Q2 2022 Beacon Roofing Supply Inc Earnings Call
And that is why we established a national partnership with rebuilding together, a nonprofit organization, providing home repairs for underserved neighbors in beacons communities.
As a distributor of essential building products, such as roofing and siding. This partnership allows us to work with these local community champions to create an impact.
I'd also like to highlight our continued progress related to our diversity equity and inclusion.
During the second quarter, we announced Michelle Mulder as the winner of Beacons second annual North American female roofing professional of the year competition.
Michelle is the founder and owner of nailed it roofing, which has been one of the top roofing companies in North Bay, Ontario for the past seven years.
Michelle's interests in the trade started in high school, which led to finding a passion in roofing.
We applaud her work on the job site and devotion to mentoring young women in the community.
His story of determination and perseverance will surely inspire other women to become trailblazers in our industry.
We are also driving growth above market and enhancing margins through a set of targeted initiatives.
You may recall from our Investor day that expanding our footprint is a major lever in our growth plans, which include strategic investments in Greenfields and tuck in acquisitions.
I am pleased to report that we have quickly ramped up our ability to move forward on our pipeline of Greenfield candidates and while we had originally discussed opening 10 facilities in 'twenty. Two we are now targeting approximately 15, new branches located in key markets.
Our focus on National accounts is also generating results.
We grew sales to our largest customers by approximately 37% in the second quarter.
Through our scale and capabilities, we not only serve national homebuilders, but also large professional repair and re roofing contractors in both the residential and commercial roofing end markets.
Our ability to invest in specialized account representatives, who focus on the operational dynamics in each of these end markets offers a differentiated value proposition to these high volume customers.
We also have a set of initiatives that support margin growth.
Our digital capability continues to be a clear competitive differentiator for beacon and sales on our online platform deliver approximately 150 basis points better margin compared to offline channels.
In the second quarter, 17% of residential sales went through this platform.
We provide the most complete digital offering and continue to expand our capabilities to serve customers in the way that brings them the most value.
Our most recent digital integration with <unk>, a leading provider of all in one business management software for roofing contractors is off to a great start.
And I am pleased to report that we achieved more than $100 million of sales through our digital channel in the month of June .
This is a major milestone and one we intend to build upon by making it easier for customers to do business with us anywhere and anytime.
Our private label line of high quality building products sold under the <unk> brand deliver professional results and commit our customers to differentiate themselves from their competition competitors.
For Beacon these products yield between 502000 basis points of additional margin versus the alternatives.
Sales of our private label are up 37% in the quarter versus the prior year.
Drybulk is becoming a recognized and trusted name by professional contractors across our residential commercial roofing and complementary end markets.
As we have discussed for several quarters, we are enhancing productivity and capacity through our continuous improvement and operational excellence initiatives.
I'll focus on the bottom quintile branches has generated meaningful contribution to EBITDA and this year is no different.
We have a process to improve these branches on the structure is simple and repeatable.
We diagnosed the root cause of the problem and ensure that branch managers at these locations are properly resource to remedy the issues.
Through this process, we have generated approximately $20 million year on year EBITDA improvement year to date.
A strong start on our way to our $75 million of ambition 2025 target.
And finally, our strategic initiatives are designed to create shareholder value and we are committed to improving returns.
During the second quarter, we entered into a second accelerated share repurchase program and the amount of $250 million.
And this was in addition to the $125 million ASR completed in the second quarter.
The repurchases are part of a $500 million share buyback authorization announced at the Investor day.
The buyback program demonstrates both our commitment to delivering value to shareholders and our confidence in the plan.
As you can see we truly have multiple paths to growth and margin expansion through the cycle. We have a differentiated approach and have built the tools to achieve our ambition 2025 targets now.
Now I'll pass the call over to Frank to provide a deeper focus on our second quarter results.
Thanks, Julian and good evening, everyone turning to slide eight we achieved nearly $2 4 billion and total net sales in the second quarter up 26% year over year, primarily due to higher average selling prices for our products.
In the aggregate price contributed approximately 24% to 25% to revenue growth and estimated volumes contributed slightly less than 1% as higher demand in our residential and complementary lines of business was partially offset by lower volumes in some aspects of our non residential line of business.
Our acquisitions continued to perform well in the quarter revenue from acquisitions more than offset the divestiture of our solar business late last year.
As a reminder, our solar business is reflected in our prior year numbers as part of continuing operations.
The fundamental drivers of our residential line of business remained healthy.
Roofing activity and new units under construction supported growth and favorable pricing.
