Q3 2023 GMS Inc Earnings Call
Greetings and welcome to the G. M. S third quarter 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Good.
I would now like to turn the conference over to your host Carey Phelps Vice President Investor Relations for Gms. Thank you you may begin.
Thank you Melissa.
Good morning, and thank you for joining us for the Gms earnings conference call for the third quarter of fiscal 2023 <unk>.
I am joined today by John Turner, President and Chief Executive Officer, and Scott Deakin, Senior Vice President and Chief Financial Officer and.
In addition to the press release issued this morning, we have posted Powerpoint slides to accompany this call in the investors section of our website at Www Dot Gms Dot com.
As highlighted on slide two during today's call management's prepared remarks, and answers remarks and answers to your questions may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Forward looking statements address matters that are subject to risks and uncertainties many of which are beyond our control and may cause actual results to differ from those discussed today.
As a reminder, forward looking statements represent managements current estimates and expectations. The company assumes no obligation to update any forward looking statements in the future.
Listeners are encouraged to review the more detailed discussions related to these forward looking statements contained in the company's filings with the SEC, including the risk factors section in our company and the company's 10-K and other periodic reports.
Today's presentation also includes a discussion of certain non-GAAP measures.
The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides.
Please note that references on this call for the third quarter of fiscal 2023 relate to the quarter ended January 31 2023.
Finally, once we begin the question and answer session of the call in the interest of time, we kindly request that you limit yourself to one question and one follow up.
With that I will turn the call over to John Turner J P.
Thank you Terry.
Good morning, and thank you all for joining us today.
We are pleased to report solid financial results. Once again this quarter at levels consistent with our prior expectations building on the progress realized in the first half of our fiscal year.
Strong multifamily residential demand year over year growth in commercial wallboard volumes and continuing momentum in the sales of complementary products helped to offset a difficult prior year comparison in steel framing as well as regional volume declines in the single family market This quarter.
Looking at slide three with.
With comparisons to the third quarter of fiscal 2022.
Our team successfully managed continuing inflationary dynamics in wallboard ceilings and complementary products, while working through a notable shift in end market mix.
For the quarter, we grew net sales, 7% to $1 billion to $3 billion with a nine 4% increase in gross profit to $402 2 million.
Our teams continued to do an excellent job of addressing the demands of each of our customer categories with U S volumes in multifamily wallboard continuing to stay strong.
Up nearly 20% and with commercial wallboard volumes up five 6% sustaining the positive year over year growth in commercial wallboard volume that began early this fiscal year.
The strength in these customer categories helped to offset a 10, 6% decline in U S single family Wallboard volumes as builders have reduced their backlogs in most of our geographic regions.
Office construction for both new and remodel remained quiet during the quarter, resulting in a decline in ceiling tile volumes also impacted where steel volumes and pricing, which were challenged this quarter against the tough comparable period when significant gains were reported a year ago. During the supply chain dislocation we experienced in this product line.
Net income improved five 5% to $64 8 million and adjusted EBITDA grew four 3% to $148 million.
Finally, our free cash flow improved more than $80 million to $122 5 million.
Our team's ability to flex as needed to meet the demands of all of our customer categories, our commitment to delivering outstanding service and the continued execution of our four strategic priorities helped drive these results.
On slide four we highlight our progress this quarter in advancing our strategic initiatives.
While volumes are contracting in the single family space as most regions have worked through the bulk of their backlogs. Our teams worked hard to maintain or grow our share in our core products and deliver exceptional service to our customers despite significant weather disruptions.
Looking at each of our core product categories.
<unk> released industry data indicates that we successfully grew our share in wallboard for the full calendar year 2022.
Likewise, although the overall steel framing market continues to correct from supply chain disruptions and softening demand driven primarily by the office segment decline.
Industry data for steel framing also indicates that we grew our share during calendar 2022.
Finally, looking at our ceilings business.
While acoustical ceiling tile and grid has been negatively impacted by the lack of new office and tenant improvement work our sales of architectural specialty ceilings, where we have been making key investments in alliance with our manufacturing partners grew nicely this quarter.
