Q3 2023 American Woodmark Corp Earnings Call
Speaker 2: Good day and welcome to the American Woodmark Corporation, third fiscal quarter 2023 conference call.
Speaker 2: Today's call is being recorded February 28, 2023. During this call, the company may discuss certain mon- GAAP financial measures included in our earnings release, such as adjusted net income, adjusted EBITDA, adjusted EBITDA margin, free cash flow, net leverage.
Speaker 2: and adjusted EPS-per-deleted share. The earnings release, which can be found on our website, AmericanWordMove.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.
Speaker 2: We also use our website to publish other information that may be important to investors, such as investor presentations.
Speaker 2: We will begin the call by reading the company's Safe Harbor Statement under the Private Security's litigation reform act of 1995.
Speaker 2: All four-looked statements made by the company involve material risks and uncertainties in our subject to change based on factors that may be on the company's control. Accordingly, the company's future performance and financial results made different materially from those expressed or implied in any such four-looked statements.
Speaker 2: Such factors include, but are not limited to, those described in the company's fileings with the Securities and Exchange Commission and annual report to shareholders. The company does not undertake to publicly update or revise its hold of statements, even if experience or future changes make it clear that any projected results
Speaker 2: Express or imply therein will not be realized. I would now like to turn the call over to Paul Chohimchek, Senior Vice President and CFO , who's going to head served.
Speaker 2: Good morning ladies and gentlemen and welcome to American Woodmarks third fiscal quarter conference call.
Speaker 3: Thank you for taking the time today to participate. Drining me is Scott Calbreth, President and CEO .
Speaker 3: 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.
Speaker 3: order and I will add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions.
Speaker 3: Thank you, Paul, and thanks to everyone for joining us today for our third fiscal quarter earnings call. Our teens deliver net sales of $481 million or growth of 4.6%.
Speaker 3: Our May-Dowarder Frame Backlog normalized as planned at the end of the calendar year.
Speaker 3: In addition, the man-trans soften through alpha-quarter within remodel, and as a result, we took several unscheduled production down days around the holidays.
Speaker 3: Recent trends, however, have improved and we remain confident in delivering our four-year forecast shared last quarter.
Speaker 3: Within new construction, our business drew 19.7% of our year. Order wrote this flow due to the decline in single-family housing starts that began last summer and fall.
Speaker 3: Lotus Rock to Mystic going forward as January sales have improved.
Speaker 3: We continue to monitor recent trends of interest rates, home prices, household formations, and consumer confidence.
Speaker 3: The long term front's fundamental with the market remains strong.
Speaker 3: There continues to be a deficit in the number of homes built following short of household formations.
Speaker 3: But we acknowledge a slowdown will occur in calendar year 23.
Speaker 3: Opportunities remain if you are shared with new and existing customers.
Speaker 3: Looking at a remodel, which includes our home center and independent deal and distributor businesses, revenue declined 4.9% versus the prior year.
Speaker 3: Within this, our home center business was down 9.8% versus the prior year.
Speaker 3: Our stock and made-to-work kitchen business was down SQL digits, with stock bathdown double digits versus the prior year. Our stock bath business was impacted by a promo of loss versus the prior year, at a retailer, along with inventory-based stocking efforts at our customers.
Speaker 3: With regards to our deal with distributor business, we're at 14.4% percent percent percent of the prior year.
Speaker 3: Our just-a-db diincrease 66.8% to $51 million, or 10.6% for the quarter.
Speaker 3: The total DPS was $8.00 and adjusted the PST was $1.46.
Speaker 3: The improvement performance is due to pricing, better matching, inflationary impacts, mixed and improved deficiencies in the manufacturing platforms.
Speaker 3: Our cash balance was $45.8 million at the end of the 35th floor. The company has access to additional $277.6 million under its revolving credit facility. The company has access to additional $257.6 million under its revolving credit facility.
Speaker 3: Leverage was reduced to 1.81 times the justice he dies, the company paid down $46.1 million in debt during the quarter.
Speaker 3: A slowdown to me angle present in the near term headwind, but we were prepared to navigate short-term to me in reductions, and our product will follow its position to win, and attract customers in a more difficult economic environment. Our full year outlook remains unchanged from the prior quarter, because we continue to reflect a low-double-digit growth rate in that sales.
Speaker 3: with mid-single-digit negative sales costs expected in fiscal Q4.
Speaker 3: Despite this revenue headwind, we are maintaining the expectation of low double digit adjusted U.D. margins for the fiscal year.
Speaker 3: We released an updated investor relations deck in January that shared our view of financial performance over the next five years.
