Q3 2021 Quanex Building Products Corp Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to.
Welcome to Q3, 2021 quanex building.
Caltex Corporation earnings Conference call.
At this time all participants lines are in a listen only mode.
To ask a question during the session you will need to press far one on your telephone and please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the call over to your speaker today, Mr. Scott Gilkey Senior Vice President Chief financial.
And Treasurer. Please go ahead Sir.
Thanks for joining the call. This morning on the call with me today is George Wilson, our President and CEO.
This conference call will contain forward looking statements and some discussion of non-GAAP measures forward looking statements and guidance discussed on this call and in our earnings release are based on current expectations and actual results or events may differ materially from such statements and guidance and quanex undertakes no obligation to update or revise.
Any forward looking statement to reflect new information or events.
For a more detailed description of our forward looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Please see our earnings release issued yesterday and posted to our website.
Now discuss the financial results.
We reported net sales of $288.0 million during the third quarter of 2021, which represents an increase of 32% compared to $213.0 million during the third quarter of 2020.
The increase was largely due to increased demand across all product lines and operating segments combined with increased pricing mostly related to pass through of raw material cost inflation.
More specifically, we posted net sales growth of 28% in our North American Fenestration segment 19, 3% in our North American Cabinet components segment, and 85, 8% and our European Fenestration segment, excluding the foreign exchange impact and despite the challenges presented by flooding.
In Germany during the quarter.
As a reminder, both of our manufacturing facilities in the UK were shut down in late March of 2020, and does not resume operations until mid to late May 2020.
We reported net income of $20.0 million or <unk> 41 per diluted share for the three months ended July 31, 2021, compared to $18.0 million or <unk> 33 per diluted share for the three months ended July 31.2020.
The increase in net income was mostly due to higher volumes and improved operating leverage. However, this improvement was somewhat offset by higher taxes inflationary pressures and an increase in SG&A during the quarter, which was mostly attributable to more normalized medical costs combined with an increase in stock based compensation expense.
To add more color around the higher taxes and increase in the U K tax rate was enacted on June 10, 2021, the increased from 19% to 25% will not be effective until tax years, beginning on or after April. One 2023. However companies are required to include the effects of changes in <unk>.
Tax laws and the period in which they were enacted therefore in Q3, we re measured and defer re measured the deferred tax assets and liabilities that will reverse in 2023, and the new tax rate of 25%.
So to account for this change we now estimate our tax rate to be approximately 28% this year.
On an adjusted basis EBITDA for the quarter increased by 18, 8% to $41.0 million compared to $34.0 million during the same period of last year.
The increase was again largely due to increased operating leverage from higher volumes.
Moving on to cash flow and the balance sheet cash provided by operating activities was $23.0 million for the three months ended July 31, 2021, compared to $46.0 million for the three months ended July 31.2020.
Free cash flow came in at $15.0 million for the quarter compared to $47.0 million in Q3 of last year, a higher inventory balance was the driver for the lower free cash flow during the quarter. This inventory growth is being driven by increases in raw material pricing and its related valuation.
Along with the strategic purchasing of some critical raw materials as they become available.
The first item is self explanatory and it's just the proper valuation at lower of cost or market and the nature of first in first out accounting for inventory to.
The building of raw materials as needed to compensate for ongoing supply uncertainty and significant increases in demand.
Despite this pressure on inventory cost, we were still able to both repaid $15 million in bank debt and repurchased approximately $9.0 million of our stock during the quarter.
Year to date as of July 31, 2021 cash provided by operating activities was $51.0 million compared to $53.0 million for the same period last year free cash flow year to date as of July 31, 2020 'twenty one.
Was 31.4 million compared to $35.0 million during the same period of 2020.
Our balance sheet is strong our liquidity position continues to increase and our leverage ratio of net debt to last 12 months adjusted EBITDA improved to one two times as of July 31.2021.
We will remain focused on managing working capital and generating cash in the near term.
As George stated in our earnings release, we remain optimistic on the demand outlook for our products. However, we do expect inflation labor costs and supply chain challenges to continue pressuring margins throughout the fourth quarter of this year.
