Q2 2021 JELD-WEN Holding Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the gel Duane holding incorporated second quarter 2021earnings call.
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I would now like to hand, the conference of Wagers Speaker of today, Chris Tietz shot director of Investor Relations.
Thank you and please go ahead.
Thank you and good morning, everyone.
Our earnings press release, this morning, and posted a slide presentation to the Investor relations portion of our website, which we will be referencing during this call.
I'm joined today by Gary Michel our CEO and John Linker, our CFO.
Before we begin I would like to remind everyone that during this call. We will make certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 995.
These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our forms 10-K, and 10-Q filed with the SEC.
<unk> does not undertake any duty to update forward looking statements, including the guidance, we are providing with respect of certain expectations for future results of our statements regarding the expected outcome of pending litigation.
Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance the.
The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to the most directly comparable financial measure calculated under GAAP can be found in our earnings release and in the appendix of this presentation.
I would now like the turn the call over to Gary.
Okay.
Thanks, Chris Good morning, everyone and thank you for joining us this morning.
And so when we talk about our aspiration to be of Great company. We define a great company is 1 that people want to buy from people want to work for investors want to invest in and it does the right thing for people our communities and the world.
We've been sharing with you our multifaceted growth strategy and how we're executing the disciplined plan to accelerate growth expand margins and deliver cash while allocating capital to optimize shareholder returns.
What is really special about our progress and what is frankly unique to gel win is our engaged team of associates and the value space Premier performance culture, we're creating.
The foundation of our strategy deployment is our business operating system, the gel with excellence model or Jim.
Jim is the systematic way that our people work within the company to deliver our strategy globally.
This holistic approach is the anchored in the very essence of of lean problem solving culture. The practice of continuous improvement development in respect for people and the identification and elimination of waste to deliver growth.
Please turn to page 5.
The second quarter exemplifies our accelerating progress as we yet again delivered strong broad based financial performance.
Consolidated revenue grew 25, 5% and core revenue grew 19% in the quarter.
Core revenue growth accelerated each segment driven by volume from share gains in key products and channels continued price discipline and favorable mix.
Gross profit increased 33, 5% and we delivered 140 basis points of gross margin expansion from strong volume leverage price debt more than offset inflation and productivity.
Our global sourcing capabilities and self sufficiency in key manufacturing processes are competitive advantages that ensure consistent material availability and reliable delivery to our customers.
This quarter is our 11th consecutive quarter of favorable price cost and our sixth consecutive quarter of gross margin expansion and with volume growth. In every segment, we extended our track record of core revenue growth as well.
We expect actions currently underway to drive continued year over year growth and margin expansion.
The strong financial performance in the quarter was broad based across segments.
In North America core revenue grew 21% with of 60 basis point growth in core margin and 250 basis points of improvement year to date.
We experienced strong demand from residential new construction and replacement remodel activity and our operational excellence initiatives continued to result in the industry, leading lead times that delivered share gains and margin expansion.
Europe, and Australasia posted exceptionally strong growth as well in Europe core revenue growth of 21% was driven by strong market demand for replacement of remodel as well as share gains in target markets and Jim the initiatives that are reducing cycle times the Europe's.
<unk> teams operational excellence is also quite strong with 8 consecutive quarters of margin expansion.
Australasia core revenue grew nicely at 9% as residential new construction markets strengthen and are replaced and remodel initiatives delivered results.
<unk> was Australasia third consecutive quarter of core revenue growth demonstrating that the housing recovery in that market is gaining momentum.
Cash generation in the quarter was again strong driven by growth profitability and continued strong cash conversion through efficient working capital management.
We seek to compound returns on cash flow through our disciplined approach to capital deployment at.
At current levels, we believe our shares are undervalued and represent a great investment for us and an excellent use of our cash demonstrating.
Demonstrating this view, we repurchased approximately 1.2 million of our shares during the quarter and approximately 2 million shares year to date.
At quarter end, we had approximately of $113 million remaining under our current share repurchase authorization.
Good day, we're pleased to announce that our board of directors has increased the share repurchase authorization to $400 million.
The upsize of our share repurchase program demonstrates confidence by the board and management and gel was multifaceted growth strategy and continued performance.
Please turn to page 6.
There are a lot of things that we're doing day in day out to better serve our customers and build momentum across gelling.
The Jem tools, we deploy to solve problems drive our ability to meet customer demand through cycle time improvements, which leads to continued growth acceleration and margin expansion.
As we shared during our Investor day in May there are numerous examples across the enterprise.
We've identified and started the transformation process at 9 of our model value streams as we head into the second half of this year. We are in the execution phase as we complete the startup activities at these model transformation sites.
We are in place the complete over 90 rapid improvement events or kaizen as part of our gem value stream of analysis or BSA process, and we expect to kick off the BSA process at 5 more sites during the second half of the year.
<unk> represent real opportunities to improve throughput and if activity add capacity and support accelerated growth.
Let me share some representative results for already completed.
In our North America door pre hang operations.
1 of our door pre hang sites, we have seen of 35% improvement in throughput and associated productivity as a result of operation rebalancing Enel.
Another site has seen a 15% improvement through sell creation and single piece flow discipline, and we have line of sight to of 30% improvement in overall pre hanging activities. When these <unk> are complete.
