Q1 2022 JELD-WEN Holding Inc Earnings Call
Good morning, and welcome to the children Holdings, Inc. First quarter 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks does it'd be a question and answer session. If you'd like to ask a question. During this time press star followed by the number one on your telephone keypad if.
If you'd like to withdraw your question Press Star one again I would now like to turn the call over to Christopher teach outs director Investor Relations. Please go ahead.
Thank you and good morning, everyone. We issued 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 Chair, and CEO , and David Guernsey acting 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 1095.
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 to certain expectations for future results.
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 to this presentation.
I would now like to turn the call over to Gary.
Thanks, Chris Good morning, everyone and thank you for joining us.
I'll start this morning by thanking our global associates, and especially those in Europe for their continued commitment and dedication to serving customers. During this challenging time.
Our thoughts are with those that are impacted by the war in Ukraine.
Our local teams are providing direct support and we have been actively recruiting refugees in our European operations together with the generosity of our associates <unk> has already contributed more than $50000 to the American Red Cross in support of humanitarian effort in the region a true Testament.
And to our values driven culture.
Turning to the first quarter results, we delivered another quarter of core revenue growth our seventh in a row driven by solid end market demand strong price realization and progress on our key initiatives that said a significant step up in inflation relative to our expectations.
The start of the quarter exacerbated by the war in Ukraine had a significant impact on results.
Absent these extraordinary inflationary impact we would have achieved the high end of our expected range for the quarter.
We're pulling all levers to mitigate these pressures and deliver our financial commitments for 2022 and beyond.
In addition to price actions, we are executing initiatives to enhance margins, including expanding the rationalization and modernization programs to reduce fixed costs, focusing on consolidating our footprint and improving technology and facilities to improve labor efficiency and throughput.
Minimizing raw material consumption through value added value engineered product designs and continuing to partner with suppliers to provide the best quality cost and availability for our operations and customers.
While global inflationary pressures continue we remain encouraged by the favorable underlying demand fundamentals across most of our primary end markets. We are confident that the initiatives. We have deployed to drive profitable growth and margin expansion will benefit us through the balance of this year.
We'll share more detail on these initiatives shortly.
We remain laser focused on leading the industry with customer centric solution and delivery on our 2022 and long term financial commitments.
Please turn to page four as I share a few highlights from the first quarter.
Q1, net revenues increased seven 2% driven by a 10% increase in core revenue with all three segments contributing to core revenue growth as.
As I mentioned, a moment ago. This marks the seventh consecutive quarter of consolidated core revenue growth as we continue to deliver innovative and margin accretive new products and improved service to our customers, we've realized higher pricing and we expect to maintain this.
Price due to differentiated customer service product solutions and market leading position.
Adjusted EBITDA for the quarter decreased 18% to $80 2 million.
While pricing actions to offset raw material and freight inflation Russia's invasion of Ukraine and the subsequent sanctions on many Russian exports led to greater volatility and higher than anticipated prices on a number of key inputs, including energy metals logs and millwork.
In North America core revenue grew 13% largely due to price increases and continued solid demand for products in both residential new construction and repair and remodel or R&R activity.
Strong end market demand drove increased orders throughout the quarter, resulting in both a sequential and year over year increase in backlog, our highest backlog since the start of the pandemic.
We executed on a variety of material cost reduction initiatives, including Resourcing substitution value added value engineered our <unk> project and also enacted cost controls aimed at alleviating the impact of inflation.
We realized some benefit from these initiatives in the quarter and expect to realize most of the savings from these and others currently underway over the coming quarters.
In Europe core revenue grew 8% due to continued price momentum, partly offset by softer than anticipated volume in certain markets due to geopolitical uncertainty and significant inflationary impacts stemming from the crisis in Ukraine.
Some project business was pushed out into future quarters, and we experienced limited destocking by certain customers.
<unk> core revenue increased 1% as accelerating price realization was largely offset by softer than forecast volume mix.
Demand in Australia remains at record levels. However, continued builder labor challenges severe flooding in Queensland, and New South Wales, and an increase in COVID-19 related absenteeism at a temporary impact on delivery timing and throughput.
We expect these issues to alleviate in the second quarter.
To conclude my comments on the quarter, we repurchased $42 million of our stock during Q1 or approximately 2% of shares outstanding. This follows the $323 7 million.
Or 11, 5% of total shares outstanding that we purchased in 2021.
We continue to believe that our shares represent a great investment for us and an excellent use of cash.
Please turn to page five.
As we move into the second quarter, we continue to focus on carefully managing cost and making accretive investments to bolster our capabilities service and resources that matter most to our customers. Let me expand on some of the efforts we are pursuing to drive profitable revenue growth and margin.
Expansion.
Over the last few quarters I provided details on how we are accelerating the deployment of our business operating system, the gentlemen, excellence model or John through transformation efforts, and our 14 model value stream sites across the globe.