We remain confident that over time, leveraging our scale and commitment to delivering best in class service and product availability will help us continue to grow our core product lines.
Growing our complementary products has also consistently been an important part of our success over the last few years, both the organic and inorganic expansion of these adjacent complimentary products have enhanced our appeal to our customers and in many cases have served as a boost to our EBITDA margins.
Comprising nearly 30% of our net sales we continued to benefit from both higher prices and volumes during the quarter growing our complementary product sales by 11, 7% in total at eight 2% organically.
In particular, we are focusing on the expansion of several of our larger complementary subcategories, including tools and fasteners, the stucco and <unk> product lines and the installation, which collectively grew 16, 8% for the quarter.
We intend to continue to further expand our offerings, while driving both purchasing and marketing best practices across our regions, thereby enhancing our value to our customers.
Another Avenue that we are employing to drive growth is through accretive acquisitions and greenfield opportunities during.
During the quarter, we were very pleased to make our first entries into the New York City market. The acquisition of Tanner bolt nut added four metro area locations specializing in the distribution of tools and fasteners and other related construction products.
This acquisition represents a platform from which we intend to expand our tools and fastener offerings in New York and surrounding areas and more broadly tools and fasteners as a margin accretive product set that we intend to expand across many of our geographies.
In addition, during the quarter, we took further steps to expand our platform with the opening of a ceilings focused greenfield in New York City and another new Greenfield yard in Chester, Virginia include.
Including these additions we've now opened six greenfields this fiscal year.
And finally, we also continued to execute against the growth strategy of our Ames business during the quarter opening three more store locations, thereby growing this margin accretive business as well.
Looking ahead, given the still fragmented nature of our industry the remaining opportunity to fill in service gaps and white space in our widening pursuit of complementary products. We believe ample acquisition opportunities remain and we have an active pipeline of candidates that we are pursuing.
And finally with a broad focus across our organization, we continue to leverage our scale and employ technology and best practices that improve both cost and service.
In the past I've discussed our yard of the future activities. We're in we are providing online access for our customers to make it easier for them to do business with us.
In addition, we are equipping our yard operators with automation tools to improve picking loading and staging efficiencies, thereby improving delivery turnaround and customer wait times at this point, we have rolled out these time saving tools to our operators in more than 40% of our larger yards and plan to rollout this automation to all of our yards in.
The U S that have the scale to benefit.
And so while this work continues we are also always looking to drive out complexity cost more broadly in our business.
For example, we recently completed an internal restructuring of one of our divisions consolidating back of house functionality across multiple subsidiaries, thereby reducing organizational and process complexity, while also enabling the standardization of product and customer data throughout.
Completion of this project reduces costs and serves as a foundation for profit improvement in this region as well as a model for other divisions.
Overall I am again, very pleased with the hard work and commitment demonstrated by our team to drive solid results as we execute our strategic priorities in a dynamic market.
With that I'll now turn it over to Scott to provide more perspective on our results Scott.
Thank you J T and good morning, looking at slide five net sales increased 7% year over year to $1 billion to $3 billion for the quarter.
Organically sales rose six 4% after adjusting out both acquisitions and the unfavorable impact of foreign exchange translation.
From a U S end market perspective, buoyed by the resilient pricing we've seen in wallboard.
Residential continued to lead the way with sales dollars up 14, 4% include.
Including 28, 1% growth in multifamily and 10, 2% growth in single family.
Moreover, commercial wallboard volumes again improved this quarter over the same period a year ago.
Sales dollar growth for commercial however was up only slightly year over year.
Excuse me, reflecting volume declines in the ceilings in steel as well as falling steel prices.
Wallboard sales of $507 million increased 26%.
Apprised of a 23% increase in price and mix with a slight 3% increase in volume.
Organically third quarter Wallboard sales grew 21, 2% year over year also comprised almost entirely of price and mix benefits.
