Q3 2023 JELD-WEN Holding Inc Earnings Call
Thank you for standing by and welcome to the Gelled, when holding Inc. Third quarter 2023 earnings Conference call.
I would now like to welcome James.
James Armstrong, Vice President of Investor Relations to begin the call.
James over to you.
Thank you and good morning, we issued our third quarter 2023 earnings release last night and posted a slide presentation to the Investor relations portion of our website, which can be found at investor Dot <unk> Dot com, we will be referencing this presentation.
During our call today I'm joined by Bill Christiansen, Chief Executive Officer, and Julie Albrecht Chief Financial Officer.
Before I turn it over to Bill I would like to remind everyone that during this call. We will make certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our forms 10-K and 10-Q file.
With the SEC Sheldon.
<unk> does not undertake any duty to update forward looking statements, including the guidance, we are providing with respect to certain expectations for future results.
The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix to our earnings presentation.
With that I would like to now turn the call over to Bill.
Thank you James and thank you everyone for joining our call today.
I am pleased to report that our third quarter results were better than we expected marking the third quarter in a row that we have executed well against our short term goals to strengthen the foundation of gel one.
Today I will first provide a brief overview of our third quarter results before turning it over to Julie to discuss the financial results in more detail.
I will then highlight our transformation journey and share some of what you can expect from us going forward.
I'll begin with our third quarter highlights on slide four.
While sales were in line with our expectations earnings were above our forecast primarily due to continued solid price cost results were.
We also continued to generate strong cash flows driven by earnings and working capital improvements.
I'm also pleased that we are delivering on our commitments to simplify the business and better balance our cost structure.
We completed the divestiture of our Australasia business early in the third quarter and repaid $450 million of long term debt with the proceeds.
In addition, we continue to remove fixed costs from our business, including certain site closures in North America that I'll discuss more on the next slide.
We are also actively planning actions to further improve our performance and unlocked significant value for <unk> shareholders, which I'll talk about later in my remarks.
Turning to slide five as part of our ongoing activities to strengthen our foundation.
We continue to reduce our fixed costs with the closure or announced closure of three facilities.
First we completed the closure of our Atlanta door facility during the third quarter.
As we discussed earlier this year, we anticipate approximately $11 million per year in EBITDA savings as a result of this site closure.
Next we are in the process of closing our international wood products or IW P business in Tijuana, Mexico.
This facility, primarily makes specialty exterior wood doors and as consumer preferences continue to move towards fiberglass. This operation has become noncore to our business.
Although the savings are relatively small at approximately $2 million a year. It is a further simplification.
Finally, we announced the closure of the Vista, California vinyl Windows manufacturing facility, which was underutilized and had a high operating costs.
We expect to save approximately $8 million a year.
By moving the production to other facilities within our network and therefore better utilizing existing capacity.
We continue to see opportunities for further simplification of our footprint, which I look forward to speaking about in the future as we execute our plans.
I'll now turn it over to Julie to go through our third quarter financial performance in more detail.
Thanks, Bill turning to slide seven you see our consolidated results for the third quarter of 2023.
Our third quarter revenue was approximately $1 $1 billion down five 5% from a year ago, driven by a reduction in our core revenue due to market driven volume reductions, partially offset by slightly higher pricing.
Our adjusted EBITDA was approximately $106 million in the quarter, leading to an adjusted EBITDA margin of nine 8%.
This strong year over year margin improvement of 150 basis points. Despite lower volumes reflects our solid execution of productivity actions in areas such as site closures head count reductions freight management savings and sourcing optimization.
As you see on slide eight our third quarter revenue decline was driven by lower volume mix of 10%, which was partially offset by 3% of price realization.
This higher pricing, mostly relates to our price increases in the second half of last year to offset cost inflation.
I'll provide additional comments about our North America, and Europe volume trends shortly and also you'll find our revenue walk including segment details for the third quarter and the first nine months of this year in the appendix of our earnings presentation.
On slide nine you see that our adjusted EBITDA increased by approximately $11 million year over year.
We generated solid profitability contributions from favorable price cost <unk>.
Improved productivity, which were partially offset by the impact from lower volume mix.
Related to price cost, we are focused on pricing discipline as we continue to see inflation in our overall costs.
While inflation is lower in certain areas, we see cost pressures in areas, such as labor and insurance.
Additionally, we are on track to achieve approximately $100 million in cost savings this year and.
In the third quarter, we realized approximately $30 million of these savings that are reflected on our EBITDA bridge and productivity and SG&A.
Our run rate is increasing due to the timing of actions that started earlier this year.
