Q4 2021 GMS Inc Earnings Call
Greetings welcome to G. M S fourth quarter of fiscal 2020, 1 earnings conference call and webcast at.
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A question and answer session will follow the formal presentation.
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At this time I'll now turn the conference over to Leslie a quick Husky, what's Investor Relations Leslie you may now begin.
Thanks, Rob Good morning, and thank you for joining us for the Gms earnings conference call for the fourth quarter and full year of fiscal 2021 and.
In addition to the press release issued this morning, we've posted presentation slides to accompany this call in the investors section of our website at G. M S Dot com.
On today's call management's prepared remarks and answers to your questions may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995 forward looking statements address matters that are subject to risks and uncertainties many of which are beyond our control and may cause actual results to differ from those discussed today.
As a reminder of forward looking statements represent managements current estimates and expectations. The company assumes no obligation to update any forward looking statements in the future listeners are encouraged to review the more detailed discussions related to these forward looking statements contained in the company's filings with the SEC, including the risk factors section.
And in the company's 10-K and other periodic reports today's presentation also includes the discussion of certain non-GAAP measures. The definition and reconciliations of these non-GAAP measures are provided in the press release and presentation slides.
Note that references on this call to the fourth quarter and fiscal year 2021 relates to the quarter and year ended April 30 of 2021. Once we begin the question and answer session of the call in the interest of time, we kindly request that you limit yourself to 1 question and 1 follow up joining me today are John Turner, President and chief of.
Decorative officer, Scott Deakin, Chief Financial Officer, and Carey Phelps, Vice President of Investor Relations, who we recently welcomed to the company and its succeeding me upon my retirement the summer with that I'll turn the call over to J T J D.
Thank you Leslie.
Good morning, and thank you for joining us today.
I'd like to take a minute to recognize the outstanding contributions that Leslie has made the gms over the last several years.
Lastly, as lead our IR function with professionalism class and dignity and has advanced our relationships across the spectrum of the investment community.
She also has been a key member of our leadership team and has been a consistent source of common strength throughout the years and in particular, there's lots of pandemic year.
She has been instrumental in the development and execution of our strategic goals and I think we all recognize that our IR capability is light years ahead of where we were when she joined us.
Thank you Leslie all of Gms wishes, you well in retirement.
I am excited and out of welcome carry into our IR role and our team. We are very lucky to have found a capable of professional so familiar with our space and our investment community.
Yeah.
During this morning call I'll start with the review of our operating highlights and then turn it over to Scott, who will cover our financial results.
I'll then share some closing thoughts before taking your questions.
Starting on slide 3 we.
We delivered a strong finish to fiscal 2021 as evidenced by record levels of net sales net income and adjusted EBITDA of.
Our entire team continued to effectively navigate what remains a very dynamic operating landscape.
Through a sharp focus on execution, we successfully capitalized on opportunities created by strong residential market tailwind and robust demand in complementary products to deliver solid results for the quarter.
Even as we continue to face soft commercial market conditions supply constraints and inflation.
Despite these dynamics, our disciplined execution generated a 21% increase in net sales, including 17, 1% growth organically.
The benefits of continued cost discipline and favorable operating leverage enabled us to improve SG&A and adjusted SG&A as a percentage of sales for the fourth quarter in a row, while ensuring that we maintain the customer focus the continues to differentiate us in the market.
As a result, adjusted EBITDA increased 43, 5% and adjusted EBITDA margin Rose 160 basis points to 9.8%, we generated positive free cash flow of approximately 80% of adjusted EBITDA and maintained strong financial flexibility, which was further enhanced.
With a senior notes offering and term loan repricing during the quarter.
Our strong balance sheet and liquidity position enabled us to continue our focus drive for growth via both Greenfields and acquisitions, which was meaningfully demonstrated with the acquisition of D. All building materials in Canada, and 4 greenfield openings in the U S. During our fourth quarter.
In addition, after the conclusion of the fourth quarter, we entered into a definitive agreement to purchase Westside building material 1 of the nation's largest independent specialty interiors product distributors. This highly strategic well managed business will greatly enhance our footprint and provide another exceptionally strong brand offering in California.