Declining demand for single family construction materials, most heavily affected this product segment driving the volume reduction despite offsetting strength in multifamily and commercial.
In terms of U S wallboard volume, specifically multifamily residential gains of nearly 20% continued to far outpace the five 6% growth in commercial.
The 10, 6% decline in single family.
Wallboard pricing has remained resilient and has benefited from a mix shift toward higher commercial volumes.
Our average realized price for the quarter was $473 per Msf only down $1 from our fiscal second quarter and up 22% as compared with a year ago. Additionally.
Additionally, we ended the quarter higher than the Q3 average with a price of $480 per Msf for January .
Ceiling sales were $146 8 million for the third quarter were up four 9% as compared with a year ago as a nine 5% benefit from price and mix.
Offset a four 6% decrease in volume.
Organic sales in ceilings grew five 2% with nine 8% of price and mix.
Volume dynamics included the shift toward architectural specialties activity supporting projects, primarily in medical in higher education facilities.
Partially offset by a four 6% decrease in acoustical volume as large office and tenant improvement work remains muted.
Third quarter.
Steel framing sales of $234 $5 million decreased 17, 1% versus the prior year quarter.
With price and mix down, 13% and volumes down four 1%.
This compares with the third quarter of fiscal 2022, where inflation and constrained product availability drove a short term increase in both pricing and volume.
In addition, as we mentioned on previous calls one of the most significant customer categories for this business is large office for both new and remodel, which despite some limited conversion activities remains relatively quiet.
While lower rise stick framed multi use construction has been more active.
Organic sales in steel framing declined 16, 8% comprised of a 12, 7% decrease in price and mix.
A four 1% decline in volume.
As expected prices for steel framing products have been declining each month sequentially since July .
For the first time since the second quarter of fiscal 2021. This quarters average price fell below the same period a year ago.
Complementary product sales of $352 $6 million were up 11, 7% year over year as we benefited from positive contributions from acquisitions as well as improved pricing across the category.
Sales in this category were up eight 2% organically with the increase coming mostly from price and mix, but was moderately increased volume as well.
As referenced earlier due to our focus on tools and fasteners eastern stucco and installation these products.
Collectively delivered higher sales growth in the broader category.
With third quarter sales growth of 16, 8%.
Now turning to our gross profit during the quarter, our gross profit of $402 2 million increased nine 4% as compared with a year ago.
Principally due to continued successful pass through of product inflation.
Proved commercial wallboard sales.
Growth in complementary products and incremental gross profit from acquisitions.
Gross margin of 32, 6% increased 70 basis points year over year with strong margins and complementary products and better than expected margins in steel framing as our teams remained focused on inventory management and diligent project quoting as well as execution on negotiated year end volume incentives.
Our relative mix shift that was more heavily weighted towards commercial wallboard volumes also benefited gross margins in the quarter.
These gains were partially offset by higher operating expenses, however, given the logistical complexity and higher cost to serve in these applications.
This and other Opex highlights are covered on slide six.
In addition to the end market mix shift in volumes between single family and commercial demand operating expenses. During the quarter were also negatively impacted by wage inflation higher fuel and maintenance costs and unfavorable weather conditions, which impacted our normal operational efficiency for both labor and equipment as we continue to.
Honor our commitment to provide best in class service to our customers.
For the quarter adjusted SG&A as a percentage of net sales was 21, 4% as compared with 24% a year ago.
All considered net increase excuse me net income increased five 5% to $64 8 million or $1 53 per diluted share.
Compared to net income of $61 4 million or $1 40 per diluted share.
Growth in earnings per share for the quarter outpaced net income as a result of a $104 million in share repurchases completed since the end of January 2022.
During the quarter, we repurchased approximately 656000 shares for $33 2 million.
Compared with 87000 shares repurchased for $4 $7 million during the prior year quarter.
Fiscal year to date, one 8 million shares have been repurchased at an average price of $46 66.
As of the end of our fiscal third quarter, we had $128 million of repurchase authorization remaining.
