Q1 2024 MasterBrand Inc Earnings Call
Operator: Welcome to MasterBrand's first quarter 2024 earnings conference call. During the company's prepared remarks, all participants will be in a listen-only mode. Following management's closing remarks, callers are invited to participate in a question and answer session. Please note that this conference call is being recorded. I would now like to turn the call over to Farand Pawlak, Vice President of Investor Relations and Corporate Communications.
Welcome to Master brands first quarter 'twenty 'twenty four earnings conference call.
Farand Pawlak: During the company's prepared remarks.
Farand Pawlak: Participants will be in a listen only mode.
Farand Pawlak: Following management's closing remarks coolers are invited to participate in a question and answer session.
Operator: Please note that this conference call is being recorded.
Farand Pawlak: I would now like to turn the call over to foreign Pollock.
Farand Pawlak: Its president of Investor Relations and corporate communications.
Farand Pawlak: Thank you. Good afternoon. We appreciate you joining us for today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer, and Andy Simon.
Farand Pawlak: Thank you. Good afternoon. We appreciate you joining us for today's call with me on the call today are Dave Banyard, President and Chief Executive Officer, and Andy assignment Executive Vice President and Chief Financial Officer.
Andrea H. Simon: Andy Simon, Executive Vice President
Farand Pawlak: We issued a press release earlier this afternoon disclosing our first four 2024 financial results. If you do not have this document, it is available on the investor section of our website at MasterBrand.com.
Andrea H. Simon: We issued a press release earlier this afternoon discussing our first quarter 2024 financial results.
Farand Pawlak: If you do not have this document is available on the investors section of our website at Master brand Dot com.
Farand Pawlak: I would like to remind you that this call will include forward-looking statements in either our prepared remarks or the associated question and answer session. Each forward-looking statement containing this call is based on current expectations and market outlook and is subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. Additional information regarding these factors appears in the section entitled Forward-Looking Statements in the press release we issued today.
Farand Pawlak: I would like to remind you that this call will include forward looking statements in either our prepared remarks or the associated question and answer session.
Farand Pawlak: Each forward looking statement contained in this call is based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated.
Farand Pawlak: Additional information regarding these factors appears in the section entitled forward looking statements in the press release, we issued today.
Farand Pawlak: More information about risk can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full year 2023 Form 10-K and updated as necessary in our subsequent 2024 Form 10-Qs, which will be available once filed at sec.gov and at masterbrand.com.
Farand Pawlak: More information about risks can be found in our filings with the securities and Exchange Commission, including under the heading risk factors in our full year 2023 Form 10-K, and updated as necessary and our subsequent 2024 form 10, Qs, which will be available once filed at SEC Gov and at Master brand Dot Com.
Farand Pawlak: The forward-looking statements in this call speak only as of today, and the company does not undertake any obligation to update or revise any of these statements, except as required by law. Today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliation tables, which are in the press release issued earlier this afternoon and are also available at sec.gov and at masterbrand.com. Our prepared remarks today will include a business update from Dave, followed by a discussion of our first quarter 2024 financial results, along with our 2024 financial outlook from Andrea. Finally, Dave will make some closing remarks before we host a question and answer session. With that, I will turn the call over to Dave.
Farand Pawlak: The forward looking statements in this call speak only as of today and the company does not undertake any obligation to update or revise any of these statements except as required by law.
Farand Pawlak: Today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliation tables, which are in the press release issued earlier. This afternoon and are also available at SEC Gov and at Master Green Dot Com.
Farand Pawlak: Our prepared remarks today will include a business update from Dave followed by a discussion of our first quarter 2024 financial results along with our 2024 financial outlook from Andy.
Dave: Finally, Dave will make some closing remarks before we are hosting question and answer session with that let me turn the call over to David.