Residential roofing sales were up approximately 22%, primarily due to shingle price execution, including successful implementation of the April shingle increase.
Shingle volumes grew by low single digits, well ahead of armor shipments, which were down approximately 3%.
This year over year growth is all the more impressive given the strength of the prior year shingle comparable which had the benefit of the Covid snapback.
Additionally, we continue to have below average hail and major store volume year to date non.
Non residential roofing sales were up approximately 40% as price execution more than offset inflationary pressures.
While overall nonresidential volumes were down versus a very strong prior year quarter certain elements of the non res portfolio had positive volumes in the quarter, reflecting re roofing contractors shifting to products with higher availability.
Our quarter end backlog reached record levels with a majority of the backlog weighted toward nonresidential orders.
Complementary sales increased approximately 19% year over year, as we achieved higher prices across nearly all product categories.
Higher volumes in siding and lumber also contributed to the growth as you may recall, our complementary product category has approximately 80% residential and 20% nonresidential exposure.
Turning to slide nine we'll review gross margin and operating expense.
The execution of price increases across many product categories, including the April shingle price announcement, once again kept price above product inflation and created favorable timing benefits in.
In the aggregate price cost was positive by approximately 25 basis points in the second quarter on a year over year basis.
I would like to highlight that our team has stayed ahead of the cost curve in the last eight quarters and impressive track record and a challenging inflationary environment.
Strong sales of our higher margin private label products also contributed to gross margin.
Higher nonresidential sales mix offset the price cost and private label improvements and maintain gross margin at 27, 6% equivalent to last year's record performance.
Higher sales drove adjusted Opex to sales down 80 basis points year over year, adjusted Opex was $370 million, an increase of $61 million compared to the year ago quarter.
The increase was driven primarily by increased head count.
Inflationary pressures and wages fuel and lease related expenses, such as rents real estate taxes utilities and maintenance costs as well as higher incentive compensation given the strength of the company's performance.
Commissions credit card fees and travel and entertainment spending also contributed to the increase.
The year over year change in Opex also includes approximately $8 million and costs associated with recently acquired branches as well as Greenfield and OTC hubs opened in the last 12 months net of our solar divestiture.
Excluding the acquisitions, our head count was up year over year as we continue to make sure that we're staffed for the remainder of the selling season and what remains a tight labor market.
As we have demonstrated in the past, we stand ready to adjust to changing market conditions as we balance our productivity efforts with our investment to drive and support above market growth and margin enhancement as part of ambition 2025.
For example, we have completed building out our dedicated M&A and Greenfield teams and have invested in our sales organization customer service initiatives and digital platform.
These and other ambition 2025 investments totaled approximately $12 million within the operating expense line in the second quarter.
Turning to slide 10, net inventory reached the seasonal peak at the end of the second quarter up approximately $380 million year over year, largely driven by product cost inflation, which accounted for about two thirds of the increase.
We continue to carry portions of our inventory longer than expected.
Due to the lengthening project cycles and to ensure material availability to support our healthy backlog.
Inventory from acquisitions and Greenfield load ins also contributed to the increase.
After investing and rebuilding our inventory for many quarters. Following the Covid snapback to ensure we were able to effectively meet demand. We now expect to reduce inventory in the second half as we follow a more normal pattern of seasonality and experienced potential softness in residential new construction.
Our capital allocation is balanced between organic and inorganic growth opportunities and shareholder returns as.
As Julian mentioned, our Greenfield team is executing on our pipeline of projects to deliver approximately 15 new locations. This year you.
You will also recall that our ambition 2025 plan calls for us to invest up to 2% of our revenue and capex with emphasis on driving and servicing organic growth.
We continue to evaluate a full pipeline of potential acquisition targets, we have a rigorous set of criteria and we will remain disciplined in order to ensure that we create shareholder value through acquisitions.
A recent tuck ins are good examples of the types of deals that we're looking at they must be actionable at the right price have the right fit benefit from the scale and capabilities. We have built an offer efficient integration to ensure they inspect the expected returns.
As outlined at our Investor day through 2025, we intend to allocate $1 billion in capital to acquisitions within our three existing lines of business and we are actively pursuing a healthy pipeline of targets.
Turning to shareholder returns as Julian mentioned, we entered into an additional accelerated share repurchase agreement in the second quarter.
Year to date, the buyback program has allowed us to retire over 5 million shares reducing our common shares outstanding to $65 million at quarter end.