Now moving to our segment results on slide 10 in the third quarter, Our North America segment generated $790 million in sales down approximately 5% from year ago levels.
This was driven by a core revenue decline of 5% due to lower volume mix of 7% with a positive impact from price realization of 2%.
North America had adjusted EBITDA of $100 million down 5% year over year, while margins remained stable at 12, 6%.
Despite the market driven demand weakness, our North America team is delivering solid earnings results as well as strong cash flow.
A key driver to the region's cash flow is a focus on inventory reduction, which was a result of more rigorous and standardized inventory management practices.
Across our North America region. The team continues to focus on identifying and executing actions to improve both operating efficiency.
And our working capital metrics.
Europe generated $287 million in revenue and $24 million and adjusted EBITDA.
Core revenues decreased by 11% in the quarter driven by lower volume mix of 17%, which was partially offset by higher price realization of 6%.
Adjusted EBITDA was 35% higher year over year, leading to a strong 260 basis points of margin improvement to eight 5%.
This improvement was due to positive price cost results and solid productivity gains.
Similar to North America, our Europe team is focused on delivering solid earnings and cash flows. Despite the ongoing volume challenges and this focus will continue into 2024.
Now turning to the market outlook on slide 11, and starting with North America, we are expecting a better full year for North America. Then we presented on our second quarter earnings call. We now expect North America volumes to be down high single digits did a slight improvements in both.
Single family home construction, and R&R activity versus our previous expectations.
In the U S higher interest rates continue to impact single family housing starts and permits, but given the lower availability of existing homes for sale and homebuilder incentives our outlook has improved with new home construction declining 10% to 15% year over.
A year compared to our previous outlook for a 15% to 20% decline.
For our repair and remodel markets, we now anticipate full year volumes to be down in the mid single digit range versus the mid to high single digit range previously expected.
After a slow start to the third quarter, we saw a pickup in our R&R activity and believe that inventories are at critically low levels throughout the channel.
In Europe, we continue to anticipate that demand will be down by low double digits as the market weakens due to the regions ongoing macroeconomic and geopolitical challenges.
Our European volume mix was down by 14% in the first nine months of this year and we expect our fourth quarter volume mix decline similar to what we experienced in the third quarter.
On the residential side, we see broad based declines of 15% to 40% in new residential construction starts depending on the country.
And in some specific markets residential construction demand is down by as much as 80% in.
In addition, repair and remodel activity remains under pressure due to the continued soft macroeconomic environment.
In the commercial construction market in Europe volumes are expected to be stable in the near term, but are beginning to show signs of declining in 2024 as the market works through backlogs and new projects are being delayed.
On slide 12, we provide our updated full year 2023 outlook for revenue and adjusted EBITDA.
While we remain cautious and these continued uncertain operating conditions, we are confident in our ability to deliver our forecast and are tightening the ranges of our revenue and adjusted EBITDA guidance.
Further we are raising the midpoint of our adjusted EBITDA guidance due to our solid third quarter results and our unchanged outlook for the fourth quarter.
We now expect full year 2023 revenues to be between four point to five and $4.35 billion.
Full year, adjusted EBITDA to be between 365 and $375 million.
Specific to our outlook for this year's core revenue our first nine months core revenues were down by 2% versus the prior year as carry forward price increases, mostly offset lower volume mix.
In the fourth quarter, we expect a low double digit decline in our core revenues due to reduced volumes combined with limited year over year price increases.
All of this combines to support our updated full year outlook for core revenues being down 4% to 6%.
Now turning to slide 13, you can see how our results in the first nine months of this year combined with our outlook for the fourth quarter to support our updated full year guidance.
As I've described in my comments. This morning, our third quarter global price cost benefits were better than our expectations and we continue to successfully execute our planned cost reduction initiatives.
In the fourth quarter, our outlook is in line with our prior expectations as we expect to continue delivering on our cost savings actions, which mitigate the impact of lower year over year volumes.
We remain focused on generating strong cash flows to invest in ourselves and further strengthen our balance sheet.
Our year to date third quarter operating cash flow was $273 million, which is a 346 million dollar improvement over the same period last year.
The primary driver to this significant increase in cash flow is improved working capital management with all components of working capital contributing to the strong improvement.
We continue to see opportunities for reduced working capital as we focus on implementing best practices across our business.
We are pleased to have achieved our near term goal of net leverage below three times and have updated our medium term target to be between two and two and a half times.
I'll now turn it back to bill to discuss our plans for improving gelled one's financial performance.
I comment on our transformation journey I want to take a second to address the goals that <unk> established in 2021.
Slide 15 shows the 2025 targets gelled, one presented at our 2021 Investor day.