Finally, as it relates to the P&L adjusted EBITDA for the quarter improved $5 8 million or four 3% to $148 million adjust.
Adjusted EBITDA margin was 11, 4% compared with 11, 7% for the third quarter of fiscal 2022.
Now shifting to our cash flow and balance sheet metrics, which are shown on slide seven.
During the quarter, we again recorded significantly improved levels of cash flow of supply chain constraints moderated.
Cash provided by operating activities during our fiscal third quarter was $134 $1 million compared with $57 $2 million a year ago.
Free cash flow was $122 $5 million for the quarter compared with $40 2 million for the same period last year.
Capital expenditures of $11 6 million for the third quarter compared to $17 million in the prior year quarter.
For full year fiscal 2023, we now expect capital expenditures to be approximately $40 million to $45 million.
At the end of the quarter, we had substantial liquidity position with cash on hand of $186 $7 million and $574 $4 million of available liquidity under our revolving credit facilities.
As a reminder, in late December we amended and expanded our ABL credit agreement, increasing the revolving commitments there available there under by $405 million to.
To $950 million and extending its maturity to December 2027.
Under the new terms of the ABL facility. We also know now have the ability to borrow Canadian dollars up to $200 million.
And therefore in connection with this with the completion of this amendment, we terminated our Canadian ABL credit agreement.
We continue to monitor upcoming maturities of the other facilities in our capital structure.
At January 31, our net adjusted EBITDA debt leverage was one six times down from two three times a year ago.
We expect to end the year with substantial liquidity and expect to generate full year free cash flow for fiscal 2023 of approximately 55% of adjusted EBITDA.
Going forward, we will continue to align our capital allocation to our four pillar strategy balancing investing in our strategic initiatives with paying down debt and opportunistically leveraging favorable market conditions for share repurchases.
As they arise.
With that I'll now pass the call back to JBT to provide some perspective on our broader end markets and our outlook for the fourth quarter.
Thank you Scott.
Turning to slide eight.
As we begin the final quarter of our fiscal year as expected, we're beginning to see a decline of single family demand across most markets, reflecting the slowdown in permits and starts activity and narrowing of the construction backlog that was in place at the start of our fiscal year going forward. This single family demand trend is expected to continue in the near term at <unk>.
Homebuyers take a pause in light of higher interest rates and affordability concerns were.
However, encouraged by the recent positive commentary from homebuilders regarding their sequentially improved activity levels. So far during calendar 2023.
Nevertheless, we remain cautious in our near term outlook assumptions. However.
However over time, we are confident that favorable demographics and the sizable structural need for housing along with the need to improve affordability will drive an increase in housing construction.
As a result of the near term outlook and in line with our efforts to drive improved productivity.
I went to the end of our fiscal third quarter, we took steps to improve our cost structure. Specifically in addition to flexing variable and discretionary costs, we took actions to address areas of fixed cost redundancy. These.
These actions reduced our workforce by roughly 170 positions and as phased in are expected to lower operating expenses by $15 million on an annualized basis.
In association with these steps, we will record a onetime charge of approximately $2 $5 million in our fiscal fourth quarter for severance and other one time implementation costs.
Will be added back for purposes of calculating non-GAAP adjusted EBITDA for the quarter.
With that let me provide our outlook for our fiscal fourth quarter, which is highlighted on slide nine.
Okay.
Starting with the outlook for each of our end markets and using wallboard as our proxy.
Despite moderating somewhat starts numbers in multifamily remain historically elevated and there remains a large backlog of projects under construction.
Given their longer build times, we expect multifamily to continue to outpace our other end markets with more than 20% year over year volume growth in our fiscal fourth quarter with continuing positive trends through at least mid calendar year 2023.
Commercial is also expected to continue its relatively stable demand trends with single digit volume growth expected for the fourth quarter.
And finally single family volumes are expected to deteriorate further likely declining in the high teens as compared to a very robust fourth quarter of fiscal 2022.
While we cant fully predict the degree of timing of market price last 50 going forward for planning purposes. We are currently projecting year over year mid to high teen inflation in wallboard pricing.