We look forward to finishing the second ASR in the fourth quarter after which we will have completed just over 75% of the $500 million buyback authorization announced in the first quarter.
Our capital allocation plans are underpinned by renewed financial flexibility restored last year, when we divested our interiors business and completed a comprehensive refinancing.
As you can see on the chart our balance sheet has undergone a complete transformation over the last 10 quarters and we essentially have no near term refinancing risk a good position to be and given the current rate environment.
As of the end of the second quarter, our net debt leverage sits squarely at our target of two five X well within the range of two to three X, we outlined at the Investor Day.
Operating cash flow in the quarter was marginally negative that said, we continue to have ample liquidity of approximately $800 million at quarter end and we expect cash generation in the second half of the year to significantly exceed the second half of last year.
Our balance sheet strength and liquidity enable us to take advantage of opportunities even in a changing economic environment.
We are pleased with our performance in the first half of 2022 are beginning to make progress toward our ambition 2025 goals and are confident in our ability to successfully compete in and adjust to changing market conditions with that I'll turn the call back to Julian for his closing remarks.
Thanks Frank.
Let me turn the call over to Q&A I would like to discuss the remainder of 2022.
These reference page 12 of the slide materials.
For the third quarter, we expect end market demand to remain supportive even as headwinds such as rising interest rates inflation supply chain disruptions and labor shortages persist.
Non discretionary R&R demand underpins, our residential and commercial roofing and markets and we will continue to provide opportunities to grow sales across all three of our lines of business.
We expect total sales growth in our third quarter to be in the 23% to 25% range year over year.
This guidance reflects our recent acquisitions and the divestiture of our solar business.
We have a track record of disciplined price implementation, which has resulted in several quarters of positive price cost staying ahead of inflation remains a priority. So we continue to emphasize price execution to our teams while being mindful of our organic growth objectives.
With that in mind gross margin for the third quarter is expected to be in the 26% range and reflects our expectation for price increases across all product categories from the beginning of the year as well as the anticipated inventory profits.
Regarding the second half of the year, we remain focused on areas within our control, including sales and operational execution product availability inventory reductions and cost management.
Please remember that we will be lapping significant inflation, particularly within the commercial roofing product lines.
As a result, we are increasing our full year 2022 sales growth expectations to slightly above 20% versus the prior year period.
We expect that sales growth and continued cost discipline will result in adjusted EBITDA in the range of 825 million to $875 million and as Frank mentioned, we expect significant cash flow in the second half of the year.
Although we continue to believe that the demand environment will be constructive our forecast range accounts for greater uncertainty going forward.
We have also taken into account. The fact that we have seen below average storm activity. So far this year, which will affect our second half demand projections, which were originally based on prior five year averages.
With respect to gross margin, we expect to see a roll off of inventory timing benefits in the fourth quarter and expect heavier nonresidential sales mix compared to the prior year.
We have a resilient business model and our leadership team capable of just adjusting quickly to take advantage of opportunities in the market as they develop.
More broadly we are confident that our ambition 2025 plan provides us with multiple paths to achieve our growth and margin targets we remain.
Focused on executing at a high level delivering value to customers shareholders employees and communities.
And with that I'd like to open it up for questions.
Absolutely right.
Ladies and gentlemen, if you wish to ask a question. Please press star followed by one of your touch tone telephone.
If your question has been answered or you wish to withdraw your question press the pound key.
Carla is limited to one question.
First question.
<unk> will come from Keith Hughes.
Your line is open.
I think Keith your line is open.
I'm sorry can you hear me now.
We can hello.
Okay great.
On nonresidential.
Going up against some tough comps as you said you expect that volume to fall off in the second half of the year and I guess why.
You may begin.
Most of the positive direction in any market.
Yes, Keith I think there is still a lot of uncertainty there is still supply chain challenges.
We are certainly seeing labor have an impact on project cycles cycle times.
So.
I think we remain positive on the overall outlook for nonresidential construction.
I think it's going to be a choppy environment and thats going to continue for a little while yet.
Yes, Keith.
In the third quarter, we certainly have non res growth built into the numbers that Julian gave you.
The performance that we've seen so far in July would indicate that.
Those numbers are going to continue to be positive certainly through the third quarter.
What I think you should read into the guide as you do your math and think about Q4, that's where the uncertainty is so we continue to see a strong non resin environment and should benefit from that.
Okay. Thank you.
Thank you.
Next question comes from Ryan Merkel.
With William Blair. Please proceed.
Hey, guys.