While also affording us entry into the Las Vegas market.
Looking at slide 4.
For the full fiscal year 2021, we also generated record net sales net income and adjusted EBITDA.
Net sales increased 1.8% year over year to $3.3 billion, we realized a 6.5% year over year increase in adjusted EBITDA to $319.4 million and of 50 basis point improvement in adjusted EBITDA margin to 9.7% for the year, our disciplined adherence to the <unk>.
Alignment of our cost structure at the onset of COVID-19 enabled us to realize a 100 basis point improvement in adjusted SG&A as a percentage of sales.
We exited the year with substantial liquidity and our free cash flow generation of roughly 40% of adjusted EBITDA contributed to a net debt leverage at fiscal year end of 2.5 times the lowest level since our initial public offering 5 years ago.
I would like to share my appreciation for all of our teammates who met and overcame the numerous challenges presented by the COVID-19 pandemic throughout this past year Mike.
My congratulations and thanks go out to the entire Gms team, who made our fiscal 2021 results possible remaining engaged focused and proactive as we came together in support of our customers suppliers communities and each other.
At the same time I would like to extend our gratitude to our customers for entrusting their business to us and to our suppliers for their ongoing partnership as they have both face their own challenges and navigating the unprecedented circumstances throughout this period. We also express our thanks to our shareholders for their ongoing confidence and support.
With that I'll now turn it over to Scott to provide more perspective on our financial results for Q4 Scott.
Thanks, <unk> and good morning.
We're presenting our detailed results I will note that the comparisons.
Our fourth quarter of fiscal 2021 results from the prior year includes comparisons to March and April 2020.
These periods of featured widespread shutdowns and flow.
Arranging uncertainty, resulting in arguably the most difficult.
And drastically impacted months for us during the COVID-19 pandemic.
While these dynamics were considered in our previously communicated the fourth quarter outlook, and clearly had a favorable impact on our year over year growth rates. It was the outstanding execution by our team and their commitment to our customers the drove our outperformance.
Specifically looking at slide 5.
Net sales for the fourth quarter increased 29% to $932.2 million exceeding the outlook of low double digits provided on our Q3 earnings call.
These gains collectively resulted from strong residential end markets favorable pricing across product categories. The acquisition of <unk> building materials and other.
As noted COVID-19 related weakness during the prior year quarter.
From an end market perspective in the U S. For example, residential sales showed considerable strength and were up double digits on both higher volume and price.
While commercial sales, which have continued to be sluggish from a volume perspective, we were up mid single digits due the higher pricing and significant COVID-19 related volume weakness last year.
Excluding $15.8 million in acquisition related revenue in the $13.7 million of favorable favorable foreign currency translation.
Organic net sales increased 17, 1%.
As there was 1 more selling day in the fourth quarter of fiscal 2021 in the same period, a year ago net sales and organic net sales on a per day basis were up 19, 1% from 15, 3% respectively.
As I review products segment performance, it's important to note that for all products segments year over year sales were up as the result of both higher volumes and higher combined price and mix.
I'll also note that the impact of foreign currency translation has been excluded from the price mix component of the organic growth rates, we are providing.
Wallboard sales of $376.9 million increased 6.6% year over year.
On an organic basis net sales of wallboard were up 13, 3% comprised of of 9.8% volume increase and the 3.5% improvement in price of mix.
In light of our response to supplier pricing actions over the past several quarters, our average realized the wallboard price increase sequentially in each month of the quarter with the fourth quarter average of $329 per thousand square feet up 5.3% from the third quarter and up 6.8% from where we ended the.
The second quarter, which notably coincided with the first of the most recent series of supplier pricing actions back in October.
Ceiling sales of $121.3 million increased 9.1% or 7% on an organic basis due to a 1.8% volume increase from 5.2% and higher price and mix.
Steel framing sales of $143.3 million increased 24, 2% or 21, 4% on an organic basis.
As a result of 7% higher volumes from 14, 4% and higher price mix.
Reflecting the upward movement in commodity steel prices, our realized steel pricing increased 16, 8% sequentially from the third quarter with sequential increases in each month of the quarter.
