Q4 2021 Masonite International Corp Earnings Call

And I think it sounded like it was more on the.

First of all let me start by saying that European team has done a remarkable job in growing margins margins up 280 basis points last year and Thats due to continued mix as well as the portfolio work they have done so.

And so there is some things.

In the U K so.

We're very bullish on this market Walter.

Okay sounds great. Thanks for taking my questions.

Thank you.

Thank you. The next question comes from the line of Rubin Gardner.

The benchmark company. Please go ahead.

Thank you and good morning, everybody.

Hi, Robin.

So I guess.

First a clarification on the on the pricing.

Embedded in the guidance so.

It is.

Is your outlook I guess, just inclusive of whats already been announced so far this year and I guess now.

Maybe this is a difficult question to answer but.

Would it be likely that we will see more pricing actions. Later. This later this year, even if we don't have.

Further inflation just to catch up on some of the margin pressure that you've seen over the last.

Year with all the inflation.

Hey, Reuben, it's Russ I'll take that and obviously with our standard provides us that we don't talk about pricing on a prospective basis.

If you look at our guide for the year it comprehends.

First and foremost.

<unk> factors that I outlined both in my remarks, and some of the prior Q&A as well as our pricing thats already in market.

That would include carryover benefits from pricing that we took across all sectors in 2021 as well as incremental pricing actions that were announced that go into effect here in the first quarter for the North American <unk> business.

So what is embedded in our guide is essentially everything that has been announced and implemented in the market now that all said as you know our key focus is maintaining a favorable price cost relationship and team being paid fair value for our products. So just as we demonstrated in 2021 when <unk>.

Factors and inflationary pressures dictated that we'd be more nimble and we go to the market more frequently on price, we would stand ready to deal with the inflationary environment whatever comes.

And I would just like to add to that group and this is Howard.

The midpoint of our guide for 2022 implies sort of a mid <unk> EBITDA margin.

We outlined a plan of Centennial plan to drive the 20% EBITDA margins by 2025.

Had a one year setback due to rapid inflation that was ahead of price, but we're going to be right back on track in 2022 to get to that 20% goal in.

Our Centennial plan so.

We're really proud of the margin performance in light of the very unusual year and I think we'll be right back on track in 2022.

Thanks for that guys and just a quick follow up.

You still feel that maybe there is a value gap between what's being charged for a door and what consumers find the door's two words correct.

Yes.

Do Ruben.

And not only a value gap just a peer play value gap, but we talk about this difference in solid and hollow and making life and living actually better the difference in price between a solid corridor our corridor is.

Particularly when you think about it in context with the value of the whole absolutely insignificant.

And yet the privacy and the sound the benefit that you get is significant and so the more we can.

And Vince homeowners on builders that those six or seven really important doors in the house bedrooms bathrooms laundry room for example.

Can you create a much better living environment.

Massive trade up opportunity as well so not only do we think that there is additional value just.

Comparing the same door, but the trade up to help solve some of these life and living problems is significant.

Great I'm going to sneak one more in if I could.

Given the focus on new products and innovation and that sort of thing is there any way for us to kind of track. The progress of this is there maybe a new product metric or targets for what.

<unk> revenue these initiatives can make up over a period of time and if that was in the Investor day apologies I just don't remember that.

We talked at the macro level on Investor day about the importance of the doors that do more strategy and the fact that we thought that that was going to contribute so theres a $1 billion gap between sort of our organic business and our aspirational goal of $4 billion. Some of that is going to be M&A and some of thats going to be new products. So we've talked at a macro level, but when.

When we talk about A&P historically, most of that benefit has been price.

We would expect that more of that becomes mix as we launch new products and so that's one easy way that youll be able to see some of the progress that we're making there.

Great. Thank you guys and good luck in 2022.

Thanks Robyn.

Thank you. The next question comes from the line of Noah Costco with Steve.

<unk> Inc. Please go ahead.

Good morning, and thanks for taking my questions.

No.

So first I wanted to dig in a little bit on.

Your volume expectations at least in North America. This year it sounds like flat.

So maybe up slightly.

And I'm trying to think through sort of the timing of starts versus completions. If we see starts may be pulled back a little bit.

Well publicized that there's a massive backlog in the industry.

We haven't seen a lot of completions were up given what we've seen from start so I guess, if we do see starts.

<unk> moved down a little bit lower that you might be able to still see volume growth just given the amount of.

Completions yet.

Yet to materialize.

Yes, no. It's Russ I think that's generally a fair statement, here's how I would think about the drivers of all touched on this a little bit earlier in the call, but if you impact the dynamics happening across the three segments I think Howard outlined this is that we feel very good about the macros generally for housing in North America.

If you look at our overall revenue guide for next year.

Its premise primarily on price.

Very little volume embedded in that but the area for upside volume is indeed in the <unk> business.

We think that there are some headwinds in Europe that are going to present, some volume challenges in.

The U K business in particular, and we're simply not planning for any volume growth in architectural until we can see a more steady trend of operational savings stability in that business. So it really comes down to what your volume assumptions are for any rights and we have some very modest growth in there, but we believe that there is upside volume opportunity if we see.

The housing starts and more importantly, the supply chain dynamics stabilize in the year now if you look at the cadence across the year, we would anticipate that.

Volume will be down slightly in the first quarter.

On the heels of some of these operational challenges and absenteeism spikes Howard noted actually increased into January before retreating now.