I had a question on price cost I guess, a two parter Julian you mentioned you might start to get it back in the fourth quarter can you give us a sense of the magnitude and then I believe 90 basis points was sort of the give back that year you quantified before is that still the same number or has it gone higher at this point.
Yes, I think what we said last.
Last time around was that we estimated that the inventory profits. We saw represented about a 90 basis point benefit that we've seen going forward and that it would eventually start to roll off assuming that there were no more than.
Price increases that were announced and we werent going to continue to benefit obviously this year has been a little different.
Then we thought at the start of the year, we've continued to see those inventory profits as we've taken advantage of timing of the price increase he is making sure that.
But we're in a great spot as we go forward and we think Thats actually.
Good part of how we manage the business and thinking about generating those inventory profits by buying at the right time at the right price in the marketplace.
And then as price increases roll through.
We're not seeing so much.
Going forward, we would expect that to roll off.
And certainly it will have an impact in the fourth quarter.
Thank you.
Thank you.
Our next question comes from Truman Patterson with Wolfe Research Your line is open.
Hey, good afternoon, everyone. Thanks for taking my question.
Just wanted to follow up on Keith's question on the nonresidential side of the business.
You mentioned that the backlogs remain large have you actually been able to work those down a bit or are they still elevated where incoming work has outpaced out the door sales and then secondly, we've always thought of nonresidential kind of EBITDA margin relatively at parity.
With residential given the strong pricing have you actually seen nonresidential margins.
Go above the residential side at least on the EBITDA line.
Hi, Sherman.
And the backlog the backlog peaked.
In the middle of the quarter it still ended up.
At the end of the quarter higher than the end of the first quarter. So it is coming off but very slightly so far so we're continuing to see a really healthy backlog and it continues to be.
Mostly non res so we continue to see strength in that back to Keith's initial question.
In terms of the relative profitability.
We've talked about that at the gross margin level with.
With non <unk> gross margins lower than raising gross margins, obviously that gap has closed some by virtue of the inflationary environment that we've been in remember, though that on the Opex side, we do experience.
Lower opex associated with the non <unk> business and so it's in the it's in the right neighborhood, especially in the areas, where we performed really well on the non res.
So some of the.
The regions of the country that have a really strong non res business. It certainly rivals the best of our residential business. So just depends on which region you are talking about.
Perfect. Thank you and good luck in the upcoming quarter.
I appreciate it.
Thank you. The next question is from Mike Dahl with RBC capital markets. Please proceed.
<unk>.
Hi, Thanks for taking my question.
So a follow up question.
Youre talking about not expecting inventory benefits going forward.
There is a price increase in the market in August , but you've also got kind of channel Destocking.
Some moving pieces and I guess, I'm wondering specific tier comments about inventory and price cost.
How should we interpret that in terms of euro approach to.
The current price increase or what you think the acceptance will be in the market.
Thanks, Mike.
We will continue to execute on our pricing strategy is as we see the price increases come in this has been a strength of our execution over the last two years.
We think this has been one of the keys to us unlocking a lot of value with beacon.
And really good management of that.
As I said in my prepared remarks, we continue to emphasize too.
Our field teams the importance of making sure that we're communicating to our customers about the price increases and we're passing them through.
So we'll continue to work on that obviously the environment to some degree dictates.
The success of the failure of price increases and I do think that.
Yes.
Theres, a little bit more uncertainty going forward about this this increase I think.
We've seen announced.
<unk> I don't believe are going to be transmitted into the marketplace either by us or by the vendors that are supplying us.
Okay. Thanks Julie.
Thank you.
The next question is from.
With Jefferies.
Proceed.
Hey, guys. It sounds like you're going be destocking inventory in the back half Julian do you expect it to be normalized by the end of the year and then from a financial impact Frank any way to think about decremental margins when you kind of draw down.
Inventory and any color in terms of product categories, where you have the most work to do in terms of managing that inventory back to a pretty healthy level.
Thanks for the question.
Yes.
Do it across all of the product categories as we sort of match.
Yeah.
Demand and supply obviously the last two years again has been sort of chaos in the supply chain.
Many categories in many product lines for many manufacturers.
We've been on plant availability and allocation.
And that obviously means that you're trying to get as much into stock as you can to ensure that you have to sell.
We're seeing those supply chain issues ease.
And as those supply chain issues ease, we want to get back to a more normalized level of inventory and inventory management.
We think we're well positioned.
The good news is we do see short term additional price increases that are unmatched. So we're going to take advantage of that.
