Q3 2024 American Woodmark Corporation Earnings Call
Good day, everyone and welcome to the American Woodmac Corporation third fiscal quarter 2024 conference call.
Operator: Good day everyone, and welcome to the American Woodmark Corporation third fiscal quarter 2024 conference call. Today's call is being recorded on February 29th, 2024. During this call, the company may discuss certain non-GAAP financial measures included in our earnings release, such as adjusted net income, adjusted EBITDA, adjusted EBITDA margin, free cash flow, net leverage, and adjusted EPS per diluted share. The new earnings release, which can be found on our website, AmericanWoodmark.com, includes definitions of each of these non-GAAP financial measures, as well as the company's rationale We also use our website to publish other information that may be important to investors, such as investor presentations. We'll begin the call by reading the company's Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.
Today's call is being recorded February 29 2024.
During this call the company May discuss certain non-GAAP financial measures included in our earnings release, such as adjusted net income.
At EBITDA adjusted EBITDA margin free cash flow.
Net leverage and adjusted EPS per diluted share.
The earnings release, which can be found on our website American Widmark dotcom 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.
Most comparable GAAP financial measures.
We also use our website to publish other information that may be important to investors such as investor presentations.
We will begin the call by reading the company's Safe Harbor statement under the private Securities Litigation Reform Act of 1995.
All forward looking statements made by the company involve material risks and uncertainties and as such.
Operator: All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that may be beyond the company's control. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statement. Such factors include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission and in the annual report to stockholders.
That could change based on factors that maybe beyond the Companys control.
Accordingly.
These future performance and financial results may differ materially from those expressed or implied in any such forward looking statements.
Such factors include but are not limited to those described in the company's filings with the Securities and Exchange Commission and the annual report to stop to shareholders.
Company does not undertake to publicly update or revise its forward looking statements, even if experience or future changes make it clear that any projected results expressed or implied there and will not be realized.
Operator: The company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. I would now like to turn the floor over to Paul Joachimczyk, Senior Vice President and CFO. Please go ahead, sir.
I would now like to turn the floor over to Paul to him Chet <unk> Senior Vice President and CFO. Please go ahead Sir.
Paul: Good afternoon, and welcome to American would March 3rd fiscal quarter Conference call. Thank.
Paul Joachimczyk: Good afternoon, and welcome to American Woodmark's third fiscal quarter conference call. Thank you for taking the time today to participate. Scott Culberth, President and CEO, 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.
Paul: Thank you for taking the time today to participate joining me are Scott Congress, President and CEO.
Paul: 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.
Scott Congress: Thank you Paul and thanks to everyone for joining us today for our third fiscal quarter earnings call.
Scott Culberth: Thank you, Paul, and thanks to everyone for joining us today for our third fiscal quarter earnings. Our team delivered net sales of $422.1 million, representing a decline of 12.2% versus the prior year. Within new construction, our net sales declined 11%. However, recent data points, such as housing starts and NAHB's measure of builder sentiment, point to improving demand as we head into the spring. We remain strategically aligned with 19 of the top 20 national buildings. Hewitt.
Scott Congress: Our teams delivered net sales of $422 $1 million, representing a decline of 12, 2% versus the prior year.
Scott Congress: Within new construction or net sales declined 11% versus prior year.
Scott Congress: Recent data points, such as housing starts and in Hps measure of builder sentiment point to improving demand as we head into the spring.
Scott Congress: We remain strategically aligned with 19 of the top 20 national builders and key regional builders.
Scott Culberth: With our best-in-class direct service model, we plan to continue to grow our share with new and existing customers and benefit from the share gains our partners are realizing in the market. Looking at remodel, which includes our home center and independent deal and distributor business, revenue declined 13.1% versus the prior year.
Scott Congress: With our best in class direct service model, we plan to continue to grow our share with new and existing customers and benefit from the share gains are partners are realizing in the marketplace.
Scott Congress: Looking at remodel, which includes our home center and independent dealer and distributor businesses revenue declined 13, 1% versus the prior year.
Scott Congress: Within this our home center business was down 14, 1% versus the prior year.
Scott Culberth: Within this, our home-centered business was down 14.1% versus the prior year. Demand trends remain under pressure due to lower in-store traffic rates and consumers choosing smaller sized products. With regard to our dealer distributor business, we were down 10.3%. Our adjusted EB&I decreased 0.7% to $50.6 million, but our adjusted EBITDA margin percentage increased by 140 basis points to 12% for the quarter. Reported EPS was $1.32, and adjusted EPS was $1.66. The improvement performance is due to product mix and improved efficiencies in the manufacturing platform, which continues to drive operations. The cash balance is $97.8 million at the end of the third quarter. The company has access to an additional $322.9 million under its revolving credit facility. Leverage was reduced to 1.05 times adjusted EBITDA, and the company repurchased 216,000 shares in the quarter.
Demand trends remain under pressure due to lower in store traffic rates and consumers choosing smaller sized projects.
Scott Congress: With regards to our dealer distributor business, we were down 10, 3% versus the prior year.
Scott Congress: Our adjusted EBITDA decreased <unk>, 7% to $56 million, but our adjusted EBITDA margin percentage increased 140 basis points to 12% for the quarter.
Scott Congress: Reported EPS was $1 32, and adjusted EPS was $1 66.
Scott Congress: The improvement performance is due to product mix and improved efficiencies in the manufacturing platforms.
Scott Congress: Our team continues to drive operational excellence in our plants.
