Q4 2022 American Woodmark Corp Earnings Call
Good day and welcome to the American would Mark Corporation fourth fiscal quarter 2022 Conference call. Today's call is being recorded May 'twenty six 'twenty to 'twenty two.
During this call the company may discuss certain non-GAAP financial measures, including in our earnings release, such as adjusted net income adjusted EBITDA adjusted EBITDA margin free cash flow net leverage and adjusted EPS per diluted share.
The earnings release, which can be found on our website American would mark Dot com includes definitions of each of these non-GAAP financial measures the company's rationale for their usage and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures. We also use our website to publish other information that may be important to investors.
As such as Investor presentations.
We will begin the call by reading the company's Safe Harbor statement under the private Securities Litigation Reform Act of 1995.
All forward looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that maybe may be beyond the company's control accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward looking statements such factors.
Include but are not limited to those described in the company's filings with the Securities and Exchange Commission and the annual report to shareholders.
Company does not undertake to publicly update or revise its forward looking statements, even if experience or future changes make it clear that any projected results expressed or implied there and will not be realized.
I would now like to turn the conference over to Paul to him check Vice President and CFO . Please go ahead Sir.
Good morning, ladies and gentlemen, and welcome to American <unk> fourth fiscal quarter Conference call.
For taking the time today to participate joining me Scott Culbreth, President and CEO Scott.
Scott will begin with a review of the quarter and I'll add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions Scott.
Thank you Paul and thanks to everyone for joining us today for our fourth fiscal quarter earnings call. Our teams delivered fourth fiscal quarter net sales of $501 7 million a growth of 6% are.
Our made to order backlog represented by days of production decreased slightly versus the prior quarter, but remains elevated.
Our April made order production levels were at all time highs.
<unk> levels of performance of our supply base continues to improve and we ramp up our new Assembly line in our guest city plant.
Our stock platform is challenged with staffing levels, leading to a decline in units versus the prior year.
Our operations team has developed a number of actions we will execute by the fall to increase capacity in stock kitchen, and Bath production via footprint adjustments as sales are being shifted to other locations within our network along with the addition yourselves.
We're also implementing new compensation plans to improve attraction and retention of employees.
Within new construction, our business grew eight 5% versus prior year.
Strong order growth remained across our markets.
Interest rate increases and home price increases created concern in the market that a slowdown is possible.
We monitor many factors when assessing the strength of the market and note that although the mortgage rates are 12 years highs rents had been increasing and housing inventory remains low.
Our backlog is healthy and should buffer any short term disruptions in demand.
Looking at our remodel business, which includes our home center and independent dealer and distributor businesses revenue grew four 5% versus the prior year.
Within this our home center business was up two 5%.
Our made to order business the stock kitchen business delivered above average comps for the period.
With regards to our dealer distributor business, we were up 11, 9% for the quarter is remodel demand remained strong.
Our adjusted EBITDA was $44 $5 million with EBITDA margins at eight 9% for the quarter with reported EPS of <unk> 87, and adjusted EPS of $1 38.
This resort results fell short of our expectations for the quarter due to additional inflation she'll call surged as a result of the war in Ukraine and material cost continued to increase.
Our teams have captured incremental pricing going forward to mitigate fuel increases and a final on July one increases across new construction dealer and distributor channels.
We're in the process of communicating price increases to the home centers.
Our cash balance was $22 $3 million of into the fourth fiscal quarter and the company has access to an additional $237 $5 million under its revolving credit facility.
We repurchased $25 million or 300000 shares of stock during the fiscal year and paid down $15 5 million in debt.
Regarding fiscal year 'twenty, three we expect both new construction and remodel to grow for the fiscal year.
We will continue to reduce our backlog throughout the fiscal year and pricing will contribute meaningfully year over year.
Adding a mid teens to high teens growth rate in net sales.
Cost of goods sold inflation expectations for fiscal year 'twenty. Three include an additional approximate seven 5% for materials and logistics on top of what was realized in fiscal year 'twenty two.
We will be able to recover inflation via confirmed an announced price increases the note theres a lag between incurred inflation and realized pricing delaying sequential EBITDA expansion into Q2 through Q4.
Although profitability goals were not fully realized in fiscal year 'twenty two our strategy remains intact and profitability will improve into fiscal year 'twenty three and beyond.