We also think that we need to sort of manage it through to get to somewhere towards the end of the fourth quarter, we would be back closer to what we would consider normal levels.
But again one of the things that we're still watching very very carefully as some supply chain disruptions that probably remain.
Certainly more on the commercial roofing side than the residential side.
So we're watching that carefully and we want to make sure that we've got product available when customers show up at the branches.
Hey, Phil.
It's going to be.
Regional it's going to be vendor specific product specific we're at a place now given the demand environment and where we are from a stocking perspective to rightsize in some areas, but they're going to be other areas, which are heavier demand or maybe storm related that we're going to be buying as much as we can get in those markets. So it's really the net impact of all of that that were.
To illustrate in the way that we've telegraphed the reduction in the second half in terms of the incremental decremental.
I don't think its going to have a significant impact on that because we are going to be buying.
All of that.
Still a high replenishment rate would be sub 100%, but it still going to be fairly high.
Replenishment rates, so I still think it's going to be driven by what.
You see on the revenue change and what you see on the EBITDA change.
Thanks, a lot great color.
Thank you.
The next question comes from Deepa Raghavan with Wells Fargo. Your line is open.
Hi, Thanks for taking my question I appreciate it.
The ASR.
Mission is both clean Brown are nice to see so far.
That would be going into a slowdown.
Could you wait for better opportunities and timing, perhaps just curious how you're thinking about managing to <unk>.
The slowdown on these capital deployment initiatives. Thank you.
Well thanks for the question if I understood it correctly.
It's really coming down to.
Capital deployment in terms of shareholder returns and our share buyback program remember we were authorized the board authorized a $500 million share buyback program.
Given what we've seen in the first half of the year given the performance of the company. We thought it was a great opportunity for us to actually accelerates.
That much quicker than we thought.
And we put in a $125 million accelerated share repurchase program.
Shortly after our Investor day in February .
And I think that was we saw the opportunities with.
With some of the market conditions and some of the assumptions going ahead is that rolled off.
We thought it was a great opportunity to go ahead and put another one in place twice the size.
By the end of the year, we will have spent in excess of $375 million of that $500 million.
Authorization.
I think that going forward as we continue to be.
Successful and drive this company forward I would expect to see additional programs authorized by the board going down the road.
Yes, Deepa only thing I would add is certainly the company looks at its valuation and ultimately has to make a decision in terms of capital deployment.
We felt like the stock is a is a good buy at its current valuation.
Fed into our decision in terms of capital allocation at the same time, we have ample dry powder that I mentioned, we have additional balance sheet capacity and when there are opportunities, whether they be greenfields or M&A and it makes sense for us through that disciplined criteria that I mentioned on the prepared remarks.
We're going to jump in.
So we think we can create value in both ways.
Good luck.
Thank you.
Thank you. Your next question comes from Michael Rehaut with Jpmorgan. Your line is open.
Hi, Doug Ward Mohan for Mike just.
Just briefly you guys touched on.
On slide 12 product availability I'm just curious if you could give more color on where you guys are relative to the supply chain and how difficult it has been.
Getting all the materials in the past quarter, and where you see that moving forward.
Yes, thanks for the question.
We certainly see the supply chain challenges.
We faced over the last couple of years.
Easing.
Both residential and on the commercial roofing side and the complementary I mean, it's been it's been one an incredibly tight market.
As Vince a lot of supply disruptions in terms of.
Chemical supply lines that feed into our suppliers' raw materials and manufacturing base that dried up.
<unk> plans to shut down, which obviously has a ripple effect through the supply chain.
It's a real challenge because it.
It shows that the entire industry at a time when demand had.
<unk> had picked up.
We've seen most of that go away to remember that really started back in that February was it February 'twenty, one freeze in Texas shutdown, then you've got the the hurricanes that impacted the Louisiana coast that shutdown. Some chemical facilities all of that has had a huge impact.
And some of the supply chain disruption out of China during Covid.
And even to the extent of the.
The Russian invasion of Ukraine, we saw some.
Some grades of.
Metals get impacted in terms of the supply chain. So.
It's really been a crazy couple of years about to try and get all of these things arranged and that's partly why we were trying to get.
Our inventory levels up and trying to take advantage of our scale and power in terms of buying to get preferential treatment in terms of.
Getting access to materials that were in short supply.
We're seeing all of those elements.
We're seeing more capacity coming online we are seeing the capacity that had to be shut down because of shortages come back.
We've seen the manufacturers run better it's very disruptive and Covid you get.
