Q3 2022 Richelieu Hardware Ltd Earnings Call
Good afternoon, ladies and gentlemen, and welcome to Vishal Your hardware third quarter results conference call. At this time all participant lines are in a listen only mode.
Following the presentation, we will conduct a question and answer session, which will be restricted to analysts only.
If at any time during this call you require immediate assistance. Please press star zero for the operator.
Note that the call is being recorded on October six 2022.
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Thank you.
Hello, ladies and gentlemen.
Welcome to <unk> conference call for the third quarter and first nine months of fiscal 2022.
With me is Antoine Auclair CFO .
As usual note that some of today's issue include forward looking information, which is provided with the usual disclaimer as reported in our <unk>.
Sidings.
In line with previous periods, we achieved a strong third quarter with a 26, 7% increase in total sites to which our Canadian market segment contributed as well as our U S manufacturer of market, where we realized a sharp rise of 51%.
In U S dollar.
Of which 32% came from acquisitions.
We posted an EBITDA increase of 23 of 23, 8%.
With an EBITDA margin of 16, 7% and net earning per share increase of 18, 8%.
This performance helped drive our total sales for the nine months.
29, 1% to $1 3 billion and net earnings per share increased by 27, 2% to $2 19.
We ended the period with a sound financial position, including a return on average equity of 21.
1024, 1%.
Can you show us nishu as always been careful to maintain our ability to react and adapt to market conditions, which contributes off some financial track record over the years.
Furthermore, we are driven by a combination of key strengths, including the efficiency of our business model, especially designed to meet the needs of our Canadian and U S customers and anticipate their expectation to our obsession with service.
<unk> focus on innovation.
The diversification of our market segment is also a great strength.
And we continue to have strong leverage with our acquisition in North America, where.
I had been completed since 1988.
In this regard we recently concluded our fourth acquisition of the financial year, Ken Kennedy.
Quebec, we also sign.
The agreement in principle to equity as shown in Canada, and one in the U S. Together. These four these four transaction should add approximately $23 million in annual sales.
I will now hand over to Antoine for a review of the quarterly results and the financial situation.
Thanks, Richard third quarter sales reached $472 9 million up 26, 7% of which 15, 8% from internal growth and 10, 9% from acquisitions.
At comparable exchange rate to last year sales increase would have been 24, 9%.
In Canada sales amounted to $279 6 million up 14, 8% mostly from internal growth.
Our sales to manufacturers reached 228 million up 15, 7%.
Which $14 five from internal growth and one 2% from acquisitions.
As for the hardware retailers sales stood at $51 6 million up 11, 2% entirely from internal growth.
In the U S sales grew to $150 million in U S dollars up 43, 7% 15, 3% from internal growth and $28 four from acquisition.
Sales to manufacturers reached $141 million in U S dollar up 57% 18, 7% from internal growth and 32% from acquisitions.
The hardware retailers and renovation superstores market sales reached $9 1 million.
Yes.
And Canadian dollar total sales in the U S reached $193 3 million, an increase of 48, 9% and representing 41% of our total sales.
For the first nine months sales reached $1 3 billion up 29, 1% of which $16 two from internal growth and 12, 9% from acquisitions.
In Canada sales reached $801 million up $116 5 million or 17% of which 12, 8% from internal growth and four 2% from acquisitions.
Sales to manufacturers reached $650 7 million up $98 2 million or 17, 8%.
Sales to hardware retailers and renovation superstores reached $150 5 million compared to $132 2 million up 13, 8%.
In the U S sales amounted to $426 1 million in U S. Dollar up 49, 2% of which 23% from internal growth and 28, 9% from acquisitions.
They reached $544 1 million and getting them up.
Up 52, 2% accounting for 44% of our total sales.
Sales to manufacturers totaled $293 6 million, an increase of $143 9 million or 57, 6% of which 24, 8% from internal growth at 32, 8% from acquisitions.
Sales to hardware retailers and renovation superstores were down nine 7% compared to last year.
Third quarter, EBITDA reached $79 2 million up $15 2 million or 23, 8% over last year, resulting from increased sales.
Gross margin declined slightly due to acquisition and the EBITDA margin stood at 16, 7% compared to 17, 1% last year.
For the first nine months EBITDA reached $210 8 million up 29, 2% as for EBITDA margin. It stood at 15, 7% compared to 15, 6% last year.
Third quarter net earnings attributable to shareholders totaled $46 4 million up 19, 6%.
Net earnings per share were <unk> 83, basic <unk> basic in 82 cents diluted compared to <unk> 69.
Basic and diluted last year, an increase of 23% and 18, 8% respectively.
For the first nine months net earnings attributable attributable to shareholders reached $123 4 million up 27, 1%.
Diluted net earnings per share stood at $2 19, compared to $1 72 up 27, 3%.
Yes.
Third quarter cash flow from operating activities before net change in working capital amounted to $60 9 million or $1 eight per share an increase of 23, 5%, resulting primarily from net earning growth.
