Q4 2022 Global Industrial Co Earnings Call
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Good day and welcome to the global Industrial company fourth quarter two earnings call.
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Like to turn the conference over Mike Marshall Wace. He was Investor Relations. Please go ahead.
Thank you and welcome to the global Industrial fourth quarter 2022 earnings call, leaving.
Leading today's call will be Barry Litwin, Chief Executive Officer, and Tex Clark Senior Vice President and Chief Financial Officer.
Formal remarks will be followed by a question and answer session.
Today's discussion may include certain forward looking statements it should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward looking statements caption and under risk factors in the company's annual report on Form 10-K, and quarterly reports on Form 10-Q.
The release is available on the company's website and its been filed with the SEC on a form 8-K.
This call is the property of Copel industrial company.
Now I'll turn the call over to Barry Litwin.
Thanks, Mike Good afternoon, everyone and thank you for joining US overall 2022 was an outstanding year for global industrial as we executed against our strategy and delivered a record financial performance for total revenue as well as gross and operating margin.
For the full year organic growth contributed over $100 million in additional revenue, resulting in 9.7% growth and bringing total revenue to 1.17 billion.
Gross margin improved 90 basis points to 36, 1%.
We generated over 105 million of operating income an increase of 19, 5% and delivered a 9% operating margins 70 point basis improvement from 2021.
The strong financial performance in 2022 today, we announced an increase in the quarterly recurring dividend for the seventh consecutive year.
2022 started off with strong double digit revenue gains while the second half of the year reflected the impact of increased economic headwinds.
And a diminishing price benefit as we lapped price increases taken in mid to late 2021.
As a result fourth quarter revenue was off modestly with flat price to volume comparisons from the year ago period.
Man was muted across categories and sales channels and we have seen this trend continue into 2023.
We were very pleased with the proactive management of gross margin in the quarter as we recorded a 30 basis point improvement on a sequential basis and remain confident in our ability to manage our margin profile in the current cycle.
Looking back on the last year, we successfully executed on a number of initiatives that we believe set us up well for 2023 and beyond.
First we strengthened our managed sales organization as we expanded the team and made investments in tools and technology to enhance productivity and performance.
We added a new customer acquisition engine focused on enterprise accounts, and launched market verticals and hospitality and health care.
These efforts are off to a great start and we're excited about what we see.
Moving forward, we're focused on capturing share through customer acquisition and retention deepened.
Deepening our existing relationships and expanding our lineup of exclusive branded items.
Second marketing leadership, we executed against our fully integrated brand marketing campaign, which has allowed us to activate or we can supply that branding across everything we do from our website emails tradeshow in copywriting to our NASCAR sponsorship.
I think we have one of the most exciting brands in the market today, and one that truly speaks to our customers and the products and solutions we provide.
During the year, we also repositioned the private brand offering as global industrial so brands with the tagline made to exceed.
As the market continues to shift from winning with product availability to our price and value focus we believe we're well positioned with our exclusive brand offering.
Suddenly we launched a new marketing campaign focused on operational efficiency a message that is timely given the current economic environment and one that aligns with the efforts, we see from our customers and within our company to drive efficiencies and enhance operational performance.
Third we continue to elevate the customer experience with the launch of a new website designed to drive personalization. We're now optimizing this new plan important with enhancements to further improve the digital shopping experience.
On the service side, we have initiatives across the company to optimize satisfaction and loyalty at every customer touch point.
On the training of customer service reps to expanding self service option, we are committed to delivering five star customer service experience.
Fourth distribution and supply chain.
Our operations and merchandising teams delivered exceptional availability reduce back orders and improved lead times. During the year. In addition, we opened a new distribution center in Toronto that allows us to receive direct imports into Canada provide for the shipment of more products stock directly to our customers and foster our continued growth.
Overall, we're off to a much better stocking position this year, which will help us enhance surface waters and deliver value to customers.
We have a number of initiatives planned for 2023, including a focus on shipping quality that will minimize damage it as well as efforts to increase same day shipping volume and fully capture ocean and domestic freight savings and will help us pass more savings to our customers.
Finally, I'm proud of the release of our inaugural ESG report last fall, which reflects the universal commitment our board executive team and our associates to the mission of responsible stewardship, we look forward to updating you on our progress later this year.
In closing we believe we have a strong game plan for 2023, and a clear vision for our team to execute on.
While uncertainty remains in the economic outlook, we're optimistic and excited about the opportunities we see for growth.
We will continue to invest in core strategic areas of the business that support our customer centric strategy and helped drive operational leverage this includes pricing intelligence and analytics.
Productivity and cost management, and a company wide focus on margin optimization.
I have been impressed by the nimbleness, we have demonstrated and continue to show our ability to drive operational excellence with strong cash flow from operations and an exceptional balance sheet, we remain well positioned to execute on our strategy.
Best in our growth drivers.
<unk> strategic M&A opportunities.
And build long term value for our stakeholders.
I will now turn the call over to Texas.
Thank you Barry.
Fourth quarter revenue was $265 million down 0.6% over Q4 of last year.