Had an outbreak of the plant and the entire plant has to shut down. So all of those elements are starting to come back in line, but not all of the supply chains have gone to a point, where we feel completely comfortable that we're in the right space, but when we place an order we know we'll get it in the timeframe that.
We would expect to in what we'll call normal conditions. So we continue to manage that but I would tell you now.
Whereas it was probably 80% 90% of products that were impacted.
Year ago, we're probably reverse of that now its probably 10% 20% of products that are that are impacted and even those 10% to 20% or much less impacted than they were.
12 months ago.
Is that helpful.
Great very helpful. Thank you.
Okay.
Sure.
Thank you a follow up question comes from David Manthey with being please proceed.
Yes. Thank you good afternoon, everyone.
On slide nine I believe it shows your organic head count.
It looks like it's up pretty significantly could you outline your thoughts behind that uptick relative to the current flattish volume trends.
Yeah, David Hey, it's Ron so in terms of the organic head count, which obviously, we've pulled out the M&A piece for you there but.
The hourly workforce is the predominant impact there we wanted to make sure that.
We had the drivers and the helpers in the warehouse.
On property and as you know, it's been an extremely tight labor market. So.
So making sure that we have the right folks to support the growth in the future was the important thing there I would also tell you that if you go back and recall the Investor day.
Outlined we certainly wanted to.
Increase the capability of our sales workforce and we've done some of that as part of that head count in.
Bolstered the field management and added some corporate capabilities all toward the ambition 2025 goals that we laid out so we feel good about the investments that we've made obviously if it softens up a little bit you might say that we got a little ahead, but.
We hopefully have shown you in the past our ability to toggle as necessary, depending on what the environment looks like.
Alright, thank you.
Thank you. Our next question comes from Keith <unk> with BMO.
No capital market. Your line is open.
Thank you and good evening.
Julian.
Think about yard.
22 EBITDA guidance.
Just curious kind of what gets you to the top end versus the bottom end of your range is it really kind of what happens with demand, especially in Q4 or is it in other market is getting competitive.
Curious if the August price increase is included in our.
Guidance right now thank you.
Hey, Ken so.
Look the macro is certainly.
On our minds as we put that guide forward, if we end up with a little bit later impact.
Or a little lesser impact than we'd be more towards the top end of that range. If we're more successful in the August increase.
And then than we are currently thinking then that obviously helps as well if we get some storms in the third quarter and fourth quarter. As you know it's been a lighter storm year, we get some more storms.
That will certainly be helpful. A lot of it's going to depend on what what Q4 looks like we're off to a good start in Q3, when you run your math Q3.
It will be a good quarter for us so it really depends on.
The impacts that I mentioned in Q4, the other thing about Q4, that's always hard to handicap is windows with their stock.
So it starts early.
That's a tougher part as you know the last couple of years, we've had some really strong fourth quarters.
<unk> was a great fourth quarter for us so.
We're not going to have a poor fourth quarter. This year, we're just up against some tough comps and have put a little bit of hesitation in there in terms of where the macro is going to be.
In terms of the August increase I thought Julien mentioned already that.
That you would expect a little bit lower realization. This go round, given where we are in the in the timeframe of the year and also the macro where we had a great deal of it with the April increase.
Obviously, you did very very well there we know how to exercise the muscles. So if the macro is more supportive then we will lean in more to the August price increase.
Alright, that's very helpful I'll turn it over.
Thank you next.
Your next question comes from James Moore with Loop capital. Your line is open.
Thanks for taking my question wondering what Youre seeing in the Green.
The market right now on the residential side, obviously with new housing piece some of the indicators have slowed and become a below average storm year so far.
Stable has re roofing hold off and when do you expect moving forward in a more uncertain market.
Thanks for the question Gary.
Look we've said demand is great.
It's been very robust.
It's a good market.
Yes.
I think.
Nine of the past 10 years, we would have taken this market in the world.
We wouldnt with last year.
It's really is a good market and the re roof market is as strong.
I think that.
As we've said it remains.
Pretty stable.
Yes, there's a couple of areas, where we look at it and we think to ourselves.
Interest rates given that a lot of room to get finance have got to have some marginal impact but at the same time.
As we remain confident.
Yes.
A lot of it is non discretionary so once that roof starts to fail and as I said in my prepared remarks, we look back 20 years because of the 20 year life of a roof and you see all those.
The surge in new construction back then so we believe there's going to be a strong cycle.
For the re roof market, which we think is relatively non discretionary.