<unk> prices in ceilings, and slight inflation and complementary products for our fiscal fourth quarter.
In steel framing, while noting the underlying raw material pricing appears to have bottomed and many suppliers have initiated price increases our current expectation is for our steel prices to continue to decline each month sequentially in the low to mid single digit range for a net year over year decline of 20% to 25%.
For the fourth quarter.
We believe our steel prices should bottom at some point thereafter, and then increase slightly consistent with those of the underlying raw materials market.
With outsized declines expected in steel offset by growth in the balance of our other major product categories. We currently expect total net sales for our fiscal fourth quarter to be flat to down low single digits as compared with the prior year period.
As a reminder, we will have one less selling day in our fiscal fourth quarter as compared with a year ago.
Margin percentage for the fourth quarter should remain roughly consistent with our longer term trend of around 32%.
And finally, we expect to deliver adjusted EBITDA of between $139 million and $144 million for the quarter.
We're looking forward to a solid close to what to date has been an outstanding fiscal year for Gms, we enter our fiscal fourth quarter with the same commitment to deliver best in class service to our customers that has helped drive our success all year.
Our scale wide breadth of product offerings and demonstrated ability to service each of our customer types positions us well as we expect a near term shift in end market demand towards multifamily and commercial.
We intend to continue to execute against our strategic priorities to deliver value to our shareholders, our supplier partners and to our team.
Thank you for joining us today.
Operator, you May now open the call for questions.
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In the interest of time, we remind you to please keep to one question and one follow up.
Our first question comes from the line of Trey Grooms with Stephens Inc. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my question this morning.
Thanks, Good morning, Hey, so.
On the Wallboard guide.
Our next quarter I guess the April quarter.
J P. You mentioned youre looking for year over year pricing growth of mid to high.
High teens.
That's right I think that translates into something like kind of like flat.
Mid single digit sequentially.
So with that outlook, how much of that.
<unk>.
Flat to up mid sequentially, how much of that is from mix.
<unk> benefit from more commercial versus.
Like for like pricing.
No actually increasing there.
If you look at the third quarter is kind of an indication of the trend, we actually had a little bit of decline on true price offset by mix, but as the quarter progressed. It actually starts to shift where we're seeing a little bit of gain in both so.
Our view is probably in the ballpark of sort of one third two thirds.
The majority of it coming from mix versus price got it.
Okay. Thank you for that and then.
Thanks for all the detail you guys gave us around your kind of outlook here for.
End market demand and that sort of thing that was super helpful.
Could you remind us what the mix is as far as demand for the wallboard segment between.
When you kind of think about the rent side.
The between multifamily and single family and then also kind of commercial because I know it gets a little fuzzy with multifamily if you could just maybe help.
And the impact that for us.
Yes, I mean total residential 65 in volume.
35, commercial multifamily a little Tan <unk> 10 to 12 in there for volume we thought in.
In the past, we've talked about single family residential representing about a third of the revenue in the business.
So two thirds of the business is multifamily and commercial and revenue, but to answer your question wallboard and a roughly 65% residential 12% of that being multifamily.
The balance being single family.
Okay. Thanks for that Jay.
I'll pass it on and jump back in queue. Good luck. Thank you. Thank.
Thank you Greg.
Thank you. Our next question comes from the line of Keith Hughes with <unk> Securities. Please proceed with your question.
Thank you question on the non residential demand.
You are guiding us to.
And.
The fourth quarter looking beyond that what do you see the trends for the rest of the calendar year and if you could talk about construction versus versus remodel.
Yes, so nuke new home construction is probably still we're viewing that as maybe down 25%.
20% to 25% I think people some people had as high as 30 and.
In the January February timeframe as you. We're hearing people talk about 15% to 20. So I think we're taking kind of a conservative view in that regard going forward.
You certainly saw that in January February the move of interest rates down with the 10 year treasury being in the low threes.
The reflecting.
30 year mortgage rate getting into the low sixes that brought buyers right back so I think thats a wonderful sign of the future.