As previously shared our strategy has three main pillars.
Growth digital transformation and platform design.
Growth for our business will be realized with your product and channel expansion, we will continue to evolve our offering to meet our customer needs, while ensuring we maintain a relevant lean product line.
E Commerce capabilities remain under development to assist our partners drive consumers from inspiration to purchase.
Digital transformation to bringing our company together as one via Oracle and Salesforce are well underway.
As mentioned last quarter, our financial procurement functions went long on February one.
We will continue to optimize the system and begin planning for the next implementation area in manufacturing.
Sales force should be live by the spring of 2023.
Platform design, which includes our overall manufacturing and distribution footprint Opex and automation efforts to improve margins will also improve our customers' experience.
Our commitment to ESG continues and I hope you've been able to review a number of our disclosures made over the past few months that highlights our path to sustainability environmental stewardship policy human rights policy and supplier code of conduct.
Safety remains our number one priority and we again delivered a strong osha rate of 142.
Investments have also been made in talent our re.
Recently announced a new leader over our new construction business and additions have been made in key operations roles like SIOP and final mile delivery materials.
Our culture and people will drive profitability through each of these efforts.
<unk> will expand sequentially throughout the year is there a price realization grows and efficiencies with the platform improve.
EBITDA dollar growth of over $90 million is included in our plan for fiscal year 'twenty three.
A range of the net sales growth range previously shared.
In closing I'm proud of what this team has accomplished and look forward to all of their contributions in fiscal year 'twenty three.
I will now turn the call back over to Paul for additional details on the financial results for the quarter.
Yes.
Thank you Scott.
Financial headlines for the quarter net sales were $501 7 million, representing an increase of 6% over the same period last year.
Adjusted net income was $22 9 million or $1 38 per diluted share in the current fiscal year versus $22 5 million or $1 32 per diluted share last year.
Adjusted net income for the fourth quarter of fiscal year, 2022 increased 0.4 million due to higher sales and a one time tax benefit partially offset by higher material and logistics costs combined with supply chain disruptions.
Adjusted EBITDA for the fourth fiscal quarter was $44 5 million or eight 9% of net sales compared to $48 2 million or 10, 2% of net sales for the same quarter of the prior fiscal year.
<unk> results for the fiscal year ended April .
Net sales for the current fiscal year were $1.857 billion, representing an increase of $113 2 million or six 5% from the prior fiscal year.
Adjusted net income was $54 8 million or $3 30 per diluted share in the current fiscal year versus $111 4 million or $6 54 per diluted share for the prior fiscal year.
Adjusted EBITDA for the current fiscal year was $138 million or seven 4% of net sales compared to $226 5 million or 13 point.
As a percent of net sales for the prior fiscal year.
Just a reminder, that our prior year financials were restated due to the change in accounting methodologies from LIFO to FIFO for our inventory.
Looking at our sales channels for the quarter, the combined home center and independent dealer and distributor channel net sales increased four 5% for the quarter with home centers, increasing two 5% and dealer and distributor increasing 11, 9%.
New construction net sales increased eight 5% for the fourth fiscal quarter.
Timberlake direct business grew both in units and dollars as demand continued to be strong throughout the quarter.
New construction sales channel outpaced market demand during the fourth quarter of fiscal year 2022, recognizing.
Recognizing a 60 to 90 day lag between start and cabinet installation. The overall market starts and single family homes was up 3% for the fiscal fourth quarter.
At completions during our fourth fiscal quarter, we saw four 3% increase year over year, which further supports timing impacts that are occurring in the market today to represent a 120 day plus lag between starts and completions.
The company's gross profit margin for the fourth quarter of fiscal year 2022 was 13, 9% of net sales versus 15 six reported in the same quarter of last year.
Gross margin in the fourth quarter of the current fiscal year was negatively impacted by continued higher material and logistics costs combined with disruptions in our supply chain.
These costs were partially offset by the increase in sales, creating leverage of our fixed costs in our operating platforms.
Total operating expenses were 10, 1% of net sales in the fourth quarter of fiscal 2022, compared with 11% of net sales for the same period in fiscal 2021.
Selling and marketing expenses were four 9% of net sales in the fourth quarter of fiscal 2022, compared with five 5% of net sales for the same period in fiscal 2021.
The ratio to net sales decreased 60 basis points, resulting from controlled spending and leverage created from the higher sales in the fourth quarter of fiscal 2022.