We will continue to pass these incremental costs to our customers through index pricing surcharges and price increases. However, there are time lags in each case.
In summary on a consolidated basis, we are reaffirming net sales guidance of approximately $5.0 billion to $7.0 billion and adjusted EBITDA of $125 million and $130 million in fiscal 2021.
I'll now turn the call over to George for his prepared remarks.
Thanks Scott.
Unlike others in the building products space, our fiscal third quarter was affected by significant inflationary pressures and material shortages that impacted manufacturing schedules and taxed our operations.
Late in the quarter the growth of the Covid <unk> led to a resurgence of illnesses and required corn teams, which further impacted the already tight labor market.
In addition, our plant in <unk>, Germany flooded in late July during the dose, stating rainfall, but fall over western Europe.
Despite these demanding challenges we are pleased that we were able to announce another strong quarter of financial results and reaffirm our full year guidance for fiscal 2021.
Before discussing our results I would like to take a moment to thank our team in <unk>, Germany for their amazing efforts after the floods.
Within just 14 days of the storms the facility was back up and operating at full capacity and not one customer was shut down because of this weather event.
<unk> worked long hard hours to make sure our customers were supported and they did a tremendous job on their unbelievably difficult circumstances.
Now looking at the macro environment in North America demand for Windows and doors remains very strong.
Supply chain pressures remain the constraint and have resulted in extended backlogs for our customers and longer lead times for end consumers.
The demand for cabinet components also continues to be strong and according to Casey EMEA. The number of average backlog base within the industry has risen to $66 nine days versus prior year levels of 37 seven days.
Although the summer months in Europe, usually bring a slight drop off in demand due to holiday travel current demand for our products in the UK and Europe remains consistently strong.
We mentioned on our Q2 call that the glass shortages were beginning to limit output for window manufacturers in Europe in Europe in the UK.
This trend continued into the third quarter and we expect the same through the end of our fiscal year.
From a supply perspective material shortages continued to present, a major operational headwind throughout the quarter.
The biggest challenges remain in most chemical feedstock products and aluminum and we are seeing allocations and short shipments of orders on a regular basis.
While it is still too soon to tell these shortages could be exasperated by the impact from Hurricane Idaho.
The rapid rate of material inflation continues to be the largest financial headwind we face.
As a reminder for the most part we have contractual pass throughs for the major raw materials, we use in North America, but there is often a contractual lag that congestion will generally be anywhere from 30 to 90 days long.
These pricing mechanisms are working but will not be fully realized until we see a flattening or decrease in pricing that allows for the catch up period.
We anticipate that we will begin to see prices peak and possibly begin to drop towards the end of the calendar year.
At the time when index pricing does turn there will be pressure on our revenue. However, we do expect to see improved profitability at that time.
The labor market continues to be tight in every market we serve.
During the quarter, we made progress in our recruiting efforts, but North America, we are still looking to fill over 400 open positions.
To improve both retention and employee acquisition, we have increased wages and almost all of our domestic plants.
On an annual basis, we have raised wages in North America by approximately $6.0 million, which is being covered largely by price increases that have been passed onto our customers.
We believe these increases will offset the structural change in the labor market and allow us to remain margin neutral.
We are confident that the wage increases will continue to relieve pressure in this area.
With that said the growth of the Covid Delta ovarian and related Spike in U S. Covid cases has certainly added pressure both because of ongoing positive cases and required corn teams for employees.
I will now provide my comments on performance by segment for our fiscal third quarter.
Our North American Fenestration segment generated revenue of $155.0 million, which was approximately 21% higher than prior year Q3, and compares favorably to ducker window shipments growth of 14, 2% for the calendar quarter ending June 32021.
Strong demand across all product lines share gains in our screens business increased capacity utilization on our vinyl extrusion assets and an increase in index insurance surcharge pricing all contributed to the above market performance.
Adjusted EBITDA of $21.0 million in this segment was approximately two 4% higher than prior year Q3.
Volume related operating leverage the implementation of annual pricing adjustments.
Operational improvements and lower SG&A, all contributed to the improved performance year over year.