And likely what we'll experience, but at the moment of course, we're reporting two weeks behind others.
And today you are talking about a 10 year treasury over four.
I think that little pretty quickly right. So.
That is going to be a difficult single family construction year, but I think it's going to be a very strong multifamily year too much in the pipeline hundreds of thousands of start sitting out there in the backlog units starts in the backlog and yesterday. The commercial numbers came out and I would tell you I was very pleasantly surprised to see another month as strong as.
January in particular as strong as it came out, particularly in things like office, which until the last three or four months have been flattish to down in that in that.
Census Bureau reporting so.
I feel good about commercial we might be a little conservative in our commercial forecast quite frankly for the year.
Okay.
Your guidance for the quarter of flat ceiling pricing could you talk more what's going on there you are actually seeing some.
Such a break in trend is there.
Nothing specific with comps our prices actually going down what's what's the flavor on that.
We were up 15% in the prior year quarter. So we had a huge increase in the prior year quarter due to some very specific projects. So yes, we have a comp issue there, but also we include grid in our ceilings pricing.
And other people other people don't necessarily include grid by say other people, mainly certain manufacturers don't quit grid oftentimes in the discussion. So we see grid because of steel Keith we see grid coming down yes.
We still see the long term trend entitled as being resilient pricing.
Okay. Thank you.
Yes.
Okay.
Thank you. Our next question comes from the line of Steven Ramsey with Thompson Research Group. Please proceed with your question.
Hi, good morning.
Steven.
Hi.
To start with on the share gain in wallboard and steel framing can you share more.
On.
Even at the end markets adjust.
What kind of underlying it's driving that share gain.
Yes, I think that the continued consolidation of the space as.
As well as our Greenfield activity, our acquisition activity and just in general committing to service to the customer base.
As well as some national account gains on the residential side continuing national account gains there I think thats the thats the key for us as commercial strengthens we prior to this strange pandemic period going all the way back to 19.
Our weighted heavier commercially right so were stronger than steel to begin with.
And so I would expect to hold on to some of those share gains and we're very focused on making sure that we're getting those commercial projects I mean, it's very very important to our team.
And to our business that we go out and we stay aggressive in our pursuit of those commercial projects, but also we do have the wherewithal as you know with the one of the largest boom truck fleets out there to service that business effectively and a history of doing so at all hours of the day and everyday of the week.
Okay. That's helpful and then.
The New York acquisition and opening their comp.
Complementary and commercial focus is that something where you see yourself, adding wallboard into or staying in those products and then more broadly is there a pipeline of deals that are more complementary products.
And is that a is that an area to be more purely complementary.
Yes.
Yes, and yes is the answer to that question.
Undoubtedly we will be in the wallboard business in New York City at some point in time, when and how we do that.
Remains to be seen but we will definitely be there.
Really excited to have acquired a really good team and Tanner nut and bolt very experienced tools and fasteners team and certainly we would expect.
To continue to grow that complementary piece organically and inorganically with similar acquisitions in other in other markets.
Okay. Thank you.
Thanks Steven.
Thank you. Our next question comes from the line of Jefferies Stevenson with loop capital markets. Please proceed with your question.
Hi, Thanks for taking my questions. Today first I was wondering if you could talk about how wallboard volumes trended throughout the quarter and wins slowing single family demand started to show up in our results in them.
John you called out the regional single family declines and just wondering if you could further elaborate on kind of variances you're seeing from a regional perspective.
Sure I mean November November single family volumes were relatively flat on a year over year basis, and then December and January sequentially worse.
And really into February quite frankly, so we're seeing that decline in single family on the other hand got a little stronger and multifamily through that period as well as a little stronger in commercial through that period. So we are seeing the multifamily and commercial offset.
So far that the degree of decline in single family from a regional perspective really it's the backlog remains in in the south the southeast and the mid Atlantic up into the what I would call the southern part of the northeast.
And the balance of the country has pretty much worked through the work through the backlog I would say.