Dave Banyard: Thanks, Farand. It's good to be speaking with you all on our first quarter 2024 earnings conference call. I'm pleased to say that MasterBrand delivered a solid quarter to start. Net sales in the first quarter of 2024 were $638 million, a 6% decline over the same period last year. This mid-single-digit decline was in line with our expectations as we experienced the continued impact of anticipated trade downs and our return to normal promotional activity through the first quarter.
Dave: Thanks, Darren it's good to be speaking with you all on our first quarter 2024 earnings conference call.
Dave Banyard: I'm pleased to say that master brand delivered a solid quarter to start the year.
Dave Banyard: Net sales in the first quarter of 2024 were $638 million, a 6% decline over the same period last year.
Dave Banyard: This mid single digit decline was in line with our expectations as we experienced the continued impact of anticipated trade downs and a return to normal promotional activity through the first quarter.
Dave Banyard: Volume is roughly flat on a year-over-year basis as we saw growth with our customers servicing the new construction market, offset by declines with our customers servicing the repair and remodel market. Again, this was in line with our 2024 end market demand assumptions laid out on the last call, which I'll revisit shortly. Operationally, the company continued to perform exceptionally well. We delivered adjusted EBITDA of $79 million in the first quarter and a related margin of 12.4%, 40 basis points higher than the same period last year.
Dave Banyard: Volume was roughly flat on a year over year basis, as we saw growth with our customer servicing the new construction market offset by declines with our customers and servicing and repair and remodel market.
Dave Banyard: This was in line with our 'twenty 'twenty four end market demand assumptions laid out on the last call, which I'll revisit shortly.
Dave Banyard: Operationally the company continues to perform exceptionally well.
Dave Banyard: We delivered adjusted EBITDA of $79 million in the first quarter and a related margin of 12, 4% 40 basis points higher than the same period last year.
Dave Banyard: Our margin expansion was again driven by cost savings from our strategic initiatives and continuous improvement efforts, which more than offset the negative impact of lower average selling. Our first quarter performance followed our trend of delivering year-over-year margin expansion despite market softness. This is a testament to two things.
Dave Banyard: Margin expansion was again driven by cost savings from our strategic initiatives and continuous improvement efforts, which more than offset the negative impact of lower average selling price.
Dave Banyard: Our first quarter performance, followed our trend of delivering year over year margin expansion despite market softness.
Dave Banyard: One, our associates' dedication to the MasterBrand way, our business, and two, the success of our strategic initiatives, Align to Grow, Lead Through Lean, and TechEnable. When we first introduced the MasterBrand way, our focus was on deploying foundational lean tools and improving operations. During this early period, our executive team, myself included, spent a great deal of time training and coaching all levels of associates on how to use these
Dave Banyard: This is a testament to two things one our associates' dedication to the Master brand way, our business system and to the success of our strategic initiatives aligned to grow lead through lean and tech enabled.
Dave Banyard: When we first introduced the Master brand way, our focus was on deploying foundational lean tools and improving operations.
Dave Banyard: During this early period, our executive team myself included spent a great deal of time training and coaching all levels of associates on how to use these tools.
Dave Banyard: More importantly, our time spent on the plant floor was about fostering a culture of continuous improvement and driving the mindset of problem solving at all levels of the organization. As this culture took hold, you saw our operational efficiency improve, as well as our financial performance. Fast forward to today, and lean as a way of working is just part of what we do.
Dave Banyard: More importantly, our time spent on the plant floor was about fostering a culture of continuous improvement and driving the mindset of problem solving at all levels of the organization.
Dave Banyard: As this culture to a KOL you saw our operational efficiency improve as well as our financial for bonds.
Dave Banyard: Fast forward to today lean as a way of working it's just part of what we do.
Dave Banyard: Our associates, along with a core team of CI professionals, are driving daily operational improvements, utilizing our toolkit, and we continue to see the benefit of their work in our adjusted EBITDA margin performance this quarter. This quarter, we also continue to benefit from our strategic initiatives. Specifically, significant cost savings from our quality process initiatives and carryover savings from our prior year supply chain. I'll provide a deeper update on our strategic initiatives shortly. Our continued discipline around working capital management allowed us to deliver a free cash flow of $12 million in the quarter.