General and administrative expenses were five 2% of net sales in the fourth quarter of fiscal 2022, compared with five 5% of net sales for the same period of fiscal 2021.
The decrease in the ratio was primarily driven by the leverage from higher sales and lower spending.
Free cash flow totaled negative $27 1 million for the current fiscal year compared to $105 4 million in the prior year.
The decrease was primarily due to the changes in our operating cash flows specifically lower net income higher customer receivables and inventory balances, which were partially offset by higher accounts payable and accrued expenses as a result of our increased sales.
Net leverage was 343 times adjusted EBITDA at the end of our fourth fiscal quarter.
For the fiscal year, the company paid down $15 5 million of debt and we repurchased $25 million or 300000 shares.
The company's cash position and availability under our revolver as of April 32022 was $237 5 million.
Shifting our focus to fiscal 2023, we expect mid teens to high teens growth rate in net sales versus fiscal year 2022.
The growth rate is highly dependent upon overall industry economic growth trends material constraints labor impacts interest rates and consumer behaviors are.
Our price increases will take effect at various stages throughout fiscal 2023 with pricing being realized first in our new construction channel followed by dealer distributor and then home centers.
Our outlook for adjusted EBITDA margin percent for the fiscal year, ending 2023 will range from high single digit to low double digit EBITDA.
Inflationary pressures for raw materials fuel and logistics will continue through the first half of fiscal year 2023 and.
Our margins will expand sequentially throughout the year as our price realization growth and efficiencies with the platform improve.
We continue our investment back into the business by increasing our capital investment rate to a range of 3.0% to three 5% of net sales.
These investments will range from a continuation of our ERP journey to get on the cloud.
Digital investments in our customer experience and reinvesting in our manufacturing facilities to help reduce labor dependencies improved quality and increase capacity.
We are choosing to make these additional investments into our core business, which will help improve sales and enhance our margins in the future.
Reflecting on all the challenges and uncertainties within the market and global economy. During our fiscal 2022 year. The American would mark team members have performed to deliver topline growth. They have been resilient in their efforts to achieve and meet the ever increasing demands of our customers.
This has taken personal efforts and sacrifices from every team member to achieve.
I am grateful for what the teams have accomplished I want to thank all of our team members at American Widmark for their continued efforts they are the ones who make it happen daily.
This concludes our prepared remarks, we'll be happy to answer any questions you have at this time.
We will now begin the question and answer with Samsung.
Quick question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing a key thing.
Withdraw from the question queue. Please press Star then two.
The first question is from Julio Romero of Sidoti and company. Please go ahead.
Hey, good morning, Thanks, very much for taking my questions.
Hey, good morning.
I guess to start on the quarter can you talk about how much price dollars you realized in the fourth quarter.
I'll just share that we didn't come in quite at what we had expected primarily due to a function of lower shipments.
<unk> ago, we had predicted and communicated approximately $55 million.
We did come in below that again more of a function of units not a function of price capture.
Got it okay. That's very helpful I guess.
Thinking about the more recent price increases I was hoping you could put a finer point on how much incremental price capture you expect from the.
I believe third round of price started flowing through in April and.
Maybe how much dollars do you expect from the fourth round of July increases.
Yes, I'll, just say Hulu, that's all built into the overall guidance for the year I'm hesitant to get into the detail specifically on that because we've not finalized all the communication of each of those elements of this most recent price increase so the one you're referring to is the fourth the dollar effective July one for our new construction dealer distributor business the timely.
<unk> and <unk>.
Effect of percent for home centers. This of course can be something that we'll be working on over the coming weeks, but its built into the overall guidance of both mid teens to high teens growth overall for the year as well as the EBITDA range that Paul shared with you.
Okay very good I guess the last one from me is just based on the prepared commentary I guess do you expect the price lag to delay sequential EBITDA margin expansion until Q2 to Q4.
I guess, how do we think about Q1 EBITDA margins do you expect.
In the same range of the fourth quarter or a step down from the fourth quarter EBITDA margin.
My expectation is it will be comparable to Q4.
Okay. Thanks, very much for taking the questions I'll hop back in queue.
Thank you.
The next question is from Garik <unk> of loop capital. Please go ahead.
Oh, hi, Thanks for taking my question just wanted to be clear on the sales guidance.