<unk> in our door, finishing operations has led to quality improvements and cycle time reduction nearing 35% with more opportunity to come across all of <unk>, demonstrating how we deliver productivity and meet the accelerated market demand and grow share.
In the North America of Windows business, our lead times remain among the best in the industry continued focus on operational excellence to reduce cycle times and expand capacity through the disciplined deployment of Jem allows us to meet customer needs and gained share in the current high demand.
Environment.
In addition to these examples we are also investing in capacity expansion to grow our VPI multifamily business recently commissioned new operations in Statesville North Carolina.
Statesville is producing VPI quality windows and serving customers today, and we expect it will effectively double our capacity as we better serve east coast customers and VPI continues to grow nationally.
Associates across Europe demonstrated the commitment to <unk> core values as they integrated World safety day into a week long regional celebration of health safety and inclusion, particularly focusing on to gel when core values build businesses ethically and safely and.
Improve every day all operations of functional associates participated in related activities and opportunities to make personal commitments to their own well being.
The very personal approach provided moving examples of how safety and inclusion make a difference in engagement and our premier performance culture.
Please turn to page 7.
In May we published our inaugural environmental social and governance report the highlighted our legacy of sustainability community involvement and our values driven culture.
We outlined our ambition to lead more broadly on environmental social and governance matters across a variety of pillars that are important to our stakeholders. These ESG initiatives support the foundation of our Universal strategy for growth that we outlined in our May Investor day, our first as a public company.
We highlighted the strength of our team and shared real world Examples of how gelled when associates are driving positive change globally to deliver differentiated and superior customer experiences.
We detailed 2025 revenue growth margin expansion and free cash flow conversion targets and demonstrated how our multifaceted growth platform can deliver differentiated performance through innovation price discipline operational excellence and disciplined capital allocation.
By all accounts this was the significant quarter for Jetblue.
Today, we announced that we have decided to begin the process of divesting the wood fiber building products business located into 1 of the Pennsylvania, and therefore, we will not pursue an appeal of the decision by the fourth circuit Court of Appeals of holding the district Court's original divestiture ruling.
After a thorough review of our options. We have concluded that it is in the best interest of our customers our associates and our shareholders to begin the divestiture process and eliminate the ongoing uncertainty around this matter.
A leader in wood fiber composite technology, the business of to Wanda has talented associates of high performance product portfolio and attractive financial characteristics. The 2.
<unk> facility is the unique well performing asset and we believe the business will attract significant interest from buyers due to the current housing and renovation boom and strong M&A market conditions.
<unk> is well prepared to support the continued growth of our customers post divestiture, providing industry, leading products and services to our customers and delivering value for our shareholders.
We will work with the court appointed special Master to complete the sale and maximize the value of the divestiture assets the.
The special Master has retained an investment bank to evaluate options and to ensure an orderly and fair process.
<unk> has the right to challenge the divestiture process and final order in the fourth circuit made it clear that the district court may have to revisit its ruling if a satisfactory buyer is not secured.
Please turn to the next page.
Looking ahead, we remain confident that supportive housing fundamentals in each of our segments will continue to drive demand for our products.
In North America, we see of positive long term outlook for residential new home construction due to favorable demographics of dramatically under built housing market supported interest rate environment and what we believe is a more permanent shift in homebuyer attitude, which should provide a tailwind for.
Residential new construction for the foreseeable future.
In the short term homebuilder orders and starts have slowed as the industry absorbs demand and deals with capacity constraints. We view. These developments as transient short term issues and continue to feel positive about long term housing fundamentals.
Replace and remodel activity in North America, particularly for larger ticket items should also remain positive given the tight correlation with many of the same factors positively impacting new construction supported interest rates demographics increased focus on the home coupled with substantial.
Home equity value creation, and an increasingly aged housing stock.
In Europe, we continue to anticipate solid demand due to positive fundamentals across all of our core markets replaced in remodel activity is currently stronger than residential new construction in Europe as consumers focus on their homes and use disposable income for home improvements are northern and <unk>.
Central European markets are currently showing the highest level of demand means.
Meanwhile, commercial construction has slowed slightly from uncertainty around demand for office space and hospitality.
In Australia, which is recovering from a multi year housing recession record level of activity is now forecasted through 2022, and the single family New construction market driven by homebuilder incentive programs low interest rates and healthy economic growth the same factors.
Should continue to drive strong replacement of remodel activity as well.
An eventual reopening of borders to immigration will support recovery and the multifamily new construction market a key driver of long term housing demand.
The housing fundamentals in each of our regions are very favorable and we are executing on strategies to accelerate above market growth in each segment.
With a strong first half behind us and strong fundamentals execution ahead, we are excited about the remainder of 2021.
John will now provide additional detail on our financial performance.
Thanks, Gary and good morning, everyone I will start on page 10, our second quarter financial results demonstrate the benefits of our multifaceted growth platform and extend our consistent track record of execution.
The improvements in revenue earnings and cash flow.
The strong performance is a direct result of investing in our strategic growth drivers of multiple quarters from the ongoing momentum of Jim.
Second quarter net revenue increased 25, 5% to 1.5 billion. The increase was driven primarily by a 19% increase in core revenue.
As well as the favorable impact from foreign exchange, notably all 3 segments delivered core revenue growth with broad based acceleration in volume mix and pricing.
Your line of improvements both year over year as well as sequentially.
Gross profit margin expanded 140 basis points benefiting from price realization that more than exceeded material and freight inflation.