These items were offset by timing lags for index pricing and higher levels of overtime utilization.
For the first nine months of fiscal 2021. This segment had revenue of $423.0 million and adjusted EBITDA of $57.0 million.
Which represents year over year growth of 23, 6% and 38, 1%.
<unk> percent respectively.
This also represents adjusted EBITDA margin expansion of approximately 340 basis points when compared to the first nine months of fiscal 2020.
Our European Fenestration segment generated revenue of $72.0 million in the third quarter, which was $40.0 million or approximately 86% higher than prior year.
Excluding foreign exchange impact this would equate to an increase of approximately 68%.
As a reminder, our European facilities were shut down for part of last Mac.
Robust demand for our products continues in both vinyl extrusion and spacers as the repair and remodel markets in the UK and Continental Europe remained strong.
Adjusted EBITDA of $18.0 million for the quarter was $13.0 million better than prior year.
This improvement was driven by prior year Covid impact along with volume related operating leverage and pricing actions, which helped to offset inflationary pressures.
On a year to date basis revenue of $190.0 million and adjusted EBITDA of $38 million resulted in margin expansion of approximately 540 basis points as compared to the first nine months of last year.
In our North American Cabinet components segment reported net sales of $70.0 million in Q3, which was $10 million or approximately 19% better than prior year.
Favorable index pricing and high order demand contributed to solid revenue growth in the quarter.
Adjusted EBIT in this segment was $7.0 million, which was $6 million less than prior year.
As discussed earlier, the timing lag of our contractual pricing index has added significant pressure our margin percentage for this segment.
Although we are being impacted by this timing lag on the hardwood the inflation impact versus prior year Q3 was somewhat minimized by operating leverage from higher volume along with incremental price increases on certain products.
Year to date this timing lag is impacted adjusted EBITDA by $10.0 million.
But if we adjust for this inflation, we would have realized approximately 400 basis points of margin expansion in this segment on a year to date basis.
Operational improvements and volume related leverage gains have helped offset the timing related material impacts and when hardwood prices flatten or drop we can expect to realize margin expansion at that time.
Unallocated corporate and other costs were $4.0 million for the quarter, which is $4.0 million higher than prior year the primary.
Drivers of this increase were stock based compensation expense.
Operating incentive accruals and more normalized medical expenses as compared to 2020.
As Scott discussed our balance sheet continues to improve our operational teams continue to focus on metrics. They can control and our cash flow profile remains attractive.
Our management team and board are actively engaged in evaluating our capital allocation strategy for fiscal 2022, but in the short term our top priorities are to continue paying down debt and accumulating cash.
There appears to be growing confidence that the current cycle within the building products sector will extend for several years and we are seeing more and more M&A opportunities across our desk.
Given the strength of our balance sheet, we will evaluate potential acquisitions that are both strategic and accretive to our growth and margin profile.
So despite the near term supply in an inflationary pressures, we continue to outpace 2020 for both quarterly and year to date revenue net income adjusted EBITDA and EPS.
We have executed on our plan and we have put the company in a position to capitalize on various paths to create shareholder value we remain very optimistic on the future.
And operator, we're now ready to take questions.
Thank you reminder, to ask a question you will need to have star one on your telephone.
My question first.
Please standby welcome file the Q&A roster.
Your first question comes from the line of Daniel Moore of CJS Securities. Your line is now open.
Thank you George Scott Good morning, Thanks for taking the questions good morning, Daniel.
Maybe talk about.
You gave some details in terms of key inputs and supply chain constraints.
At the margin.
Are you seeing those abate about the same.
Getting worse and any early indications as far as hurricane that is concerned.
I'll answer this in a couple of pieces of our product line in North American Fenestration I think.
We see the pricing and supply issues continue to remain pretty significant in anything that is <unk>.
Chemical.
Related so anything that derives from any sort of ethylene cracker plant.
<unk>.
Continued inflationary pressures.
Too early to tell on Hurricane Ida.
No our supply base has not been impacted from a facility standpoint, but still evaluating the whole logistics and the ability to get products shipped through rails trucks imports.
So still too early to tell.
Hardwood pricing, we actually started we're starting to see some leveling off from <unk>.