The volumes are you anticipating volume growth in fiscal 'twenty three.
Should we think about that in the context of the labor issues that youre shooting for.
So our guidance does include unit growth inside fiscal year 'twenty three of course price is a major driver of that mid teens to high teens, but we do have volume growth factored in as well.
Okay is it fair to assume that the volume growth should be.
It will be more weighted as you move through the fiscal year.
I'm sorry could you repeat that question, yes, just a follow up was you should we.
I assume the volume growth will be to the extent that it occurs more back half weighted given the timing of that can be British.
No I don't think that's how it'll necessarily play out when you're thinking about quarterly comps.
Would expect likely stronger.
Overall sales growth I believe in the first half and second half.
Got it okay. That's helpful.
Ask a bigger picture question, just how you're thinking.
Thinking about.
Revenue growth moving forward.
Considering some of the weaker.
Housing data points of late are you seeing any change at all in your way.
It's kind of order rates or.
The ratings.
Backlog, just any kind of big picture.
Poland that you have around the macro environment would be helpful.
Yeah, a couple of thoughts I can share there.
Obviously home price appreciation is a factor that we're all seeing and experiencing.
We certainly have a thesis that that drives home improvement demand specifically back on the repair remodel side and I think consumers are going to continue to invest in their homes on the new construction side, we continue to be under built there's still demand there even at higher prices and at higher rates.
Our belief is new construction is going to continue to be strong certainly for us throughout the remainder of this calendar year.
Other data points that we take looks at take a look at is the CPI, which is.
We've seen increases there that have been significant then theyre starting to erode consumer confidence the interest rates. If you already touched on obviously impacts the affordability for new homebuyers, but rents are also increasing at record rates. So if youre looking for a place to live both are increasing how do you navigate both of those particular situations recently.
Looking at the backlog of single family homes under construction with significant growth in the most recent reported period, 26% growth and now at the highest level. Since November 2006 starts still grew.
<unk> start sorry in the month of April by 9%, we continue to see very tight supply.
So we are still pretty bullish on new construction, we're not seeing anything slow down with our customers switching over to repair and model a bit of a foot traffic lag in the month of May I will tell you that may was our highest comp period, specifically in some of our prior model our customers. So we were expecting a.
Down it came in a little light to that so that's where we're keeping our eye out is exactly what the trends will be over the summer months and repair and remodel.
Great. Thanks for the color best of luck.
Thank you.
Yes.
The next question is from Steven Ramsey of Thompson Research Group. Please go ahead.
Hi, good morning, maybe to continue.
With this line of thought the bookends of your sales guidance.
On the low or high side of that is that most dependent on units delivered and are those units is that more dependent on incoming orders or shipments of the existing backlog.
It's more dependent on the price actions that we've communicated and we'll be realizing in fiscal year 'twenty three as well as shipments through the backlog.
Okay helpful and then on the EBITDA guidance and the sequential.
Expansion through the year is there a cadence to that or will it be pretty steady coming off of Q1.
Yeah, I don't want to give exact percentages by quarter, but we would expect it to continue to improve each quarter as we pushed throughout the year certainly be positive from a year over year standpoint, each each quarter.
Okay.
Okay helpful. And then last quick one for me the dealer distributor growth far outpacing the home centers can you go into what factors drove that.
That delta.
Delta there.
If you expect dealer distributor to continue at a pace that.
Is superior to the home centers.
Yes, a bit of that was just the overall strength of our made to order business and as I mentioned earlier, we were able to get the output across that platform certainly in the month of April and the dealer distributor business took a larger percentage of share of that shipment volume in that particular period. So that was one of the key drivers.
Helpful. Thank you.
The next question is from Josh Chan of Baird. Please go ahead.
Hey, Good morning, Scott Paul Thanks for taking my questions.
I guess from a price cost perspective.
By the end of fiscal 'twenty three do you expect to have.
Caught up.
<unk> in 'twenty, two and 'twenty three combined is that is that how we should think about sort of price versus cost next year.
Absolutely that's how we've modeled it with the assumptions both on the price side as well as future inflation that we're expecting.
Okay. Okay. That's fair and then I think Scott you had mentioned like a $90 $90 million kind of number in your prepared remarks can you kind of contextualize for us like how you meant what you meant to communicate there because I think you mentioned something about that being associated with the high end so.
