Q4 2021 CSW Industrials Inc Earnings Call
Yes.
Greetings and welcome to the R. W. Industrials, Inc. Fiscal fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press star zero on your telephone keypad.
<unk>.
As a reminder, this conference is being recorded I would now like to turn this conference over to your host Adrianne Griffin Vice President of Investor Relations. Thank you you may begin.
Thank you Laura good morning, everyone and welcome to CSW Industrials fiscal fourth quarter 'twenty 'twenty 1 earnings call.
Joining me today are Joseph Armes, Chairman and Executive Officer, and President of CSW, Industrials, and James Perry Executive Vice President and Chief Financial Officer.
We issued our earnings release presentation and form 10-K prior to the market's opening today and all are available on the investor portion of our website at Www Dot CSW industrials Dot Com. This call is being webcast and information on how to access. The replay is included in the earnings release.
During this call we will be making forward looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties actual results could materially differ because of factors discussed today in our earnings release and in the comments made during this call as well as the risk factors.
Identified in our annual report on form 10-K, and other filings with the SEC, we do not undertake any duty to update any forward looking statements I will now turn the call over to Joe Armes.
Thank you Adrian and good morning, and thank you for joining our fiscal fourth quarter conference call.
Last April amidst a difficult and highly uncertain macroeconomic backdrop, we articulated for guiding objectives, which included treating our employees well serving our customers well.
Effectively managing our supply chain and thus positioning the company for sustainable long term success.
With these in mind, we began fiscal 2021, well positioned to successfully navigate near term uncertainty with a clear objective of emerging as an even stronger company.
Day I'm pleased to announce that in fiscal 2021 by many measures our team delivered CSW is best ever year.
Our achievements were enabled by the strength of our diversified business model and resulted from our team's tireless work and dedication coupled with strategic disciplined allocation of capital.
During the last year, we executed on all aspects of our capital allocation strategy, including inorganic investments via the acquisition of true error.
And the formation of the Whitmore shell joint venture.
The return of $15.4 million to shareholders through share repurchases and dividend and.
On an $8.8.8 million investment in organic growth capital expenditures. Additionally.
Additionally, we reported impressive fiscal fourth quarter and full year revenue growth.
Our record full year, adjusted EPS of $3.37, and.
And adjusted EBITDA of $91.6 million.
Okay.
Subsequent to the fiscal year, and we increased our quarterly cash dividend by 11, 1% to <unk> 15 per share, indicating confidence in our fiscal 2022 outlook.
Today, we announced the execution of a new 5 year $400 million revolving credit facility, providing $168 million of effective availability based upon the amount borrowed as of the fiscal year end.
Further strengthening our balance sheet and providing capital for future inorganic growth opportunities.
I will now turn the call over to James who will discuss our fourth quarter and full year results.
Thank you Joe good morning, everyone.
During the fiscal fourth quarter consolidated total revenue grew 35, 4% or $34.9 million to $133.4 million with $10.4 million of cumulative organic growth in our HVAC, our plumbing mining and energy end markets and $29.4 million.
Contributed by the true our acquisition offset by cumulative sales declines of $4.9 million across the general industrial architecturally specified building products and rail end markets.
And ongoing delaying capital investing some of our end use customers impacted the general industrial end market and the slow recovery in rail resulted in revenue declines as compared to the prior year period.
However, sales into the general industrial and rail end markets during the fourth quarter were flat to our fiscal third quarter.
In the fourth quarter, we achieved a record sales into the HVAC are on plumbing end markets validation of our ongoing strategy to acquire and develop niche products subcategories, which when paired with our powerful go to market distribution platform creates the opportunity for outsized category growth.
We continue to generate significant market on wallet share growth for products that serve the mini split HVAC and condensation management subcategories, most recently, adding grills registers and diffusers to the product portfolio.
The integration of true Air continues in line with and in many ways exceeding our expectations.
<unk> continues to deliver the outstanding service to which customers are accustomed.
Impressively many of the back office functions are well into or have completed integration and product cross selling is generating initial share of wallet gains.