I'd like to provide some detail on new aspects of this transformation.
Evolution of model sites the product lines. The addition of sites in Europe , and Australasia and the introduction of our first smart factory.
As we've mentioned Jem deployment enables us to improve throughput maintain market, leading lead times and reduced per unit cost.
To accelerate the pace of transformation our approach to these model value streams is evolving from being site specific to spanning full product lines. This approach allows us to rollout the findings of a single rapid improvement events or R&D to similar product lines at multi.
Both facilities almost simultaneously.
Additional efficiencies we gained from this approach plus the six sites, we're adding in Europe , and Australasia will unlock approximately $100 million in.
An additional revenue opportunity for <unk> in 2022.
We've also deployed new technology, including sensors and software to our first smart factory and we have plans to roll out this platform to two additional sites in the second quarter.
This technology allows us to proactively identify issues and further optimize throughput by reducing unplanned downtime minimizing stranded labor and improving quality through standard work.
We look forward to sharing the benefits of this new smart factory technology in the coming quarters and as always we continue to execute standard work process improvement across our remaining manufacturing sites to.
To provide some context on the magnitude of improvement we're seeing three projects completed in the first quarter have driven throughput volume improvement between 77% and 92%.
Customers see this as better lead time that they can rely on.
In the past three years, we've achieved more than $100 million of savings from our footprint rationalization and modernization efforts, which have improved profitability and performance increased throughput delivery capabilities and capacity with additional projects underway and more in the pipeline. We believe we are.
Considerable runway to generate continued meaningful cost savings and margin improvement. We've also kept a sharp focus on strategic sourcing to create more predictability and stability in our supply chain. Our philosophy at <unk> is the manufacturer, where we sell and to source, where we manufacture this localized.
<unk> has helped us maintain self sufficiency in key manufacturing processes and deliver quality products with industry, leading customer lead times. This gives us flexibility as we optimize the supply chain to manage the effects of inflationary markets through rapid resourcing and in sourcing.
Substitution and redesigned decisions.
Our reach and scale gives us purchasing power and as a key customer for many of our suppliers. We are using this position to manage our material purchases more effectively and we've continued to identify multiple sourcing locations that have allowed us to quickly pivot when we experienced supply.
Chain challenges in certain regions of the world.
Another part of our strategy is helping our channel partners and customers solve their challenges by offering new and innovative products and services that add value to their business, helping to strengthen our position as the supplier of choice.
For example, we're offering more pro specific skus of pre finished pre configure doors and integrated door system to help reduce installation labor requirements.
And we are piloting quick ship programs in North America that focus on rationalizing skus to deliver higher volume on trend products that customers want while enabling our production runs to be more efficient and reduce lead times.
I also wanted to share a brief update of some of our key growth drivers this year.
We recently announced the production launch of our new or align composite windows and patio doors in North America. This launch addresses the rapidly growing demand for products that are designed focused energy efficient and sustainably sourced with a high degree of recycled content and estimated 40% of dealers.
They don't have a composite window in their product lineup. So we're excited about the opportunity to provide them with this next generation energy efficient composite products.
Preorders for oral line have been strong shipments will commence in the second quarter and we expect rapid expansion through 2022 for this margin accretive product line.
Additionally, our exterior fiberglass doors continue to be a growth driver for us we've added new door and skin capacity in our north Wilkesboro facility that helped drive customer conversion, leading to growth above 20% and share gains for <unk>.
A few weeks, we're bringing additional capacity online in our west coast facility and expect to see continued growth and share gains this year.
And we continue to broaden and deepen our relationships with multifamily and commercial customers throughout our VPI quality windows business.
Since the expansion of our new East Coast facility in Statesville, North Carolina in the fourth quarter, we secured seven new projects in 2022 with one of the largest multifamily builders in the United States and expect to secure incremental business with new customers as the year progresses.
We expect these unique growth drivers and continued positive housing demand to accelerate topline growth.
While the steps, we're taking to get ahead of inflation will deliver margin expansion and improved profitability in the back half of 2022 now.
Now I'll hand, it over to David to give more detail on the financials.
Thank you Gary good morning, everyone.
I'll begin on page seven with our consolidated first quarter results.
Q1 marks our seventh consecutive quarter of core revenue growth.
Net revenue increased 7% to $1 2 billion driven by 10% core revenue growth, partially offset by 3% adverse foreign exchange impact.
Core revenue increased from a sequential and year over year improvement in pricing, partly offset by lower volume mix adjusted.
Adjusted EBITDA decreased 18% to $80 2 million driven by significant increases to input costs.
Adjusted EBITDA margin compressed 210 basis points.
Net loss per share and adjusted EPS of <unk>, 16 cents, respectively, compared to EPS and adjusted EPS of <unk> 25, and 27 a year ago.
Page eight provides a detailed breakdown of our revenue drivers for the first quarter.
We delivered another quarter of strong core revenue growth positive core growth in each segment.