Unfortunately, instead of steadily driving results towards the goals are performance deteriorated.
It is true that macroeconomic conditions have been tough since then.
The company did not have the foundation in place to achieve these goals.
As a result, we are formally withdrawing the company's long term targets that were communicated in 2021.
As I'll speak to in a moment, we are focused on delivering in the short term and setting ourselves up for success with an increased focus on accountability.
Moving to slide 16, our approach has not changed from what I've shared in previous earnings calls in the short term we need to continue to strengthen the foundation of our business.
We are making progress, reducing our footprint and our operating costs by implementing basic programs such as managed transportation.
However, we have a lot more to do before we can declare success and have a strong foundation to build from.
We're also beginning to prepare for the long term and are in the process of developing plans to deliver and sustain increased profitability.
We are assessing opportunities to grow in each of our lines of business and want to only invest where we see potential and the right to win.
This process will take time and thoughtful analysis, but we have plenty of opportunity to work with.
Turning to slide 17.
You'll see the three phases of our transformation journey.
While we are actively executing the first phase of fix the foundation, we began phase II earlier this year with a comprehensive and twin analysis of the potential in the business, including both our culture as well as our financial performance.
I'll talk more about these first two phases in the next several slides.
On slide 18, and as we've mentioned on today's call.
You see some of the actions we've taken to fix the foundation.
We've already simplified our structure selling the Australasia business in the third quarter with the proceeds from that sale, we repaid long term debt and reduced our net leverage below our three times near term target.
We have made significant working capital reductions, especially reducing network inventory levels.
And we have already taken significant steps to adjust our cost base our commitment.
As we develop the next phase of our journey.
We've been focused on improving our culture and gathering ideas to meaningfully grow our profitability.
These ideas were then put through a disciplined review process to evaluate their feasibility costs and expected returns.
In terms of return on invested capital and organizational execution capabilities.
I'm extremely pleased and optimistic about the results of this process and I look forward to sharing more about the potential impact next quarter as we look into 2024.
For now it's safe to say that the potential improvement to the business is substantial and we are now sequencing a clear roadmap of the projects.
Turning to slide 19.
In previous earnings calls I've shared my three focus areas people performance and strategy.
Our transformation journey is now focused on the first two areas.
To be able to drive the performance, we want and investors deserve our culture needs to adapt and change.
We have organized a cross functional culture and capabilities work stream that is focused on improving trust and.
And measuring that improving gelled wins organizational health.
This includes building the necessary capabilities and focusing on the behaviors required to reach and sustain our full potential.
This team is actively addressing ways to increase accountability and performance through appropriate rewards and incentives building manager skills, and improving safety and communication across the organization.
As we work on our culture.
We're also driving performance improvements through both growth and cost initiatives.
Our growth plans don't include plans to swing for the fences, but instead are focused on the basics such as upgrading our go to market processes and using training to increase our sales force effectiveness.
We're also focusing on improving our pricing capabilities as we anticipate further inflation.
Most of our near term performance efforts on cost reductions, both accelerating and expanding on teams. We already have in focus we are right sizing and consolidating our manufacturing network investing in automation and utilizing our scale to streamline sourcing among many of.
Other smaller initiatives across the organization.
As one example last week, our board of Directors and senior leadership team visited our doors manufacturing site in Garland, Texas, where we saw firsthand the opportunities we have in areas such as automation and inventory management.
Additionally, as we indicated previously to drive these permanent cost reductions, we will be investing more in ourselves as we execute on our solid pipeline of high R. O IC projects.
Turning to slide 20.
I look forward to sharing more on our transformation journey going forward.
And our next earnings call.
Which will be in mid February we are committed to giving more color on market conditions, our 2024 guidance as well as our internal investments and action plans.
We will also provide a near term scorecard of our expectations as well as mile markers to measure our progress.
We are excited about the opportunities to improve and sustain results and I'm confident that <unk> can deliver significantly improved profitability metrics.
In the near term, we expect our 2024 actions to more than overcome anticipated macroeconomic headwinds.
We appreciate your continued interest in <unk>.
And I'll now turn it over to James to move into Q&A.
Thanks, Bill operator, we're now ready to begin the Q&A.
At this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we ask that you limit yourself to one question and one further follow up question. Please.
We'll pause for just a moment to compile any questions.
Again, if you'd like to ask a question. Please press star one on your telephone keypad now.
Yeah.
Our first question comes from the line of Phil <unk> with Jefferies. Please go ahead.
I guess first off from a demand standpoint in North America and Europe are you seeing any stabilization sits I think in North America, North North America. In particular do you think your high single digit volume the clients.