Dave Banyard: Our associates, along with a core team of Ci professionals are driving daily operational improvements utilizing our toolkit and we continue to see the benefit of the work in our adjusted EBITDA margin performance this quarter.
Dave Banyard: This quarter. We also continued to benefit from our strategic initiatives, specifically significant cost savings from our quality process initiatives and carryover savings from our prior year supply chain work.
Dave Banyard: I'll provide a deeper update on our strategic initiatives shortly.
Dave Banyard: Our continued discipline around working capital management allowed us to deliver free cash flow of $12 million in the quarter.
Dave Banyard: Prior to last year, MasterBrand has historically been a consumer of cash in the first quarter, so this relatively strong performance is an encouraging trend to see. Now, let me provide more detail on the end market demand we saw during the first quarter. Similar to our financial and operational performance, and market demand was in line with our expectations. For our customers servicing the U.S. single-family new construction market, we saw demand increase year-over-year and in high single digits in the first quarter.
Dave Banyard: Year to last year Master brand has historically been a consumer of cash in the first quarter. So this relatively strong performance is an encouraging trend to see.
Dave Banyard: Now, let me provide more detail on the end market demand we saw during the first quarter.
Dave Banyard: Similar to our financial and operational performance and market demand was in line with our expectations.
Dave Banyard: Our customer servicing the U S single family, New construction market, we saw demand increase year over year high single digits in the first quarter.
Dave Banyard: Demand trends improved across multiple regions, with large production builders continuing to outperform other segments of the market. Large production builders, both public and private, remain the best suited to address pent-up demand for housing, and we are benefiting from our close relationships with them. We serve these builders through a combination of direct sales and sales through our distribution partners. Given the positive tone from builders and the new product and channel-specific offerings we continue to introduce for them, we remain optimistic about this portion of the market. This optimism is tempered with our view that land and labor constraints, along with the potential for some supply chain disruptions in certain categories, could limit growth.
Dave Banyard: Demand trends improved across multiple regions with large production builders continuing to outperform other segments of the market.
Dave Banyard: Large production builders, both public and private remain the best suited to address pent up demand for housing and we are benefiting from our close relationships with them.
Dave Banyard: We serve these builders through a combination of direct sales and sales through our distribution partners.
Dave Banyard: Given the positive tone from builders and the new product and channel specific offerings. We continue to introduce for them. We remain optimistic about this portion of the market.
Dave Banyard: This optimism is tempered with our view that land and labor constraints, along with potential for some supply chain disruptions in certain categories could limit growth.
Dave Banyard: We continue to believe this market will grow year-over-year in the mid-single digits with relatively normal sequential seasonality and moderating year-over-year growth rates later in the year due to more challenging comparisons. As for our dealer and retail customers who primarily service the repair and remodel market, demand continued at a similar pace in the fourth quarter of 2023. On a year-over-year basis, we saw demand decline by high single digits in both our retail and dealer channels as customers continue to note lighter-than-usual foot traffic and extended decision lead time.
Dave Banyard: We continue to believe this market will grow year over year mid single digits with relatively normal sequential seasonality and moderating year over year growth rates later in the year due to more challenging comparables.
Dave Banyard: As for our dealer and retail customers, who primarily service the repair and remodel market demand continued at a similar pace to the fourth quarter of 2023.
Dave Banyard: On a year over year basis, we saw demand declined high single digits in both our retail and dealer channels as customers continued to note lighter than usual foot traffic and extended decision lead times.
Dave Banyard: This was in line with our expectations for this portion of the market as consumers remain hesitant to make large-ticket purchases given general macroeconomic uncertainty. Those who are willing to commit to larger purchases are being more thoughtful about total project costs and choosing fewer features in their orders. Accordingly, our outlook for the U.S. repair and remodel market for cabinets remains unchanged.