Sales of complimentary products, which we formerly referred to as other products were $290.7 million, increasing 31, 4% year over year.
On an organic basis sales were up 25, 4% due to strong volume demand and pricing in multiple product categories, our execution of the strategic growth initiatives to increase complementary products sales.
<unk> strengthened our Canadian business for which complimentary products comprises a larger portion excuse me the larger proportion of sales.
Gross profit of $293.9 million increased 16, 8% compared to the fourth quarter of fiscal 2020.
As expected gross margin declined from 32, 6% of year ago to 31, 5% for the fourth quarter of fiscal 2021, primarily due to unfavorable product mix as total wallboard comprised of a lower percentage of our sales as compared to a year ago and within the wallboard segment residential from.
Apprised of greater percentage of our mix in.
In addition, we experienced the typical lag associated with passing through rapidly rising wallboard prices as we saw this quarter.
Turning to slide 6 adjusted SG&A expense as a percentage of net sales of 21, 9% from improved 260 basis points year over year.
Approximately 100 basis points of benefit was realized operationally from continued disciplined cost containment and productivity initiatives while.
While the remaining 160 basis points of improvement was the result of favorable leverage from higher pricing broadly across our product lines.
In summary of fourth quarter, adjusted EBITDA of $91.2 million increased 43, 5% from the prior year quarter, and adjusted EBITDA margin improved 160 basis points to 9.8%.
This represented an incremental adjusted EBITDA margin of 17%, which is in line with the higher end of the previously provided 10% to 20% outlook range.
Turning to slide 7 we generated free cash flow of $72.8 million or 80% of adjusted EBITDA in the fourth quarter. This was the decrease from the usual unusually high prior year quarter, principally due to the company's significant efforts to preserve liquidity at the end of fiscal 2020 in response to.
The COVID-19 pandemic as.
As well as proactive inventory build in this year's fourth quarter in advance of expected manufacturer price increases and to ensure product availability for our customers.
The increasing supply constraints.
As Jay indicated free cash flow from the full year fiscal 2021 came in at 40% of adjusted EBITDA, We maintain our through the cycle of objective of generating free cash flow of a range of 40% to 50% of adjusted EBITDA.
Capital expenditures totaled approximately $12 million and $30 million for the fourth quarter and full year fiscal 2021, respectively.
Looking forward, we currently expect cash capital expenditures to fall within a range of $30 million to $35 million in fiscal 2022.
Our strong free cash flow contributed to the reduction of our net debt leverage to 2.5 times at the end of the fiscal year from 2.9 times as of the end of the third quarter.
As of April 30, we had $167 million of cash on hand, and an additional $453.8 million available under our revolving credit facilities of <unk>.
Wording of ample resources for the ongoing pursuit of our strategic growth priorities.
Moving on to slide 8 I'd like to take a few moments to review of the debt transactions, we undertook during the fourth quarter to further optimize our already strong flexible capital structure.
In April we issued $350 million of 8 year senior unsecured notes bearing of 4 and 5 eighths annual coupon.
Proceeds of this issuance were used to repay a portion of the outstanding borrowings under our secured term loan facility, which as of April 30th had $509.7 million remaining outstanding.
Simultaneously, we amended our term loan facility to reduce the interest rate to LIBOR, plus 2.5%, representing a 25 basis point improvement.
The senior notes issuance enabled us to lock in attractive fixed rate unsecured debt for 8 years of lengthening of our weighted average debt maturity and it provides a more balanced term structure to our maturity ladders out to 2028.
This transaction also freed up additional secured term loan capacity for potential use from the future.
After giving effect to these transactions, we anticipate incurring approximately $55 million of interest expense.
Full year of 2022.
As the final note for modeling consideration, we anticipate the normalized cash tax rate of our calculation of the presentation of adjusted net income for fiscal 2022 to be in a range of 24% to 25% based unexpected business and income mix.
With that let me turn the call back over to G. T. Before we open the line for questions.
Thank you Scott.
If you turn to slide 9.
While our tactical execution in fiscal 2021 was necessarily focused on overcoming the unprecedented challenges of the COVID-19 pandemic.
Nonetheless remained relentlessly committed to our strategic growth priorities of expanding share in core products growing our complementary products offering platform expansion and improved productivity and profitability.