Operating leverage on increased volume.
The structural cost reduction programs and productivity savings from Jem initiatives.
Our commercial teams in each region have done a fantastic job, enabling this margin improvement by implementing multiple pricing options to stay ahead of rapidly accelerating inflation and all of our global markets.
Reflecting the strong operational performance adjusted EBITDA increased 17, 9% year over year, while adjusted EBITDA margin declined 80 basis points as the gross margin improvement was offset by higher SG&A from the non recurrence of our second quarter 2020 per.
Over the <unk> 19 related cost savings measures as well as the margin dilutive impact of foreign exchange.
Core adjusted EBITDA margin, which excludes the impact of recent acquisitions and the impact of foreign exchange declined only 40 basis points.
Page 11 provide the detail of our revenue drivers for the second quarter.
I'll highlight strong volume mix growth of 13%.
Driven by North America, and Europe, as well as pricing realization of 6%.
Both volume mix from pricing improved sequentially from the first quarter.
Please move to page 12, where I'll take you through the segment performance in more detail.
Net revenue in North America for the second quarter increased 21, 7% driven by pricing volume growth and the improvements in mix.
North America is 8% price realization rate was the sequential improvement from the first quarter as we implemented additional rounds of pricing to offset the accelerating inflation.
North America volume mix in the quarter improved 13% as our healthy service levels allowed us to meet strong demand in all channels.
Mix benefited as well as special order activity picked up in the retail channel.
North America core adjusted EBITDA margin expanded 60 basis points to 15, 6%.
Driven by price realization in excess of inflation and operating leverage on improved volume and mix, which more than offset the non recurrence of COVID-19 cost savings programs implemented in 2020.
The margin improvement was nicely distributed across all major product line.
While there are many examples of stellar performance in our North America segment. This quarter I'm excited to highlight the momentum in our exterior door business, which sells steel and fiberglass doors through both retail and traditional wholesale channels.
Exterior door revenue growth exceeded 30% compared to prior year.
We gained share with key accounts and target markets.
Demand for these exterior products is strong and we are making additional capacity investments in this area, which will enable continued growth in future periods.
Europe revenue increased 33, 7% overall and 21% excluding the impact of foreign exchange.
Both pricing and volume improve versus prior year with U K, France, and central Europe, leading the revenue growth from the segment.
For the eighth consecutive quarter Europe delivered core margin improvement with an increase of 130 basis points year over year from strong productivity and operating leverage on healthy volume.
Australasia revenue in the quarter increased 27, 1% overall of 9% in local currency versus prior year.
Volume benefited from accelerating housing demand and the government's stimulus program.
Australia of housing market continues to show strong demand fundamentals of solid for future growth with record levels of activity for single family New construction expected to continue through 2022.
Increasing COVID-19 restrictions implemented by governments in several countries and the Australasia segment will likely temper the pace of revenue growth in the second half of 2021.
As the result of these temporary restrictions on Malaysia facilities have been closed for 2 months.
Our Indonesia facilities are operating below full capacity on construction projects have been temporarily halted.
Several major end markets in Australia.
Australasia segment core margins declined 90 basis points from the quarter as the result of higher inflation compared to the timing of full realization of price increases.
As well as the non recurrence of Covid related benefits realized last year.
Please turn to page 13.
Operating cash performance improved $2.4 million compared to prior year as.
The higher earnings were partially offset by an increase in cash taxes and cash interest as well as the pay out of previously accrued litigation settlements.
Capital expenditures were largely flat with prior year.
The balance sheet remains healthy.
Net leverage reduced further to 2.2 times and liquidity was strong at over $1 billion.
Including a cash balance of $618 million.
We are focused on deploying our cash in a disciplined returns focused manner.
Pounding the returns on that cash over time.
Yes.
Finally, I'll highlight our very successful recent debt refinancing the closed on July 28.
We upsized, our asset base revolving credit facility from the facility size of $400 million of $500 million to take advantage of our growing assets and.
The borrowing base of support liquidity.
Additionally, we extended the revolver maturity from 2022% to 226 of them.
Maintained very attractive pricing and terms.
We also issued a new $550 million Covenant Lite term loan b to replace alone of the same amount and extended the maturity from 2024 to 2028.
We retained very attractive pricing and terms on the new term loan as well.
As a result of these transactions, we optimized our debt maturity schedule and now have no significant debt maturities until 2025 and importantly, we continue to have no maintenance financial covenants. This debt structure gives us the flexibility to execute on our strategy, while maintaining flexibility for capital.
Allocation the drive shareholder value.
With that I'll turn it back over to Gary who will provide closing comments.
Thanks, John.
<unk> momentum in the first half of the year and favorable market conditions driving demand in every segment.
We're increasing our guidance for full year revenue growth, we now expect to deliver full year revenue growth in the range of 12% to 14% increase from the previous outlook of 8% to 11% due to foreign exchange recently completed pricing actions and strong volume momentum.
We expect that continued operational excellence pricing discipline and productivity will deliver EBITDA in the range of $510 million to $535 million.
An increase from the prior range of $505 million to $535 million.
This updated outlook implies a slight reduction in our EBITDA margin rate for the full year due to the impact of updated assumptions for FX as well as higher revenue from additional pricing, which continues to offset inflation.