In the upcoming phases of integration, we will seek opportunities such as co locating products on warehouses to serve customers through expedient shipping.
Maximizing the potential of our extensive distribution channels and deploying our ERP system.
Okay.
The industrial products segment deliver fiscal fourth quarter revenue of $96.9 million or 61% increase over the prior year period of which 12% was organic adjusted.
Adjusted for true Air transaction expenses of $800000.
And amortization on acquired true air inventory driven by the effect of purchase accounting.
The segment adjusted operating income and operating income margin for $24 million and 21, 1% respectively.
As compared to the prior year period of $13.6 million and 22, 7% respectively.
These results were driven by organic sales into the HVAC R. N a S BP and markets as well as the inorganic revenue contribution from true here.
The specialty chemical segment realized fiscal fourth quarter revenue of $36.5 million compared to $38.4 million on the prior year period.
Adjusted segment operating income and adjusted segment operating income margin were $5.3 million and 14, 7%, respectively as compared to the prior year period of $6.5 million and 16, 8% respectively.
Our consolidated profitability metrics remained solid with consolidated gross profit margin of 45% compared to 45, 4% in the prior year period.
With the decline primarily related to the effect of purchase accounting as well as freight and transportation cost increases that accelerated more rapidly than we were able to pass on cost inflation to the market.
Adjusted to exclude the aforementioned purchase accounting effect gross margin was 42, 7% in the fourth fiscal quarter.
Gross margin is expected to improve in near term quarters as the benefits of recent price increases are realized and as the remaining excess inventory valuation gets fully amortized as the acquired through our inventory converts to revenue.
Through fiscal 'twenty 'twenty, 1 year in this amortization has been recognized at a run rate of approximately $1 million per month pre tax and we currently expect the balance of the amortization to roll off during our fiscal second quarter 2022.
Our adjusted operating income increased by 36, 8% to $22.3 million.
Getting to an adjusted operating income margin of 16, 7% as compared to 16, 5% in the prior year period.
Fiscal fourth quarter, adjusted EBITDA increased by over 50% to $30.9 million from $25 million from the prior year period.
The adjusted EBITDA margin was 23, 1% and 28% in the current and prior year periods respectively.
GAAP net income from continuing operations in the current quarter was $9.6 million for 61 cents per diluted share compared to $13.4 million or 88 cents per diluted share in the prior year period.
After adjusting both quarters to exclude items already mentioned.
Adjusted net income from continuing operations for the current quarter was $13.8 million or 88 cents per diluted share compared to adjusted net income from continuing operations of $12.5 million or 83 cents per diluted share in the prior year period.
Both the GAAP and adjusted net income include the expense from the incremental amortization of intangible assets, resulting from the true Air acquisition.
Turning now to our fiscal full year results, we achieved an 8.6% increase in revenue to $419.2 million compared to $385.9 million in the prior year.
Organic sales were approximately flat to fiscal 2020 with inorganic contributions from true Eric comprising over $33 million of sales in the first 14 weeks of our ownership.
In the current year, we reported a 13, 2% increase in adjusted EBITDA to $91.6 million equating to an adjusted EBITDA margin of 21, 8% as compared to $89 million of adjusted EBITDA and 21% margin in the prior year period.
These results translated into record adjusted EPS of $3.37, compared to $3.20 in the prior year period.
The industrial products segment delivered fiscal year in revenue of $289.4 million, 23% higher than the prior year as excellent execution and product demand drove 18% organic growth in the HVA see our end market.
Ongoing project completion, plus acceleration of projects in the ASB Peep.
Backlog resulted in a 5.9% organic growth and.
In true Eric contributed $33.8 million of inorganic sales.
This growth was partially offset by other end market served.
Segment, adjusted operating income and adjusted operating income margin were $66.4 million and 22, 9% respectively. After excluding the true air transaction expenses and the purchase accounting effect.
This compared favorably to adjusted operating income and operating income margin of $55.7 million and 23, 7% respectively in the prior year period.