Our fiscal 2021 progress on these 4 initiatives is evident on several fronts.
First expanding share in core products, particularly in geographies, where we are underpenetrated.
Specifically, our actions, which were well underway prior to the pandemic to redeploy resources and increased penetration in residential construction in those geographies, where we traditionally had less exposure enabled us to generate higher wallboard volumes year over year and provided an offset to the continued softness in commercial construction.
In ceilings, we bolstered our distribution network throughout fiscal 2021, securing additional arrangements in several new markets, while strengthening existing arrangements and several others as such we believe we continued to expand share in both the mineral fiber and architectural specialty segments of the market as evidenced by our sales levels.
Compared to available market data.
Next to diversify and profitably expand our product offering we are focused on growing select complementary product opportunities outside of core products are multiple initiatives in both the U S and Canada are bearing fruit as evidenced by 10, 6% year over year growth in this segment in fiscal 2021.
With positive year over year growth 4 quarters in a row, despite the negative impacts of the COVID-19 pandemic.
Third we are expanding our platform through accretive acquisitions, and greenfield opportunities, while maintaining balanced progress in debt reduction.
During fiscal 2021, we opened 6 new Greenfield locations in the U S. We also acquired Dl building materials for approximately $40 million, providing entrance to the important Ottawa Gatineau market in Canada.
These moves enabled us to extend our geographic presence to 4 new and attractive markets, including our first location in the province of Quebec.
At the same time with the strength of our free cash flow, we reduced our net debt by over $75 million in fiscal 2021 or.
Our momentum and platform expansion continued into may when we announced the signing of a definitive agreement to purchase west side building material 1 of the largest independent distributors of interior building products in the U S for $135 million. This exciting combination, which through 10 locations expands and enhances our presence in multiple California Metro area.
And marks our entry into the Las Vegas market is expected to close next month.
And finally to ensure that we deliver a best in class customer experience, while continuing to drive productivity and further profit improvement we are leveraging our scale and employing technology and best practices. We made significant progress in the deployment of our E Commerce platform in fiscal 2021 with most of our subsidiaries driving.
Growth in customer accounts online payments and proof of delivery and our further deployment of business intelligence capabilities is putting actionable real time data and insight into the hands of our field leaders.
Finally, our 100 basis point improvement in adjusted SG&A margin and 50 basis point improvement in adjusted EBITDA are a testament to our successfully driving profitability.
The for making my closing remarks, a few thoughts about our first quarter outlook.
We currently expect to generate year over year sales growth of approximately 20%.
Similar to what we realized in the fourth quarter as we expect the more difficult year over year comparison to be largely offset by higher benefits of pricing on net sales.
In terms of profitability, we expect the continuation of pressured price cost dynamics, particularly in wallboard as a result, we currently anticipate realizing of gross margin similar to the 31, 5% realized in the fourth quarter.
And coupled with SG&A leverage and incremental adjusted EBITDA margin in the range of 10% to 15%.
Looking further out in fiscal 2020 to the trajectory of inflationary pressures and supply constraints as well as the effect of those on our results in later quarters becomes more difficult to forecast.
Nonetheless, we believe there is a fundamental support for continued strength in residential construction and while timing remains uncertain early but encouraging indications of improvement in commercial construction are emerging.
Turning to slide 10.
In closing Gms is well positioned for the long term as the North American market leader in the distribution of specialty interior construction products, we enjoy significant scale advantages employee of differentiated service model and embrace and entrepreneurial culture.
All 3 combined are enabling us to successfully execute for all of our stakeholders at.
At the same time, our strong free cash flow generation balance sheet and liquidity.
Provide not only near term advantages in what remains a very dynamic operating environment, but enable us to pursue the long term growth opportunities that make this business so attractive.
I am confident that our teams continued drive to execute the business and our strategy position us to generate value for our shareholders well into the future.
Rob we are now ready to open the call for questions.
Thank you at this time, we'll now be conducting a question and answer session.
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In order to allow as many as possible to ask questions. We ask of you limit yourself to 1 question and 1 follow up question.