As you can see favorable market conditions in each of our segments in many cases, the best demand conditions, we have seen in quite some time, coupled with our consistent execution are demonstrating differentiated financial performance I am so proud of our associates around the world who are committed to delivering for our.
Our customers our shareholders and each other every single day.
This premier performance culture centered on our core values is what separates gelled win and ensures our success.
Thank you for joining us today, John and I will now be pleased to take your questions.
Thank you at this time, you would like to take any questions you might have growth today and as a reminder to ask a question you will need to press Star then the number 1 on your telephone keypad again to ask a question. Please press star 1.
Can we draw your request you may press, the pound warehouses with phosphate moment to compile the Q&A.
We have our first question comes from the line of Truman Patterson from Wolfe Research. Your line is open. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
The first just wanted to visit.
Visit your guidance on revenue you bumped it up I believe 3 to 4 points.
But the top end of your EBITDA guidance was left unchanged. So I was just hoping you can walk us through what the reduced outlook for EBITDA margins are.
Is it just simply greater raw material inflation and pressures versus your prior.
Expectation is there anything baked in from the Tijuana the divestiture.
Just really hoping you can help us bridge the gap there because we've heard of some.
The very robust pricing announcements and realization in the U S.
Yes, that's correct I mean, we will still see a favorable price cost in the in the second half of the year, but we are.
We're offsetting.
Inflation that we'll see material inflation that we'll see in the second half. So so we're we're kind of guiding to that as.
As you will see kind of a bigger bigger portion of that hitting with the pricing actions that we've already taken.
Price cost will continue the trend that we've seen of being favorable.
Of course going forward. So that's really the primary difference that youre going to see in the second line.
Okay. Just a quick follow up on that I believe you all of last quarter said about 2 and a half points net of.
The inflationary pressures.
After some of your productivity initiatives could you just.
That number.
Yes.
Cereal and freight inflation in the second quarter.
It was around 4.5% of revenue.
And we're expecting that sort of similar magnitude now for the full year. So that would imply that we're seeing more there are more than 4.5%.
In the back half of the year on the inflation of front.
Okay. Okay. Thanks for that and then a final 1 from me just hoping.
For some more detail on the Wanda decision.
Why did you all decide not to continue with the appeals process.
A timeline for a divestiture of EBITDA multiple.
The potential of similar companies and and finally, just want to understand what you all will do with the sales proceeds primarily share buyback et cetera.
So I cant give a whole lot of details on the on the process at this point.
Sure.
We're working with the special Master.
On timing and the actual process, we believe after after our views that.
The time is right. It's in the best interest of our associates, our customers and interest and our.
Stakeholders too.
To get on with the divestiture.
Great.
<unk> as you know the R&R and new construction markets are very strong M&A markets are very strong. So we think it's a good setup for us we're very prepared for.
For serving our customers.
And and preserving shareholder value after any divestiture. So we just see it just seems like the right time to.
To move on with Us.
As far as timing goes again, we're at the.
We will be working together with the special master of the process.
Forward we'll.
We'll update update on that.
As far as use of cash we did announce the upside upsize of our share repurchase plan. We do believe that our shares right now of really good investments for us and the good use of our cash we continue to have great projects high returning projects internally that we've been talking about as we deploy <unk>.
And as we improve our capacities are starting to show of the pay off of.
We're outperforming on the on the top line in the bottom line.
<unk> share we do have a pipeline of other alternative of other uses of cash as we look at.
The M&A markets and.
We will certainly be reporting on that going forward.
Alright, Thank you guys for your time.
Thank you true.
Our next question comes from the line of Matthew Bouley from Barclays. Your line is open. Please go ahead.
Good morning, Thanks, everyone for taking the questions.
Just sticking on the same topic onto Wanda.
I'm curious if you can comment at all on.
I guess, what you've done to position sort of the balance of your capacity.
Particularly your door skin capacity, just thinking about your vertical integration in the.
Gary you just mentioned kind of maintaining customer service levels, just any commentary around how you've positioned the <unk>.
Of your door skin manufacturing capacity for this divestiture. Thank you yeah all.
All I would say is we've had.
We've had time to consider the alternatives.
And we are in a really good position to.
To take care of our.
Our current and our future needs for door skins.
And.
We've talked about in the past all different types of alternative but with gem activities.
We are focused on on our door skin plants as well as on our all of our plants across the enterprise. So we're in pretty good position there I don't want to get into too much detail as the process will unfold there will be.
So there'll be.
During the call and idiosyncrasies of our particular to any deal onshore and we'll need to make sure that debt, we adhere to those but.
We are in great position, we have been.
The planning for this eventuality and we know that we can take care of not only our current needs, but our growth needs as well.
Understood helpful color there.
The second 1 just back on the price cost side.
Obviously, the strong pricing environment and you've got this.
Fairly sizable offset from cost inflation in the near term.
<unk> is kind of what happens on the other side of this if we eventually see.
Sort of abatement or even deflation in key materials.
I'm curious if you could outline which categories you might be able to more so hold on to the price versus which categories or channels do you tend to give pricing back in a deflationary environment.
Well, we we.
We have been obviously.
Very focused on price cost for a long period of time EBIT free some of this inflationary market getting fair value for our products and by being a good operator and being able to serve our customer needs.
<unk> talked about in the Investor day, providing a differentiated and superior customer experience certainly is valuable within the building products space and something that we do get paid for and expect to get paid for as we grow share. So some of the pricing certainly will continue is that value continues to.