Dave Banyard: This was in line with our expectations for this portion of the market as consumers remain hesitant to make large ticket purchases given general macroeconomic uncertainty.
Dave Banyard: We're willing to commit to larger purchases are being more thoughtful about total project costs and choosing fewer features in their order.
Dave Banyard: Accordingly, our outlook for the U S repair and remodel market for cabinets remains unchanged.
Dave Banyard: We still expect to see mid-single-digit declines for 2024, with year-over-year declines easing as we progress through the year and annualize these impacts, which we've already seen occur from the fourth quarter of 2023 to the first quarter of 2024. In Canada, both the new construction and repair and remodel markets remain slow year over year as expected, but we've seen signs of stabilization. We were pleased to even see areas of sequential improvement in order intake in new construction and repair and remodel markets, which appear to be signaling a bottoming out.
Dave Banyard: We still expect to see mid single digit declines for 2024 with year over year declines easing as we progress through the year and annualize these impacts which we've already seen occur from the fourth quarter of 2023 for the first quarter of 2024.
Dave Banyard: And Canada, both the new construction and repair and remodel markets remained slow year over year as expected, but we've seen signs of stabilization.
Dave Banyard: We were pleased to even see areas of sequential improvement in order intake in new construction and repair and remodel markets, which appear to be signaling a bottoming out.
Dave Banyard: This, and the steps that the Canadian government is taking to improve housing affordability for existing and new homebuyers, are favorable signs for the Canadian housing market. While these are encouraging developments, we still expect to see soft end market demand continue, with year-over-year high single-digit declines in 2020. This outlook is based on new housing starts being meaningfully lower and repair and remodel activity being down mid-single digits year over year.
Dave Banyard: This and the steps that the Canadian government is taking to improve housing affordability for existing and new homebuyers are favorable signs for the Canadian housing market.
Dave Banyard: While these are encouraging developments, we still expect to see soft end market demand continue with year over year high single digit declines in 2024.
Dave Banyard: This outlook is based on new housing starts being meaningfully lower in repair and remodel activity being down mid single digits year over year.
Dave Banyard: End market demand was in line with our expectations for new construction and repair and remodel markets across North America, and we see relatively no change to our underlying assumptions. Therefore, we're reiterating our overall market demand expectation of down low single digits year over year in 2020. Our assumptions originally factored in a moderate reduction in interest rates later in the year.
Dave Banyard: End market demand was in line with our expectations for new construction and repair and remodel markets across North America, and we see relatively no change to our underlying assumptions. Therefore, we are reiterating our overall market demand expectation of down low single digits year over year and 2024.
Dave Banyard: Our assumptions originally factored in a moderate reduction in interest rates later in the year.
Dave Banyard: While there's been a lot of press around the timing of potential rate cuts, this remains a dynamic situation. We feel that we have a balanced approach related to Fed actions, and our outlook does not depend on rate reductions occurring on any timetable. Our outlook is more predicated on rate stability rather than on future rate cuts.
Dave Banyard: While there's been a lot of press around the timing of potential rate cuts. This remains a dynamic situation.
Dave Banyard: We feel that we have a balanced approach related to fed actions and our outlook does not depend on rate reductions occurring on any timetable.
Dave Banyard: Our outlook was more predicated on rates stability, rather than on future rate reductions.
Dave Banyard: With this backdrop in mind, we still expect a gradual improvement in existing housing turnover, along with a solidifying of demand levels for new construction as the year progresses. Our assumptions also anticipated little improvement in larger-ticket R&R spending within 2024, as consumer R&R spending would mostly be on smaller-ticket items to start. As you can see, we believe our end markets are largely progressing as anticipated and will continue to do so. Given 2024 looks to remain a transitory year from an end market demand standpoint, we remain focused on operating efficiency, serving our customers, and continuing to execute on our strategic initiatives.