Thank you and our first question today is coming from the line of Keith Hughes with <unk> Securities. Please proceed with your questions.
Thank you a couple of questions.
First of all the commentary on commercial.
Demand in some of the positive signs when do you think some of the bid activity Youre discussing when do you think that will actually show up in the meaningful shift in the shipments.
While the larger projects Keith are still out probably end of calendar 2022.
We're starting to see some remodel activity kick in.
And we're hearing from other participants in the market.
Not necessarily in our exact space, but other participants in the market that they are seeing their pipelines fill back up from a remodel perspective, and then youre seeing that with the Abi and Dodge just came out with their momentum index and the Dodge starts numbers look to be improving so I think the larger projects are probably still in 'twenty 2 but as you know 2 thirds of our business is remodel so we.
We think that we might see some green shoots here later in our in our fiscal year, maybe Q4 of our fiscal year.
Okay.
And regarding the.
The revenue expectation for the.
The July quarter of the first quarter.
How much how much will be acquisition add to that if at all of the west side acquisition.
The 2 to be meaningful so we're not we didn't put any numbers in <unk>.
Here, yet for west side, So what we're giving you is ex west side for the quarter Okay.
Okay and final question I'm Sorry go ahead I was just kind of add in the release, we talked about the size of that acquisition, we're talking about maybe a month of sales within that.
The accretive to that 20%, we already talked about.
Okay.
And then the.
The accounts receivable was up a good bit year over year, if you could talk about the what's going on there.
Look I think it's just really the.
The overall trends of the.
The business being up as much as it's been collections have been really good bad debt expense has been been really tempered in <unk>. So we haven't seen any increases there. It's really just the dynamics of.
Of the cycle of revenue that we're facing.
I don't think of anything to be concerned about is really related to the what we're seeing on the demand side.
Okay. Thanks, Paul.
I'm going to add to the overall if you look at our overall working capital as a percentage of sales were still in that same 17 ish percent sort of range that we've been operating at so the netting across the accounts receivable inventory accounts payable of etcetera is all consistent with the prior trends.
Okay. Thank you.
Thanks Keith.
Our next question is from the line of Mike Dahl with RBC capital markets. Please proceed with your questions.
Hi, This is Chris on for Mike Thanks for taking my questions.
Just touching on the the margin outlook for this year, obviously, you're expecting some additional.
The pressure in this next quarter, but I was wondering if you could maybe give us some additional color on your thoughts around the moving pieces of what.
Other it would be price costs or the residential mix pressures and how that evolves through the year and whether you think kind of SG&A would be able to provide enough of an offset to keep gross margins moving higher this year.
Your last question was would SG&A help our gross margins move higher this year I think you mean the EBIT.
Yes.
EBITDA margin yes.
Our team has done a fantastic job and I think we're well positioned from a cost perspective to continue to do that moving forward. There is some inflationary pressures out there obviously fuels more expensive than it was prior year, we expect labor to tighten up through the year as well, but all of that being said our guys are really doing a great job of our whole team is very productive and we've invested heavily.
Technologies and other things to help us be better from a productivity perspective. So I think we will we will continue to do well on the cost side.
That the reason, we don't talk much out beyond this quarter from a gross margin perspective is the fact that we're dealing with some interesting environments for inflation with steel doing what it's doing in.
Originally I think a month or 2 ago, everybody thought maybe steel would settle back down towards the back half of the year now we're hearing maybe thats not going to be the case.
In wallboard.
The industry just announced the implemented another increase in June. So we continue to chase that and Thats really you hear us talk sequential Amy sequentially. Our pricing is up really nicely and is continuing into this quarter. The issue is it. So is the pace of price increases from the manufacturers. So if that settles down a little bit I think like we said last quarter, we fully expect to.
To catch back up and end up with the gross margin that's closer to are our long term average, but at the moment, we're just chasing things up on that side. So I think that we're doing a nice enough job on the bottom line to keep to keep making keep making improvements over time and we've stated the long term objective is to breach the 10% number on an EBITDA basis.
I think that everyone here is aligned in that objective.
Got it Thats helpful.
And then on the sales guide for next quarter the 20%.
Any way you could help.