Continues to improve.
We look at materials.
Clearly.
We've moved up and been able to stay ahead of that.
<unk> an area of.
Where the fluctuation would be would be on freight.
Freight tends to be more variable and has to be something that debt.
Rides with.
More closely the actual cost.
Got it well, thanks and congrats on the results.
Thank you.
Our next question comes from the line of D. Var Day program Goodbye from Wells Fargo Securities. Your line is open. Please go ahead.
Hi, good morning, all.
Thanks for taking my question.
So some of the builders continue to talk about backorder situations in the windows and doors.
You talk to how the situation is a while just have gotten better or worse and how are you handling and benefiting from the situation.
Well thanks for the question.
Yes.
Yes, it depends by product of course, but we've been in pretty good shape with adding capacity and throughput.
As we talked about earlier.
Through our Jem initiatives, we've been very focused on our operations being able to meet demand.
There have been certain constraints here and there along the way.
We're not immune to all of those but in general we have been offering.
Lead times that are industry, leading.
Well, we're probably slightly better on the door side, we're extremely better on the windows side, what we've been seeing with all of the improvements that we've put in in Windows in particular, we've actually been seeing industry, leading lead times out of the gel win and Thats been turning into the share gains and and builders Act.
Moving there.
Moving their business towards the us so that's been very favorable on the door side, we certainly been able to keep up.
And.
I kind of think the bigger constraints.
And the industry have been other materials and and builders avail.
Availability of labor to complete those starts and certainly that will affect us some but right now we're seeing share gain in our products pretty much across the board and.
Like I said the lead times due to the Jem initiatives that we've been asked for several years are paying off.
Great that's good to hear it quick.
Quick clarification question from me on till the end of facility.
I don't want to make any assumptions assumptions here, so just asking you.
What what sort of what the divestiture should we plan for any impacts the sales and operations.
I'm not I'm not sure if I understand your question of 100%, but you assets, we should expect any.
Sales or.
Operations impact from the divestiture of the Wanda.
Yes, as Dan Yeah should we plan between now and the time, it's and it's actually going to be.
The divested should.
Not at all not at all we continue to operate the business is operating very very well.
And so everybody's best interest to remain that way of here's a robust market for 4 of exterior trim and trim board, which is the primary.
Business of Wanda, which is are miratec in extra line that continues to be very very strong and.
As we know door the door businesses are very strong as well. So we expect to continue to have great performance out of the winder as we do with the rest of the business.
Great. Thanks, I'll pass it on.
Thank you.
Our next question comes from the line of fill non from Jefferies. Your line is open. Please go ahead.
Hey, good morning, guys.
Q comps are a little noisy obviously from the pandemic, but when we look out to the back half of the year should we expect normal seasonality in the business and are you, having any meaningful limitations from a supply chain.
The labor standpoint, particularly.
Particularly if you could size of the impact you called out in Australasia would be really helpful.
Yes.
For the most part of our let's start with that our plants for the most part of our operating.
Across the really all around the world Australasia is the 1 area, where we've had.
Some of some recent COVID-19 shutdowns in Australia itself.
There have been occasional outages, there, which is it affecting the market a little bit, but they're still on the upward tick coming back off of the the.
The housing slowdown over the last couple of years. So we've seen some nice growth there, our Malaysia operations and.
Indonesia to of certain extent had been affected by Covid, Malaysia has actually had some shutdowns we expect.
We expect those to start returning back to production here in the next couple of days or weeks in Indonesia, we've been operating at less than that of full.
The full capacity, but we expect that as well to be returning here probably within the next week or so as as we've seen vaccinations in the light there.
All in all of though.
Occasional.
Occasional issues on.
On material.
Due to weather COVID-19 demand related some temporary issues of availability of supply in our supply chain, but nothing thats been affecting customer deliveries except for maybe.
Maybe window screens.
But we've been.
Very active in Resourcing and in and using our own Celsius.
Self sufficiency, our manufacturing operations to ensure that we don't meet miss any customer demands of our customer needs.
And we continue to monitor that.
Yeah, that's super helpful. Gary and then when we think about mix, if I heard John or your prepared remarks. It sounds like mix is improving a little bit on the retail side can you kind of expand on that and then when we think about commercial remind us is that mix positive neutral negative.
Any color would be great.
Sure So in North America, specifically.
I think of your first start asking the question about mix.
We did see in the past a shift towards more stock demand unless special order demand in the retail channel.
We're now seeing that balance of improving.
We're still working with our retail partners to get stock levels up to.
Target levels. So we're certainly not there yet so the demand still remains strong for stock units, but I think what it does now inflected as we are seeing a pickup in special order.
And so in Q2 in North America mix was a tailwind too.
Both both revenue and earnings.
Flow through as we start to see that pick up.
I'd say on the flip side, you mentioned for the commercial of the only place that that's a a bit of a mix shift would be in Europe, where.
Seeing a slowdown in some of that major project business that we do.
Which is tied more to hospitality institutional demand.
See a ramp in DIY R&R business versus some of that project business that can be slightly margin dilutive. So we saw a little bit of that in Q2, not nothing material to call out, but I'd say in general we now feel pretty pretty positive about mix being a tailwind for the full year exiting 2021 and then.
Hopefully seeing that continuing into 2022.