Net change in noncash working capital used cash flow of $58 2 million, mainly reflecting increased inventories of $92 6 million, resulting from higher demand cost of supply increase and reduced deliveries they lease from Asia.
Yes.
Changes in accounts receivable and other items represent the cash inflow of $34 4 million. Consequently, operating activities represented a cash inflow of $2 7 million.
For the first nine months cash flow from operating activities before net change in working capital were up 28, 9% totaling $162 million or $2 91 per share.
Net change in noncash working capital balances used cash flow of $202 million, primarily representing changes in inventory that used cash flows of $190 9 million and accounts receivable and other <unk> cash flow of $11 1 million <unk>.
Consequently, operating activities used cash flow of $37 9 million compared to a cash inflow of $90 3 million last year.
For the third quarter financing activities used cash flow of $17 2 million compared to $18 million last year.
Dividends paid to shareholders of the corporation amounted to $7 3 million compared to $3 9 million in the same period of 2021.
For the first nine months financing activities used cash flow of $46 9 million compared to 41, eight and 2021.
Dividends paid to shareholders amounted to $21 8 million compared to $15 $5 million last year.
Yes.
During the first nine months, we invested $59 2 million for the three acquisitions made in the first quarter of.
The first quarter and $16 8 million for the purchase of equipment to maintain and improve operational efficiency as well as investment in it infrastructure and network expansion projects.
We continue to benefit from a healthy and solid financial position.
Working capital of $525 7 million for a current ratio of two eight to one and an average return on equity of 24, 1%.
I'll now turn it over to Richard.
To conclude in the U S. In addition to the ongoing expansion of our Fort Myers.
And Chicago centers, we have started the expansion of our pump.
Nashville distributor distribution centers and will open new centers in Carlstadt, New Jersey and Minneapolis.
Greg I think the division, even in Florida, I'm talking about.
Again, we are happy to report that our location suffered minimal damages and everyone is safe and we are fully pullback.
Yes.
We are pursuing gene integration of our recent acquisition, while remaining on the lookout for opportunities in the acquisition market that fit our long term credit deal.
We are still working on penetrating strategic market and we continue to adapt as efficiently as possible to market condition.
There will be we expect to end the financial year with good result, thanks, everyone. We'll now be happy to answer your questions. Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will hear a tone prompt acknowledging your request and if you would like to withdraw from the quest.
<unk> simply press star followed by two and if Youre using a speakerphone, we do ask that you. Please lift the handset before pressing any keys.
Again, a reminder, that quick Q&A is restrained to analysts only.
And your first question will be from Amir Patel at CIBC.
Hi, good afternoon.
Richard Antoine could you comment on the growth rates, you've seen in September with that with manufacturers and retailers.
What we're seeing as we speak is still over double digit growth.
In the U S.
I would say about 6% to 7% growth in Canada.
How about for the month of September .
And.
October should be all right as well as at November when we have to expect the month of December and January usually our slowest month as a result of the first three months of the year of the fishkill that tissue is always slower because of vacation Christmas season, and everything else, but so far so good.
Okay, No that's fair.
Richard or was that a sort of consolidated or was that just the manufacturers piece and maybe if you can comment how the retailers business as I was speaking about manufacturers, but the.
Dolby Theatre is gold is about the same that we've seen in terms of any of the es, rather low, but it's still positive.
Okay, Great and are.
Are you able to break down the 16% organic growth how much of that was price versus volumes.
I would say that the price would be like 12% to 13% <unk>, 13% is price.
Okay and are you seeing any signs of.
Prices starting to moderate as you've moved into Q4.
What do you mean in terms of sales price.
Yes, yes, yes sales price, it's all it's all behind US. So what you see now is what youre going to get in Q4, if nothing else changed.
Okay.
Just the last question I had was just on the EBIT margin side very.
A very strong quarter of 16, 7%.
I know last on the last call you said you expected them to normalize in the high <unk> to 15% range, but the longer you're staying over 16 are you starting to reassess where you see.
Long term margins.
No.
My comments will be the same so as long as we stay around there was 15 16, 17% internal growth you retire you will continue to see strong by a strong 16% margin, but in a more normalized environment, where we would have a more normalized growth.
High 14% to 15% should be the norm.
Okay, great. Thanks, that's all I had I'll turn it over.
Thank you next question will be from Meghan Ahmed TD. Please go ahead.
Thank you good afternoon.
The inventory balance is up substantially year over year can you just breakdown some of the key drivers of that growth.
Can you also talk about how youre thinking about inventory planning for the coming year just in light of potential.
For change in consumer purchase patterns and whatnot.
It looks like there was also investment in inventory in the quarter just wanted to get a sense of of how youre thinking about inventory planning.
Yes, the inventories increased materially since the beginning of the year, but so a 200 million increase.