Implied maybe the clients could accelerate in the fourth quarter. It doesn't seem like the case, but <unk> helpful to kind of give us some color on North America, and perhaps looking out to 2020 for any early read many of your building products peers have talked about maybe flat to down R&R market and maybe growth in housing, but just kind of help us unpack what that means for.
Gentlemen.
Yes, thanks, Phil.
We are seeing.
The market stabilize at these I would say low run rate level. So no surprises for us in Q3, if you remember we had improved a bit our expectations on R&R from kind of high single down to mid single down that's what we're seeing.
Similarly in Europe remained soft the headwinds are there it's too early for US to guide on 24, what we're basically saying is the current market reality, we expect that to continue from a volume decline standpoint, as we roll into Q4.
So no surprises, but also clearly no strong signals of significant rebounds.
And we're going to share more color when we talk in February.
Our Q4 results, but also our views on 2024.
Sorry gradually.
It's going to add in North America last year in Q4, we did have a pretty strong backlog that we're working through and so that did.
Helped last year's fourth quarter volume wise in North America. So this year, we don't have that same backlog working through and so there is a little bit more of that year over year headwind volume wise just from that dynamic.
Okay Super.
And once again, bill you're probably going to tell me, you're going to give us a little more color in February but the $100 million of cost savings you guys have achieved so far in a really tough demand backdrop is truly impressive in my opinion.
From a baseball analogy helped us kind of contextualize, where are you where you are with this journey you gave us like phase one phase two.
In terms of this $100 million build in cost savings what inning are you and when we kind of look out to next year can you kind of build off this because I think that that.
Tailwind is accelerating in the back half and looking out to next year once again.
Demand still so much visibility still seems pretty challenging do you have enough levers to kind of offset perhaps on that.
A weaker year from a demand standpoint, where you can actually grow EBITDA next year.
Yes, So let me start with the second question. So so clearly there is there is ample opportunity and Thats what were saying today is that we do feel confident that the the number of projects that we're sequencing.
Clearly gives us conviction that we're going to be able to definitely offset volume headwinds based on our current expectation.
I'd say, we're in the early innings to use a baseball analogy, we expect from the 100 that roughly 50 will roll forward into 2024.
And as I said in my prepared remarks, we're in the process of sequencing.
And we went through a pretty broad based process across our organization to gather all of the opportunities put some pricing around it and put some resources on it. So that's what we're kind of getting dialed into 2024, there's a couple of implications thats going to have number one is expectations that our EBITDA will be up.
Number two we're expecting as we've been signaling a significant capex increase to fund those high ROIC projects, our expectation is kind of moving from the roughly two 5% into a quarter of 3% to 4% to fund those projects, we have ample cash flow obviously based on the performance to self.
And all of that so we feel pretty comfortable.
Given current market conditions, but as you well know Phil its been pretty volatile.
So we will definitely share a lot more color in February when we can really.
Sure a better line of sight, and obviously, our sequencing and execution of projects continues. So we'll obviously give some some more detail at that point.
Thanks, a lot appreciate the color yeah, you're welcome have a good day.
Our next question comes from the line of John Lovallo with UBS. Please go ahead.
Hey, Good morning, guys. This is actually Matt Johnson on for John.
Appreciate you guys, taking my questions I guess first off based on your 2023 outlook. It looks like <unk> EBITDA margin is implied around seven 5%, which looks like it'll be down a little over 200 basis points sequentially.
And recognizing sales will be lower sequentially as well I guess is there anything else driving the sequential contraction in margins.
Yes, good morning.
Yes, no not really I mean, it's really very seasonal when you look at our historical seasonality trends of sales and EBITDA and you think about ended the year with the holidays and the impact that has on really demand and our operations, we typically see fourth quarter margins down.
Really so looking maybe more importantly, as year over year that and Youre right about that seven 5% that is the implied margin in our guidance.
That is almost 100 basis points over last year's fourth quarter.
So I think that's what I would really highlight more than the sequential drop off as more of that year over year improvement in the fourth quarter.
Okay. I appreciate that and then I guess you guys also mentioned seeing a bit of a pickup in R&R activity. During the third quarter I guess, what was driving this and with regards to inventories being very low are you guys expecting some replenishment across the channel within your <unk> guide or do you think this would be more of a 2024 phenomena.
If it did happen.
Yeah. So it definitely 24, if it did happen, we're not planning or expecting any significant rebalancing of inventories in the channel. Our comments have been consistent that channel inventory is extremely tight we're seeing stock outs, we're seeing some lines dropped below 90% in stock which are.
Trigger points for some of our big retail partners to reload, so theres specific balancing that's happening.