Help us with the building blocks there in terms of what's being driven by volume and price and what's your assumptions behind the residential versus commercial growth.
Yes.
Similar to what we saw in the.
The last quarter Youre going to see a pretty heavy influence from price and mix I would say in the ballpark of probably 75% of that on an order of magnitude basis is kind of come from price and mix.
And then the remaining portion of it is combined volume and FX of which.
Of that is probably 2 thirds volume.
<unk> were up.
The building blocks in orders of magnitude of the drivers.
That's perfect thanks for that.
Thank you.
Our next question is from the line of Matthew Bouley with Barclays. Please proceed with your questions.
Hey, good morning.
Thanks for the question congrats on the results.
Okay can I ask about pricing power.
I guess in the residential specifically because clearly Manny.
Manufacturer price increases are pretty widespread here.
In wallboard and Youre passing price the long, although it sounds like theres a bit of of lag.
To the extent the big builders are trying to leverage their purchasing and you've got smaller builders just facing challenges.
Across the basket of of.
The building materials are you finding that the receptivity to your own passing of price.
It's sufficient effectively thank you.
Well I mean sufficient we'd like it to be faster, how about that sufficient I would say.
In that we still believe that once the price increases settle out that we will again.
Achieved the types of gross margins that were used to on the other hand it is.
Never sufficient to be trailing prior year margins, so I think that.
It is the market based upon what we're showing sequentially in absolute pricing and remember our pricing is also a blended mix of all of our board. So you are having the negative impact of the residential mix in that price is it inflates. So we're still showing really nice sequential improvement and continuing into this quarter. So the.
The answer the question is we're seeing it happen.
We're certainly leading it.
In that respect.
And we're also being the partners with our customers I mentioned that I think of the last call and I've mentioned that in several other individual calls we have to be good partners with our customers right. I mean, they also have the.
We have to have the ability to plan their business and they have to have the ability to.
Planned their pricing. So Fortunately, we are strong enough to be able to weather a month or 2 of the increases before we pass them along but that's in essence. The pace of this is happening in 3 months 6 months, it's all of the pricing is in.
Got it that's really helpful J T.
Second 1.
On the gross margin side, the the mix impact specifically.
You know just with better resi.
Versus commercial any ability to put some numbers or just elaborate on that.
Just what that headwind looks like because obviously, what I'm getting at is to the extent some of these green shoots you're seeing in commercial due manifesting better volumes.
Later this year into calendar 'twenty 2 of what the kind of benefit to the margin would be from commercial recovery. Thank you.
I think we can speak to it in generalities I mean, obviously we.
Gave you some indication of leading into this quarter that we're going to be down net roughly 1 point based on some of those dynamics. We are seeing we're talking about it being consistent for.
For the first quarter.
Generally as we talk about margins, we generally try to guide towards.
EBITDA as being the better indicator of between resi and commercial because the.
The operating dynamics of serving the commercial versus the residential market. So on balance of that starts to commercial starts to come back we might see some general improvement on it and given the timing J T talked about that's not likely to be a significant first quarter impact, but as you go later in the year, we'll start to see a little bit of improvement.
On the gross margin side offset by higher operating costs to still get to a of solid and positive EBITDA number overall, so I know those are generalities, but those are some of the dynamics that were facing.
Got it no that's helpful. Thanks, Scott and thanks J T.
Thanks.
Our next question is from the line of Kevin Hocevar with Northcoast Research. Please proceed with your questions.
Hey, good morning, the next quarter everybody.
Wondering if you could comment on the SG&A side, you guys called out I think 160 basis points of.
260 basis points of leverage 100 basis points due to kind of operational cost containment net of 160, <unk> due to favorable leverage to pricing. So I'm wondering if you can kind of give us some color on how this evolves obviously it seems like pricing.
We have momentum so does that even get better at 160 basis points, that's benefiting from pricing as wallboard steel all of these other things keep seeing more pricing flow through.
Just trying to think about how to think about that SG&A leverage potential here of this.
This year.
Some of the best way to do it is to focus on what <unk> talked about in terms of the relative drivers of growth, it's a little bit different.
Tougher compare quarter over quarter on a volume basis, but we've got higher.