Speaker 3: Despite a near-term slowdown in the domain, we believe a 40% of Cager in that sales is appropriate.
Speaker 3: and that we will grow a chested EBITDA out of over $350 million.
Speaker 3: The key driver, Margin Expansion, has tied to our platform design work that I will cover in a moment.
Speaker 3: Our team continues to execute our Gensart strategy that's three main pillars. Growth.
Speaker 3: Our team continues to execute our GINSTAR strategy that's three main pillars. Growth, digital transformation, and platform is on.
Speaker 3: Growth will benefit from our upcoming summer launch at two new finishes and several new exhausts.
Speaker 3: Digital transformation efforts at Alaska will quarter include the planning efforts for the next implementation area of ERP and our manufacturing operations, including global design and moderated location planning.
Speaker 3: We also have completed the first two sprints of the Ville phase of our CRM project, which goes live this summer.
Speaker 3: Platform design work is accelerating. Its groundbreaking dense occurred within the quarter for our expansion of monitoring Mexico and Hamilton, or Kiliman. It will deliver additional capacity in our stock kitchen and back cabin tree product and it will deliver additional capacity in our stock kitchen and back cabin tree product.
Speaker 3: Automation efforts continue and we have committed over $75 million in automation investments over the next five years.
Speaker 3: In closing, I'm proud of what this team accomplished in the third fiscal quarter and look forward to their contributions during the fourth fiscal quarter of fiscal year 23.
Speaker 3: I will now turn the call back over to Paul for additional details and financial results with quarter. Thank you Scott. Financial headlines for the quarter and year to date.
Speaker 3: Net sales for the third quarter of fiscal year 2023 were 481 million, representing an increase of 4.6% over the same period last year.
Speaker 3: And here today our sales will 1.6 billion represent an increase of 229.6 million or 16.9%. Adjusted net income was 24.4 million or $1.46 cents per deleted share in the third quarter of fiscal year 2023.
Speaker 3: versus 9.9 million or 0.60 cents per deleted share last year.
Speaker 3: Adjusted income for the third quarter of fiscal year 2023 increased 14.5 million due to higher sales largely driven by price increases and improvements in our operations.
Speaker 3: Your date or adjusted net income was 90 million compared to 32 million prior year representing a $58 million increase.
Speaker 3: Adjusted EBITDA for the third quarter of fiscal year 2023 was 51 million or 10.6% of net sales, compared to 30.6 million or 6.6% of net sales for the same quarter in the prior fiscal year, representing a 400 basis point improvement year-to-year. Adjusted EBITDA year-to-date is 175.1 million,
Speaker 3: and Euler distributors increasing 14.4%.
Speaker 3: New construction net sales increased 19.7% in the third fiscal quarter compared to the prior year.
Speaker 3: New construction sales outpaced market demand during the third quarter fiscal year 2023.
Speaker 3: Recognizing a 60-90-day lag between start and cabinet installation, the overall market starts and single-family homes were down 24.6% for the fiscal third quarter.
Speaker 3: Looking at completions during our third fiscal quarter, we saw an 8.1% increase year over year.
Speaker 3: Given that the client starts in a large separation between starts and completions, our backlog return to normal levels within the first part of this quarter.
Speaker 3: The company's gross profit margin for the third quarter of fiscal year 2023 was 15.7% on net sales versus 11.3% report in the same quarter of last year, representing a 440 basis point improvement.
Speaker 3: Year to date, our gross margin is 16.5% compared to 11.6% and that salesman prior year.
Speaker 3: Gross margin of a third quarter of the current fiscal year and year-to-date was positively impacted by the pricing actions and operational improvements, offset by increases in labor and domestic logistic costs.
Speaker 3: Total operating expenses were 10.4% on net sales in the third quarter of fiscal year 2023, compared with 10.2% on net sales for the same period in fiscal year 2022.
Speaker 3: Selling and marketing expenses were 4.4% in that sales in the third quarter of fiscal year 2023, compared with 5.1% in sales for the same period of fiscal year 2022.
Speaker 3: The race unit net sales decreased 70 basis points resulting from decreased spending and lower commission plan expenses combined with leverage created from higher sales in the third quarter of fiscal year 2023. General administrative expenses were 6% of net sales in the third quarter of fiscal year 2023 compared with 5.1% of net sales in the same period of fiscal year 2022. The increase in the ratio is primarily driven by increases in incentives and profit and the increase in the ratio is also driven by the increase in the ratio of net sales in the same period of fiscal year 2020.
Speaker 3: lower cost receivable balances and lower capital spending.