Our cash balance was $97 $8 million at the end of the third fiscal quarter and the company has access to an additional $322 $9 million under its revolving credit facility.
Scott Congress: Leverage was reduced to one five times adjusted EBITDA in the company repurchased 216000 shares in the quarter.
Scott Congress: Our net sales outlook for fiscal year 'twenty four remains unchanged with our expectation of a low double digit decline.
Scott Culberth: Our net sales outlook for fiscal year 24 remains unchanged with our expectation of a low double-digit decline, with Fiscal Q4 sales down high single digits. Due to the strong fiscal third quarter performance, our adjusted EBITDA expectations for the full fiscal year are increasing and narrowing to a range of $247 million to $253 million. Our team continues to execute against our strategy, that's three main.
Scott Congress: With fiscal Q4 sales down high single digits.
Scott Congress: Due to the strong fiscal third quarter performance, our adjusted EBITDA expectations for the full fiscal years are increasing and narrowing to a range of $247 million to $253 million.
Scott Congress: Our team continues to execute against our strategy that has three main pillars.
Scott Congress: Growth.
Scott Culberth: Digital Transformation and Platt. Growth will benefit from the launch of a low-skew, high-value offering in the home centers targeting low-income households and a new brand that will serve our distribution customers, 1951 Cabin. Our made-to-order business will also benefit from the upcoming summer launch, featuring new on-trend styles and... Digital transformation efforts over the last fiscal quarter include the go-live of ERP and Monterey, to go live at WMS in Hamlin, North Carolina, and the GoLive website enhancements for homes. The planning for the next phase of work continues and includes the CRM service modules supporting our customer care organization and new construction service interoperability, and ERP Platform design work continues with our first shipment of components from Monterey, Mexico, and G, and shipments of bath products from our Hamlet, North Carolina location.
Scott Congress: Digital transformation and platform side.
Scott Congress: Growth will benefit from the launch of a low SKU high value offering in the home centers targeting pros.
Scott Congress: And a new brand that will serve our distribution customers $19 51 cabinetry.
Our made to order business will also benefit from the upcoming summer launch featuring new on trend styles and finishes.
Scott Congress: Digital transformation efforts over the last fiscal quarter include the go live of the ERP in Monterrey.
Scott Congress: They go live that W. Mess in hamlet North Carolina, and the go live of website enhancements for our home Center business.
Scott Congress: The planning for the next phase of work continues and includes the CRM service module supporting our customer care organization and new construction service Center operations.
Scott Congress: And ERP for a made to stock facilities.
Scott Congress: Platform design work continues with our first shipment of components for Monterrey, Mexico in January.
Scott Congress: Shipments of back products from our hamlet North Carolina location in February.
We will continue to equipment installations in the coming months, along with the training and hiring new teammates to support our ramp plan.
Paul Joachimczyk: We will continue equipment installations in the coming months, along with the training and hiring of new teammates to support our ranch. In closing, I'm proud of what this team accomplished in the third fiscal quarter and look forward to their continuing contributions during fiscal year 24. I will now turn the call back over to Paul for additional details on the financial results for the quarter. Thank you, Scott, for reviewing our third quarter results for fiscal year 2020. Net sales were $422.1 million, representing a decrease of $58.6 million, or 12.2% versus the prior year.
Scott Congress: In closing I'm proud of what this team accomplished in the third fiscal quarter and look forward to their continuing contributions during fiscal year 'twenty four.
Scott Congress: I will now turn the call back over to Paul for additional details on the financial results for the quarter.
Paul: Thank you Scott reviewed.
Reviewing our third quarter results for fiscal year 2024.
Paul: Net sales were $422 1 million, representing a decrease of $58 6 million or 12, 2% versus prior year.
Paul: Remodel net sales, which combines home centers and independent dealer and distributors decreased 13, 1% for the third quarter versus prior year.
Paul Joachimczyk: Remodel net sales, which combines home centers and independent dealer and distributors, decreased 13.1% for the third quarter versus the prior year, with both home centers and independent dealer distributors decreasing 14.1% and 10.3%, respectively. New construction sales decreased 11% for the quarter compared to last year. Our gross profit margin for the third quarter of fiscal year 2024 improved 350 basis points to 19.2% of net sales, versus 15.7% of net sales in the same period last year. Gross margin benefited from favorable product mix and pricing matching inflationary costs impacts along with operational improvements in our manufacturing facilities combined with the stability in our supply chain. Total operating expenses, excluding any restructuring charges, for the third quarter of fiscal year 2024 were 12.6% of net sales versus 10.4% for the same period last year.
With both home centers and independent dealer distributors, decreasing 14, 1% and 10, 3% respectively.
Paul: New construction net sales decreased 11% for the quarter compared to last year.
Paul: Our gross profit margin for the third quarter of fiscal year, 2024 improved 350 basis points to 19, 2% of net sales.
Paul: 15, 7% reported in the same period last year.
Paul: Gross margin benefited from favorable product mix and pricing matching inflationary costs impacts along with operational improvements in our manufacturing facilities.
Paul: And bind with the stability in our supply chain.
Total operating expenses, excluding any restructuring charges for the third quarter of fiscal year 2024 was 12, 6% of net sales versus 10, 4% for the same period last year.