Yeah.
We were expecting as we shared in the third quarter kind of mid single digit declines, which is how it's played out.
Wouldn't point to any specific factor driving this year over year comps are mixed depending on if youre looking at windows or doors interior exterior I would just say the general feeling is that consumers are cautious about spend for the obvious reasons that we hear about almost on a daily basis and all of the news.
That we reach so no big changes expected in Q4 and no major rebalancing of inventories that are baked into our Q4.
No.
Thanks, Chris.
Our next question comes from the line of Stanley Elliott with Stifel. Please go ahead.
Hey, good morning, everyone. Thank you for taking the question.
On the bump in Capex.
Capex piece.
How long do you think this will last.
Some of these investments my guess is it from an automation standpoint that you're already getting them teed up for next year just.
Just trying to get a sense for one how long do you look at it this elevated capex piece and then two kind of what that ultimately will end up doing it for free cash flow.
Yes, so I'd say, it's definitely not a.
One year topic. There is there is ample opportunity.
And what we're working through right now is the ability of our organization to digest and execute just on the volume of projects that we do have we're.
We're sequencing so think of this Stanley is more two to three year.
And obviously, we're sequencing high impact projects said differently do you have a very attractive return on invested capital.
And obviously, we're looking at things like cost to achieve complexity to achieve duration and making sure that we're balancing so it's a two to three year uptick in capex.
And at that point.
We'll kind of reevaluate what we have been saying Julianne myself since we started sharing our insights about the state of the Union at <unk> as we were clearly underinvested.
And we had too many sites, we did not invest appropriately in our sights and we need we need to we.
We need to reset that and this is what the process is signaling that we are starting to do that so.
Can maybe comment on the free cash flow implications for you Stanley just to make sure you can kind of size that appropriately yes.
Yes, sure good morning Stanley Yes.
You know what I'd say is we're still we've had obviously a really great year rebounding with cash flow generation. This year. After a weak unusually weak 2022, so we're still very bullish and confident about cash flow generation of the business you think about strong EBITDA still opportunities for some amount of working capital improvement as we look into next year and.
That can deliver next year and we'll provide more on that in our February call that all of that said and this increased investing in ourselves really capital and I mean, do you think about restructuring cash costs.
Our operating expenses as we ramp up improvements to the business, but nonetheless, we would still expect to be free cash flow positive next year. So we're still obviously, putting all these plans together, but absolutely confident that we've got the funds will be generated in the funds we need to invest in ourselves again opex.
As well as Capex and again would expect to be staying free cash flow positive in 2024.
Perfect and then just as a follow up kind of talk about some of the longer term profitable growth plans for you or could you remind us maybe what are some of the return on capital that you're targeting Youll, maybe talk about some of the things you're doing behind the scenes to explore new products to design new products to to kind of win in the marketplace. As you guys mentioned.
Yes so.
As you know Stanley today.
We shared one.
Once and for all that we're resending kind of the 2021 Guy that was put out at the Investor day for 2025 goals.
If you look at our logic around kind of return on capital employed Theres a couple of things that we're looking at obviously, we need to be delivering returns that are significantly above our weighted average cost of capital.
And we see ample opportunity. So this is definitely high teens or better.
The returns that we're looking at and the kind of opportunities that we're seeing so that's our expectation and aspiration, but clearly we need to deliver.
And that's something that we're working hard on trying to hit some singles on a quarterly basis to really create a conviction in the capital market and with our investors that we have a high say do ratio and we're delivering on our promises. So we don't want to get ahead of ourselves, we just want to make sure that the blocking and <unk>.
<unk> and fixing the foundation is running according to plan.
And as we ramp up our Capex, we're going to prove to the capital market that we do see those appropriate returns and we'll show that by delivering the results.
Perfect. Thanks, so much best of luck.
Welcome and have a good day.
Our next question comes from the line of Susan Mcclary with Goldman Sachs. Please go ahead.
Thank you good morning, everyone and thanks for taking the questions.
Morning, Susan.
Good morning.
Thank you.
Start on price cost can you talk a little bit about how you're thinking of pricing.
Maybe to end this year and then into next year, and especially any updates relative to the inflation that you mentioned that youre continuing to see come through the business.
Yeah, So maybe I'll give a couple of high level comments, Julie can maybe add some more color.
Thats appropriate so we as we signaled.
Earlier this year our goal is to stay price cost positive, we see we still do see inflation.
But it's trending at a lower rate, but it's still up.
The third point would be we do have a higher base effect in <unk> to 'twenty two that we're comping against because we had really dense started kind of pushing the prices through last year in the second half.