Got it that's really helpful. When we think about the divestiture of Tijuana will securing of longer term supply agreement from your potential buyer be something youre looking to accomplish and then do you of any flexibility in terms of bringing back any mothball capacity on the door skin side, and then any color on the timing of that.
The processing any capital required thanks.
Again, as I said before.
We're well positioned to take care of our.
Of all of our needs currently and for growth in terms of the door skins, the supplier door businesses.
What that looks like going forward, obviously will depend on on the process and who the ultimate buyer is but we're in a position to to do various various things, including take off from from the new buyer.
Utilizing capacity within within our business today and.
We've talked about the ability to bring on.
Additional capacity in plants that we currently have again, we've been we've been.
Improving our cycle time of improving our throughput using our <unk> capabilities in all of our plants, including our doors can plan. So we feel like we're well positioned to take care of those needs for today and into the future as.
As far as timing goes that will be dependent on the special master in the process of.
On that as we go forward.
Super helpful guys. Thanks, a lot from good luck in the quarter.
Our next question comes from the line of <unk> from Goldman Sachs. Your line is open. Please go ahead.
Thank you good morning, everyone.
My first question is around the.
The volumes in North America for the back half can you talk about how we should expect those to kind of come together, especially when you think about the obvious.
You had a pretty considerable lift in the second quarter, partially given that comp, but how are you thinking about that part of the the.
The the results coming together.
I'd say, we feel quite positive about our North America core revenue potential in the back half of the year as you called out Q2 is a bit of of unusual quarter, just given some of the comparability to prior year, but as we think about core revenue growth in aggregate in the back half.
I would say low teens.
<unk> is a fair assumption in terms of what we think we can deliver on core revenue in North America, which implies the positive volume and positive pricing.
Okay. So should we expect of relative Inc.
<unk> on a sequential basis from where you were in the second quarter.
It's tough to call out.
I guess, the sequential improvement because of the comparability of the prior year, but I would just say that were we.
We expect good trajectory in volume in North America, our backlogs are healthy our book to Bill of solid.
We've got good visibility to delivering the revenue guidance that we delivered here. This morning for the back half of the year based off of the demand we're seeing okay. Okay. That's helpful. Thank you.
The question is around you know you mentioned that you are obviously continuing to move through your gym process.
Outlined a few more locations, where youll be taking projects on can you give us a little bit more detail on that and how we should be thinking about the timing and some of those coming through.
Yes so.
We've been at.
We have been deploying jem for the last several years across the enterprise I would tell you that there is probably no place that we haven't at least hit with the.
With the startup kit, if you will for Jem deployment utilizing the visual management.
The focus on cycle time reduction and on delivering productivity.
We have identified.
Side of number of sites that we would call modern about model value streams, and we talked about those within our Investor day, and we have deployed at 9 of those sites already and have gone through what we call our value stream of analysis process, which starts to set up what the next level of improvements that we can can.
Focus on.
The very coordinated in terms of <unk>.
Process.
The deployment and the dedication of people resources and and we're looking for significant improvements in cycle time.
In customer satisfaction employee engagement as well as productivity. So these are sites that.
Or kind of in the advanced plan now and will be leading the enterprise and then ultimately we'll take those learnings to additional additional facilities around the globe. So very excited with the kind of this move it's it's a bit of of maturity.
The realization of maturity in our Jem deployment, and we'll deliver some real results going forward.
1 of the things that Youre seeing is the the.
The the trend on price.
Our price cost.
As part of that of the productivity being delivered the ability to increase.
Our cycle time through our facilities is leading to share gains in the marketplace.
These are all great signs of of how Jim is being deployed and what we still have so much more of that we can do.
Okay. That's very helpful color. Thank you and good luck.
Thank you.
Our next question comes from the line of Steven Ramsey of your line is open. Please go ahead.
Good morning.
The circle back on pricing and margin to make sure I understand you expect.
For the company to be price cost.
Neutral or positive in Q3, and Q4 or will the will there be some kind of short term lagging there before you catch up.
Right it will be positive in the second half.
Of course.
Okay, Okay excellent and then.
On Australasia, the Covid headwind there is.
Volume and mix still of positive driver despite that.
It's such a challenging times, the kind of call of what the future of Lockdowns are going to look like we've got the demand in that market. So as long as our facilities are open.
We will drive positive volume and positive pricing in the back half of the year in Australia.
We just can't really call out exactly when things are going to reopen and in what cadence given the uncertainty around the pandemic, but we're ready to go when we got the demand as soon as the government has let us operate.
Excellent Okay, and then last 1 from me on the 2 wanted to exit is this a <unk>.
Overall a.
The positive margin move once this is done and I guess within that is there any difference in the external sales and internal.
The impact on margins.
Yes.
We'll probably we're not going to get too deep into the financials of that.
Once the process begins under NDA potential buyers will be able to see the.
The detailed information but.
Yes.
<unk>.
We believe that the value that we'll get for the force wanted at this point will be great for shareholders will be great for the company and.
We're well prepared.
Great. Thank you.
Our next question comes from the line of Mike Dahl from RBC capital markets. Your line is open. Please go ahead.
Hi, This is actually Chris kalata on for Mike Thanks for taking the questions.
A couple of more on the Swan to plan.
I realize you guys don't want to give too much granularity, but I guess just.
Kind of help us understand the potential of financial impacts.