Dave Banyard: With this backdrop in mind, we still expect a gradual improvement in existing housing turnover, along with the solidifying of demand levels for new construction as the year progresses.
Dave Banyard: Our assumptions also anticipated little improvement in larger ticket R&R spending within 2024 as consumer R&R spending would mostly be on smaller ticket items to start.
Dave Banyard: So as you can see we believe our end markets are largely progressing as anticipated and will continue to do so.
Dave Banyard: Given 'twenty 'twenty four it looks to remain a transitory year from an end market demand standpoint, we remain focused on operating efficiency, serving our customers and continuing to execute on our strategic initiatives now.
Dave Banyard: Now I'd like to share some recent successes and updates from across these three initiatives. I briefly mentioned the new product and channel-specific packages launched for our large builder partners servicing new construction. This is a good example of how our Align2Grow initiative is driving growth for MasterBrand. Through our close relationships with these large builders, we work to match our offering to their needs.
Dave Banyard: Now I'd like to share some recent successes and updates from across these three initiatives.
Dave Banyard: I briefly mentioned, the new product and channel specific packages launch for our large builder partners servicing the new construction market. This is a good example of how we're aligned to grow initiatives is driving growth for master brand.
Dave Banyard: Our close relationships with these large builders.
Dave Banyard: To match, our offering to their needs.
Dave Banyard: We've seen excellent results from this approach, with many of these top builders awarding us new business through the fourth quarter of 2023 and into the first quarter of 2024. It does take a while for these projects to go into production, but you are already seeing the benefit from the work we've done over the past year. We believe this is how 8020 and the Align to Grow initiative will produce the growth we need to achieve our long-term financial targets.
Dave Banyard: We've seen excellent results from this approach with many of these top builders awarding us new business through the fourth quarter of 2023 and into the first quarter of 2024.
Dave Banyard: It does take a while for these projects to go into production. We are already seeing the benefit from the work we've done over the past year.
Dave Banyard: We believe this is how 80 20 in the aligned to grow initiative will produce the growth we need to achieve our long term financial targets.
Dave Banyard: Moving on, to our Lead Through Lean initiative. This initiative is the furthest along in its journey, and we continue to make great strides here too. As I mentioned earlier, this is really about our culture of problem solving at every level of the organization. While this culture is taking hold, as MasterBrand looks to grow, we need to further equip our associates to lead and address problems closest to the world. To help with this, we've introduced True Leader, our program designed to ensure that frontline supervisors are skilled at leading others and coaching them for success. We've also taken steps to help associates know what success looks like through our newly introduced success model. This model focuses on the behaviors that truly differentiate great performance in MasterBrand and those that will be rewarded.
Dave Banyard: Moving to our lead through lean initiatives. This initiative is the furthest along that journey and we continue to make great strides here too.
Dave Banyard: As I mentioned earlier this is really about our culture of problem solving and every level of the organization.
Dave Banyard: While this culture is taking hold as master brand looks to grow we need to further equip our associates to leave and address problems closest to the war.
Dave Banyard: To help with this we've introduced true leader our program designed to ensure that frontline supervisors are skilled and leading others in coaching them for success.
Dave Banyard: We've also taken steps to help associates know what success looks like through our newly introduced success model.
Dave Banyard: This model focuses on the behaviors that truly differentiate great performance at Master brand and those that will be rewarded.
Dave Banyard: We believe that enhanced training, clear expectations, and related financial incentives will help our associates continue to deliver operational excellence and sustained growth. Now, let me touch on our tech-enabled initiative and specifically our work on the quality process. On our last call, I mentioned that our digital infrastructure team continued to make progress on cloud migration efforts and delivering near real-time data. Our quality team is already benefiting from this improved information, with better data and insights as to where and when quality issues are occurring.