There is no major actions that were currently planning.
Because we feel that the price that we have in the market is appropriately sized but at this point in time, we're evaluating what the perspectives are for 2024, as we kind of look at our sourcing opportunities and input costs. So on a high level.
It's status quo, but we're evaluating obviously, what we want to do next year.
Is the volume mix decline that we've mentioned.
And then again really basically offset by cost reductions and productivity. So that price cost benefit we had a lot in first half less so in Q3, we really do expect to let's say flatten out significantly in the fourth quarter. So just adding that additional clarity there.
That's helpful color. Thank you and then bill.
Bill in your prepared remarks, you outlined some of those completed or those announced changes to the to some of those facilities that are will be closing.
I guess when you think about the asset base of the business has.
Higher view in terms of where we are in this process and how we should think about this going forward given all the progress that you've already made through the first couple of quarters of this year.
Yes, so I'd say, there's a couple of factors. So we're definitely not finish Susan.
There's a number of of overarching topics that are coming into this decision, making process, one obviously as macro headwinds and our expectations on kind of mid term.
Volumes second is regional presence and our ability to deliver on time in full to our customers. So basically it's a network view, making sure that we have assets in the right place third what we've already talked about today is are we are we balanced effectively between.
Labor.
And investments in automation and I would argue we're definitely not balance today. So this is going to be a big opportunity for us as we move forward and obviously, there's a cost to that but there is also a benefit and that will then also lead to probably a rebalancing.
Of assets to make sure that we have the ability to serve the customers. So there's a lot of overarching topics that are coming into this decision, making process, which leads to the answer for your question is no. We're definitely not finished this as a long term process.
So again to use the analogy that I shared with Phil we're in the early innings.
And this is a long game, especially when you look at some of the lead times on automation around the world. This.
This is not something that we're going to solve in the next quarter.
Okay. Thank you for all that and good luck with everything. Thank you very much have a good day.
Our next question comes from the line of Reuben Garner with Benchmark company. Please go ahead.
Thank you good morning, everybody.
Hi, Robyn.
So maybe to start a clarification on the pricing outlook in the near term are you guys seeing.
What are you seeing from a sequential.
Standpoint on pricing has it been pretty stable or are there any categories within doors or windows or anything doors versus windows.
That's changed from a competitive standpoint.
Over the last three months to six months, yes, its pretty flat Ruben I'd say that there's puts and takes but all in it's flat.
Okay and then in your.
Your kind of longer term discussion you mentioned pricing capabilities I think was the terminology used what does that mean.
Is that looking at things.
What that means is building.
Better capabilities and systems within our organization to be able to create.
Decision, making documentation and make those decisions on fact base that I would argue have not been as robust as they should be.
And in a high inflation environment and potential volatile environment, we want to make sure that we're prepared as an organization to react so that would be the one area, it's kind of getting ourselves better aligned to react to the volatile environment that we've been thrown into the last couple of years.
We feel could potentially continue.
And second point is just to make sure that we're doing our homework.
A very broad portfolio, we're a global player. So we operate in many different markets and we just want to make sure that we're doing a good job of supporting our sales teams around the world with the right data and documentation to guide on pricing decisions.
Got it congrats on the strong performance has been good luck with the rest of the year, yes. Thank you very much driven take care.
Yeah.
Our next question comes from the line of Michael Rehaut with JP Morgan. Please go ahead.
Sandra Zhang on for Mike. Thank you for taking my questions sure. Good morning, Bob Good morning.
I just wanted to ask if you can comment maybe on volume monthly trends.
A retail channel for doors, and maybe kind of get your read on how point of sale is trending.
Compared to the underlying market.
How you perceive your volumes relative to the rest of the industry.
Yeah. So.
As we've kind of discussed in the prepared remarks.
Our expectations, obviously for the retail segment to be kind of down mid single digits.
There is a seasonal down tick in.
In Q4 that Julie talked through when she was talking about kind of our sequential EBITDA margins, which is normal in the industry.
But based on what we're seeing in the comps.
Don't feel that were way out of the pocket of the general market. So I'd say, we're trending in line with the general market.
And we participate obviously in a number of different channels and geographic regions. So there was some discussion and we had this discussion on the last quarterly results call. We actually did see some opportunities in Europe, and we were gaining some share because some competitors have overextended themselves.
And a pretty volatile environment, and we're not able to support the customers as the customers wanted. So there were some transfer of volume too to our production.
Production sites in a number of different countries across Europe.
So some of the cracks are starting to show and we've been benefiting from that just based on our size and our scale and presence, but I would say in general we're definitely in line in tracking with the market and what we're seeing.