Paul Joachimczyk: The 220 basis point increase is due to increases in our incentives and profit sharing for all employees and lower sales. Adjusted net income was $26.8 million, or $1.66 per diluted share, in the third quarter of fiscal year 2024 versus $24.4 million, or $1.46 per diluted share. Adjusted EBITDA for the third quarter of fiscal year 2024 was $50.6 million, or 12% of net sales, versus $51 million, or 10.6% of net sales reported in the same period last year, and represents a 140 basis point improvement Despite facing year-to-date volume headwinds, our continued strong earnings performance this year is a direct result of the hard work and effort our teams have put into reestablishing and maintaining our operational efficiencies. Stabilizing our Supply Chain and Controlling Overall Spend These earnings gains are partially offset by increases in incentive compensation, profit sharing, and digital transformation. Free cash flow totaled a positive $131.7 million for the current fiscal year to date, compared to $91.5 million in the prior year.
Paul: The 220 basis point increase is due to increases in our incentives in profit sharing for all employees and lower sales.
Paul: Adjusted net income was $26 8 million or $1 66 per diluted share in the third quarter of fiscal year 2024 versus $24 4 million or $1 46 per diluted share last year.
Paul: Adjusted EBITDA for the third quarter of fiscal year, 2024 was $50 6 million or 12% of net sales versus $51 million or 10, 6% of net sales reported in the same period last year and represents a 140 basis point improvement year over year.
Paul: Despite facing year to date volume headwinds our continued strong earnings performance. This year is a direct result of the hard work and efforts of our teams have put into reestablishing and maintaining our operational efficiencies.
Paul: Our supply chain and controlling overall spending.
Paul: These earning gains are partially offset by increases in incentive compensation and profit sharing and digital transformation costs.
Paul: Free cash flow totaled a positive $131 7 million for the current fiscal year to date compared to $91 5 million in the prior year.
Paul: Yeah.
Paul Joachimczyk: The $40.2 million increase was primarily due to changes in our operating cash flows, specifically higher net income and lower inventory, partially offset by increased capital expenditures. Net leverage was 1.05 times adjusted EBITDA at the end of the third quarter of fiscal year 2024, representing a 0.76 improvement from 1.81 times as of last year. As of January 31st, 2024, the company had $97.8 million of cash and cash equivalents on hand, plus access to $322.9 million of additional availability under our revolving facility. Under the current share repurchase program, the company purchased 19.6 million, or approximately 216,000 shares, in the third quarter, representing about 1.3% of outstanding shares being retired.
The $40 2 million increase was primarily due to changes in our operating cash flows specifically higher net income and lower inventory, partially offset by increased capital expenditures.
Paul: Net leverage was one five times adjusted EBITDA at the end of the third quarter of fiscal year 2024.
Paul: Presenting at zero point 706 improvement from the $1 eight one times as of last year.
Paul: As of January 31, 2024, the company had $97 8 million of cash and cash equivalents on hand.
Paul: Access to $322 9 million of additional availability under our revolving facility.
Paul: Under the current share repurchase program the company purchased $19 6 million or approximately 216000 shares in the third quarter, representing about one 3% of outstanding shares being retired.
Paul Joachimczyk: For the first nine months, we have repurchased 71.8 million of the company's common shares and have 105.4 million of share repurchase authorization remaining. Our outlook for the fiscal year 2024, from a net sales perspective, we continue to expect low double-digit declines in net sales versus fiscal year 2023, with high single-digit declines in the fourth fiscal quarter. The change in net sales is highly dependent upon the overall industry, economic growth trends, material constraints, labor impacts, interest rates, and consumer behavior. Given our strong performance for the first nine months of the year, we are increasing and narrowing our adjusted EBITDA expectation for the full fiscal year 2024 to a range of $247 to $253 million. The increase in our expected outlook is due to the strong operational performance and the execution we achieved in the first nine months of our fiscal year 2000. Reiterating our outlook from the past quarter, we have begun operations in our new locations in Hamlet, North Carolina, and Monterey, Mexico, and will continue to ramp up production throughout the remaining calendar year. This will negatively impact our results, and we will be incurring operational expenses without the offsetting full revenue performance of those locations.
Paul: For the first nine months, we have repurchased $71 8 million of the company's common shares and have $105 4 million of share repurchase authorization remaining.
Paul: Our outlook for the fiscal year 2024 from a net sales perspective, we.
Paul: Continue to expect low double digit declines in net sales versus fiscal year 2023 with high single digit declines in the fourth fiscal quarter the.
The change in net sales is highly dependent upon overall industry economic growth trends material constraints labor impacts interest rates and consumer behaviors.
Paul: Given our strong preferred performance for the first nine months of the year, we are increasing and narrowing our adjusted EBIT expectation for the full fiscal year 2024 to a range of $247 million to $253 million.
Paul: The increase in our expected outlook is due to the strong operational performance and execution. We have achieved in the first nine months of our fiscal year 2024.
Reiterating our outlook for the past quarter, we have begun operations in our new locations in hamlet, North Carolina, and Monterrey, Mexico, and we will continue to ramp up production throughout the remaining calendar year.
Paul: This will negatively impact our results and we will be incurring operational expenses without the offsetting full revenue performance of those locations.
Paul Joachimczyk: The total impact of these charges is approximately $8 million to $9 million for the full fiscal year 2024, with more than half of these charges occurring in the fourth fiscal quarter. In closing, our business continues to capitalize on the strides achieved over the past. We anticipate that these enhancements will positively impact our financials throughout the remainder of the fiscal year. This success stands as a testament to the unwavering commitment, diligence, and contributions of our dedicated employees, all in alignment with our GDP strategy. I extend my heartfelt gratitude to every team member at American Wood... They are the driving force behind our daily accomplishments. They are the ones who make it happen.