Pricing increased sequentially as we executed additional price increases to mitigate the impact of inflation.
Price realization was strongest in North America at 14% followed by Europe at 11%, while Australasia increased 6%.
<unk> decreased 2% in the quarter, driven primarily by slower backlog conversion in Australasia and softer demand in Europe as.
As well as having one less selling day in the quarter.
Please turn to page nine which shows the magnitude of raw material and freight inflation over the past four quarters and the price increases we've instituted to mitigate the effects.
While material and freight inflation was greater than expected, we successfully offset the impact with price.
<unk> was further moderated through our sourcing partnerships and value engineering initiatives.
We expect price cost to become a tailwind as we move through the year.
Moving to page 10, you can see our segment highlights for the first quarter.
Core revenue growth in North America was 13%, primarily driven by strong price realization, while volume mix was a slight headwind.
Revenue growth accelerated through the quarter, driven by strong pricing and positive volume mix contributions in both February and March.
Jim actions and improved labor productivity drove meaningful improvement in throughput through the first quarter with weekly volumes in March up high single digits compared to the fourth quarter.
Setting the stage for future growth.
Order rates remained strong, particularly with our traditional channels, which increased roughly 40% over last year due to strength in residential new construction.
Adjusted EBITDA margin in North America decreased 320 basis points, primarily due to higher input cost, including raw material freight labor and energy as.
As well as startup costs for new capacity.
North America fully covered raw material and freight inflation with price on a dollar basis, but the impact is diluted the margin rate.
Europe revenue increased 8%, 1%, including the impact of foreign exchange.
Another quarter of strong price realization drove core revenue growth, partially offset by lower than anticipated volume mix.
Our order book remains strong, particularly in central Europe , However, inflation pressures and a general uncertainty related to Russia's invasion of Ukraine impacted demand in other markets.
Europe adjusted EBITDA margin decreased 450 basis points again pricing improved year over year and sequentially. However, the deleverage impact of lower volumes due to market uncertainty delays and higher margin project work and inflation pressures, particularly for energy metals and labor will consider.
<unk> margin headwinds.
Australasia revenue increased 1% in local currency declined five 2% FX adjusted.
Orders remained very healthy, reflecting our strong market position and continued solid demand for new housing.
Volumes, however were temporarily impacted by severe flooding along the eastern seaboard and from a spike in COVID-19 related absenteeism.
Pricing stepped up meaningfully both year on year and sequentially as we implemented additional actions to mitigate the impact of inflation.
Australasia adjusted EBITDA margin decreased 170 basis points in the first quarter, primarily due to the deleverage impact of lower volumes.
Please turn to page 11.
Operating cash flow used during the first quarter was $186 9 million compared to $64 9 million last year.
The increase in operating cash flow used in operations was primarily due to higher working capital needs driven by inflationary impacts on the balance sheet and lower net income.
We expect improved cash flow conversion this year as inventory investments convert to revenue and ultimately to cash.
Our balance sheet liquidity remain in a solid position we.
We ended the quarter with total cash and liquidity of $265 6 million and $584 7 million respectively.
Net debt leverage increased to three five times from two eight times at year end, primarily due to the temporary impact of inflation on our cash flow and from utilizing our sizable cash position repurchased $42 million of our shares or about 2% of the total shares outstanding.
Our net leverage target remains at two times to two five times and we expect to make considerable progress towards this goal for growth and margin expansion this year and accelerated cash diversions.
We'll continue deploying our cash in a disciplined returns focused manner and compounding returns on that cash over time.
Looking forward, we remain confident in our full year outlook.
Input cost inflation will continue to have some negative impact in Q2, and we expect extended market uncertainty in Europe .
However, pricing actions have been announced and all of our markets and realization will accelerate through Q2.
And the balance of the year.
Additionally, we have meaningful ongoing initiatives in place to drive growth and additional margin expansion as we progress towards our 2025 financial goals.
With that I'll turn it back over to Gary who will provide our closing comments.
Thank you David before we discuss the market outlook I would like to provide an update on the divestiture process for our wood fiber building products business into one in Pennsylvania.
As we shared in the third quarter of 2021, the court appointed a special master to oversee the divestiture process in February the special Master issued a report that identified multiple acceptable bids and recommended that one of the bidders no longer be considered a viable contender.
Antitrust concerns.
As part of that process. The court asked the department of Justice for its views on the special Masters recommendation, which is expected to be delivered later this month.
We continue to work with the special Master and his advisors to identify a buyer and closed the transaction while timing is uncertain, we are well prepared to navigate each possible outcome and remain focused on ensuring a fair and orderly transition for associates and customers while delivery.
<unk> value for our stakeholders.
Please turn to page 13, and our market growth outlook.
In North America, we continue to expect strong demand for both residential new construction and R&R activity. This.
This demand is driven by favorable demographics healthy consumer spending and high personal saving levels record home equity and an aging housing stock.