Thank you that's helpful. And then maybe if you can comment on capacity capacity utilization and your sense for how the overall industry is tracking there.
Yes, so we wouldn't share that kind of detail. The one thing I can say and this is what we just talked about also with Susan's question is theres a lot of opportunity for us to kind of optimize.
What we're doing.
From a.
Mobile supply chain standpoint, and rebalancing.
R.
Our supply chain and cost too.
Deliver products into different market segments, So automation will really help.
In general or I know in general clearly there is a.
Asian issue around the world and building products because the volume is soft it's down year over year, we expect that trend based on current expectations that continue into Q4. So there is excess capacity.
I feel that we've done a good job of managing that market reality holding price.
And taking care of our homework on the cost side to over deliver on the EBITDA, which is what we're focused on and.
Pretty pretty happy.
With this quarter.
Thanks, Bill and congrats again on the strong results. Thanks have a good day.
Yeah.
Yeah.
Our next question comes from the line of Steven Ramsey with Thompson Research Group. Please go ahead.
Hi, good morning.
David.
On the phase two key levers to growth performance.
Bullet point there there are three of them.
This is the biggest mover, maybe which of these is the fastest to achieve and maybe which of these do you feel is the furthest along at this juncture.
Yes, I think there's different levels of maturity just based on kind of where we are what segments. We're participating in I do think that sales force efficiency as an opportunity in general.
Just to do things more effectively.
So that's clearly an opportunity, but there's a lot of different things that go into improving sales force efficiency training better segmentation.
Et cetera, those are not short term levels theres a midterm levers.
Definitely our go to market process and what we're doing around pricing are going to be more of a short term levers as we look into how can we balanced and the time zones of the opportunity and the benefits that we see in the sequencing that we're going through so this is also part of our sequencing process to make sure that we're balancing reese.
Sources against benefit and kind of time and complexity to achieve.
Okay.
Helpful. And then when I think about productivity benefits clearly much better in Q3 than Q2 can you talk about.
Kind of maybe not quantified but.
That component of EBITDA improvement is going to be as significant in the fourth quarter and into early next year or is that something that.
Moderates as we move forward.
Yes, I would say in the fourth quarter I would expect.
Probably actually higher productivity, you combine productivity going on quite frankly day to day in the business as well as the more explicit cost savings actions that we've been taking in and talking about with again site closures head count reductions other types of <unk>.
Cost reduction activities that are that are more call. It intentional and maybe higher level project based versus again that day to day blocking and tackling of productivity going on across the operations. So the bottom line.
You would expect that productivity to accelerate.
From Q3 into Q4, and like I mentioned before I mean that really is important right as we and as.
As we face these demand headwinds that we're talking about for Q4 and.
And again, noting that we don't have the same level of price cost benefit that we've had earlier in this year, so and going into next year.
To quantify what we expect yet for next year, but again.
As we've been talking about today and before we continue to view there.
To be a lot of opportunity to improve our profitability and a lot of that does center around productivity and cost reductions as well as some of the growth items Bill mentioned as well.
Excellent. Thank you.
Have a good day.
Our next question comes from the line of Alex Rygiel with B Riley. Please go ahead.
Your line is open thank you.
Okay.
Thank you and good morning, as it relates to the three facility closures is there any anticipated revenue loss from us.
Oh, Hey, good morning, Alex Yes, it's very limited.
As with prior closures, we feel pretty confident that we're able to take the asset offline and theirs.
Theres going to be not nominal revenue loss at least.
Our expectation today and what we're what we're baking in to our model.
And then could you also talk about investment into new products in light of the Capex uptick.
Yes, so clearly theres going to be some things that we're doing around growth as we look at growth automation will be one area that we can take the cost out but clearly we also are looking at innovation product innovation and how we create.
The products in the future, obviously that have a strong demand a point to our composite windows, which are doing exceptionally well.
High growth.
Factors growth percentage growth, but it's off a low base.
Theres other areas, where we see exceptional growth opportunities. So in our VPI business, which is multifamily windows. That's an area, where we believe clearly we're underpenetrated, we have a great team great products and Theres a lot of opportunities. So it's not just about new products. It's also about kind of a white spot penetration and.
Taking what we have and we're doing really well and pushing it into areas, where we're not yet active so we're pretty happy about what we're seeing in the short term, we do have a lot of work to do around innovation.
Longer term challenge.
That's something that we're also starting to think more about but it's people our performance right now and there is ample opportunity in the short term for those buckets.
Thank you.
Welcome and have a good day Alex.
Our next question comes from the line of Truman Patterson with Wolfe Research. Please go ahead.