Especially chemical segment realized revenue of $129.8 million in the fiscal year compared to $151 million from the prior year period adjusted.
Adjusted segment operating income was $29 million with adjustments related to the joint venture related transaction expenses.
<unk> and adjusted operating income margin of 16, 1%.
Compared to adjusted segment operating income of $24.9 million and adjusted operating income margin of 16, 5% in the prior year period.
The effective tax rate on continuing operations was 11, 7% for the quarter ended March 31.2021.
It was 21, 2% for the fiscal year.
Due to the release of a reserve for an uncertain tax position offset by increases related to non deductible transaction costs, both of which were associated with the true our acquisition.
For the prior year's fiscal fourth quarter and full year, the effective tax rates were 16, 7% and 22, 2% respectively.
The supply chain and logistics challenges, we have previously discussed have continued.
While we have stayed ahead of the supply chain constraints, we've not been immune to the commodity price increases and in some cases are buying in advance to ensure we have a supply available to meet customer demands. We consider this a good investment of our capital.
We continue to see delays at many ports, which has in turn driven up cost for transportation globally and has delayed delivery times.
We've also seen supply shortages within the chemical industry due to the freeze a few months ago right here in Texas.
While we have a history of success in passing along price increases in recent months the trajectory of pricing has exceeded normal cost inflation and has contributed to margin degradation.
To address the incremental rising cost in all of our end markets, we have announced and implemented price increases and even multiple price increases in select end markets. We will continue to be proactive on pricing as the year progresses, and we will implement further price increases as necessary.
Transitioning to the strength of our balance sheet as of quarter end, our pro forma leverage was approximately 1.9 times well within our stated range of 1 to 3 times.
As Joe mentioned today, we announced the execution of a new 5 year $400 million revolving credit facility, providing $178 million of effective liquidity based upon cash on hand, plus the borrowed amount as a fiscal year and further strengthening our balance sheet and provide capital for future inorganic growth.
Opportunities.
We ended fiscal year, 'twenty, 'twenty, 1 with $10.1 million of cash and maintained our durable cash flow from operations of approximately $66.3 million for the year inclusive of the transaction expense as previously discussed.
These metrics leaves us well positioned for the continued allocation of capital into strategic initiatives with that I'll now turn the call back to Jeff.
Great. Thanks James.
During the first few weeks of fiscal 2022, many of the positive trends we observed in the fiscal fourth quarter have continued with encouraging signs across the end markets we serve.
Demand in the HVA C R and plumbing end markets for both our newly acquired and our legacy products remains extremely strong.
This market strength is supported by reports of robust sell through in our distribution channels.
During fiscal 2022, our architecturally specified building products end market.
Could experience some weakness as a result of the decline in new project bookings during fiscal 2021.
Early in fiscal 2022, we see multiple signs of health for this end market, including a trailing 8 quarter book to bill ratio of nearly 1 to 1 as of the end of the fiscal year.
And year to date bidding activity at the highest levels, we've seen since our fiscal year 2020.
Many of these recent bookings are projects that are 1 to 2 years from initiation.
While the backlog is regaining its growth trajectory. These bookings are expected to translate into revenue in fiscal first quarter of 2000.
'twenty 3.
To achieve these incremental bookings our team has taken multiple proactive steps such as adding sales professionals in targeted markets developing new products aimed at taking market share on completing an extremely capital efficient expansion of manufacturing capability within an existing facility here.
In Texas.
Rounding out our end market discussion general industrial energy mining and rail end markets are returning to growth.
Any infrastructure spending will likely be accretive to these end markets, along with strength and macroeconomic indicators such as rig count consumer demand.
Railcar traffic and GDP growth.
In summary organic growth.
Strong execution and the contribution from the true Air acquisition provide confidence for fiscal 2022.
In my opening remarks, I reiterated our fiscal 2021 guiding objectives, which will continue to service well into the 2022 fiscal year.
We remain committed to treating our employees well.
Through our decision to provide continued employment for full time employees during the past year. Despite the short term pandemic driven demand degradation in some of our end markets.