Is it the case that your EBITDA should grow by something less than 90, all the way up to $90 million is that the right way to think about it.
So compare that with Paul's remark he indicated EBITDA margin percentages on a full year will be high single to low digit at the high teens high teens growth rate $90 million would put you in that low double digit so basically just walking it towards the high end of the range that Paul communicated.
Okay. Okay. That's fair and then I guess last question from me is.
Are you seeing any kind of continue push outs in terms of the builder cadence because of supply chain issues or labor or any other combination.
Is there any risk that the builder schedules need to be kind of further reduce from where we are now or are you seeing sort of improvement on that front.
I would say, it's been similar new significant improvement or deterioration. So we've been in that mood for quite some time the category moves around that typically drives the delay specifically on the completion of the home for us getting the home drying it and windows on pretty important for you can start getting the sheet rock up and get the cabinets on so.
We've adjusted to that over the last fiscal year. So we understand extended cycle times from when a home starts to win the cabinet install is going to begin and we've not really seen a significant change in the last 90 days.
Alright, great. Thanks, Scott and good luck for the rest of the year alright.
Alright, Thanks, Josh.
The next question is from Colin Baron of Jefferies. Please go ahead.
Hi, Thanks for taking my question I was just wondering if you could touch on what sort of magnitude of the cost inflation you guys have baked into you.
2023, EBITDA margin guide and sort of walk through the cost buckets, where you're seeing the most pressure and we're starting to see maybe some relief.
So in my remarks, so approximately seven 5% above and beyond on Cogs versus what we experienced in fiscal year 'twenty two lions share thats in materials and it's across the main commodities, we buy so whether that'd be MDF particleboard plywood hardwood you named the commodity we've got ongoing carryover inflation.
As well as some new inflation modeled into that percentage.
Okay. That's helpful. And then just in terms of you touched on.
Some of the pressures that the consumer's feeling.
From rising costs have you guys started to see any changes in your product mix. That's been order because of these dynamics any color there would be helpful.
We've not yet seen any significant movement in mix across our customer base. The one exception might be as I think about our new construction customers our origins offering which is more tailored to opening price point, if builders start to shift more towards that as part of their overall offering we may see some mix shift into that category versus our core Timberlake.
But it has not been significant to date.
Great. Thank you for the color and good luck with the fiscal year.
Thank you.
Again, if you have a question. Please press Star then one the next question is from Mclaren Hayes of Zelman and Associates. Please go ahead.
Hey, How's it going.
I was just wondering if you could provide a little bit more detail.
The backlog conversion.
In your stock business. It was good to see that improve in the made to order.
What are the challenges in stock and I guess, what are what are some of your action plans to address that.
Yes, so specifically on the stock side, our issue has been around labor as well as your.
The availability of materials into the platform. The material availability has improved so are real challenges of late has been around staffing levels. So we've put a number of changes into place when our three major stock assembly plants around compensation.
As well as an attraction and retention programs in this facilities, but maybe more meaningfully we are doing some things to move capacity around across the network. So when you think about our stock plants were principally produce in stock kitchens and baths.
In those particular facilities, we're moving bath sells to other destinations where labor is a bit more available.
And then I will allow us to redeploy the existing labor in this stock plants back into kitchen. So we're executing those plans throughout the summer and by fall, we expect to have some capacity gains in both our bath and kitchen business, which will allow us to ship.
Touching on the notion of backlog just.
<unk> is really a commentary specific to our made to order business. Our stock business doesn't have what I call sort of a classic backlog definition, we're basically selling into into the home centers meeting their inventory needs. So.
You would see that as you know we're not at the appropriate inventory levels inside the retailers. So that's how we're managing what the overall backlog is in that business and we've got opportunity to make improvement against that.
That's really helpful. Thanks.
And then just lastly, any supply disruptions really till like Russian birch or the geopolitical conflict that you guys have had to manage around.
Nothing significant we don't buy anything directly we did have some secondary and tertiary supply.
They came through some of our vendors and they've been navigating that with alternative solutions to mitigate the risk.
Okay. Thank you.
Okay.
Again, if you have a question. Please press Star then one.
Okay.
And I do not see there is anyone else waiting to ask a question I would like to turn the line over to Mr. Joe <unk> for any closing comments. Please go ahead Sir.
Since there are no additional questions. This concludes our call. Thank you for taking the time to participate.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.