We recognize potential affordability challenges may create a temporary lull in demand during the second half of the year, but we believe the tailwind to demand, including migration and move up will be more powerful and durable and long lasting.
For Europe , Russia's invasion of Ukraine has created uncertainty in the near term. However, our operations are in many of Europes strongest economies and we expect activity to accelerate once there is greater clarity on the duration of the war in Ukraine.
And then Australasia demand for new residential homes remains robust as the country's housing market continues its recovery from a multiyear recession, we expect housing demand and fundamentals, including record low interest rates and significant pent up demand to remain supportive and we expect demand for our <unk>.
Alex to remains strong throughout the remainder of the year.
Please turn to page 14.
While we've experienced extraordinary global headwinds in the past two years, we remain acutely focused on the aspects of the business that are under our control.
We are well positioned to capitalize on favorable housing market trends by realizing internal productivity improvements from our initiatives offsetting inflationary impacts through price realization and launching new innovative growth products that are margin accretive as.
As we look ahead. The work we have done over the past few quarters has positioned <unk> to be successful in any market environment and we remain committed to our outlook for the year. We are confident that our efforts to provide a differentiated customer experience and industry, leading capabilities, we will draw.
<unk> long term value for all of our stakeholders. Thank you for joining us today, David and I will now be happy to take your questions.
Thank you at this time I would like to remind everyone in order to add.
Asked a question press Star then the number one on your telephone keypad.
Your first question comes from Matthew Bouley from Barclays. Please go ahead.
Hey, good morning, everyone. Thank you for taking the questions.
I think Gary you said it sounded like Q1 would have come in at the high end of the year of your expectations, but for the additional step up in inflation.
Understanding that the fiscal year guide is unchanged can you just kind of elaborate a little on how the cadence of that margin recovery now looks relative to the prior guide and if there are any changes to the segment outlook. Thank you.
Thanks, Matt.
Yes.
As you know we guide for the full year and we are committed to our guidance for the full year or on an internal basis, our first quarter missed slightly on our internal expectations.
Again.
The uncertainty that we saw in the first quarter from inflation and a little bit of volume decline.
Based on.
What's going on in Europe .
We saw sequential improvement in growth through this through the quarter, we'll expect that to continue.
Through this quarter and into the rest of the year.
As we talked about earlier on the last call. We've got some good pricing we've had to take some more pricing actions were pulling some other levers on cost and.
Just making sure that we are set up correctly.
Stablish and Youre, not reestablishing, but reaffirming.
What we're working on a rationalization modernization programs and Jim.
And then we have the unique growth drivers that we talked about earlier in the year.
Specifically kicking in late second quarter into the rest of the year, so feel pretty good about the year.
A little bit of inflation, primarily the difference for us was on on.
On energy energy related and some metals, so anything related to energy, including freight utilities.
We saw acceleration there, but we've got price.
Price in place, we believe to become a tailwind for the full year.
Got you. Thank you for that color and then.
Secondly, I think last quarter, you said that in terms of the organic growth guidance that more than half of that growth was price and obviously this quarter I think volume mix was was down across segments or are you finding that I don't know if customers are reducing volume purchases as a result of all this price.
Is that kind of mix of price versus volume changed.
In the guidance expectation for the year.
Yes, I don't I don't think that we've seen.
The.
The volume necessarily decline because of price.
With the exception of maybe a little bit of the uncertainty that we saw in Europe for a short period of time there.
Sydney or in an R.
Australia, we saw the flooding in.
Yes.
In Sydney in those areas that slowed us down a little bit made it hard for contractors to pull through that's behind us.
And for the most part a lot of the growth drivers that we've been talking about new products like or align our VPI expansion.
The exterior door door growth and new capacity coming online, that's just starting to hit us but as we.
As a plus so as we we looked at the quarter stepping through the quarter. We saw a sequential improvement. So that's a sequential growth, particularly in North America, and we would expect that to flow through for the rest of the year that pricing that we've got well we've taken some additional levers and we expect that too to push through.
And offset some of this new inflation.
In this quarter and beyond.
Alright, Thank you Gary and good luck.
Great. Thanks, Matt.
And your next question comes from Mike <unk> from J P. Morgan. Please go ahead.
Hi, Good morning, Doug <unk> on for Mike.
I was wondering if you guys could give a little bit more color on how sales trends have varied by channel I know you mentioned it briefly earlier, but was wondering if you can kind of give more insight into that.
Yes, so we've seen some favorable mix.
And in channels IRR in North America in particular, our traditional channels doing very very well.
Anything related to residential new construction has been going pretty strong we see good demand.
Theyre not not to say that R&R is not good at is we've just seen a bigger growth in in residential new construction and in our traditional channels in North America in Europe .
Mix shift has been a little bit less commercial in the northern portions of Europe , where we tend to be a little bit more commercially focused.
Geared more towards residential and R&R type business.