Okay very helpful. And then just on your complementary products business from just how youre thinking about that moving forward in a slowing single family demand environment. I mean, obviously, you have a little bit of inflation on that side, but overall.
Given your heavier commercial concentration that should hold up relatively well on the results in the core categories. You highlighted were very strong in the quarter I'm. Just wondering if you could give any more kind of color on how youre thinking about that business moving forward.
Wait wait for little commercially maybe 60%, 65% commercial the offset to that is really the installation materials that go along with wallboard.
As wallboard volume slowed down tape in mind et cetera, right. That's facilities part of the category, that's really where the residential waiting in but yes tools and fasteners almost all of our installation business is commercial.
Well and of course <unk> is stuck out there is there is a residential component there, but mostly multifamily and.
Low rise commercial for recent stucco. So I think your point is well taken we are weighted more commercially.
And our complementary category.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Mike Dahl with RBC capital markets. Please proceed with your question.
Hey, This is Ryan Frank on for Mike. Thanks for taking my question.
Yes.
So I guess given the magnitude of volume.
Lines that youre talking about especially on the residential side I guess I am just kind of surprised by the relatively little SG&A cost outs can you just talk about how you are thinking about that over the next two.
12 months and its really commercial and multifamily can actually offset that yes.
Yes, I mean, if you look at this quarter's guide right. It's a lot stronger as far as on a year over year basis, the G&A and the leverage a couple of things that happened when steel prices are an issue.
When youre talking about leveraging SG&A for sure and Thats going to continue to be a headwind for a little while but this was the winter quarter and that weather was very difficult.
Particularly the rains along on the on the West Coast really an unprecedented.
Rain and then we had exceptionally cold weather.
Harder than the previous year, so that creates.
An issue around our ability to be productive.
We continue to try to service the business you can imagine right trucks are getting for delivery today, but in that kind of whether theyre getting one or none and so you've got a lot of issues with with SG&A in that regard as well and also this was really the first quarter, we were seeing those declines.
The variability of that doesn't come out until we actually stopped shipping it. So thats why I think in this quarter Youre looking again, if you look sequentially at the increase in dollars Youre seeing this quarter reflect that.
Variability coming out of variable expenses coming out now on top of all that I would tell you. The reality is everybody's face. The same thing I mean, our wages are higher than they used to be right I mean, thats just inflation and not.
Not much we can do about that in the near term, but I do think you look at the fourth quarter sequentially and Youre seeing us.
Our react and reflect.
What we're expecting.
In the volumes and all that being said, while we're talking about high teens declines in.
Builder business, we are delivering a richer mix of products at a higher cost into that commercial and multifamily space and both of those are our.
As of now.
Theyre good multifamily is going to stay very good.
Got it okay. So I guess just to follow up on that seems like SG&A should continue to delever a bit even if part of it is just because of mix and higher cost to serve that very hard.
I mean, you've got 25% decline in steel price and this number right at pretty tough, so and we're still delivering it and while we're talking about volumes being down slightly it's very low on a year over year, a couple of percentage points down in volume so.
That's a difficult headwind to face for sure.
On a year over year basis.
Got it helpful.
Then if I could just touch on the M&A pipeline, you said still remains pretty deep orange.
Do you see owners kind of looking forward at <unk>.
Slowdown in trying to get in front of that or are they still looking at trailing results in asking for those types of multiples that you can just talk about how high you think privates are feeling right now.
I mean, it's a little bit of both I think that.
People that are really heavily weighted on the residential side, obviously are more concerned than people who have a balanced business.
I don't see anybody panicking.
When we're talking to them, but I do think the valuations that we're talking about right now are reasonable.
In consideration of where we're trading and also historically, where we were able to make acquisition. So let's just say, we're starting to get into a little bit more of a sweet spot and I hope I hope that stays I hope that stays the case because certainly over the course of the last let's say year those valuation expectations are unreasonable.
Against inflated.
Insulated results in some cases.
Okay. Thank you very helpful pass it on.
Thank you.