As the marks I'm, assuming the margin profiles kind of above what the what your current North America margins are is that true and is there any way you could help us understand.
Potential implications from from the loss of vertical vertical integration of that plant, whether it would be higher skin prices or your loss of transfer pricing.
Any I realize you're kind of limited in what you can provide.
Any color would be helpful.
Yes, I don't think you should be considering that at all in terms of the transfer pricing or any of that I think we've.
We've been running the business in a way that the.
That will be a non event.
So we're well prepared to take care of our needs.
Well prepared to support our growth.
Going forward. So I think you should assume that debt we're in a good position there.
There are the business that we're selling it to Wanda Inc.
<unk> is primarily the mere attack and exterior businesses, which are.
Exterior trim and.
And.
Trim board, which are great businesses, there will be.
Lot of interest in that business from.
From a door skin standpoint, we have.
3 other plants are operating today and.
Plus the 1 that supply both internal and external skins.
The.
The real thing to consider here as we've laid out.
Our multifaceted growth platform for the company at our Investor Day, we put out targets for our growth. This does not affect any of that we are well positioned to to meet meet those meet those targets that we put out there. This is at the.
The time has come for us to move on on the.
On the litigation and to move on with the divestiture of to wander to take.
Any any distraction from that news.
Away from really all of the good things that we're doing to execute consistently over over several years now and.
I don't think you need to read anymore into it.
It's a part of our business and the door skin part of it is even a smaller part of that.
Understood. That's very helpful. I appreciate that and just for my follow up of any any.
Initial views on kind of what what kind of the entrance of the potential third player in the U S door skins market, what that could do to longer term competitive dynamics, but how do you plan on that evolving in terms of timing.
And kind of your position within that.
Listen I am not going to pontificate on because I don't know who will ultimately buy this business.
But my guess will be the.
It's a valuable business somebody is going to pay for the value of that business.
Door to door skins today is.
As a relatively constrained.
The constrained capacity is something that we're trying to increase capacity on every single day. So my guess is that total.
Total will remain that way for some time to come and if somebody pays for a business you would expect them to operate it in a disciplined fashion or get a return on their investment so I'm not really concerned.
About the effect on the on the market.
Understood I appreciate the color.
Our next question comes from the line of Josh Chan from Baird. Your line is open. Please go ahead.
Hey, good morning, Gary John and Chris Thanks for taking my question.
But the circling back on the the price cost equation and recognizing that you guys expect positive price cost in both Q3 and Q4 is there anything the callout in terms of what.
The 1 quarter will have a much more narrower gap than another and then kind of Relatedly you know anything to call in terms of margin dynamics between Q3 and Q4 in terms of the.
Do you have a tough expense comp in 1 quarter and another just to see if you of any color on those 2 quarters there.
Yes, I'd say.
The price cost for the full year were in great shape.
More of them exceed inflation with the pricing we put into place and we've got we've done that in the first 2 quarters of the year and we expect to do that in the back half of the year. The inflation is definitely weighted towards the back half of the year and even into Q4, there's more inflation and so I think we got.
Yes that will have an impact on any incremental benefit to margin because we need the pricing that we're putting through to offset the incremental inflation. So thats why youre seeing.
Our margin.
Yeah slight headwind there because of the additional revenue is going through without much incremental significant corresponding profitability. So certainly.
The back half of the year more inflation, but we're in great shape.
It took deliver pricing to offset that we've taken multiple rounds of price.
And really all of our markets that we operate in and trying to stay ahead of this curve as much as we can.
Say that Q3.
And from a margin profile dynamic Q3 will probably look a little similar to Q2 and the fact that we.
We would expect gross margin expansion, but still still lapping some of the SG&A.
Benefits that we had last year, so I think the the EBITDA margin.
In the third quarter would probably be.
Less favorable than the fourth quarter, just given just given that dynamic, but we expect gross margin improvement in both Q3 and Q4.
Okay. That's really helpful color John Thank you for that.
And then I think Gary you mentioned that you know of homebuilders might be slowing the pace of starts of bids I mean are you seeing that in your order book necessarily I'm kind of surprised you know with the extended lead times in the industry I wouldn't think debt even if the the starts where the moderate you would you would see that in the order book for some time.
I actually made that comment exactly Joshua I've said debt.
We're not seeing that.
The.
Any of the news that we've seen in.
Push outs of completions.
We believe thats transient and short term and we are.
Not seeing that in our demand we're having some of the best way of some of the best demand we.
Seen in recent history, and we expect that to continue.
The.
I think that's exactly the comment I made.
Okay. Okay. That's great that's great. The here and then and then lastly, you mentioned the returns focused capital allocation more than you have in the past I think so can we expect share repurchases for example to become a bigger part of capital allocation than it has been in the.
The recent years going forward.
I would say that debt were certainly focused on that.
We recently Upsized the.
The last week, the upside of the board Upsized, our our allocation we've made some bigger purchases. This year, we believe that.
That our share price where it currently is is the great investment for us.
Delivered.
Great message around our multifaceted growth platform, we have the successful track record we've been executing an outperforming we're gaining share in our markets and we continue to deploy our internal programs around Jim that we will continue to allow us to.
To increase our cycle time increase.
Increased productivity and deliver for our customers we delivered.
Our updated long term revenue growth and margin.