Pricing drop through on that so if you take that leverage impact if we've got that sort of 101.160.
Sure.
Order of magnitude this last quarter and you factor in a little bit more pricing in the first quarter I think youll see the relative impact of that drop through.
And what we'll see in the first quarter I mean generally on the operating basis, we're still seeing tight discipline on the operational side of our expenses, we're seeing some increases in fuel we're seeing some as expected increase in compensation costs salary costs those types of things as people come back end of the workforce to support.
What we're seeing on the revenue side.
We're seeing some things some operational expenses and things like <unk>.
Insurance on the Lake, but generally we're still keeping the tight discipline on our expenses on the on the operating side. So the.
Of the.
The favorability from a leveraging effect on the price side should be should be pretty strong and positive going into the first quarter as well.
Okay and then.
Products supply has been constrained lead times are extended.
All over the place.
Is that.
Is there any improvements being seen in Europe, and just product availability or is it just as tight as it's been for the last several months.
Well certainly in steel I think it's actually going to get a little worse as we move our way through the summer.
And then hopefully it frees up a little bit as we get into the fall.
Wallboard is about where it has been I guess I would say that.
Throughout this entire.
Series of supply chain disruptions really all kinds of products I think that youre seeing the leaders in the space be able to weather the storm.
And get the products that we need to support our customers you're also seeing us use our balance sheet in a way that allows us to have product available available for our customers. That's what they would expect.
When we talk about scale advantages these of the times to leverage that and to use that and to demonstrate to your customers. What you mean by that so I think that we're doing a pretty good job and I think that anything we are experiencing I would expect others to be experiencing in a worst way.
So while I don't see it getting a lot better I don't see of getting a lot worse other than maybe steel and steel is just going to continue to extend the lead times youre going to just continue to extend and the price is going to continue to.
To go up.
At least through the summer.
Okay got it thank you.
Thanks, Kevin.
Thank you.
First question is coming from the line of Trey Grooms with Stephens. Please proceed with your questions.
Hey, good morning, Thanks, everybody.
Alright.
First 1 from me is on the wallboard pricing.
Sequentially up nicely Scott you gave us a number there for the ended the quarter.
<unk> was $329 and I'm, sorry, if I missed this but did you guys give us any or could you give us maybe some.
Maybe a little more clarity around how youre thinking about the next couple of quarters on wallboard pricing.
There was this June increase that you talked about Youre implementing the April now so I guess is it fair for us to assume that from a pricing standpoint on wallboard, specifically that we could see something similar continue from a pricing standpoint over the next couple of quarters as the as you work the sterling kind of catch up on the.
From.
And so we've talked about the average for the quarter at the 329 number I can tell you. We ended the quarter of $3.33, so progressively working up over the course of the quarter.
Just given all of the dynamics you can expect that into May and June we've seen further increases from there.
Premature to give you anything.
We don't know exactly where it will shake out past this quarter and into future quarters, but all of the same dynamics are are continuing in to the prior question in the <unk> answer to it the acceptance of the market around it.
<unk> resolved from the supply side.
And driving those actions into the marketplace continue to be there. So I think we'll see those trends along those general lines of progression continue.
Okay Fair enough and then.
I guess on on the complementary I mean, this has been a big focus of yours, but.
Clearly outperforming there can you can you talk about where you're seeing specific strength market share gains.
Within the within that kind of category there of complementary.
Wow.
We have been very strong in Canada and in the U S. So lumber and.
In the prior treated lumber in particular commercial lumber packages believe it or not while commercial is down it's still something that we've been focused on here in the U S. So of lumber we've experienced not only the nice unit growth but of course the.
The very very high pricing.
Gone on in lumber over the course of the last year installation.
The installation we continue to do better in installation, we've had a focus on residential installation, although we can't get as much as we could sell.
Quite frankly, that's 1 of the areas, it's more supply constrained than anything I guess the good news for US is it still in total not not a massive number for us, but we're continuing to try to build that business and we've been doing very well in installation roofing in Canada, great performance by our team in roofing up in Canada as well.
And then tools and accessories, we continue to push hard to be the choice of of.