Thank you. Our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.
Good morning, Elizabeth weighing in on for Matt This morning.
Thank you for taking my question.
Do you mind touching a little bit kind of digging into commercial a little bit talking about what youre seeing in specific vertical.
How.
Order activity and quoting is trending.
Yes quoting activities.
Improving pretty strong.
Order activity I would say is still on the uptake, but its really its really more across the whole spectrum.
Commercial everybody is pretty strong are getting stronger let's say.
Over the course of the last few months.
Commercially even office is showing some signs of life now.
Have to see what that is directly.
But.
Even even that category, which we've been talking about being muted for a long time, it seems to be showing some signs of life.
Just to add if you look at the census data that just came out in the relative strength of those categories is pretty indicative of the kind of quoting activity and shipping activity et cetera that we're seeing in our business as well.
Pretty good alignment there.
Okay. Thank you and then.
Of the two wallboard a little bit.
If you could talk about.
Where youre seeing manufacturer utilization obviously.
All right.
Taking a little bit higher.
I think that would be helpful.
How the channel at that point.
Yes.
It's really quite regionalized I would say at the moment and moving more of that direction. There's a lot of issues the manufacturers are facing.
Some raw material changes between synthetic gypsum natural gypsum.
Energy costs are different parts of the country et cetera, but I'll give you in general, Texas West minus the mountain States is pretty pretty.
But in general slower than.
The south southeast mid Atlantic and northeast.
So.
If you look at the total numbers for 2022, the utilization was still pretty good right high 80 is probably low nineties.
Thank you very much.
Christina.
Sure.
Thank you. Our next question comes from the line of Quinn Fredrickson with Baird. Please proceed with your question.
Hi, good morning.
Good morning, good morning.
I just wanted to touch on the multifamily outlook and the strength that youre seeing there.
Based on <unk> your comment about backlogs are you thinking over the course of the remainder of the calendar year that multifamily can you will see pretty good growth or is it just we have to get to the middle of the year and see what comes after that.
I mean, if you just look at pure numbers, you would say it probably could go a little longer than the middle of the year.
Just the pure numbers, but I'm going to wait and kind of look in the middle of the year see how much that backlog gets built and how quickly. It gets built but each quarter, we will be able to kind of get a little bit better view of that but for sure minute minimum when you look at July August before you start seeing any kind of year over year.
Difference in this 20% rate were at right now and of course. The further we go with 20% growth the comps become more difficult as we go forward rate.
Right.
If they if all those starts get completed.
Hundreds of thousands of units in backlog.
Okay.
And then any.
Commentary on what wallboard price cost looks like in the quarter and expectations for the fourth quarter I know, you've got a favorable mix going on there, but just kind of setting out a solid price cost look like thanks.
Yes, I mean, I think that we will still see pressure on the residential side slightly and but the mix shift is going to help so let's just call it neutral.
Okay. Thank you guys.
Absolutely.
Thank you. Our final question. This morning comes from the line of Keith Hughes with <unk> Securities. Please proceed with your question.
Thank you.
In the last couple of months, there was pretty good size transaction.
Your space.
Division of one Cup Wallboard division getting sold off distributor.
Where do you think that leaves the industry in terms of market share between yourself and your two largest competitors.
We felt that <unk>.
In total in wallboard, we felt like the <unk> divisions were roughly about 5% of the market Keith in wallboard.
So with <unk>.
<unk> picked up about 5% with that activity or whenever it closes I don't think it's closed yet maybe it has.
So thats again, some additional consolidation, but that still leaves probably 25% to 30% of the business with smaller independents.
Okay. So do you think the three of you could have upwards of 70% share post that trend out other home centers have 20.
Home centers have plenty in there Keith so.
30 minus 20.
30, <unk> <unk> thousand 50 <unk>.
The three of US at 50, Okay, alright. Thank you.
Yes, absolutely.
Thank you ladies and gentlemen, this concludes our question and answer session and thus concludes our call today. We thank you for your interest and participation you may now disconnect your lines.