And again, that's mostly just due to pushing out a project no straight cancellations, but we did see some destocking there related to the war and then.
High demand on RMC, and R&R in Australia or in Australasia.
Mostly just a <unk>.
Supply and a pull through piece there is contractors couldn't work.
With all the flooding events that happened during the quarter those are behind US. We believe in that demand will start to pull through as as crews get back to work and and we're able to ship the product.
Great. Thanks, So I guess going going off that in terms of describing kind of channel inventory levels would you say, they're moving back towards normal or do you give a little bit more color on that.
Yes, I would say, so we're seeing a little bit more normal cycle in retail.
Typically first quarter tends to be a slower quarter, but one where we build up inventories and are ready to to supply for the season were clearly watching that as we go back probably the first normal season or a normal looking season, we've seen in a while so we're cautious about it but.
But yes, we're seeing inventories certainly in retail about normal and nothing really to call out in our traditional channels.
We have some decent lead times.
On most of our product lines.
Continue to have commercially beneficial lead times, even though some are still extended beyond pandemic levels, but but I would say that there's nothing really to call out in terms of stocking anywhere other than I feel like the retail.
On the retail patterns are becoming a little bit more kind of pre pandemic normal.
Awesome. Thank you.
Your next.
Next question comes from Deepa Raghavan from Wells Fargo Securities. Please go ahead.
Hi, good morning, everyone.
As we stand today can you talk about the dollar value of productivity savings that is yet to be realized <unk>.
<unk> been talking about some newer initiatives and just curious whats the timeline for realization.
So we.
We've been talking about.
Sure.
The initial commitment that we made around our rationalization and modernization programs around $100 million.
Majority of that is <unk>.
Either in our numbers or is action and about about to be realized within the year for that first $100 million. What I would tell you is we continue to stay on the same and that was the first three year program. We continue to stay on that same base and we've got additional items that were.
Were initiating now or actually executing on now that will start to see benefit even in the second quarter third quarter and beyond so as we continue down that program. We haven't stopped at the original 100 million I would say that we would continue our rationalization programs.
At about the same pace that we've been on for the last last several years.
Okay, that's fair.
Apart from the incremental inflation. There is also this forex headwinds that up here.
Than anticipated at the time of guide.
Are there any positive aspects offsets that you expect some time.
Just trying to see how that may or may not impact the high end of guidance.
Deepa I am sorry did you say FX are.
Yes, Forex currency.
Okay.
Well.
What I'd say is.
It's a little difficult right now in order to.
Speak directly to the Forex headwinds as.
As we see the dollar getting the strengthen obviously that'll have a little bit of an impact.
But I would say that we wouldn't expect anything too terribly meaningful from a forex.
Impact over the balance of the year.
Got it if I can squeeze one more in can you talk to how the CFO search.
Progressing and any thoughts on timeline at this time.
Thank you.
Sure So David's right here.
So it's a matter of debate you don't like me.
Yes.
We're continuing our search.
Underway.
And.
We would expect to.
To complete that within the quarter.
Got it thanks, I'm going to ask you. If you if you're also looking externally, but David yes.
Trust me.
We're all on the same page here.
Alright, thanks, so much good luck.
Okay.
And your next question comes from John Lovallo from UBS. Please go ahead.
Good morning, guys. Thank you for taking my questions.
The first one I guess is just going back to Matt's question on the quarterly cadence and understanding that you guys don't want to give real specific quarter.
Quarterly outlooks, but should we is it fair to assume that the second quarter margin could be down by a similar magnitude year over year as the first quarter and if so I mean that would seem to imply a fairly significant ramp in the back half and so I'm just curious what level of incremental inflation, you're expecting in the back half.
I would say that we'll continue to see some of the inflationary pressure that we saw in Q1 in Q2, we'll start to see pricing accelerate over the course of Q2 and I do expect.
To see an improvement in margins over the course of Q2, but the real tailwind will occur as we get full deployment of our pricing as we head into the back half of the year.
Okay got it.
And then it was.
Some of these accelerated process transformation. So you guys are putting in place it sounds like it's a really good opportunity there, but I'm just curious what the incremental cost is associated with those actions.
What I would tell you is it.
It's similar to what we've been we've we've seen in the in the past Theres really nothing to call out.
That.
That is significantly bigger the paybacks are fairly quick.
And they're built into into our guide.
I would tell you that.
That we see.
Yes.
We typically look at them from the rate of return in some of these are a result of the work that we've done and Jim and improving our capacity in a number of facilities.
And that gives us the ability to bring capacity and from smaller.
Less important implants.
But we're able to to close take cost out and and continue to to grow our capacity. So very similar to the same programs that we've been talking about for the last three years really where the investment kind of.
It's almost become a virtuous cycle at this point, where we lean out lean out facilities.
Making room for taking on additional capacity and we take the latent capacity offline and we continue to win.
Okay. Thank you guys.
Your next question comes from Truman Patterson from Wolfe Research. Please go ahead.