Speaker 3: Net leverage was 1.1 or 1.81 times adjusted EBITDA at the end of the third fiscal quarter representing a 1.72 times improvement from the 3.53 times at the end of the fiscal year 2022.
Speaker 3: As of January 31st, 2023, the company had 45.8 million of cash and cash to put loans on hand plus access to 277.6 million of additional availability under the revolving facility.
Speaker 3: The company paid down 67.3 million of debt during the first nine months of the current fiscal year.
Speaker 3: Shifting our focus to the remainder of 2023, our full year outlook remains unchanged and we expect low double-digit growth rate in our net sales versus fiscal year 2022.
Speaker 3: To achieve this, our fourth quarter-stays are expected to be mid-single-digit decline.
Speaker 3: The growth rate is highly dependent upon overall industry, economic growth trend, material constraints, labor impact, interest rates and consumer behaviors.
Speaker 3: Our EBITA margin for the fiscal year 2023 remains low double digit EBITA percentages.
Speaker 3: It is great to see the commitment, hard work, and efforts are employees and best of the company to achieve our results.
Speaker 3: and react to the changing dynamics in the macroeconomic environment. I am grateful for what the teams accomplish and thank all of our team members at American Road Mark for their continued efforts. They are the ones who make it happen daily.
Speaker 3: This concludes our further remarks. We'll be happy to answer any questions you have at this time.
Speaker 2: Thank you. We will now begin the question and answer session. To ask a question, you may press star than one on your telephone keypad. If you are using the speaker phone, please pick up your hands up before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. We will now begin the question and answer session.
Speaker 2: And the first question will be from Adam Baumgarten from the gentleman. Please go ahead.
Speaker 3: Hey everyone, good morning. Just a good morning, Edward. So the quarter, can you brief down the revenue growth by volume and price overall?
Speaker 3: We don't break it down to that level of degree, Adam, but I can tell you that clearly units were down in the quarter. And then I think maybe more importantly is that there's been no activity to roll back pricing.
Speaker 3: Okay, got it. That's helpful. And then just on the input cost basket, as we take about, you know, heading into fiscal 24, maybe how you're seeing trends today and how that may play out as we move forward.
Speaker 3: Make sure I heard that question correctly. Were you asking about input costs?
Speaker 3: Yes, so what you're seeing today and how you think that's closer to the next year. What we're seeing right now is hardwood lumber prices have started to come down for several species, not all. But we are still seeing other commodity purchases that continue to show elevated purchase prices. Things like particle board.
Speaker 3: plywood paint. And then certainly I don't think there will be a slowdown in pressure on labor cost and likely not a slowdown on domestic transportation as I think forward into the remainder of county or 23. Okay, got it. And then just last one for me just on catbacks. Let's keep that going.
Speaker 3: Trending pretty well below the 3 to 3.5% range that you talked to for the year. Is that range-stone factor? Is that pushed out a bit and should we think about that range as a good level for next year? Yeah, Adam, definitely that the range has pushed out. And we kind of, for this year, we're turned back to normal historical levels. Primarily due to all-called constraints on our suppliers for equipment and manufacturing by capitalists of pros and cons.
Speaker 3: So going forward, we'll give you that full year FY 24 outlook when we do our annual call.
Speaker 3: And that is not a lack of great projects. Our team has a whole host of fantastic projects, even improved capacity or safety or overall cost positions. It's just the market is tight and the ability to get the suppliers to meet the initial timelines has proved difficult.
Speaker 2: or taking my question for today. I'm wondering if you could quantify the downtime that you have taken a quarter. How much net impact EBITDA and its production back to more normalized levels right now?
Speaker 3: Yeah, I don't necessarily have a value that I want to attribute to that, Garic. I just tell you that we didn't expect to have the number of down days going into the quarter when we gave our perspective in the last quarter earnings call. So that was a change due to the softening demand. What we chose to do initially was to take days out of the schedule.
Speaker 3: Then as we got through the holidays into the January timeframe, we let attrition adjust our staffing level. Unfortunately, that didn't fully accomplish it. We wound up having to take some targeted reductions in force at the end of January . So at this stage, we now have right signs to our labor force.
Speaker 2: with the overall demand and production plans that we have in front of us. Okay, great. One of the asphalt follow-up questions that respect the company made to prepare remarks. You said that recent trends have improved. Is that related to just some of the commentary coming out of the builder channel? Or are you seeing it improving in your orders as well? Yes.
Speaker 3: itwould be both. So certainly we see the same commentary that you see from the marketplace. So we're seeing that. But in we also are obviously monitoring ourer incoming order trends on on a daily weekly, monthly basis and we've seeing those trends improve from where they were bid did prior quarter.