Average daily sales were off two 2%.
Quarter included one extra day, however, I would note did they fell on the Friday before the new year's holiday and a historically low volume of sales day and had limited impact on our results.
U S revenue was down two 0.2% while revenue in Canada improved approximately two 5% in local currency.
Price volume was neutral in the quarter in contrast to pricing benefit recognized throughout late 2021, and most of 2022.
The private brand offering has been an area of focus and opportunity during 2022 for the full year. It represented approximately 50% of total sales.
Public sector volume was robust in the quarter, a nice rebound from Q3, which was the close of the federal fiscal year.
The heating in winter seasonal category was soft, reflecting a relatively mild winter for much of the U S.
Demand was consistent throughout the quarter and we have seen a continuation of <unk> sales trends into the start of 2023.
Overall, we perceive customers to be guarded in their buying decisions in the pricing environment remaining competitive.
Gross profit for the quarter was $93 $8 million down three 3% from last year.
Gross margin was 36% an increase of 30 basis points on a sequential quarter basis, but off 100 basis points from the prior year.
In the year ago quarter, we delivered a record gross margin as we benefited early in the business cycle from strong price realization and lower cost FIFO inventory sell through both of which have fully waned. We will also have a strong margin comparisons in the first quarter of 2023, but believe we have shown an ability to manage through the challenges of the current environment.
Maintaining our margin profile remains a key focus of our team.
We have seen some early benefits from lower ocean supply chain costs. However, we expect variability throughout the year as we work to select inventory with higher total landed costs and manage a dynamic pricing environment.
We continue to believe that long term margin gains are achievable as we drive a higher balance of private brand sales optimizer fulfillment and freight profile and drive leverage of our fixed cost base.
Selling distribution and administrative spending in the quarter was $76 $1 million or 29, 2% of net sales an increase of 210 basis points from last year.
DNA, primarily reflects the fixed cost nature of the business investments in the expansion of our candidate D C network, including approximately $1 $1 million in incremental costs as well as planned marketing investments to support new verticals and to remain top of mind, when our customers search for our products.
We also recorded increased compensation expense, primarily related to $1 $1 million of incremental variable compensation, which reflects the strong full year results as compared to 2021.
We continue to maintain strong cost controls and in January it took steps to rightsize, our cost structure, including a reduction in force, which will reduce annualized costs by approximately $6 million. We expect a record of one time severance expense of approximately $1 $1 million in the first quarter.
Operating income from continuing operations was $17 $7 million in the fourth quarter and operating margin was six 8%.
During the quarter, we generated cash flow from continuing operations of $26 $3 million totaled.
Total depreciation and amortization expense in the quarter was $1 $1 million, while capital expenditures were $2 $5 million.
We expect 2023 capital expenditures in the range of $6 million to $8 million, which includes primarily maintenance related investments and equipment within our distribution network.
Let me now turn to our balance sheet we.
We have a strong and liquid balance sheet with a current ratio of 2.1 to one as of December 31st we had over $28 million in cash and minimal debt.
During the quarter, we expanded our credit facility by $50 million to $125 million and currently have $111 $7 million of excess availability under the facility.
The continued improvement in our debt position reflects decreased working capital needs as inventory levels normalized and total inventory landed costs moderate.
We maintain significant flexibility to fully execute on our strategic plan and to continue to fund our quarterly dividend as a result, our board of directors declared a quarterly dividend of <unk> 20 per share of common stock.
An increase of 11, 1% from our previous quarterly dividend.
This concludes our prepared remarks today operator, please open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Ryan Merkel with William Blair. Please go ahead.
Hey, good afternoon, and thanks for taking the questions.
Hey, Ryan.
But I wanted to ask a question on sales in the fourth quarter any chance you can provide a little more detail either by product or end market and for the managed and non managed accounts that'd be helpful. Thanks.
Yeah, Ryan I can give you a little bit of insight there relative to our Q4 revenue.
So we certainly saw price benefit wane in the period and I think if you look back we probably captured a price benefit you know really early on in the cycle I think to your question on kind of customer mix I think there's a couple of things. We found one I think the SMB base for us and appeared to be a little bit more cautious during the period versus <unk>.
The large national accounts that we've seen so that was one trend we saw and as you know we've talked we're continuing to kind of diversify our overall customer base you know as it pertains to some of the enterprise business, but we still are fairly heavy S. N V based business. The other factor was really around some of the winter seasonal.
Softness that we mentioned in the opening.
That tends to be a fairly strong private brand category for us, particularly around heating and as we know whether it's been a really mild throughout the U S in that.
You know that it had some some pressure as well.
Got it okay.
Thank you said demand is down low single digits into the start of 'twenty three I just want to confirm if I've heard that right just confirm sales aren't getting a whole lot worse here.
Yeah, I mean, I think our.
Yeah.
Yeah, Sorry go ahead, Barry Yeah, a quick quick cover I think I think our demand trends right. Now certainly continues into into Q1, you know, we've certainly seen still some muted our sales across categories and sales channels and I think we've seen the same type of approach around customers being a little bit more guarded.