Okay.
Hey, guys. This is Trevor allinson on for trim and thank you for taking my questions. Good morning. Good afternoon darting on start on Europe, you guys had some really nice margin improvement there not only on a year over year basis, but also on a sequential basis I think margins were up 80 basis points versus <unk>.
Your revenues were down sequentially. Just wondering if you could talk about what drove that margin improvement sequentially and then should we think about <unk>.
Margins, maybe outperforming normal seasonality there going forward as some of these some of these improvement initiatives you put in continuing to flow through.
As you saw in the release in the Q and the comments that Julian I shared today, there is a pretty significant volume headwind. If you look at the volume mix you know where in Q3. This is you know.
High teens.
Volume headwinds. So we're pleased with the progress that we're making in the market. It's a combination of tightening up cost.
Positive price cost and productivity improvements that we're making.
And so I'd say, we're doing what we need to be doing definitely not there yet, but we are we.
We are expecting.
Continued challenging macroeconomic environment across Europe.
And our expectations are that that macro reality will have a continued detrimental effect on building products volumes. I mean, you see inflation, you'll see interest rates, we have a war, we're getting into the heating season, where energy costs are going to become an issue again, so it's a tough environment and what we're doing.
A nice job, maybe Julie can comment on Q4, but.
We're expecting you know.
Tough times ahead, so we need to make sure that the whole market is being done to prepare for that reality.
Yes, sure. Thanks, Bill Yeah, absolutely Europe's margins in the third quarter were very strong. We're really pleased with that team is doing and theyre doing a lot of great things going forward our outlet for their fourth quarter margins really don't show that same level of improvement, though in fact.
Going to say I mean, probably closer to the level of Q1 of this year.
Probably not getting back to what we delivered in Europe last fourth quarter, so kind of to Bill's point.
Clearly volume in Europe, we're still expecting that 15% to 20% down year over year in the fourth quarter for Europe's volumes.
Okay understood and then a quick one on corporate and unallocated costs. They were down about $10 million year over year I know you've talked about some one time costs coming back there, but you've also got some savings from head count reductions is that down $10 million year over year is that a good run rate moving forward and how you're thinking.
Corporate and unallocated here in the fourth quarter.
Yes, I think that roughly $20 million a quarter run rate is pretty reasonable I mean, we do have in that number.
And Forecastable things like other income events that come in from time to time that.
Don't have a lot of visibility to a lot of time thought that material, but nonetheless, that's kind of more of a wildcard, but when we look towards the end of the year I think corporate unallocated probably lands full year in that $80 million to $85 million.
Okay.
Okay understood. Thank you I appreciate it good luck going forward.
Alright, Thank you have a good day.
Our final question comes from the line of Keith Hughes with tourists. Please go ahead.
Thank you.
Called out $30 million in cost savings I believe it's all year over year in the third quarter number one is that correct and number two as we trend towards I guess.
$50 million next year, roughly what do you think that'll be in the four.
How much of it is Europe and North America.
Yeah first of all just to clarify the $30 million is is in the quarter that we delivered and we are in that kind of call. It $65 million range year to date Q3 around kind of all things cost savings and productivity.
Just thinking about well first of all and then just to clarify on the $50 million and we are delivering $100 million. This year and then with actions taken this year not all of that obviously lands' end 'twenty three and again this is where we're getting $50 million carryover into into 24. So I did want to also make that clarification.
And I think from a cost reduction perspective, I think right now.
Roughly in line with pro rata the split of our business.
It's about it's probably the right way to think about the delivery of that $100 million.
We can talk a little bit more about that going forward as we make more plans and give more color around 2024, but roughly speaking the cost actions are across the footprint right. There North America site Europe continues to review its footprint.
And head count overhead supply chain et cetera, et cetera, it's very broad, but high level I would say that split is generally in line with how our businesses is allocated.
And when we see about $30 million in the fourth quarter or is it going to kind of year over year or is it going to pick up as you do more work.
I think the run rate is going to be a little bit higher.
In Q4, and quite frankly to get to our $100 million, which we have visibility to specifically we need to deliver around 35 million. So we're comfortable with that at this point. So yes, the run rate increases a little bit in Q4 over Q3.
Okay. Thank you.
Yeah.
Thanks, Keith have a good day.
I would now like to turn the call over to James Armstrong for closing remarks.
Thank you for joining our call today, if you have any follow up questions. Please reach out and I'll be happy to answer anything I can this ends our call today and please have a great day.
I would like to thank our speakers for today's presentation and thank you all for joining US. This now concludes today's call and you may now disconnect.
Please wait the conference will begin shortly.
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