Speaker 4: Great. Thanks for that and I'll test it.
Speaker 2: And the next question is from Stephen Randley from Thompson Research Group. Please go ahead.
Speaker 3: Good morning. Maybe one to learn a little bit more on the retail decline. You talk about kind of the cadence of that decline through the quarter, maybe the selling, sell out impact, and if there's any color to add on how that unfolded year today. I would just say the trends were most unfavorable in this.
Speaker 3: Is that expected to continue and can you talk about how much of that was less purchasing or how much of that was finished goods being delivered whatever other factors were involved there? Yeah, Steven, so really kind of an emphasis on M and Tories is during COVID there was that stock up but they have just in case M and Tories and we are re-focusing all of that.
Speaker 3: and stabilize our balances internally as well. And dear question about where it's coming from. Our teams are focused on raw whip and finish goods, so we're looking at all areas to find opportunities to improve cash flow.
Speaker 5: Okay, helpful. And then one other quick one on the dealer's trivia channel, kind of one near term, one long term. Can you talk about what's driving the growth in that segment in such an outsize way? And then thinking long term on this segment, your lowest market share segment.
Speaker 3: Can you talk about success year-to-date in gaining share and what you see for gaining share in the potentially slowing environment over the next 12 months? Yeah, maybe start with the latter part of that particular question. So as you noted, that's where we're the most underrepresented from a share position standpoint.
Speaker 3: the company average, if you will, as we go forward. So we want to continue to gain share in that space. Why do we think we can do that and why have we done that? We think we bring a really good offering in the marketplace. It's a value price play with the quality that many dealers and you should be excited about.
Speaker 3: to serve either their remodel or their new construction customers. We've been able to bring some new product to that space as well. So we talked about simple trims a couple of quarters ago that we lost in the northeast. We've done that. We're starting to look at the expansion of that to other markets.
Speaker 3: And then other opportunities and categories such as that that perhaps we can bring into the space.
Speaker 5: Okay, excellent. Thank you.
Speaker 2: And the next question is from Tim Wojc from Baird. Please go ahead.
Speaker 2: Hey guys, good morning. Maybe more of a theoretical question, Scott or Paul?
Speaker 6: If you do see sales declines, you know, kind of, you know, kind of start in the April quarter and then maybe continue into, to just go 24. What types of like volume decrementals would you normally expect to see on a sales decline, kind of from a theoretical perspective and then...
Speaker 3: I guess what levers do you think are available to you internally to maybe offset some of that volume-based decriminal? Sure. We've historically talked and I know you've followed us for quite some time with a decriminal gross margin of approximately 25%. We've certainly had periods where we perform better than that and then also periods where we've performed worse than that.
Speaker 3: As we start our planning cycle and just as a reminder, we're just now doing that now to get our
Speaker 3: full budget and plan set for fiscal year 24. As we start to do that work, we do think that we pressure on the top side. As we think about our gross margin, even on margin performance, we believe we'll perform better than the historical norm. I don't have an exact number to deliver to you today, Tim, but that's what we're working through, as we start to build out our budget plans.
Speaker 3: but we'll be better than the 25% as we go in the next year. So why, which is the other part of your question, what are the things that we have as levers? Well, we have a lot of great projects that we put in place this year, OpEx Saving, that will carry forward. And then we've got a robust deck of projects that will continue to execute on as we shift into fiscal year 24.
Speaker 6: that are drive savings. We've got the platform work that we mentioned as well. We'll start to help us more toward the end of 24 but set us separately nicely into 25 as well. Okay, okay, good. That's good to hear. And then I guess from your discussions with any of your builder customers or other channel partners, I mean, it doesn't sound like there's been any real push on price, but it has been any change to how they kind of think about mix.
Speaker 6: as basically about future communities or future shell space.
Speaker 3: Nothing substantial around MIX other than opportunities that we bring to the table where we can maybe put in origins versus the core timber lake offering. So that is our typical MIX.
Speaker 3: management offering that we'll bring to a builder and we certainly want to continue to drive origins growth in the space that's benefit for the builder as well as the enterprise. So we've done mixed management by driving more and more origins. We've not rolled back pricing but there's certainly a lot of price chatter!
Speaker 6: in the marketplace to your point. And then just the last piece on the facility expansion, is there any sort of startup cost or any sort of expenses that kind of run through the P&L of the next 12 to 18 months? That would just be aware of.
Speaker 3: There will definitely be some start-up expenses that will have inside fiscal year 24 as we get the operations ready. Again, we're just finalizing again the starting to actually work. I shouldn't use finalized for Paul, but we're starting to work on our budget process right now. And as we do start to finalize that, we'll have a better line of sight.