Paul: The total impact of these charges is approximately $8 million to $9 million and the full fiscal year 2024 with more than half of these charges occurring in the fourth fiscal quarter.
Paul: In closing our business continues to capitalize on the strides achieved over the past year.
Paul: We anticipate that these enhancement enhancements will positively impact our financials throughout the remainder of the fiscal year.
Paul: This success stands as a testament to the unwavering commitment diligence and contributions of our dedicated employees.
Paul: All in alignment with our GDP strategy.
Paul: I extend my heartfelt gratitude to every team member at American with Mark.
Paul: They are the driving force behind our daily accomplishments.
Paul: They are the ones, who make it happen daily.
Operator: This concludes our prepared remarks. We'll be happy to answer any questions you have. At this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your question, you may press star and then one again. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the numbers to ensure the best sound quality.
Speaker Change: This concludes our prepared remarks, we'll be happy to answer any questions you have at this time.
Speaker Change: At this time, we'll begin the question and answer session.
Speaker Change: To ask a question you May press Star and then one using a touchtone telephone withdraw.
Speaker Change: Withdraw your question you May press Star two.
Speaker Change: You are using a speaker phone, we do ask that you. Please pick up the handset prior to pressing the numbers to ensure the best sound quality.
Garik Simha Shmois: Once again, that is the star and then one to ask a question. Our first question today comes from Garik Shmois from Loop Capital. Please go ahead with your question. Oh, hi, thanks. And congrats on the quarter.
Speaker Change: Once again that is star and then one to ask a question.
Speaker Change: Our first question today comes from Derek Walker <unk> from Loop capital. Please go ahead with your question.
Derek Walker: Oh, hi, thanks, and congrats on the quarter I'm, hoping you can go into a little bit more detail on what youre seeing on the remodel side in particular, if you can provide some.
Scott Culberth: I was hoping you could go into a little bit more detail on what you're seeing on the remodel side, in particular, if you could provide some detail around in-stock versus semi-customers. Yeah, Garik, good afternoon.
Derek Walker: Detail around it.
Derek Walker: Stock.
Speaker Change: Versus semi customer.
Derek Walker: Yes, Eric good afternoon. So when we look at the remodel business, we're not seeing any major differences across the categories from a sell through rate standpoint, so in stock as well as the special order and the home centers performed comparably inside the period.
Scott Culberth: So when we look at the remodel business, we're not seeing any major differences across the categories from the self, in stock, as well as the special order in the home centers performing comparably in Cod. Got it. Wondering if you could go into some more detail. I think you talked about an improvement in product mix. What was driving that?
Speaker Change: Got it.
Eric: Wondering if you could go into some more detail I think you talked about an improvement in product mix.
Eric: Driving that.
Eric: That would be mix across our channels first and foremost so what we sold through in each of the respective channels that we've got.
Scott Culberth: That would be mixed across our channels, first and foremost, so what we sold through in each of the respective channels that we got, we've seen really an ability to hang on to the overall mix. I know there was some speculation going into this most recent fiscal year, perhaps about rotation down. We've really not experienced that across the new construction channel. We've seen a little bit of that inside remodel, but in totality, a favorable mix equation for us in the quarter. Got it. And then?
We've seen really an ability to hang on to the overall mix I know there was some speculation going into this most recent fiscal year, perhaps rotation down we've really not experienced that across the new construction channel, we've seen a little bit of that inside remodel.
But in totality of favorable mix equation for us inside of the quarter.
Speaker Change: Got it and then.
Speaker Change: I know, we're not in your fiscal 'twenty five.
Scott Culberth: I know we're not in your fiscal 25 yet, but if you're able to share any thoughts on how you think, perhaps maybe calendar 24, just maybe a longer-term view of the market. I think we heard from a competitor, you know, anticipating single-digit market growth declines over the next, say, four quarters. You know, just curious if you have any similar observations or any deviation from that. Sure, and you're right. We're not ready to share an outlook beyond fiscal year 2024.
Speaker Change: But if you are able to share any thoughts on how you think perhaps maybe calendar 'twenty four just maybe a longer term view.
<unk>.
Speaker Change: Of the market I think we heard from a competitor or anticipating low single digit market growth declines.
Speaker Change: Over the next let's say four quarters.
Speaker Change: Curious if you have.
Speaker Change: Any similar observations or any deviation off of that.
Speaker Change: Sure and you're right, we're not ready to share an outlook beyond fiscal year 2024, our cycle is we're really starting our budgetary meetings internally now will be ready to give you a full fiscal year 'twenty five outlook at our next call with that said, though what are we hearing and seeing in the market certainly there was.
Scott Culberth: You know, our cycle is we're really starting our budgetary meetings internally now. We're ready to give you a full fiscal year 2025 outlook in our next meeting. With that said, though, what are we hearing and seeing in the market? Certainly, there were a number of recent releases in the building product space, across competitors, other categories, customers, and then, of course, the show out in Vegas this week. So if I take all of those inputs together, I think what we're seeing and hearing is that the range for single-family starts is still a bit mixed. We're seeing analysts talk about low- to mid-single-digit growth for the calendar year. I think Remodel is the one that continues to remain a bit under pressure. Estimates range from low to mid-single digits on the negative side.
Speaker Change: A number of recent releases in the building products space.
Speaker Change: Across competitors other categories customers and then of course the show out in Vegas. This week. So if I take all of those inputs together I think what we're seeing and hearing is that.
Speaker Change: The range for single family starts.
Speaker Change: A bit mixed.
Speaker Change: We're seeing analysts talk about low to mid single digit growth for the calendar year.