We have retained important institutional knowledge and experience.
Increased business continuity.
And bolstered employee retention.
Since our inception, we have provided a 6% match of employee contributions to our 401 K plants as well as an additional 7% to 11% of eligible comp each year through profit sharing benefit programs, including the company's employee stock ownership program.
This equates to 13% to 17% of an employee's annual eligible compensation that we invest in a safe secure and dignified retirement for our people.
By providing income certainty throughout the past year, we eliminated 1 source of vulnerability employees could have faced while contributing to the communities in which we all work and live.
Our second guiding objective is to serve our customers well, which we know drives positive long term relationships and organic growth.
In fiscal 2021, we decided to build incremental inventory for high demand products and specific raw materials and that has served us well.
Hence in fiscal 2022, we will continue to emphasize consistent availability and timely delivery of products.
We continue to hear anecdotes of certain companies not being able to achieve this and we are focused on driving market share gains by being the reliable source for customers.
We acknowledged that external factors, such as supply chain disruptions and various cost pressures could moderate the positive impact of otherwise continuing improvement in market conditions.
Our third guiding objective keeps us focused focused on the ongoing need to manage our supply chain as well as we are certainly not immune to the global trends of rising prices for certain raw materials finished goods and for transportation.
The strength of our balance sheet enables us to strategically anticipate supply chain disruptions on raw material dislocation and to proactively address them.
In conclusion, the company remains well positioned for sustainable long term success.
As a result of our outstanding fiscal 2021, our 6 year total compound annual revenue growth rate.
It was 9.4% with organic growth of 5.8%.
This impressive growth is a result of our prudent capital allocation across 6 acquisitions totaling $465 million in aggregate investment in.
In addition to enhanced by approximately $100 million of cash returned to shareholders since fiscal third quarter 2018.
All while concurrently maintaining a strong balance sheet and liquidity position.
I'm pleased to share that our total shareholder return since we began.
<unk> way public trading in October 2015 is over 330% versus the Russell 2000, and <unk> of approximately 115% over the same period.
While macroeconomic uncertainty persists, we remain focused on continuing to drive growth in excess of the end markets we serve as.
As well as building on favorable market trends and delivering for customers and shareholders.
In summary, CSW I reported our best ever fiscal year as our team delivered tremendous financial performance through disciplined strategic execution.
But that's not the only way we measure success because at CSW I, how we succeed matters.
We're also extremely proud of the way our team demonstrated steady leadership.
Informed by our guiding objectives, and ultimately underscoring the strength of our culture.
We remained well positioned to deliver another year of compelling growth focused on delivering long term shareholder value as well as evaluating opportunities for acquisition growth in the end markets that we currently serve.
And as always I'd like to close by thanking all of our colleagues here at CSW, who collectively own approximately 6% of CSW I through our employee stock ownership plan as.
As well as all of our shareholders for your continued interest in and support of our company.
With that operator, we're ready to take questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star 2 channel of your questions on the queue for participants using speaker equipment, and maybe necessary for you to pick up your hand.
As said before pressing the star keys, 1 moment, while we poll for questions.
Our first question comes from the line of Chris Howe with Barrington. You May proceed with your question.
Good morning, everyone. Thanks for taking my questions on what a terrific year. It is good.
For the share price.
Thank you Chris.
Yeah.
Going through some of my notes here.
You mentioned some of the initiatives that you have moving toward with the true air integration.
Co location of product warehouses.
Some work on the distribution channels to optimize that beyond where they are today, then you have an ERP system.
You certainly have a strong balance sheet and you mentioned, the new 5 year $400 million revolving credit facility.
Can you talk about true Air Inc.
Kind of what Youre seeing in the competitive landscape in this supply chain pressured environments and some of the other challenges that this.
Macro economic landscape presents.
And how this may offer some opportunity for true error.
To flex some of its competitive advantage versus.
Some of its direct competition.
Yes, Chris This is Joe Thanks for the question Yeah, we're really pleased with the.
