead of stay ahead of our cost with our price strategy. So we feel that steel is going to be continued to be a continue to escalate as we go through the year.
And we think from a shortage standpoint, there's the PVC resin is something that is more short term.
Got it okay very helpful color and thanks for going across all other.
The product categories there.
So and then back on the metal buildings side, just in light of the steel inflation and I mean that is.
Interesting commentary that you know the inflation is actually pulling ahead. Some volume from from your perspective can you tell from your customers, if theres any areas or products.
Within the commercial business for that inflation that is actually causing customers to shop on the other hand holds back weighted.
Awaiting normalization and prices or perhaps finding other.
Substitutes from their perspective, thank you.
You know, we saw a little bit of that and the fourth quarter, but right now the big the Big question and our customers have is do you have the product and can you supply at the price has become secondary and our conversations and they're really right now, particularly on the building side are really planning for the third and fourth quarter. So.
They're laying in their orders now were started and engineering now so we haven't had discussions with alternative.
Raw materials.
Reals, particularly with the earlier question on everyone knows where lumber prices are so.
That has not been an issue and and we feel that right.
Right now there could be some pull forward. So we are cautiously optimistic, but we're and we're in a better spot and on the commercial business and we've been and probably a year or so and then with the leading indicators of the architectural index and and what we what I just mentioned about following the residential we think the back half of the year.
Should be.
A fairly solid market for the other metal buildings business again, the components business, that's a fast turning business.
We are extremely busy there we are.
Prices are ahead of inflation on our components business and.
And we have not had any pushback from our customers about alternative sources from our components business as well.
So it makes sense that that's that's great color and then the last one just back on the Prime Windows acquisition and.
Any color you can give on the multiple pre and post synergies et cetera, and the higher level question is just how do you think about the balance of continuing to do M&A versus delevering. Thank you.
Matt Let me, let me take that question.
So prime is as Jim mentioned very strategic for us geographically and also from the capabilities.
And that we pick up with that business from a from a revenue perspective, we mentioned that it's about 61 $60 million roughly inside of revenue for 2020 and we think that you know as a company, we really look for acquisitions debt.
And our margin accretive and as we look at this business debt. That's the case here as well and so without specifically getting into the details around purchase price for the multiples that are there you know we bought a business that is margin accretive to cornerstone as we get the synergies and place and we we continue to attack debt.
With our scale and size and and platform that we have within within cornerstone and we've proven that with some of the other acquisitions that we put in place with silver line et cetera. We think we can we can take that business to make it.
You know a very attractive business for us with with our efficiencies that we've put in place. So again it is margin accretive and the revenue that we mentioned was about $60 million and they'll there'll be more details coming out. This is a subsequent event.
Since the Q1 timeframe and so as we get into Q2 will be we will be providing more details around the cash flow statement et cetera for this acquisition.
And just to reiterate on our capital allocation you know first we want to reinvest and automation and back into the plants, we've talked about that and how important automation is and really taking care of our customers and getting that additional capacity out.
Second is what we'd Jeff just talked about it's M&A, but as organic growth to its investing in new products were talked about and invest in the siding business that luxury luxury vinyl siding and really the good better best scenario of having organic growth.
And but third and and really important we have not given up our focus on delevering the balance sheet.
And our target and it continues to be two to two and a half times. We've made nice progress as we indicated and the call here, but we arent, where we should be yet.
But we said three quarters to a turn.
Our target each year and so really those are the three the three key areas.
Our capital allocation that we have talked about and we will continue to be focused on and as we've done and the pass we planned it to deliver what we say.
And Matt just one follow up to Jim as well on that one if you look at slide 10, and our leverage ratio projections and at the time, we put this together, we obviously knew about the prime acquisition, but you know we finished the first quarter at four six times and our guide out there has this right now at a range between three nine times.
And for one time, so we will continue to take down that leverage ratio, we've been successful with debt.
From six three I think it was at the first quarter of 22019.
And right after the SW acquisition down to five three and 2019 for 0.9 times and projected right now to do that three nine to four one so making great progress against that and feel good about our ability to to meet debt commitment that we've made.
Great No that's really helpful detail. Thank you, Jeff and thank you Jim and.
Good luck in the quarter.
Thank you.
Next question comes from Kurt Yinger with D. A davidson.
Thanks for taking a couple of follow ups here.
And just on the commercial front I mean, it looked like.
And metal coil coating and and metal building products for actually varies fairly strong with.
And I M P.
And quite a bit weaker is there anything to call out there in terms of the divergence or why the recovery would be maybe different among those product lines.
Yeah, let me.
And so that's a great question as you know we have.
The commercial business has the buildings business components business and the other.
And I M P and coil coating the.
If you go back a year ago from an architectural standpoint, a lot of those jobs were stopped and.
Right now, we're starting to see some some growth our backlog and I M. P is very very strong.
And really that was the business that was impacted the most with COVID-19, you look at.
The.
We have a phone supply issue that's one of the areas in the quarter, we talked about some other supply.
Issues that we had with the storm and that impacted us the eye and P business and the quarter, but that's temporary and that that'll be going away. So it's a great. It's a great product. It takes out a lot of labor, it's a <unk>.
Higher and product and we think with the some of the the architectural information that we said on leading indicators that we're very optimistic about the growth of that business. The coil coating business, where it's a it's a great business they've done a nice job and in this tough environment they've.
They've had multiple price increases sometimes and.
And in some cases weekly price increases and and that businesses are extremely important part of our portfolio.
Okay got it and then.
And just to to partner on debt and interest expense.
As we look ahead and think about using.
And cash to repay debt.
Priority be there chipping away at the term loan and then just second on interest and are realizing there may be some cash flowing through that line and the second quarter with the note redemption. How would you have us think about run rate interest expense in the back half of the year.
Yeah Kurt.
Good question.
So as we as we look at pay down of debt. We will look at debt is as the time comes around for that and to determine whether it's best to pay down the term loan or the <unk>.
Six and a quarter notes there are six and and eight notes that are out there today and.
And we'll make that decision at the time when it's strategic to make sure that we're focused on long term and short term and expectations that are out there.
Specifically on the interest expense you're right. We did have a about $26 million a redemption premium that we pay did to pay off the $645 million, 8% senior notes and.
And that that does go away. So that's a that's going to be a Q2 expense. That's in there and then as we move into the year. We've guided right now about $200 million worth of interest expense for the full year as we move into 'twenty 'twenty. One we would expect excuse me 2022, we would expect that to improve again.
And as we don't have debt debt redemption payment and sitting inside of the second quarter and it's right now about $175 million and 170 $175 million worth of interest expense and anticipate for 2020 two.
Got it okay Super helpful.
Thanks, guys and good luck here in Q2.
Thank you.
And at this time I will turn the call over to MS basket for closing remarks.
Thanks again for joining our call. This morning, we are very excited about our outlook I look forward to connecting with you. After the call. If you have additional questions have a great day. This concludes our call.
This concludes today's conference call you may now disconnect.
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