I just had a lot of risk if finance a lot of prices gone into roofing. Most building materials now are a lot more expensive than they were.
24, 36 months ago.
A lot of roofs get financed.
And so do I think the increase in interest rates is having a marginal effect, yes, but I think it's a really marginal effect if if it has at all.
And look.
Our contract has remained confident they're active they're busy July was good.
I mean really good in fact, it's really been a strong probably better July then we would have anticipated coming in typically thats, a hot months and people don't like to be up on roofs, and it slows down ever so slightly.
We've seen strong growth so.
We're excited about where we are like I said, we were cautious looking forward, but we have not yet been impacted by these interest rates as far as we can see.
I appreciate that thank you.
Okay.
Thank you.
Ladies and gentlemen, once again.
As a reminder, if you would like to ask a question. Please press star followed by one touch tone telephone.
Your next question comes from David Macgregor with Longbow Research. Your line is open.
Yes, good afternoon, everyone.
I guess I had a question for you on incoming order patterns that we had.
The address the question earlier on backlog, but let me maybe come at this a little bit differently.
Wondering if you could talk about incoming order patterns and isolating that variable what you're seeing are you seeing deceleration in.
Certain areas and if so could you elaborate on where those dislocations are occurring thanks.
Thanks.
In the daily orders were really not seeing any deceleration.
A lot of our business is short cycle business, where folks come in and and pickup or order something so the the very near term view of things is.
Continuing to be strong and remember you are in the middle of the construction season here. So.
Absent some.
Some weather patterns.
Julian mentioned, whether it be heat or something like that but we havent experienced that.
And the longer backlog again, it's just barely tapering off a little bit so.
I'm not terribly concerned about the order pattern, we're continuing to see a good vibrant business I mean, Julien and I look at the trends literally every day.
Cup of coffee is with what we call the tripwire.
So we're watching the moment daily basis.
Really continuing to see everyday some good numbers coming through so we're pretty excited about where we are but again the caution is out there and we're ready to react when we need it.
Yes, David.
Yes.
Let me just add something quickly.
<unk>.
We do have.
A more regional business.
There is some Minneapolis, so if I. If you asked me about what's going on Amelia hapless. Unlike its.
Our daily order intake there is enormous I mean its.
It's coming in <unk> getting fixed because of a hail pattern that ran through if I look at heavy new construction markets.
Yes things are starting to.
Theyre not yet slowing because the seasonal construction markets.
A continuing to get fulfilled, but we're watching those carefully.
Like I said, we continue to see robust demand across the majority of the country.
And with.
We've got a cautious outlook in terms of what we're seeing because we're not blind to the macros were not blind to what the builders are saying about.
Expected flow through in their demand and that is going to show up in our new construction phase at some point.
That's 20% of our residential business not 80% so.
The reverse market remains good.
We've seen a couple of.
Storms that have impact where demand has been terrific.
And we've got parts of the country that are just.
How many law.
Julian if I could just have a follow up just to ask you within the overall mix of your various lines of business would you watch.
For the first signs of maybe things starting to reward.
Well, obviously, the one that we're watching carefully is the ones that are going to be most impacted by interest rates.
So that would be mortgage originations.
So that with the Canary in the coal mine there is more around build is.
Their backlogs are orders order cancellations.
At the builder level that would be an indication of perhaps a softening in.
And new residential again, it's a much smaller part of our business.
We would be looking at longest cycle.
Things like the Abi the architectural billing index I do think that again interest rates on debt financed.
Commercial construction projects new.
And then on the repair side in commercial.
Still large jobs.
We would be looking at mix of products.
So.
Doing.
Our re roof, which would take off installation and go down to the sub frame and then build it back up.
Re skinning.
Which would be more patch and repair which doesn't last as long.
But maybe a cheaper way to do it so mix of products that are used on particular jobs would be an important gauge for the commercial.
Re roof market.
Obviously, we've got 800 dedicated field salespeople out there every day knocking on doors talking to contractors and hearing about their backlogs is something that's really important to our to our field folks and that would be.
That will be important for us to maintain good connection with the.
With our customer base.
Absolutely thanks for the candor.
Thank you next question comes from Kathryn Thompson with Thompson Research Group. Please proceed.
Hi, Thank you for taking my question today.
A lot of focus on the macro then obviously top of mind.
Okay.
Two different types of questions along that line.
Perhaps we don't have a recession, but it's just more sluggish.
Like we saw in the early seventies.
100 business operate against that environment and then.
Distinct difference today versus that time period, it's just the massive population sure.