Speaker Change: Remodel is the one that continues to remain a bit under pressure.
Speaker Change: Estimates there from load to mid single digits on a negative side.
Scott Culberth: Home centers, again, just reported their figures for the year and their outlook for calendar year 24. You know, both signaled negative comps in the calendar year, and certainly for the last two quarters, they both signaled that our category was performing worse than that. So if I were to take all of that together, I would say that, in totality, repair and model, I'd download mid-to-single, and then new construction up
Speaker Change: Home centers again, just reported their figures for the year and their outlook on calendar 'twenty for both signaled negative comps in the calendar year.
Speaker Change: And certainly for the last two quarters. They both signaled that our category was performing worse than that so that would take all of that together I would say that in total in totality repair remodel call it download mid to single.
Speaker Change: And then new construction up mid single I think is sort of the market view our perspective and this would be the same as it's been for many years is that we should perform better than that in both new construction and repair and model. So not yet ready to give you what that translates into an outlook, but that's at least the market view and our expectation is that we'll gain share and performed better than that.
Garik Simha Shmois: I think that's sort of the market view. Our perspective, and this would be the same as it's been for many years, is that we should perform better than that in both new construction and repair and models. So I'm not yet ready to give you what that translates into an outlook, but that's at least the market view, and our expectation is that we'll gain share and perform better.
Speaker Change: Okay.
Speaker Change: No that makes sense alright, thanks for all that I'll pass it on.
Operator: All right. Thanks for all of that. I'll pass it on.
Steven Ramsey: Okay, thank you. Our next question comes from Steven Ramsey from Thompson Research Group. Please go ahead with your question. Hi, good evening.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Steven Ramsey from Thompson Research Group. Please go ahead with your question.
Steven Ramsey: Hi, Good evening wanted to think about.
Scott Culberth: Wanted to think about, you know, looking out over the next 12 months, and with the new facilities now up and running, curious how adaptable you are to run those and ramp production up or down as the demand profile rolls in, and how that potentially impacts gross margins going forward with the new facilities coming online. Yes, specifically to the first part of the question on our ability to adapt and ramp up or ramp down production, our operations team has historically done a fantastic job of being able to do that. During COVID, our biggest barrier would have been labor.
Steven Ramsey: Looking out over the next 12 months and with the new facilities now up and running curious how adaptable you are.
Steven Ramsey: To run those and ramp production up or down as the demand profile rolls in and how that potentially impacts.
Speaker Change: <unk> margins going forward with the new facilities coming online.
Speaker Change: Yeah, specifically to the first part of the question on our ability to adapt and ramp up or ramp down of production. Our operations team has historically been a fantastic job of being able to do that.
During COVID-19, our biggest barrier would had been labor.
Scott Culberth: We certainly have seen a better labor environment, but our beliefs internally are that that'll continue to always be a challenge. So we've done a lot of work over this past year to make sure we've got more flexibility and capability to ramp up as needed. Of course, ramping down is quite frankly a little bit. Specific to that capacity, our commercial teams are doing a great job working in the market to find opportunities for us to be able to fill that capacity. I don't know exactly when we'll get to a full ramp from that perspective, and that'll be part of our Outlook conversation that we'll share with you all again next quarter. Okay, that's helpful.
Speaker Change: We certainly have seen a better labor environment, but our beliefs internally is that that will continue to always be a challenge. So we've done a lot of work over this past year to make sure we've got more flexibility and capability to ramp up is needed of course ramping down quite frankly, a little bit easier in that scenario.
Speaker Change: Specific to that capacity.
Speaker Change: Our commercial teams are doing a great job working in the market on finding opportunities for us to be able to fill that capacity I don't know exactly when we'll get to a full ramp from that perspective, and that'll be part of our outlook conversation that we'll share with you all again next quarter.
Speaker Change: Okay. That's helpful and then thinking about signals, you're maybe looking at for repair and remodel and a potential recovery. There do you look first at trends through the dealer channel through home centers, just curious if theres anything.
Scott Culberth: And then thinking about signals you're maybe looking at for repair and remodel and a potential recovery there. Do you look first at trends through the dealer channel, through home centers? Just curious if there's anything in the marketplace that you're looking for that may not be publicly stated by others in their outlook. Nothing that's really different from what you see in the marketplace.
Speaker Change: In the marketplace that youre looking for that May not be publicly stated from others in their outlook.
Speaker Change: Nothing that's really different from what you've seen in the marketplace I would say that we're looking at other data points outside of those outlets first so what's happening with existing home sales of course that creates an opportunity for a transaction.
Scott Culberth: I would say that we're looking at other data points outside of those outlets first. So what's happening with existing home sales? Of course, that creates an opportunity for a transaction. What's happening with consumer sentiment? Their willingness to invest back in the home and spend dollars?
Speaker Change: What's happening with consumer sentiment.
Speaker Change: Willingness to invest back in their home and spend dollars or is it going to shift away from experiences back to an investment in an asset they own what's happening with interest rates. So the same things you're viewing of the things that we're going to look at there.
Scott Culberth: Are they going to shift away from experiences back to an investment in an asset they own? What's happening with interest rates? So the same things you're viewing are the things that we're going to look at there. Depending on the cycle, we've seen different channels come back faster.
Speaker Change: Depending on the cycle, we've seen difference we've seen different channels come back faster. So I don't want to point to dealers, a leading indicator and I don't want to point to home centers are leading indicator because they both have varied over the years. So we look at the outside factors and then keep our eye around both of those particular outlets as the type of.