Right now is the pricing environment remains fairly competitive.
Yeah.
Got it Okay last one for me I know, you're not giving guidance here, but just curious what your outlook is for the MRO market twenty-three. Thank some of the larger players are thinking down low single digits, but curious how you're thinking about 'twenty three.
Yeah, I mean, I think we kind of look at the same indicators I mean, we look at.
Industry stats around MDM and obviously the economy you know in terms of what we're looking at I mean, I think we.
Went and certainly with an optimistic approach around some of the sales initiatives and the investments that we've put in place are but certainly we're taking a fairly cautious tone relative to the MRO market right now I'm hopeful that we start to see a you know some some better performance in the industry itself towards the back half of the year.
We tend to follow the PMI index as well so you could see a fairly.
Change in the ISR between this year and last year at the same time, but are we still are confident that we have a significant amount of initiatives in place to help drive overall long term growth.
Particularly around our category and private brand expansion and certainly the benefit that our one to one sales organization has in terms of driving good solid relationships and insight to our customers and certainly we're going to continue to invest into some new sales channels. We've mentioned last year on certainly continuing on through this year to help us out and exploit some newer some new.
Markets.
Thanks, I'll pass it on.
Again, if you have a question. Please press star then one to be joined into the queue.
The next question comes from Anthony <unk> with Sidoti and company. Please go ahead.
Good afternoon, and thank you for taking the questions. So first for Q4, our gross margin can you go over the various puts and takes in regards to the gross margin then Barry you you talked about focusing on margin optimization.
Can you give us a sense as to like how shall we think about gross margins are cut off for the balance of the year that'd be great.
Yeah, Barry if you want me to just jump in real quickly to reconcile something that absolutely Anthony good afternoon. So again, when we think about the overall margin gross margin profile of 36%. This year most of them are 36% in Q4 to 36, 1% for the full year. We saw some again, we mentioned we saw a sequential improvement from Q3 into Q4, which isn't always a normalized.
Seasonal trend for us, but we thought we did a little bit better in Q4 than Q3, but when we look at a year over year basis last year and in Q4. It was really we were fully entrenched in in some early early price moves that we had made primarily related to inflation and the ocean transportation rates that that drove higher selling prices, but also allowed.
Higher gross margins, because we were able to capture that as we were still working through inventory that had landed prior to the some of it was pretty significant increases in cost we saw.
That really benefited both Q in Q4 and Q1 2020.
2022 where we saw 37 plus percent margins in each Q4 and Q1. So while we did see that year over year decline that that sequential increase gave us gave some strong confidence that we're able to manage through.
Somebody get again, the continued pricing dynamics in the market along with some higher both both domestic and and that ocean freight that we had mentioned and while the ocean freight costs are coming down I mean, we've seen that in all the different public settings that that will be a benefit to the organization, but it does take time to work through because obviously, we're working through inventory turns it to get to get to that lower cost.
Inventory that will we'll be able to take benefit take take advantage of them and obviously also pass through back to our back to our customers as we move throughout the course of the year.
I'm not sure if that answers your question Barry if you want to jump in and join anything more no nothing as well who's well definitely well covered okay.
Right right got it alright, terrific and then as far as had been Tories now they're down from the second quarter peak.
How should we think about the inventories for us.
As we look to I know you're looking to.
Surely work those down I assume as the year progresses, but is.
Is there a goal in mind as far as as far as dollar amount you want to get to by the end of the year or maybe inventory turns I mean, how should we just think about inventory management.
Yeah, I'll take that again, Barry as well so overall inventory, while we don't have a specific goal on on targeting inventory numbers, we set goals internally based upon things such as fill rates and how what what what overall stocking levels, we need to add for our customers to deliver our product on time for what they need given that while the supply chain costs have come down overall as a disruption.
By chain is out of the market in terms of lead times, both from kind of our overseas suppliers as well as domestic movements here in the states that that's allowed us to improve that they are to lower their safety stock requirements.
Have allowed us to normalize inventory as we move throughout 2022, we would expect that to continue into 2023 and while we may have some seasonal buys that happens from time to time, we do not anticipate that.
Our inventory levels will will expand in any material way in 2023.
Got it okay. Thanks, and then last question for me is you know just just overall.
What is your appetite for acquisitions, it's been a few years since you've done anything as far as M&A I'm. Just wondering if you have a comment on that that'd be great.
Yeah, Great question, Anthony and I, and I know that we've been fairly consistent in kind of our policy around.
M&A and certainly we continue to keep ourselves open to opportunities looking at businesses that can either add category strength to us selling channels strengthen customers all makes sense for us as I've mentioned, we certainly have been looking in the market for some time.
We're looking to try to obviously as most businesses trying to find the right valuation and the right fit most importantly for the company. So it is certainly.
In our strategy to continue to address that and we'll continue to do so going forward. So I appreciate you asking the question.
Got it well, thank you very much and best of luck.
Thank you.
This concludes our question and answer session. The conference has also now concluded. Thank you for attending today's presentation. You may all now disconnect.
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