The true air business and the integration thus far.
2 things that we have said about <unk> in the past, which are really helping us at this point once as they are fantastic reputation for customer service and so.
Being able to continue to deliver on that and the stress times I think really makes us a reliable supplier of choice for our customers and we're seeing that.
Benefit us greatly.
Secondly, I think we've made mention of the fact that true are held.
<unk>.
Ample amount of inventory and so that has been timely and so we've.
We've been able to continue to supply to our customers.
And our team is just doing a phenomenal job of dealing with all the logistical.
Hurdles that.
We face and at this point, we're very pleased with our delivery with our customer service and with our ability to get product to our customers and I do think over time.
That will absolutely.
Near to our benefit and the benefit of our customers.
That's great very helpful and 1 follow up on that as we think about the balance sheet in this new revolving credit facility.
As we look at the business from an organic investment perspective, and also from an inorganic investment perspective.
In the different attractive end markets that we have such as HVAC and.
In plumbing.
Okay.
How should we think about.
Capital allocation.
Within some of these end markets from an inorganic perspective, it is theres something of the size.
That would make you.
You have to consider.
Other things.
While also balancing.
Balancing.
Where you are so that you can have the flexibility to adapt to this changing environment.
Well I'll address that strategically then James can address it from a balance sheet standpoint, but I listen we don't want to take anything off the table from a standpoint of opportunities as you know we have a pretty disciplined approach with respect to risk adjusted return analysis of any opportunity that we see and so whether that would be.
Organic or inorganic we do believe that the organic growth opportunities are going to be lower risk oftentimes and therefore.
The hurdle rate on those will be lower than the inorganic opportunities, but there's no question that.
The strong cash flow that this business generates the.
On the lack of capital intensity.
And this new credit facility, all combined gives us a lot of dry powder.
And so I think that.
We view that as a strategic.
On the advantage.
And as we said last quarter the phone rings more now than it did before true here and so I think we're seeing opportunities, although we might not have seen before.
On a sale of that to say there is there is a lot of opportunity in front of US we are continuing to digest true error, and we're going to be prudent discipline in everything we do we're not ready for another career size deal today, but but it won't be too long before we're going to be in a position to.
On to consider those options again, I think we've got the balance sheet and the cash flow.
And the team in place.
Do something like that yes, I would just add Chris. This is James Good morning. Appreciate you acknowledging the credit facility Adrian and the team did a great job with that it really gives us a lot of flexibility.
If the capital markets are choppy at any given time, we have that that came.
To our benefit and when we acquired true are able to do that very quickly without needing to hit the capital markets and what might've been a volatile time, Inc.
The calendar fourth quarter of last year, you know from an organic perspective, the balance sheet gives us a lot of strength, we don't invest a lot of organic capital we have capacity on our facility. So we don't necessarily need to build a new facility to grow which is great. We've been able to find very creative capital efficient transactions like the JV with shell, which was very strategic.
<unk> important to us minimal capital from our perspective now as that grows we can put some capital in but we have plenty of room in that facility here east of Dallas right now that we can grow into which really helps those gross margins potentially in that business as that shell business grows.
That got done April 1 and is starting to do business, which is great from an inorganic perspective, I think Joe hit it we've had true here for 5 months now.
There's a lot of integration still going on when we made that acquisition. We said very clearly that we weren't baking in a lot of cost synergies I think we're going to find them, but we didn't necessarily bake that into our risk adjusted returns analysis and we're seeing the revenue synergies. So as we talked about some cross selling of product picks up more wallet share.
They have 5 distribution centers with true air our Rectocele business as a couple of locations 1 of 1 of those overlap in the same geographic area or the others. We can start utilizing which is great and as we get the ERP system implemented in directors into true here I apologize and get that more connected with rector seal, which is going to be a pretty big.
The team's working on that planning right now that's going to even further enhance our ability to really share 1 product portfolio with rectocele untrue here. So a lot of opportunity as Joe said, we would I'll tell you we're ready for the next opportunity and we see a lot of opportunities none of us are going to say, we're too busy or something's too big but we're gonna be sure we have the resources.