Scott Culberth: So I don't want to point to dealers as a leading indicator, and I don't want to point to home centers as a leading indicator, because they both have varied over the years. So we look at the outside factors and then keep an eye around both of those particular outlets as to the type of activity and jobs they've been. Okay, that's helpful. And then last quick one for me, the margin outlook. Just to make sure, that's from already produced results year-to-date, or is there anything in the Q4 outlook that helps to bolster that full-year guide? Yeah, Steven, I'm not tracking your question.
Speaker Change: <unk> and jobs that are bidding.
Speaker Change: Okay. That's helpful. And then last quick one for me the margin outlook raised it just to make sure. That's from already produced results year to date or is there anything in the Q4 outlook that helps to bolster that full year guide.
Speaker Change: Stephen I'm not tracking your your question. So the outlook that we're going to give for the full year doesn't include everything that we've achieved through the first nine months of the year.
Paul Joachimczyk: So the outlook that we're going to give for the full year does include everything that we've achieved through the first nine months of the year. And we're trying to give you a range of exactly where it's going to be within that last. Gotcha. Yes, I just wanted to make sure, is there, for the raised EBITDA outlook, is that.., mostly attributable to year-to-date results, or is Q4 shaping up better than what you thought from the prior outlook? I'd say it's a combination of both, is throughout the year we're performing a lot better, so in essence it gives us the confidence to raise our outlook for the full year. Okay, great. Thank you. Our next question comes from Kim Woos from Baird. Please go ahead with your question. Hey, guys. Good. Good afternoon.
Speaker Change: And we're trying to give you a range of exactly where it's going to be within that last quarter.
Stephen: Yes, I just wanted to make sure is there for the raised EBITDA outlook is that.
Stephen: Mostly attributable to year to date results orders there is Q4 shaping up better than what you thought from the prior outlook.
Speaker Change: Yeah, I'd say, it's a combination of both is throughout the year, we're performing a lot better. So in essence gives us the confidence to raise our outlook for the full year.
Speaker Change: Okay, great. Thank you.
Speaker Change: Our next question comes from Tim <unk> from Baird. Please go ahead with your question.
Speaker Change: Yes.
Tim: Hey, guys good.
Tim: Good afternoon.
Tim: Maybe just to start.
Timothy Ronald Wojs: Maybe just to start, Scott, on the new 1951 brand. Can you just maybe give us a little bit of color on kind of where, you know, the market strategy behind the introduction of the new brand and then maybe kind of what, you know, your three to five year targets might be for, you know, growth related to that business. Hey, good afternoon, Tim. So yeah, 1951, prior to us launching that brand, our strategy when we thought about the new construction market was to serve it with one brand, and that brand was Timberlake. And that was regardless of how that particular builder wanted to really go about obtaining their cabinetry product. So what we've done now with 1951 is we've been able to consolidate all of our various platforms that we've got underneath the Woodmark umbrella.
Tim: Scott on the on the Newport, the $19 51 brand can you just maybe give us a little bit of color of.
Tim: Kind of where.
Tim: Yeah.
Tim: Kind of the market strategy behind the introduction of the new brand and then maybe kind of what.
Tim: Your three to five year targets might be for growth related to that business.
Scott Congress: Hey, good afternoon, Tim So you're at $19 51 prior to us launching that brand our strategy. When we thought about the new construction market was to serve it with one brand and that brand was Timberlake and that was regardless of how that particular builder wanted to really go about obtaining.
Scott Congress: Cabinetry product.
Scott Congress: So what we've done now at $19 51 is we've been able to consolidate all of our various platforms that we've got underneath the woodmac umbrella, we're able to now provide too.
Timothy Ronald Wojs: We're able to now provide, principally distributors, but also to some dealers, a brand that'll be specifically focused on their business requirements. We want to make sure we give a choice to, whether it's a builder, a contractor, a remodeler, the right product and the right service model that they want to actually utilize. So we're excited about it. The actual go-live date is March 4th, so it's, you know, we're a week before, but it'll be live on March 4th.
Scott Congress: Principally distributors, but also to some dealers are brand it'll be suspicious specifically focused on their business requirements. We want to make sure we give a choice to whether its a builder or a contract or a remodel modeler.
Scott Congress: Right product and the right service model that they want to actually utilize so.
Scott Congress: We're excited about it.
Scott Congress: We will go live as March 4th week, before but it'll be live March 4th its already up on the website and available and our commercial team is already out pre selling and talking obviously to our distributors. So we think it'll be a great opportunity.
Scott Culberth: It's already up on the website and available, and our commercial team is already out pre-selling and talking, obviously, to our distributors. So we think it'll be a great opportunity to perhaps take away from some potential channel conflict that's existed in the past and give this an opportunity to drive more growth in that channel. As far as specific goals, I don't have a goal that I want to put out in the market today specific to that. I'll just tell you that it's part of the strategy and the overall outlook that we shared in our investor relations deck. We did a refresh on that back in January and posted it on the website. So that's factored into that financial model. Okay, okay, very good. Maybe just on the startup cost of eight to $9 million this year. I know you're kind of, you know, some of you don't want to talk too much about next year.
Scott Congress: <unk> takeaway from some potential channel conflict that existed in the past.
Scott Congress: It gives us an opportunity to drive more growth in that channel as.
Scott Congress: As far as specific goals I don't have a goal that I want to put out in the market today specific to that I'll, just tell you that as part of the strategy.