A slight increase not leveling off of but the rate of inflation appears to be slowing. So we'll continue to look at that.
So we await that time and in Europe.
Things remain about the same.
Excellent really helpful.
As we look out to fiscal 'twenty two.
Based on price increases you've either put in year to date or have planned at this time and kind of based on todays pricing how much of a top line growth benefit would that translate into next year, just kind of ballpark terms.
We're still evaluating with the 22, 2022 outlook looks like.
It becomes a little complicated because.
Our pricing increases are built in to a couple you've got the structural pieces that are built into installing price. You've also got anything that surcharge related that is really dependent upon where inflation goes so that revenue number could.
Could be impacted negatively if pricing starts to come down. So the revenue number is going to be really hard and we're not at a point to be able to give you a good forecast at this point, but what we do anticipate.
Regardless of what type of if we start to see some softening in inflation, we do think that that will correspond to improve profitability in 2022.
Got it helpful.
And maybe one more if I might.
Leverage.
All the way down to almost basically zero and generating more cash than you need you mentioned M&A.
Particularly at these levels would you look to be a little bit more aggressive in terms of.
Share repurchases as well I know you bought back some stock in the quarter, but any comments there would be helpful. Thanks.
I think our current strategy as we stated is we're going to continue to focus short term on paying down debt and then building cash home because we do think that there could be some potential M&A opportunities nothing's imminent.
<unk>.
We're seeing opportunities and we've positioned our balance sheet very well to be able to look at a lot of things that could be accretive the great thing about where we're at today is.
Based on our strategic plan.
I don't think we need to do anything and so we're not rushing to grow.
Well look as I said, two things that enhance our growth profile and are accretive in terms of margin if those exist.
We are in a very good position to capitalize it.
In terms of share buyback.
We still do believe that we are undervalued.
However, there are challenges with the low float that we have in.
The impact on on also on the share buyback, we just think that that's lower on our priority is to position arises when we feel like it's the best thing to do we obviously still have enough in the <unk>.
The board authorization to purchase stock.
I would rank lowest on our priority list right now.
Okay very helpful. Thanks for the color I'll jump back in queue. They follow ups. Thanks.
Thank you Jim.
Your next question is from Nomura of Sidoti and company. Your line is now open.
Hey, good morning, George Good morning, Scott.
Sure.
So I guess on the North American Fenestration segment could you maybe rank order some of the margin challenges. There I know you called out the timing lags for index pricing as well as overtime costs looking for a sense of how impactful. These too worrying one was more impactful than the other.
I think right now the biggest challenge is on items, such as resin and silicone.
And again things that are being driven by feedstock pricing, that's a bigger challenge right now and then the labor piece for Us short term.
<unk>.
At least from a financial perspective.
Got it and I think you mentioned that you could see some potential impact from.
Hurricane Ida I mean have you do you have any other further granularity as to what you might expect coming out of the Gulf Coast.
No again as we stated.
We haven't been told that our major suppliers their facilities were unaffected. So short term I would say that's very good news.
Again, there is still congestion in the ports and all of the logistics chain. So.
It could be a bumpy couple of week road in terms of getting material because of the logistics chain.
I don't believe it'll have a significant or at least from what I know now a significant long term impact on supply at least with the supply base that we have.
Got it and then just last one for me would be just generally you spoke about price increases youre working on in North America Aside from index pricing.
Can you just speak to your maybe ability and confidence to pass through price aside from index pricing in other words to offset COVID-19 costs.
We've pushed through price.
To offset the labor cost that we identified it as a structural change that I think every.
Our customers as well as our suppliers.
We are adjusting to the world we live in it's not going to go backwards, its a new labor market in <unk>.
Ultimately consumers will have Victor <unk>.
Their ability to support that level of labor cost.
That's not going to change, but we've been successful in getting price because we have to it's not a margin grab our goal as it relates to labor has to remain.
Margin neutral and we've been.
Very open and honest with our customers and are having meaningful conversations.
Great. Thanks very much.
Thank you.
Sure.
Your next question is from Reuben Garner of Cta Benchmark Company. Your line is now open.