The 2 supply tools into our into our trades men's hands right are smaller contractors and even the larger contractors that are in the tool buying business the accessories buying business things like fasteners.
And screws and all of the finishing pieces that have to go into what we sell all of that is doing very well so.
Just give you those categories as the primary drivers.
Alright, Thanks, JT and Scott Thanks for the color and Leslie Congrats on the retirement and Gerry Congrats day, 2 and look forward to working with you.
Thank you.
Thank you Sir.
Thank you. Our next question is from the line of David Manthey with Baird. Please proceed with your question.
Hi, good morning, everyone.
Most of my questions been answered here, but.
Maybe you could address the supply and demand dynamics within some of the non res categories that youre thinking about.
J P you've mentioned.
The outlook for steel over the next 6 months and I'm just kind of wondering what your assumption for demand trends are in that outlook and then.
On the ceilings side is there any chance that we see 1 of the situations where everyone assumes that there is not going to be great demand and then inventories are thin and demand comes back in the supply shortages.
Anything you can help us in terms of that supply and demand dynamic as we roll through the summer.
I mean, I still expect commercial.
We see commercial down in volume products.
This quarter, we're still rolling over kind of that Covid effect, but as you go forward as we mentioned, we expect the whole comp to get harder on the volume basis because of the recovery was beginning.
Coming out of Covid, but those products, primarily commercial from a volume perspective, if we see any growth at all of low single digits, probably still the opportunity to see some decline in low single digits, but the prices are definitely up with steel being up dramatically and going to continue to be up dramatically lead times extended on.
The steel so I don't think swing of point or 2 around zero and Thats, probably what youre looking at for after volume.
For the next couple of quarters anyway, and then improving after that as far as ceilings go boy, if we had a big explosion in demand would be spectacular, but you'll have to you'll have to ask Armstrong in USG, if theyre prepared because from an inventory perspective, we're not off the gas I mean, we're on the gas on inventory and we want to have it and we want to be able to sell.
Got it.
And fulfill fulfill our customers' needs right now so we're not in a position where we would be caught let's say in a bad way from an inventory perspective, as Scott said as a percentage of sales all total working capital is right about where we've kept it over the years and even with higher sales. So we're.
We're going to continue to focus on that and be the best distributor supplier to our customer base and try to make it a little easier on them as they go through you can imagine if its difficult on us trying to get material imagine how difficult. It is for the contractor to get material right now so we'd like to be the the guy is helping them.
Okay. Thank you.
And second when you talk about the pressured price cost dynamics.
I understand the dynamic environment that we're in right now, but what is the glide path looks like I mean.
How long do these commodities have to stabilize.
In price for you to catch up on the gross margin side.
Well, we're pretty much caught up on everything other than wallboard. So I mean, if you were to decompose our gross margin I mean, we're really we're really okay everywhere other than wallboard and wallboard is not really all of that terrible. Its just were selling less of it as a percentage of sales than we are selling everything else.
And as I've said before it's 3 months 6 months 3 months, probably on the commercial side closer to 4 to 5 years to 6 months on the residential side the push it all the way through but if you look at what Scott just said $3.33, we have 3 I think our Q2 last year was 308 and now we're exiting of $3.33 that is a fair amount of.
The increase and I think youll continue to see us move on that kind of trajectory until the increases stop and 1 of those increases stop 3 months.
The 4 months later, youll, probably see us be right back up into the normalized gross margin range as we get the price into the market.
I don't see any any big impetus to have the prices reversed dramatically in wallboard on the other hand steel.
Steel.
As of commodity and lumber is a commodity that that moves around a lot more aggressively let's say so I can't tell you, what's going to happen with lumber and steel, but I certainly think at some point in times of the steel situation will resolve itself and youll see that price come backwards.
Not in the near yet alright.
Sounds good thanks J P.
Thank you really appreciate it.
Thank you at this time I will turn the call back to Leslie Krakowski for closing remarks.
Thanks, everyone for joining us today, a replay will be available on Gms dot com shortly and as always we appreciate your interest in Gms. Thanks, a lot and have a good day.
Thank you everyone. This will conclude today's conference you may disconnect. Your lines at this time of thank you for your participation.