Hey, Good morning, guys just wanted to follow up on John and maps question for clarity.
Is the reiteration of 22 EBITDA guidance.
I take it it's based on kind of the current inflation as of April , but then incremental price price capture from the recent announcements as we move through the year is that a fair way to think about it.
That's fair, although we do continue to anticipate and our model continues to anticipate fairly significant inflation throughout the year the balance gets better, though as we get into the back half.
In addition, remember we talked about some unique growth drivers that we had through the year, which will continue to hit.
Those.
Those will benefit us as we continue through the year as we've launched our <unk> product.
We're able to ship.
The new capacity out of our BPI facility and out of our exterior plant.
And you put on top of that the levers that we're pulling.
To pool on on a re.
On our.
Restructuring programs on our rationalization and modernization programs.
Okay, Okay and then.
It looks like <unk>.
During the quarter pricing offset material and freight inflation I'm trying to understand what lever level of labor inflation, you all saw during the quarter and how.
That looks like it's trending for the full year 'twenty two.
So we saw additional labor inflation certainly in the quarter at the beginning of the quarter, mostly related to some of the early omicron COVID-19, but not meaningful for the remainder of the corner. It was really a couple of weeks.
That certainly had a little bit of effect the bigger the bigger factor was on anything energy related.
The.
Particularly in utilities in Europe , and anything related to freight and transportation.
Okay. Okay. Thanks for that and then final one for me on capital allocation.
You all repurchased 40 million of.
Shares during the quarter.
Trying to understand is this a level that you feel comfortable with moving forward.
Continuing to turn into a consistent share repurchase there or just.
Given some of the macro uncertainties to.
Put more toward debt reduction or shoring up cash.
So I think we're in a pretty solid position from a balance sheet standpoint, and cash generation standpoint, we feel pretty good about where we are.
Obviously, we have some great internal programs that are high returning that will continue to invest in.
We will continue to buy our shares opportunistically as we have in the past and.
At current levels. It makes a lot of sense. We we believe in our guide we believe in our for the full year as well as for our long range.
The long range plan that we put out in our Investor day last year. So we're pretty confident in those and we're looking at as always at at.
At M&A as a potential opportunity for us to accelerate our strategy and to continue to grow the company.
Alright, Thank you and good luck in the coming year.
Thank you.
Your next question comes from Mike Dahl from RBC capital markets. Please go ahead.
Good morning, Thanks for taking my questions.
Gary sorry to keep harping on the cadence here, but.
Just to follow up one more time on it I mean.
Eric <unk> given some of the puts and takes was a little below internal plans some of the near term.
Reality is around the cost inflation and maybe some disruptions.
Those are those are real so it doesn't imply that.
Something incremental as expected relative to prior guide to.
To go to be better than original plan as you go through the year and you've talked about ROI on some of that.
Other capacity coming on but can you go into a little more detail around kind of what incremental positives are really assumed to help you bridge from kind of the first half shortfall.
Yes, Mike I would say that.
First of all you got to look at when we made our guide for the full year, we really don't give guidance quarter to quarter. So.
Our internal we have an internal number we we did miss that slightly in the first quarter.
But not buy something and Surmountable additional price has been initiated already based on the inflationary pressures that we saw.
In the first quarter.
You add on top of that.
Our operations are running really well, we've been talking about that for quite some time, our ability and demand in the underlying markets are really strong.
We're seeing so we have the ability to get.
To execute fairly well against that the addition of price.
Obviously, the acceleration of some of our.
Some of our programs around rationalization and modernization that we've been have had underway, we will continue to out and continuing to drive that but we're also very.
We're very excited about the kind of <unk> specific growth drivers that we've been talking about which will start hitting here in season.
For the remainder of the year those are margin accretive.
And and and big growth drivers. So we feel very very good about those.
Got it okay. Thank you my second question I understand that you may be a little bit limited on what you can or want to talk about on to Wanda and the timing is uncertain, but given the timeline that you see in terms of what's been recommended by the special Master that Doj now.
Kind of taking a look at that.
Do you is there any sense of timeline for how we should be thinking about ultimate resolution and I guess as part of that when when will those results actually be.
Separated out would that be on.
And ultimate decision around.
What happens with the bid and divestiture or is that on <unk>.
Finalization, our closing of the divestiture.
I would tell you that we're.
It's an interesting process. It's a first of its kind so it's being being controlled by by the pace of the court and at this point.
We're awaiting certain decisions of the court and the.
Of course waiting on that.
Opinion from the Justice Department. So we're probably several weeks away from from from the court having.
Having that and continuing to move the process forward I would say that as far as the results go.
It's to a certain extent at the Mercury the mercy of the court.
We use that.
Freight in terms of the timing of the process itself as.
As far as the results of the business.
When we would separate out we would do that at the appropriate time based on.
On the on the position of where it is and what our advisers recommend from.