Thanks, Good morning, guys.
So.
I guess to start is there any way to quantify how much.
Volume of revenue you guys have lost this year, specifically in the North American Fenestration business just from.
Challenges in the.
The windows industry in getting.
Product out the door in other words can you talk about the visibility that you have or the runway you have on the demand side Windows has been one of the most backed up building products over the last year is that something that you guys look at it as a positive as you move into the next six to nine months or so.
Yes, I'll answer that in two phases were with first in terms of visibility, we don't have great visibility because a lot of.
Our customers ability to ship windows is dependent not only on the products that we ship, but their ability to get installation labor on their side.
Homebuilders.
Labor as well as their ability to get other components, especially from Asian sources, where theres a significant lack of of containers. So it's really hard to put an evaluation on what what revenue could have been had those all put it.
Together.
In terms of our ability I think.
We've done a pretty good job of being able to continue to supply what demand. What we think that this does do for a long term and I kind of mentioned it at the end of my comments is that.
It's going to extend the cycle youre, not losing revenue, which just extending and pushing it out and Thats why we continue to be optimistic for.
Longer than just a short term view.
All of our markets.
Okay. That's great and then have you guys made.
Maybe this is something where you don't really have visibility into but curious if you've noticed the major shift in.
Mix of products sold specifically in the fenestration business I mean.
Do you guys benefit with your spacers from.
Higher quality more energy efficient windows being installed or are you seeing any meaningful changes in the market.
No. It's a great question.
Our spacer offering.
Ranges from from entry level up to the very high end.
We have a pretty pretty strong portfolio I think we continue to see strong demand across all the lines. So I think what it does show is that the newbuild new construction still remains strong, but so does R&R.
And the continuation and the extension of lead times kind of highlights. The first question that you asked is really is being pushed by our customers and the homebuilders abilities to to fulfill their demand from the installer side.
And then last one for me.
The cabinets business with all of the supply chain issues and particularly.
Freight coming in from.
Ocean freight get out of control recently, I mean, what are your customers, saying about the.
The in sourcing trend do you guys think that that can even pick up more steam do you have the capacity to.
Served even more market share and then.
Any meaningful change in your pricing power because of what's what's gone on that you guys might be able to get some.
Catch up as we move into the next year or two.
Our ability to be able to handle more volume is really going to be dictated by the success of our ability to go get new labor I think we're well positioned from a.
A machine capacity as the lumber and the hardwood supply starts to open up so so our ability to go out and get labor.
Which as I mentioned, we within the quarter, we made some adjustments and so we're an evaluation period to see is what we've done moving the needle.
Early indications is starting to have some success. So I think we're a little too early to answer that question I think if we're able to get labor then we could take we by all means can take on more in sourcing in the system.
<unk>.
I think.
In terms of our.
Our pricing.
The market.
As I think we have pricing power, but there is a market there.
You can't go to certain levels and I think we continue to have.
Conversations with our customers around that we're going to we're going to get.
Paid for a fair value and what we do bring to the process, but we also need our customers to be successful. So when we look at these as partnerships and will continue to work on the third piece to your question Reuben is.
And I mentioned in Q2.
<unk> continues we are looking at adding potentially new cabinet facility.
And we're in.
Site selection process. So that project continues to go on and once that is launched to them.
Hopefully that will again have some additional value for us to go out for some incremental volume.
Great. Thanks, George if I, if I could sneak one more in Scott.
Scott.
The.
Price cost pressure that you've got this year from kind of a steady rising commodity environment do we need do we need prices to rollover.
In order for next year to pick up some margin or if they level off you guys will still have a tailwind because you won't have that headwind that you had.
This fiscal year.
Yes. The issue really this year, then we keep chasing price so even as those indexes trigger we continue to chase silver.
So we're behind the eight ball there so as.
Raw material prices at least stabilize that'll help but what's really going to help us when raw material prices start going the other way.
And it's anybody's guess as to when that will happen, we do think that theres going to be some stabilization going into the end of this year into early next year. So we do feel comfortable that profitability will be better next year.
<unk>.
And the demand very strong.