Targets at our Investor Day, which we believe in fully and with the strong backdrop of great market conditions and our strong operations. We believe this will continue for some time. So we believe in ourselves and we'll continue to invest there.
That's great. Thanks for your time and congrats on the strong quarter.
Thank you thanks, Josh.
We have our next question comes from the line of of Michael Rehaut from JP Morgan. Your line is open. Please go ahead.
Hi, Thanks.
Thanks, Good morning, everyone. Thanks for taking my question.
First I just wanted to get a sense from a.
Perhaps a modeling perspective, a little bit.
On on the magnitude of incremental pricing in the back half of the year. If you could just remind us.
And if there's any sense, even on a per region basis, because I believe you said that you would see.
The incremental pricing that comes through across each of the 3 regions.
When the incremental pricing actions are.
Factive and any type of degree of magnitude of those.
Pricing actions on a percentage basis, just to get a sense.
Of of how to think about the impact in the back half obviously in the second quarter.
You had 8% in North America, 3% Europe, 1% in Australasia, I'm, just trying to get a sense of Directionally, where that could go in the back half.
Yeah, Mike.
Right.
I guess, starting with the revenue guide for the full year previously our revenue guide was 8% to 11% for the full year.
And now we've updated that to 12% to 14%.
I would say that our Q2 volumes came through pretty strong relative to the guidance that we gave back in April and so part of that off the west coast. Some strong revenue performance in Q2, but the vast majority of that increase in the revenue guide is pricing.
That is needed to offset.
Of the inflation that we're feeling.
Those of pricing actions that we've already taken that we've communicated to the market. These are not prospective pricing actions that we have yet to day. So this is really just a matter of.
Of the timing of what we've announced and letting that flow through the timing byproduct and by region of the timing of implementation dose.
Does does very I'd say that Q3 this latest round of pricing going in during Q3. So by the time you get to the Q4 you'd have sort of a full run rate impact of.
Of all of the compounding effect of the pricing actions that we've taken this year.
But that's the biggest driver in the the updated revenue guidance.
Okay I appreciate it it's helpful and.
Second question and I apologies my apologies to beat a dead horse I almost feel like not asking a question about the 1 that would.
Breaker of chain here, but.
Just wanted to be clear on a couple of items number 1 Gary you've kind of said over and over again getting the call that you're well positioned to take care of your needs at least internally. So I just wanted to understand do we take from that.
The roughly $55 million from 2020 of the internal sales, but that will be completely offset by internal productivity improvements.
That's number 1 and number 2 if there's any sense for you to give us on the $150 million of sales to external any type of <unk>.
Sense of what that means from an EBITDA perspective.
I'm actually not going to get into a discussion of the the details of the the financials for the wind up but I would tell you that the that the.
The business itself is primarily.
The exterior trim and.
And trim board products from <unk> and exterior so consider those external sales as well and.
The.
Once where we are.
And in the process been talking with potential buyers of bill understand the.
The magnitude of.
Of what's in that business, but yes, I will reiterate that.
Depending on who the buyer is of course, and what what any relationships might be with us going forward, we are well positioned for the eventuality of serving ourselves.
And our growth plans within our own internal capabilities.
Thank you.
We have our next question comes from the line of Stanley Elliott from Stifel. Your line is open. Please go ahead.
Morning, everyone. Thank you all for fit me in.
Can you talk a little bit about some of the new products that you have coming in the market right now it sounds like they are getting some pretty good traction with some of the customers and then and then secondly.
With the supply chain challenges impacting everyone is this changing your thought process from some of the 2022, new products you have coming to market. Thanks.
Yes.
We talked a little bit about innovation and product development earlier this year from Investor Day, and we'll continue to talk about new products as we go forward we've got.
Really quite a lot of.
Of exciting things going on.
Lot of what we've been doing kind of the last several years, obviously, keeping up with styles and.
And looking at trends, but also working on our operations and making sure that we could could meet customer demand when we look around the world.
We've had a really nice.
<unk> on sustainable products.
Products that meet customer needs on more than 1 front not only design, but also on kind of the engineered components around security around.
Around noise.
Of the windows side around energy efficiency.
And we will.
We will be.
Addressing announcing.
The more.
Some some more interesting products in the window space around composites later this year, so a lot going on on the innovation front.
And.
It really in all 3 of our segments. So so pretty exciting times for us and with the with where we are operationally and where we are on the commercial side of the business. It's a real good time for us to introduce some new products that we will have not only are paying dividends now, but the ones that debt, we will be launching which will be.
Paying dividends into 2022 and beyond.
Great. Thank you.
Yeah.
Yeah.
And there are no further questions Gary you may continue.
Well, thanks, everyone for joining us today and for your interest in <unk>, we had yet again, another exciting quarter great performance by our people.
Jim is clearly paying off for us we keep talking about our multifaceted growth platform and our successful track record of earnings growth and our compounding cash flow.
We are very excited about the strat.
Strategy that we've defined in our business operating system deployment, it's driving transformation within the company and delivering profitable organic growth.
Please take a look at our long term revenue growth margin and cash conversion targets that we set out at Investor day with the backdrop of great markets.
Non operating execution by by the company, we're very very excited about where we are with zelman and we look forward to talking to you more about our successes in the coming months. Thank you so much.
Okay.
This concludes today's conference call. Thank you all for participating you may now disconnect have a great day.
And the window.
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Yes.
Okay.
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