And I feel confident we have the balance sheet to look at anything that comes our way.
That's fantastic color and just 1 last quick 1 on your last comment about the ERP system is there.
Roughly right expectation for <unk>.
When we should expect the ERP system integration to be completed.
I wouldn't say, we have that yet we're truly in the planning phase we spent kind of the first quarter of true were getting fully integrated.
And as you may recall, we just flip the switch on the Rectocele ERP back in November. So we kind of made sure that we're walking before we started running that system is running very well. The team has had very good success. As you saw the results in the fiscal fourth quarter that was helped by the ERP system really running smoothly and <unk>.
Well the demand has been strong.
So we had to be sure we had that in good shape, you don't want to start a new system before you showed the 1 before you've kind of worked out the kinks and learn from what you can do better. The team has done that we're literally in the planning phase now the team's been visiting each other and it's an integrated team truly a reports up through retro sales. So it's very well integrated so we've got folks that are on that project.
Right now so we're in the planning phase, we will start that in the coming months, how long that takes to finish we'll see you really do it site by site to kind of Peel back the curtain a little bit and with 5 distribution centers here in the U S. You've kind of got to be very strategic about how you do that so we're going to take our time and get it right. It's not stopping us from increasing that wallet share market share by any mean.
But it'll be enhanced in the back office by being able to connect those systems as we get that done. So we will provide updates as we go along but we're a little ways from being able to give you an end date right now.
Okay, great. Thanks for taking my questions. Thank you Chris Chris.
Yeah.
Our next question comes from the line of John Chang Hwan Cheng with CGS Securities. You May proceed with your question.
Hey, good morning, everyone. Thank you for taking my questions on very nice quarter.
My first job.
How are you doing my first 1.
Just on the gross margin that you're expecting in.
The June quarter I think.
You might have mentioned that they would increase sequentially. I'm wondering is that just a normal seasonal increase that youre seeing or is there something more to it compared to what you would see.
In a normal season.
Other than or less than.
That historical CAGR.
Yeah, John I'll point to 2 things first of all you always have some seasonality and that just gets started in the fiscal fourth quarter fiscal first quarter. The HVAC business is really ramping up and that's where our higher margin products are so yes. There is some seasonality there the comment we made about the opportunity for that to improve in near term quarters I'd say, it's too.
Fold number 1 is we mentioned the cost increases on the logistics side, primarily and to some degree on the commodity side came pretty quick in Q4, you can't open the paper without seeing that our team has done a great job getting shipping containers getting our product in getting the raw materials, but those cost increases have been pretty quick and we got price increases.
In but there was a bit of a lag. So you had a little bit of pressure on that in the fiscal fourth quarter across most of our end markets. The team has done a great job getting price increases in even more than 1 in some end markets and getting those in very quickly the market has absorbed that on.
There could be more if costs continue to increase so I think now pricing is keeping up with cost, whereas there was a lag before and we always are first focused on protecting our margin dollars. So I think we've done a good job of that and then we're looking to protect the margin of course and even improving on the margin. So as we can catch up as we have on the price increases.
And as we can continue to manage costs I think we have opportunity for the gross margin to come up that's the second piece on top of seasonality. The third thing I'll mention on want to point out and I'm sure you noticed we've put some outlook in the bag to really point out some kind of unusual items that aren't as obvious on the face of the income statement 1 of those that affect gross margin. The other couple of more on the operating.
Income line gross margin is when we bought true air we had an inventory valuation step up through purchase accounting of about $8 million, that's being amortized at about a million dollars a month pre tax based on their normal inventory turns as you recall John they hold a lot of inventory, that's very strategic and we're happy for that but that's about a million a month so it.
About $3 million in the fourth quarter. It looks right now like that should run off call. It. The July August timeframe at a normal inventory turn rate. So we will still have that in the June quarter about that same run rate of $3 million pretax that should fade away in our fiscal second quarter somewhere in the middle It looks like right now for our math is right. So so that will leave.