Structurally different.
The southeast and southwest.
Are you seeing any different types.
Product demand.
There are different.
Five to seven years ago.
And how does that change how you manage it.
Thank you.
Thanks, Ken.
Interesting question, maybe one day, we can get a glass of wine and talk about all of those shifts because there's a lot going on.
And that question.
So let me let me take the.
The shift in product.
Asphalt shingles on the residential side, which I think you focused on here is.
It continues to be the dominant.
Product that's used in the marketplace. If you think about.
Shifts to the southeast and maybe to the southwest.
You certainly see more tile used in those markets, but.
I wouldn't say, we're seeing any particular shift we don't look at that on a daily basis and think of ourselves boy, there's a real dramatic shift going on in any of that.
We've seen some growth in it.
I would say, it's very slow growth in metal roofs, but it's been very slow growth in metal roofs.
And I don't think thats related to geography.
So I don't think there's any product shift.
That's going on that would have ultimately affect our business model today.
I think that it's a.
It's pretty it's pretty straightforward I think as you look at where the new construction is going.
It's.
Going into those markets.
And certainly the new construction market tends to favor asphalt shingles as well.
We continue to see great strength in that market.
So I don't see any particular shift we've got some secular shifts in some of the other product lines.
Fiber cement has been a growing category for us for a while.
That's been.
A good category for us.
The siding market for <unk>.
20 years now and continues to.
To grow it continues to do well.
But I don't see any fundamental product shift that.
It's going to affect.
Our business in any meaningful way and the great thing about it is that.
To some degree with product agnostic.
If there was a product shift.
We would be the people to deliver routes the equipments important people still need to get up there.
And that's going to drive it.
As we go back to.
Our ambition 2025 initiatives in all of those things, we say nothing about the dependence on asphalt shingles.
Poly ISO or single ply GPO versus <unk>, we see more shifts probably in the commercial side of things and we do the residential but overall, that's not something we sort of get up and think about day to day, but like I said, maybe you and I can sit down some time in that conversation.
Youre seeing something different.
Okay, perfect and any other just going back.
Are you back to that.
And beacon, which granted.
We did write company background, but any color.
Excluding the recession.
Think about it.
Several years.
<unk> economy and Greg.
How did the business operate.
Alright.
Alright.
I'm not going to talk a lot about the history side of it I know that what we would do is we believe that we've got competitive advantages we would emphasize that.
We do think that the overall growth of the roofing business and.
Is tied very closely to population growth in the U S. Ultimately, it's all about demographics.
It is to some degree a slower growth market because its household formation and the number of houses that are going on and we will continue to look at what we can do to build.
<unk> build a great company that can compete in any market and win.
The one big difference.
You go back any here.
In <unk> history.
And it's really about the consolidation that's taken place both of the manufacturer level, but also at the distributor level, it's a very different competitive environment than it was.
30 years ago 50.
50 years ago. So I think that is that is something thats dramatically different and so how we would operate our scale advantages how we run the business networks the investments in.
Digital and private label products.
<unk>.
We couldnt have done 30 50 years ago.
Now, we're a leader in those areas.
Catherine just to add on two quick things in an environment that was sluggish we would still generate some significant cash flow.
And that would give us the opportunity to both deploy greenfields as well as to continue to be acquisitive on a tuck in basis. So.
One of things, we tried very hard to do an investor day was to illustrate the multiple levers for growth that we have and the multiple levers for margin enhancement that we have we know that we're going to entertain business cycles.
Over this ambition 2025 or beyond timeframe, and we know that we're going to need to adjust how we deploy capital and where we provide our emphasis over that period of time, but it's all going to be toward the key things of above market growth and driving the bottom line margins higher or not.
Okay, great. Thank you so much appreciate it best of luck.
Thank you.
And now for any question on queue.
So now we would like to turn the call back over to Mr. Frank <unk> for his closing comments.
Yes.
Thanks Man.
Thank you everyone for.
Your interest in Beacon and.
Our results in the second quarter, we're incredibly proud of the results that we've delivered.
As we said we had a record performance for the company, we believe that our we're off to a great start on our ambition 2025 plan.
Certainly with the raise in guidance, we're expecting to see strong performance in the second half of the year and we believe the market remains.
Productive in terms of the markets that we serve and we're excited to continue to deliver for our shareholders and our employees and our customers. Thank you all have a good evening.
Okay.
This concludes the <unk> second quarter 2022 earnings conference call. Thank you for your participation you may now disconnect your line.