From that standpoint for so for the time being there in our results and will remain there.
Okay. Thanks, Gary.
Your next question comes from Susan Mcclary from Goldman Sachs. Please go ahead.
Thank you good morning, everyone.
Our first question is looking at the volume cadence or are there volume next cadence in North America, considering your commentary Gary around the backlog, there and the sort of cadence that youre seeing or you saw through March does that suggest that you could see a positive shift in terms of the volume mix as we go through the <unk>.
Several quarters that that can be sustained and especially when you think about some of the comps that you're facing in the second quarter and then in the back half.
Yes, Susan Thanks, a lot for that.
We are we have seen the north American <unk>.
Business sequentially improving.
Even through first quarter that mix piece towards our traditional business and RMC continues to move favorably as well as does in the retail segment.
The mix of more specials versus.
Versus stock so kind of favorable we would expect a favorable progression in North America on on volume mix side through that through the year. Good demand good fundamentals of the market on relate.
It related to building so we feel we feel pretty good about that mix progression.
Okay. That's helpful. And then I guess following up on that when you do think about what's going on on the ground in terms of housing and builder builders efforts to focus on affordability. There is there anything that's changing in terms of your conversations with some of your customers, especially on that wholesale distribution side.
Anything in terms of some of the mix that's coming through in order for you to help them to get to those targets that they're trying to achieve on the ground.
Yes, its interesting its something I mentioned as well in the prepared comments.
Working with.
With builders and with our.
With our traditional channel partners, we've been able to focus on.
Some quick ship programs and.
Some.
Kind of just in time or just as they needed type programs, where we've been able to utilize our SKU rationalization program to pick kind of the on trend, but most popular most popular on trend type of Skus and and really focus the efforts on that so customers still get paid.
Both easier for us to plan to manufacturing and to forecast around easier for our channel partners to be able to move them through their system and easier for builders to select and Thats really been an advantage here for builders as well as the channel partners. So that's one example of some of the.
The things that we're doing there I think we've talked in the past about our exterior door systems for example, as being a real winner.
Where we've been able to do more of the way, we think of pre hang for exterior doors, taking that entire entryway door system put it into our system. It's easier to install allows a different type of labor to put that in which makes it easier to select easier to transport and easier to install so those are some of the things that we're working.
Honest work working with our channel partners and customers to solve their problems.
And it adds value, which is a great thing for us as well.
Okay. That's very helpful. Thank you and good luck.
You.
Your next question comes from Phil <unk> from Jefferies. Please go ahead.
You guys.
Given the uncertainty in Europe , and affordability concerns in the U S. Gary you kind of mentioned you alluded to maybe potential risk of a temporary lull in the back half of this year. How do you see your volumes kind of holding up in that backdrop, just given how your backlogs are fairly extended.
And how do you start seeing orders from some of those customers in Europe normalize again.
So we.
I just.
So on packed high question, a little bit what we see is we've seen a little bit of the uncertainty in Europe I'll take that first we've seen seeing that primarily in our commercial businesses in certain regions of Europe , where there's been some uncertainty and slowdown.
Pushing orders out or pushing projects out and a little bit of destocking in some of those areas.
I think that's going to continue a little bit here into the second quarter and just really based on kind of the news and the things that we see going on.
We'll be watching that very closely but we are still seeing some robust activity in other parts of Europe .
In North America, we've seen sequential growth.
Through through the quarter and we expect that to continue through the year with more favorable mix of right now we're sitting on some pretty good backlog.
Demand continues to be fairly strong so while we'll see some of the call. It inflationary pressures as price continues to to take on particularly this new set of energy costs or freight.
We would expect that to sequentially improve as we exit the second quarter into the second half and then a lot of those growth initiatives really start kicking in here.
Kind of end of this quarter as we start Jim we've announced that we're starting to ship or align our new composite product this quarter.
The BPI expansion is going really really well and we continue to see that exterior business, our exterior products business going well. So we would expect all of that to kick in and just be natural levers for growth in the second half as we talked about.
Got you and then from a supply chain labor bottleneck standpoint, it's kind of been a drag on your volumes last few quarters is that largely behind you at this point and should we expect volumes to actually inflect year over year in <unk> and any color on any impact from the whole, Russia, Ukraine in China, Lockdowns situation from a supply chain and.
Material availability standpoint as well.
Yes, I'll start with the material availability piece.
An agenda on a general basis across the entire enterprise, while we've had.
Like any at any time in history. We have always had you always have some material or some issue on they may be even a little bit exacerbated over the last 12 months or so but really right now I can't report to you any direct outage that is causing us not to be able to.
To meet customer demand is there some magic.
Are the feet of the dock moving really quickly underwater, yes, absolutely, but we have not missed any shipments or delays and there are a couple of commodities couple of products that we wish we could get faster and.
We're working on that through Resourcing and sourcing.
All kinds of things right, but I would say, there's nothing there that's causing us to two.
Two delay customer shipments on the.