Thanks, guys. Good luck to the rest of the year.
Sure.
Your next question is from Steven Ramsey at Thomas Thank you.
Your line is now open.
Hey, good morning, guys wanted to follow up on the.
The capacity and labor utilization topic to make sure I understand your previous commentary George was it.
The ability to take on more volume is that is that in all segments or were you talking just.
The cabinet segment.
And I guess to connect the dots.
Capex need to increase from this $30 million ish level.
For you to be able to take on more volumes over the next year or so.
So.
The first part of your question My answer was generally directed towards cabinets.
Our ability to take on additional revenue.
In the North American Fenestration segment.
Screens that would be partly labor and going after.
Our new geographic segment of the country Thats not served.
But for the most part the North American fenestration.
Growth would be dictated on our ability to get raw materials cabinets thats going to be more labor driven.
As it relates to your Capex question.
OEM side as we anticipate 2022 might have a higher level of capex for growth initiatives.
We're comfortable with that and feel like our cash flows.
In terms of all of our objectives.
Supports button.
Would position us well for good growth.
Okay, Great and then.
On the inventory investment you've made that makes sense.
So far I guess, how do you think about incremental investment in inventory from here do you think.
Inventory will take up more capital.
Early on in 2023 or 2022.
Or will that investment moderate as you move forward.
I would anticipate probably a growth in inventory.
Listen right now if we can get raw materials were going to get them.
That's kind of the mode. We're in right now.
US and probably every other business. If there are critical components you buy what you can get so.
Ultimately, what we want to get to was to a point, where we can start building some levels of finished goods to improve our fill rates.
And start getting the backlog down, but thats going to take some time, but.
Long answer to yes, I think that will.
Be part of our cash usage in 2022 and probably into 2023.
Okay, Great and lastly.
Just to maybe make sure I understand something Thats elevated backlog you have it seems to be common thread.
Building products and construction world.
For you this.
This backlog burn often more normalized backlogs.
Do you expect that to happen.
The next couple of quarters are really not have as much visibility into that as you would like.
I wish I had better visibility.
No.
I think over the course of the last year and a half thats. The one thing that has changed.
The level of visibility through through all of our customer returns.
<unk>.
I anticipate that it's going to take a solid 12.12 to 18 months for the whole industry to start bleeding that down.
A large.
<unk>.
A large backlog that's being being driven by multiple things you've got the labor challenges you've got raw material, you've got freight issues. So there's not one silver bullet that if this clears up.
It's going to be a 12 to 18 months and again Thats, what we keep saying about why we think that the cycle was going to be extended by multiple years because of that phenomenon.
Great. Thanks for the color.
Thanks Sue.
Your next question is from Ken <unk> of Keybanc. Your line is now open.
Sure Scott Good morning, Good morning, Good morning, Ken.
So I wanted to touch on a couple of issues here and there.
It kind of goes.
Scott if you could give it in context, perhaps the past so we can see how <unk> is different.
When we're talking about extrusion.
<unk> I think it was 2012.13, when you guys when.
When pricing really.
The costs left out on you guys and you didn't have these contracts in place but.
You, probably remember at a little better than I do could you put it in context, how especially on the extrusion side.
The price contracts, which I think you guys have the pipe.
Index, if you could just kind of give us clarity about what those indexes are tied to a and how it's different than the last cycle. When you guys didn't have I think fixed priced contracts just in terms of.
Like what the underlying index is how much of your business is tied to that and kind of a lag if you will.
Explaining that a little better.
This is just a north America remember because in Europe, we don't have.
Americas vouchers.
On the vinyl extrusion business.
Index is really based on CDI.
And that's purely the mechanism to determine the index pricing and then <unk>.
Pending on the customer there is a level that shared so in most cases like 80% of that index.
Increase or drop us is pushed back to the customer and then we absorb a certain piece of it.
Each contract is a little different.
That generally gives you the feel.
As it relates around your question to 2012.
Don't have the detail in front of me Ken I joined the company in 11. So it was obviously with the spacer business at that time. So I think if you remove that you're able to give you an answer.
Fair Fair, Scott you wouldn't take a stab at it Gary Jade move on.