So far this month in February so we're managing through the supply chain issues and I would second Howard's comments earlier, I think our operations and supply chain team have done a really really nice job of managing what's been a really volatile environment, we will see that volume stabilization.

And operational stability improve as we get into the second quarter to the second half of the year.

Just to add one minute Noah. This is why our strategy is so important when we talk about specified demand.

We expect to be a growth company in any kind of macro environment. We happen to think the macros are good but they won't always be at some point in the future things will trend down and as we can drive.

Specified demand because customers say I really want that powered connected door that makes sense for me then.

And then masonite can be a growth company.

Any kind of environment and that's really our that's really our goal.

Thanks that makes sense and then for my follow up.

It sounds like you've had a successful launch with the empower door system. I know you have some other higher price products that youll have rolled out or will be rolling out here shortly and I guess is there any price mix benefit from that baked into the guidance.

Or any way you can quantify that for this year and then I guess is it safe to assume that that mix benefit will accelerate in 'twenty three just based on.

Products that you might have in the pipeline today.

Yes.

The answer the second part of the question is yes, certainly and as far as the Guy goes in 'twenty two very modest.

He had adoption curve this is a dramatically different product.

And the adoption curve is going to take a little while now I happen to have.

Executive and purchasing for one of our big customers, who saw it and said something like this is going to be standard in every home why wouldn't people wanted no I hope he's right I tend to believe that too, but that's going to take some time right. This is this is different and we believe the guidance as I said very modest but throughout <unk>.

324% 25, our Centennial plan it becomes important to our goals.

Okay.

Alright, Thank you I'll leave it there.

Thank you. The next question comes from the line of Steven Ramsey with Thompson Research Group. Please go ahead.

Yes.

Thank you on European Q4 headwinds you've discussed merchant Destocking also the product shortages those moderate.

Kind of fully in the first half or is there a visibility to how that.

Potentially gets better as the year moves along.

Yes, Steven it's Russ I'll take a shot at that.

What we saw in the U K business in particular in the fourth quarter is that the volume declines were really exacerbated in the month of December .

And Thats, where we saw this clear trend of Destocking on the part of the merchant channel.

And as I mentioned, a moment ago, we saw that trend reverse somewhat in January and order flow start to return on the interior door side of the business and just as a reminder, if you look at interior versus entry door business for us in the U K, we are primarily serving the Newbuild channel with our interior products and the.

Repair and remodel channel with our exterior door systems, and we've seen a little bit of softness in both of those given concerns around consumer confidence and this issue with upstream building materials in particular, but we are starting to see some nice recovery on the interior door side, so that leaves us.

Again firmly in the camp that this is a transitory inventory management dynamic that we're seeing in the channel.

I'd just remind everyone.

The long term fundamentals for housing in the UK are fundamentally very strong given that we have been under built in that market really beginning with Brexit and now all the way through COVID-19, so while supply chains have been fragile and they've had us spot outages and a number of different building products materials that are elongated this build cycle and of course, the builders ability to actually put some how.

<unk> stock into the market there is demand for it and we think that demand will continue and Thats why we are positioning the business for continued growth and future.

Okay helpful and then.

Further thoughts on the architectural segment the loss in Q1 still there but may be more modest in Q4 can you discuss the ramp.

The full year could look like and then as 2023.

Going to hit the pre.

Issues.

Margin levels or do you think you need greater volumes or is that kind of purely internal production issues being resolved in architectural.

Yes, it's really a combination of both Steven volumes are important obviously, because we have certain fixed costs and thats really whats hurt us since the global pandemic, but let's remember this is a good good business that needs work historically its been a <unk>. It is a $300 million business, approximately and made $40 million in 2012.

And so there's real potential there when volumes dropped off that exposed some of the in flexibility of our network, which we're trying to fix in the fourth quarter, we got hurt really by three three things.

Labor shortage issue, we've talked about is most people out relative to the older current spike we've had a nagging material channel in one particular material that's made it difficult to produce enough doors that we're working through and then this phase III of our plan remember we closed the veneer plants last year, we closed.

Style rail plan phase III was the.

Ability of our flushed or plants required some new equipment and systems to be installed and both of those well installed successfully there were some incremental learning curves and some labor that were hired sort of ahead of the production that increased our costs and so the fourth quarter was absolutely disappointing to us now and will work.

Going through those challenges trying to get that volume back order demand continues to be pretty pretty solid. So that's fine. We would expect that we're going to work through those in the first quarter and as Russ said, a return to profitability in the second quarter and that curve then should.

Improve and increase.

Historical levels would be our objective. So this is a nice business.

<unk>.

Can I add some incremental EBITDA for us on a consolidated basis.

Excellent. Thank you.

Thanks Steven.

Thank you.

And gentlemen, we have reached the end of question and answer session and I would like to turn the call back to Mr. Howard <unk> for closing remarks. Thank you.

Thank you operator, and thank you all for joining US today. We appreciate your interest and your continued support this concludes our call.

Operator, please provide replay instructions.

Thank you for joining <unk> fourth quarter and full year 2021 earnings Conference call. This conference has been recorded the replay may be accessed until March eight.

To access the replay please dial 8776.

6606853 in the United States.

Sure <unk>.

Six one to 7415 outside the United States and you can enter the conference I'd one <unk> seven to 595 eight thank you for.

Yes, hi. Thank you you can disconnect your lines now.

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