Scott Congress: And the overall outlook that we shared in our Investor Relations deck, we did a refresh on that back in January and posted on our website. So that's factored into that <unk>.
Scott Congress: That financial model.
Speaker Change: Okay, Okay very good.
Speaker Change: Maybe just on the startup cost the $8 million to $9 million this year.
Speaker Change: I know youre kind of some of the two.
Speaker Change: Too much about next year, but is there any kind of.
Timothy Ronald Wojs: But is there any kind of startup cost tail we should kind of think about that leads into next year or the first half of next year. It's not necessarily a startup cost tail, so I would say that the startup costs go away, right? That's a lot of the costs we had prior to being ready for production and ramping. It'll now shift to being deleveraged, so we'll have some fixed costs associated with those facilities. If we're not fully utilizing and absorbing those, there'll be some deleverage that would roll through the results there. But you're right; we haven't modeled that fully out yet to give you a look, but we won't have this ramped cost to get ready like we had in fiscal year 2012. Okay, okay. And then the last one for me just on on on Nick.
Speaker Change: Startup cost tail, we should kind of think about that bleeds into next year or the first half of next year.
Speaker Change: It's not necessarily a startup cost tail. So I would say that the startup costs go away right. That's a lot of the costs, we had prior to being ready for production and ramping it will now shift to being Deleveraged. So we'll have some fixed cost associated with those facilities. If we're not fully utilizing absorbing those there'll be some.
Speaker Change: They would run through the results there, but youre right, we havent modeled that fully out yet.
Speaker Change: To give you a look but we won't have this ramp cost to get ready like we had in fiscal year 'twenty four.
Speaker Change: Okay. Okay and then the last one for me just on on on mix.
Timothy Ronald Wojs: You know, there's been some other building product industries and categories that have talked about, you know, some negative, you know, mix, you know, kind of impacting whether it's, you know, consumer trade down, you know, in the R&R market, or maybe it's smaller homes and new construction. Are you guys seeing that? Or is it a situation where your portfolio is kind of built around, you know, you know, some of those mixed changes, and it's actually a benefit to American Woodmark, you know, in terms of just how the markets evolve? Yeah, you got it, Tim. It's the latter part.
Speaker Change: There's been some other kind of building product industries and categories that have talked about some negative mix kind of impacting whether it's.
Speaker Change: Consumer trade down.
Speaker Change: And the R&R market or maybe it's smaller homes and new construction.
Speaker Change: Are you guys seeing that or is it a situation where your portfolio is kind of built around.
Speaker Change: Yeah.
Speaker Change: Some of those mix changes and it's actually a benefit to American would mark in terms of just how the markets evolve.
Speaker Change: Yeah, you got it Tim into the latter part when you think about our portfolio and the price points that we go after we're not sitting in the semi custom or custom range, where you might see folks moved down in our category or even even other categories and building products. So we go after the value price point offering and that's what we've been focused as a company.
Scott Culberth: When you think about our portfolio and the price points that we go after, you know, we're not sitting in the semi-custom or custom range where you might see folks move down in our category or even other categories of building products. So we go after the value price point offering. That's where we've been focused as a company for decades, and that's where the market is shifting. So we're not dealing with a rotation down at a higher price point. We're already at the value price point, and as I shared earlier in the call, we really haven't seen much rotation even inside our portfolio. Okay. Okay. Very good. Good luck for the rest of the year.
Speaker Change: For decades.
Speaker Change: And Thats, where the market is shifting so we're not dealing with the rotation down at a higher price points, we're already at the value price points and as I shared earlier in the call. We really haven't seen much rotation, even inside of our portfolio down.
Tim: Okay. Okay very good good luck on the rest of the year. Thank you.
Timothy Ronald Wojs: Thank you. Yeah. Thanks, Tim. Thanks, Tim. Once again, if you would like to ask a question, please press star and then one. To withdraw your question, you may press star and two.
Yes, Thanks, Tim Thanks, Tim.
Speaker Change: Once again, if you would like to ask a question. Please press Star and then one who withdraw your question you May press Star and two.
Speaker Change: Our next question comes from Colin Denman from Jefferies. Please go ahead with your question.
Collin Andrew Verron: Our next question comes from Collin Verron from Jefferies. Please go ahead with your question. Good afternoon.
Collin Andrew Verron: Good afternoon. Thanks for taking my questions I guess I just wanted to start on the R&R market. It looks like it will probably be like a second half story in calendar year 'twenty four just based on commentary from other building product manufacturers and the sentiment at the builder show. This week and I was curious if you had any thoughts on what needs to happen for the R&R market.
Scott Culberth: Thanks for taking my questions. I guess I just wanted to start on the R&R market. It looks like it'll probably be like a second half story in calendar year 24, just based on commentary from other building product manufacturers and the sentiment at the Builder Show this week. But I was curious if you had any thoughts on what needs to happen for the R&R market to really come back, whether that be a certain mortgage rate level or some other factor, and just how quickly you think demand can snap back when that happens. I'll take the latter part first in the equation.
Collin Andrew Verron: But to really come back whether that'd be a certain mortgage rate level or some other factor and just how quickly you think demand Ken snapped back when that happens.
Speaker Change: Yes, I'll take the latter part first in the equation. So how fast it comes back I'm not sure. We talk a lot internally about it'll comment will come quicker than we probably were anticipating we just want to make sure. We're ready for it we believe there's some pent up demand there and when consumers get comfortable again theyre going to come back.