Speaker 6: to those chart up cost. Don't expect any of those really to impact the current fiscal year, but certainly we'll have some expense and exposure in the next fiscal year. We'll go look on the rest of the year, guys. Thanks for the color. Thanks, Tim. And again, if you have a question, please press star, then one.
Speaker 2: The next question is from Colin Varan from Jeffries. Please go ahead.
Speaker 6: Good morning. Thank you for taking my questions. In the prepared remarks, I believe you mentioned some de-stocking headwinds in the retail channel in the quarter. Can you quantify the de-stocking that you're seeing in the retail channel? And at this point, do you think your retail customers inventory levels are in a good spot? Or do you think you could see some additional sales headwinds for American Board Mark in the retail channel going forward from this dynamic?
Speaker 3: Yeah, and the prepare remarks that was pretty specific to the stock bath category and really again two points inside the current quarter. We had a promo loss that we had realized the year prior, so that gave us a headwind as we looked at the overall quarter.
Speaker 3: And then we saw efforts to reduce inventory levels by the key retailers. We have not yet seen substantial movement back and building back those particular inventory levels, but the feedback we're getting is that is likely in the next 30 to 45 days.
Speaker 3: So we believe and data shows us that we're below optimal levels in that category at the retailers and we would look to continue to drive inventory back in the store as a drive POS.
Speaker 7: create a helpful color. And then you guys saw some really strong incremental growth in EBITDA margin in the quarter. Can you help walk us through sort of what the price costs look like and then how much of the margin improvement was from those increased efficiencies that you guys called out?
Speaker 3: I'll just go back to the prepared remark. Price obviously is a key contributor and has been the last couple of quarters is we took the actions to offset the inflation, but also operating efficiencies have been really important. We spent the better part of two years dealing with labor challenges, inflation challenges, volume challenges, volume challenges.
Speaker 3: and our teams have done a much more effective job of stabilizing the operating footprint. And when we do that, we're able to drive efficiency throughout the entire process. So that's been a key contributor for us in the quarters law.
Speaker 2: Okay, thank you. Good luck on the next quarter. Thanks, Alex. Hey, once again, if you'd like to ask a question, please press star number one.
The next question is from Julio Romero from Sidoti. Please go ahead.
Good morning, this is the fungium on for Polio Romeo. Thank you for your time.
Good morning. This is the fun gil on for Holy Omer. Thank you for your time. Good morning. My first quip.
Good morning. My first question is given the current my macro environment have you been approached on price from builders?
Yes, we've been asked about pricing, but we've taken no action. Thank you. And what was the exit rates in January ? Part channel.
I'm sorry, could you restate the question? Well, what would the exit rates in January by channel? I believe you're asking me the exit rate. I'm not quite sure I understand the question.
I'm sorry, could you restate the question? Well, what would the exit rates in January by channel? I believe you're asking me the exit rate. I'm not quite sure I understand the question. Like, I guess.
So where I'm asking you just like let's say if you
Let's say something goes up this month if you lose 10 pounds and next month you go like you lose 15 pounds So that's why I'm asking like what was the exit rate so is it training of water downward? I guess I don't know
Yeah, I think the terminology we typically use when we talk about the demands that trucks arefields and the armored air
So back to the earlier questions in that space, we definitely saw a decreasing incoming order rate throughout the quarter. We saw Ging worry, then start to rebound and we've seen that sustained. So we've seen an improving incoming order rate recently.
Thank you. And last one for me is can you talk about your operating efficiency initiatives?
Sure, I mean what we're going to be focused on is making sure we've right sized our operations to the demand. So again, we had some nutrition activities and reduction in force efforts inside the quarter. Our teens were focused on.
You're taking costs out of the process regardless of where it is so that could be materials driven. It could be logistics, transportation related. It could be manufacturing related. We continue to make investments in equipment such as automation. And we want to target that to be able to reduce the demand for labor, which drops a benefit to the enterprise.
but also makes the work easier for our employees. If we're able to do that, we're able to track and retain the labor force more effectively. And just having less turnover inside of the quarter has been a huge benefit for the enterprise as well.
Thank you so much for good thinking my questions. Yep, thank you. Ladies and gentlemen, at this time I see there is not those waiting to ask a question, so I would like to turn the call back over to Mr. Jones for any closing comments. He's going to answer. Since there are no additional questions, this concludes your call. Thank you all for taking the time to your presentation.
Thank you, sir. The conference has now concluded. Thank you for attending today's presentation.
So F that.