If we wanted to break break that out a bit so $50 million comes on price increase. So just just the increase of the price increase of our product explains $50 million of this this increase $30 million is coming from acquisition and the other expansion project and the rest is growth and the supply chain.
Options. So we definitely have our in an excess inventory position as we speak so with the delays in getting the inventory as we do we're seeing in Asia. So the material is what we've placed 99 months ago was coming in we should be we should be.
This level until the end of the year and it will.
We'll start to reversing.
Early 'twenty 2023.
And in evaluating potential acquisition targets are you seeing any changes in valuation at this time or any change in the willingness of target Lasalle.
No valuation is pretty much the same as what you've seen in the fast forward to two six time and if we turn to a more difficult position. This would probably create more opportunities on the acquisition front.
But the network the pipeline is still there is still healthy.
Otherwise as you.
It's still good.
Okay, and just last question with regards to some of the damage that might have been incurred.
In Florida can you just talk to how your business performs.
When there are potential opportunities.
Created by unfortunate events such as this.
Well that certainly creates some opportunities but.
We don't expect any turbulence in this market.
Get in Florida, because of that I think we.
We have a quite a big share of the market in Florida, we have nine distribution centers over there. So one of our business that is going to be available. In addition to what we already have with recapture.
By us but.
But usually that kind of storm you don't destroy the good all of this is going to be destroyed usually this is where you find a nice kitchen, Kevin at the nice laws at nice bathroom as well. So basically we don't expect much from that but we are where the <unk>.
If there are some opportunity would be there to capture them.
That's all for me thank you.
Thank you once again to all analysts if you would like to ask a question. Please press star followed by one on your Touchtone phone.
And your next question will be from Zachary <unk> at National Bank.
Our contractors are still in high demand given the strength that youre seeing in manufacturers and is there still a shortage of skilled labor skilled labor among your customers.
Yes, yes, yes, there is a labor shortage for them, but I mean, many customer efficiently in the usual anybody really juice the others that they want to make because they have less employees.
They're going to they're going to choose to go for the kitchen cabinet of the bedroom.
Plaza <unk>.
Go for the more expensive projects, so where they can make more money and more expensive as the project gets you and Kevin.
In the bedroom furniture in the bedroom, it's because there is more of a sugar content. So that does create good sales for us those are higher end products. So basically this is positive and.
This is what we see now and that should continue for a while and our customer speaking to our sales force.
We know that they are still busy for a few months and as I said earlier.
There could be a slowdown in the <unk>.
December and January as usual because this is.
First quarter is always the weakest, but we expect the business to continue to be good because there is still a lot of project commercial project as well.
On the Google here in Canada, and in the U S that should bring interesting shade as well because we have to keep in mind that commercial projects accounted for 25% of our sales.
And this is a first.
The growth in this market as we speak is something like 15% which is good.
Yes.
Great color. Thanks, and then if we think about.
That dizziness that they have for a few months visibility accounting for of course, the December and January slowdown, if we compare that to what theyre thinking and saying last quarter.
Before the fed kind of took people by surprise with higher rate hikes, obviously that doesn't translate directly to renovation remodel, but how is the I guess the delta the change in the backlog that your clients are seeing.
They don't have much backlog, usually ever walk for about three months and Thats and Thats all what we can see.
But.
I don't think thats the interest rate whatever happened in the economy.
The need for some consumers to change their kitchen cabinet or improve their OS so but.
We don't have that feeling yet, but we will like you where I think we're realistic no we don't know whats coming.
As we said earlier.
We've got to have a smoother royalty in the few months to come but we never know, we we captured new business.
Yes personally met a couple of our retail customers last week.
Going to give us.
I have a few million dollars additional business and.
And we see the big manufacturers also are still busy that they keep cutting in the convert their product, we just add the new customers.
I already mentioned to you that we had a big customer in the U S. In the <unk>.
Is that the industry as a 500 stores actually were just about to have a new deal with a similar company in the U S as well, but in the closet business. So basically we have a lot of positive news regarding increased sales and market additional market penetration, we have to keep walking in that direction.
That's actually a great point you guys made a good tactical decision to keep inventory in stock.
Sure.
When supply chains are crimped.
Are you seeing any of those new customers going back to their old suppliers as supply chains untangled.
Yesterday will certainly go back to <unk>.
Farmer suppliers some of them, but do we continue to deal with us because they have discovered that we have.
The largest variety of products as well as probably the best service availability in North America as we speak so that should continue on.
We have a big sales force in the U S. As well as you can get it that the drug is these guys just to make sure that the customers. These tiered royalty ratio.
Fantastic and then just one last one for me.
In the past you've said that U S margins are trending at about two thirds of what Canada was does that still hold true today.
Yes.
Excellent next I will turn it over.
Okay. Thank you.
And at this time Ms. Sheila we have no further questions. Please proceed.
Thank you very much for attending it's always a pleasure to talk to you do not hesitate to call us for more information.
Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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