We ate some margin pressure starting in our fiscal second quarter. So when we were affirmed in near term quarters. That's really looking out on that piece of second quarter and then it's completely gone we expect the third and fourth quarter and beyond we will still have on the operating expense line. If you don't mind me continuing the other piece of outlook. We provided we have some significant amortization about 14.
To $15 million a year that came in through the true acquisition that is being amortized. There was a lot of goodwill as you know there was a lot of the intangible valuation associated with customer list, which has a 15 year.
Depreciation so it's about $14.15 million, a year, which is 15 and 17 cents a quarter a lot of folks we've talked to I think haven't really seen that and pick that up we don't adjust for that because that's not 1 time, that's the long term now, but thats a headwind as well on the operating expense line to keep moving down the income statement I answered more than you asked but wanted to share to point that out.
No I appreciate the color that's all very helpful.
I was just trying to get a sense of also maybe as you look at the rest of the year compared to where you were standing in January.
You said you manage your gross profit dollars.
As opposed to the margin percentage I'm wondering do you see that with the stronger demand versus the installation Europe. Your profits will be on an absolute level would be better this year than maybe you thought that would've been in January.
I'll tell you I'll say this I'll say pricing is certainly up so the top line I think is certainly up in terms of profit dollars I think it's a little early to say there were protecting the profit dollars I don't want them by the way to say, we're not always looking at margin as well, but we wanted to be sure. We protect that Bottomline first so I think it's a little early to say what.
We see there versus January there's been a lot in the last few months, but the inflation impact is certainly going to take the top line up versus where we thought it was and I guarantee that our business leaders and we are striving to be share the profit dollars match that as being better than we expected, but still a little early to tell as we see whether it's inflation levels out.
Okay fair enough.
Just on the architectural business I think you mentioned it would be a little bit weaker. This year is there any quarter that you can point to that would be the trough from a P&L level before these.
These projects that you're bidding on start start coming back in.
You know, it's hard to get that specific John It's a great question I think.
My first day as CFO was a year ago on the same call and I think we were already talking about that air pocket coming in the team did a great job with the leadership continuing to push which quarter that is out because they've done a good job finding projects, we do see the trough coming.
Is it this quarter or is it a quarter or 2 out it's hard to say as Joe mentioned in his remarks, we really see kind of at this time next year. We're on a lot of those projects that have been been bid and won lately are really coming in those often have 1 or 2 year lead times, so where the trough is which is still a very good business by the way, but where the trough is probably a little more precise than we could say, we obviously have some internal budgets that would tell us that.
But you know there's 3 businesses within that building products space and they each have a little different kind of backlog in a little different cycle. So we would say we're approaching that John I would say, but we would have told you. The same thing a couple of quarters ago on the team's done a nice job pushing that out.
John This is Joe I would tell you the long term outlook for that business. We're very bullish yes, we made a small incremental investment in.
On the capacity here and a pre existing location here just outside of Dallas and.
Added the ability to serve clients here in Texas in particular, but also west of here because you know our other 2 plants on.
This is in the the Greco business. The other 2 plants are in Florida, and Windsor, Ontario and to serve the Sunbelt West.
This incremental capacity here, we think is going to provide great opportunity to be close to high growth markets, like Austin, and Dallas and others and.
That's going to be organic growth opportunity for us, we're very bullish on that and we're willing to make that investment.
On our outlook.
Got it. Thank you 1 last 1 from me and I'll jump back in queue.
Just can you talk about the strength in HVAC on plumbing demand.
Given where we are between vaccination and work from home and housing shortage, how long do you see that tailwind continuing is it more of a secular thing or is it more.
The honest answer is we don't know for sure it feels more secular than the short term to us.
As we've always talked about the installed base matters.
<unk>.
We feel a really nice tailwind there and.
We don't we don't foresee this being any kind of short term phenomenon.
Ladies and gentlemen, we have reached yet on today's question and answer session I would like to turn this call back over to Mr. Joe Armes for closing remarks.