I joined in 2016.
Okay.
I remember that was I have to go re look at the transcript, but it seems as though.
Obviously, you guys confidence is there.
The catch up so.
I think you talk George about $10.0 million.
Of course, and you're referring to the cabinet business that was net cost inflation that you would.
You do expect to recover.
And you talked about that being about 400 basis points or three 360 basis points.
Cost that you still expect to recover that you've incurred in you expect to recover or is that accurate when you gave that figure.
That is correct.
So, yes, so that would be.
Just the timing of the index. So you would add it to the revenue as well as fee income base and then netted out.
We anticipate recovering that again, it's going to be time based.
And would you say that number.
Is that a 100% of your I mean, how much cost inflation you guys have had in that segment, because I, just think youre, giving such clarity there.
Or is that like what hasnt been recovered I'm, just trying to sense how much of your.
Business is running price.
Verse volume I guess inflation, notwithstanding the 10 year.
Moving is clearly out there. So is there a sense that you could break down volume versus price I guess generally.
There's going to be that's.
That's going to be purely price and obviously the volume piece of it I mean.
The reason why there is so much clarity in the hardwood pricing is because it's a very clear and simple index based on the different species. So we track it we monitor it.
We know the number very close so.
Got it okay do appreciate that.
<unk>.
The last question kind of taking a step back because it seems like youre kind of.
You have a good problem with your leverage.
As you noted earlier, if you buy back stock you are sending out what's already a thin coat.
Youre doing organic investments you talked about some of that stuff in Europe, you were talking about a cabinet facility right now.
Could you just this is a bigger question, but could you talk about how you're thinking about.
Pulling capital relative to your cost of capital and the return on that could cabinets.
No.
It's been about five years since you've owned the company the margins Youre <unk>.
Proving but it's not.
I don't know it doesn't appear that it would be hitting your returns on capital. So how are you guys, making those decisions to keep investing money there as opposed to something else with that business.
No. It's a very fair question I think we look at it Holistically and what I would say without getting into any level of granularity here count is if you look at our our return on invested capital over the last four or five years.
We've obviously made it a priority in terms of improving that metric and how we choose to invest all of our incremental caution.
Over the last couple of years, our return on invested capital has grown to a level.
It's meaningfully above now are working average cost of capital so without getting into the details of what we do by each segment I think in general philosophy I think the track record has shown that we've executed on that.
I think that.
It's a focus and will continue to evaluate all opportunities based on those metrics and I'm going to guess.
Generic <unk>, George that's fine I mean, because it is getting to the point, where your leverage is so low your options for capital deployment and then inhibitors to your current returns on capital.
To good problem.
But.
I think it's one of the things that I've had conversations with.
That do focus on that element.
Thank you very much gentlemen.
Thank you.
Your next question is from Daniel Moore of CJS Securities. Your line is now open.
Yes, just a quick follow up.
In terms of the impact of the flood in Germany is there a quantifiable quantifiable dollar impact on revenue or were you able to service out of inventory into our other locations.
We were able to service that inventory there was a week or two lag before we were able to do that.
And then on the cost side.
Estimating about $300000.
Expense impact.
No no real loss revenue, because it's just pushed to the right.
Perfect very helpful and then lastly, the guidance.
Feels like revenue should be trending towards the higher end of guidance range given price increases.
That a fair thought process and on EBITDA.
Maybe I don't know.
Lower to the midpoint of the range relative to the pricing pressures that you're seeing or any comment that you would be willing to share. There. Thank you. Sorry go ahead, Scott I think for the most part Dan that is correct.
We're still comfortable with the range is higher on the revenue side lower on EBITDA based on everything we're talking about with respect to inflation and labor et cetera. So yes.
Say you're accurate.
Very helpful. Thanks again.
No questions at this time and I would like to turn the conference back to George Wilson for some of the comments.
I'd like to thank everyone for joining and we look forward to providing an update on our next earnings call in December with our full year results. Thank you all very much.
Ladies and gentlemen, this concludes today's conference call. Thank you Sir thank.
Thank you for participating you may now disconnect.
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