Scott Culberth: So how fast it comes back, I'm not sure. We talk a lot internally about it coming back quicker than we probably are anticipating. We just want to make sure we're ready for it. We believe there's some pent-up demand there. And when consumers get comfortable again, they're going to come back in a pretty meaningful fashion and want to do projects. We do think about the second half being stronger.
Speaker Change: Pretty meaningful fashion in one or two projects.
Speaker Change: We do think about the second half being stronger what are the things that we're going to keep focused on that we think will help drive that interest rates is going to be at the top of the list, what's really going to happen and we've pushed out of March potential reduction 10, how June even then I think it's a 60% somewhat estimate on actually bringing it down 25 basis points, but were.
Scott Culberth: What are the things that we're gonna keep focused on that we think will help drive that? Interest rates are gonna be at the top of the list. What's really going to happen?
Scott Culberth: I know we've pushed out a March potential reduction to now June. Even then, I think it's a 60% estimate on actually bringing it down 25 basis points. But we're looking to see interest rates move. We think that helps new construction as well as the repair model. And then the last one would be existing home sales. We need to see existing home sales numbers increase. All-time lows over the last, I think, 25 years, this last calendar year.
Speaker Change: Looking to see interest rates move we think that helps new construction as well as.
Speaker Change: Repair and model.
Speaker Change: And then the last one would be existing home sales, we need to see existing home sales numbers increase.
Speaker Change: Time lows over the last 25 years. This last calendar year, we need to see those numbers move back up as they do that creates an opportunity on both sides of the transaction and the sale for remodel and that's usually when we see our business pick up so those would be the two big indicators we're focused on.
Scott Culberth: We need to see those numbers move back up. As they do, that creates an opportunity on both sides of the transaction of a sale for a remodel. And that's usually when we see our business pick up. So those would be the two big indicators we're focused on. Great, that's a really helpful color.
Speaker Change: Great that's really helpful color.
Scott Culberth: And then, can you just comment on how your unit costs trended in the most recent quarter and just how you're thinking about cost inflation or deflation as you look out into calendar year 24 here? Yeah, the two things I would, well, I guess a couple things I'd call out for you. So on input cost, we have seen some of the hardwood lumber start to move up, some maple as an example. Specifically, we saw that move up a little bit towards the end of the quarter. And then also particle board has recently seen some announcements around price increases, so I'm keeping an eye on those. Labor, of course, is always going to be an item that will continue to progress and move. That's not going to stop. And then final mile delivery. That's, you know, that's another box we've seen. So a couple of the raws and then labor and the final mile would be the key ones.
Speaker Change: And then can you just comment on how your unit costs trended in the most recent quarter and just how youre thinking about cost inflation or deflation as you look out into calendar year 'twenty four here.
Speaker Change: Yes, the two things well I guess, a couple of things I'd call out for you. So one on input cost we have seen some of the hardwood lumber start to move up some April as an example, specifically we saw that move up a little bit towards the end of the quarter.
Speaker Change: And then also particle board has recently seen some announcements around price increases so keeping an eye on those labor of course is always going to be an item that will continue to progress and move <unk>.
Im going to stop and then final mile delivery.
Speaker Change: That's another box we have seen so couple of the raws and then labor and final mile will be the key ones not too different from what we've seen the past couple of quarters.
Scott Culberth: Not too different from what we've seen the past couple of quarters. Okay, that's helpful. And then, I guess, just any color, how you're thinking about price mix in the current quarter? Are you seeing any more price competition or pressure from your customers to reduce prices, just given the lower demand environment? Just any thoughts there.
Speaker Change: Okay. That's helpful and then I guess.
Speaker Change: Just any color as how youre thinking about price mix in the current quarter have you seen any more price competition or pressure from your customers to reduce pricing just given the lower demand environment.
Speaker Change: Just any thoughts there.
Scott Culberth: Yeah, demand is not really a driver of the pricing conversation for us. What sometimes you'll see is maybe promotional activity being factored in because of lower demand. We've seen a little bit of an uptick in the repair model, but not a considerable increase in promotional activity really throughout all of our fiscal year. As far as pricing, you know, we've had conversations with folks, you know, starting last year. Again, not volume driven but inflation-driven.
Yes, the demand is not really a driver of the pricing conversation for us sometimes youll see us maybe promotional activity being factored in because of the lower demand we have seen a little bit of an uptick in repair and remodel, but not a considerable increase in promotional activity really throughout all of our fiscal year.
As far as pricing, we've had conversations with folks starting last year again, not volume driven but deflation driven so if we've seen deflation on specific input cost and it's appropriate to make adjustments we'll have those conversations.
Scott Culberth: So if we've seen deflation on specific input costs and it's appropriate to make adjustments, you know, we'll have those conversations. Great, I really appreciate all the color. Okay, thank you. And at this time, as I am not seeing any additional questions, I'd like to turn the floor back over to Mr. Joachimczyk for any closing remarks. Please go ahead, sir.
Speaker Change: Great I really appreciate all the color.
Speaker Change: Okay. Thank you.
Speaker Change: And at this time I'm not seeing any additional questions I would like to turn the floor back over to Mr. Jack <unk> for any closing remarks. Please go ahead Sir.
Jack: So if there are no additional questions. This concludes our call. Thank you all for taking the time to participate.
Paul Joachimczyk: Since there are no additional questions, this concludes our call. Thank you all for taking the time to participate. Ladies and gentlemen, that concludes today's conference call and presentation. We thank you for joining us. You may now disconnect your line.
Jack: Ladies and gentlemen that concludes today's conference call and presentation and thank you for joining you may now disconnect your lines.