On the side of labor availability or big issue around associates.
It was really kind of the third quarter of last year, and we really address that.
For the most part and we saw sequential improvements in our throughput all the way through the end of the year even into the beginning of this year, we had a short period at the beginning of this year with the omicron kind of couple of weeks, there where we saw some accelerated.
<unk> T is but I would say that's really behind us we've.
<unk> been able to work through and solve some problems or we've gotten kind of used to what we need to do in order to to address it but our our jem programs and the work that we've been doing on improving throughput has seen us sequentially improve which is why the output of that is the lead times that are customers.
We're seeing on our products and for the most part certainly on the door side, we're seeing pre pandemic lead times.
It's certainly an interior doors.
Darn near close on that on exterior and our window products continue to have industry, leading lead times as well so I feel like we're kind of demonstrating that for the customer and.
And it's a result of all the work that we've done on throughput improvement and ensuring that we're staffed correctly.
So given.
The progress you guys have may Gary should we expect that inflection that didn't materialize in <unk> from a volume standpoint or is it more back half loaded.
I would say that where youre going to what youre going to see is some of the inflationary pressures continue to show up in the second quarter as price.
And and perfecting that that.
Backlog reduction happens in the second quarter, but I would say that you will definitely see that in the back half of the year as we're able to leverage the other growth initiatives on top of it as well.
Okay Super Thank you.
Your next question comes from Dan Oppenheim.
From Credit Suisse. Please go ahead.
Yes.
Great. Thanks very much.
Our questions have been answered with space in terms of the.
The margin pricing, you've talked about that coming through in the second half of the year for.
For North America, you're talking about the growth that Youre seeing but then also mentioned a potential for the sort of affordability driven lull in the second half.
That's more of an acknowledgment of the risk would not in the expectations at this point, but you are assuming that this growth continues through the second half correct.
Yes so.
Sure.
Yes.
Yes.
We're obviously watching.
RMC and.
And what's going on in those markets and I would tell you right now.
We see the fundamentals of that continuing to be strong based on the order loads that we're getting and.
And the backlog that we continue to have.
I would tell you that what's driving our growth are some gel when specific things, we're adding a bunch of new products that are that are laying on top of.
Anything else that we're doing so that's built into our forecast for the full year as well and we continue to see based on the pre sale of some of those products.
That is going to propel us and drive us in that second half.
Okay. Thanks very much.
Your next question comes from Josh Chan from Baird. Please go ahead.
Hi, good morning, Gerry and David.
Thanks for taking my questions.
In North America is there any color that you can give in terms of the difference in performance between doors and windows from some of that growth or margin perspective this quarter.
So if I heard the question correctly.
Trying to get some understand differentiation in margin and growth in doors and windows.
Correct, yes.
Yes, I would say that.
Yes.
Both are moving in the right direction, we've been equally working on doors and Windows, We don't see any fundamental reason why both.
Both can't continue to grow.
From a margin expansion standpoint, we've been working on windows from an operational standpoint.
As you know a number of years ago, we had some issues there.
We don't see any appreciable difference between the two it.
It comes down to mix of what we're selling and.
And the channel I mean, that's way more important than than any fundamental issue that we see in the product lines themselves. When you think about where we've got some good growth initiatives.
Doug the two notable ones.
Particularly at <unk>, which is an accretive.
Window products for US, we'll help propel margins in that arena and the more that we sell the mix of exterior and interior doors helps as well. So we've got kind of focused on both and there is no structural reason why both can't can't propel and <unk> continued to grow.
Alright, thanks for the color there.
My second question in Europe , I think Gary you mentioned that Central Europe was pretty resilient.
Could you just kind of ballpark for us how much of Europe business is is part of the more I guess resilient type of end markets now.
How much of the Europe business kind of goes into the areas that are seeing a little bit more of it.
The reservation in terms of volumes currently thank you.
So I'll take that because I was looking after Europe for a period of time.
What I would say is that the.
Seeing resilience across kind of the broader portion.
Europe , we do have some pockets where.
There were where there is some where there is some impact and there is some uncertainty.
Typically in northern Europe is where we're seeing a little bit more impact.
Central.
Europe and the UK is where we were anticipating.
Some more growth so I'm not sure that that helps you a whole lot but.
I think thats I think thats pretty much where we said.
Alright, thanks for the color in terms of the time guys.
This is all the time that we had for today I will turn the call back over to Gary for closing remarks.
Well. Thank you all for joining us today just to reiterate.
Our operations are strong.
We are we feel good about the housing fundamentals in our markets and we.
We feel good about our our forecast for the full year and we reiterate our guidance for the full year based on.
Our ability to to overcome.
Some some inflation with pricing as well as our gel one specific growth initiatives that we've been talking about we'll look forward to sharing with you the results of.
Of our growth initiatives are continuing work with Jem and rationalization and modernization programs in the coming quarters and thank you again for your interest.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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