Dave Banyard: We believe that enhanced training clear expectations and related financial incentives will help our associates continue to deliver operational excellence and sustained growth.
Dave Banyard: Now, let me touch on our tech enabled initiatives and specifically our work on quality processes.
Dave Banyard: On our last call I mentioned that our digital infrastructure team continued to make progress on cloud migration efforts in delivering near real time data.
Dave Banyard: Our quality team is already benefiting from this improved information with better data and insights as to where and when quality issues are occurring.
Dave Banyard: As a result, we've been able to address these issues with more precision and are already seeing the financial and operational benefits. These insights, coupled with the technology we're implementing to inspect the product, should continue to drive our cost of quality lower. Lastly, we continue to make progress on rolling out the MasterBrand Connect portal to our dealers and distributors. The rollout of this portal is well underway, and we're continuing to build more functionality into the application.
Dave Banyard: As a result, we've been able to address these issues with more precision and are already seeing the financial and operational benefits.
Dave Banyard: These insights coupled with the technology, we're implementing to inspect product should continue to drive our cost of quality lower.
Dave Banyard: Lastly, we continue to make progress on rolling out the master brand connect portal to our dealers and distributors.
Dave Banyard: The rollout of this portal is well underway and we're continuing to build more functionality into the application.
Dave Banyard: Reducing friction for our customers is a top priority, and we will have more exciting features to share later this year. With end market demand progressing as anticipated and our associates executing on our continuous improvement plans and strategic initiatives as expected, we're pleased to reiterate our full year 2024 outlook. Now, I'll turn the call over to Andy for a more in-depth discussion of our financial results and additional details on our 2024 outline.
Dave Banyard: Reducing friction for our customers is a top priority and we will have more exciting features to share later this year.
Andy: With the end market demand progressing as anticipated and our associates executing on our continuous improvement plans and strategic initiatives as expected. We're pleased to reiterate our full year 2024 outlook.
Dave Banyard: Now I will turn the call over to Andy for a more in depth discussion of our financial results and additional details on our 2020 for outlook.
Andrea H. Simon: Thanks, Dave. I'll begin with an overview of our first quarter financial results, then I'll provide our thoughts around the remainder of 2024 and our school year outlook. First quarter net sales were $638.1 million, a 5.7% decline compared to $676.7 million in the same period last year. Our top-line performance was primarily the result of year-over-year growth from our customers serving the new construction market, offset by anticipated volume declines in the repair and remodel market, as well as a softening in our net ASP, largely due to continued trade-down activity and our reintroduction of customary targeted promotion.
Andy: Thanks, Dave I'll begin with an overview of our first quarter financial results and I'll provide our thoughts around the remainder of 2024 and our full year outlook.
Andrea H. Simon: First quarter net sales were $638 $1 million or five 7% decline compared to $676 $7 million in the same period last year.
Andrea H. Simon: Our topline performance was primarily the result of year over year growth from our customers serving the new construction market.
Andrea H. Simon: Set by anticipated volume declines in the repair and remodel market as well as a softening in our E. S. P. Largely due to continued trade down activity and our reintroduction of customary targeted promotions.
Andrea H. Simon: Gross profit was $204.7 million in the first quarter, roughly flat with $204.6 million in the same period last year. Gross profit margin expanded 190 basis points year-over-year from 30.2% to 32.1%. This year over year margin expansion was driven by cost savings from consistent execution on MasterBrand's strategic initiatives, specifically our quality processes and carryover from last year's supply chain work and our continuous improvement efforts, which more than offset the negative impact of lower ASP and personnel inflation. Selling general and administrative expenses were $137.8 million, a 1.8% increase compared to the same period last year, primarily driven by personnel and personnel-related inflation and higher investments in our tech-enabled initiatives.
Andrea H. Simon: Gross profit was $204 $7 million in the first quarter, roughly flat with $204 $6 million in the same period last year.
Andrea H. Simon: Profit margin expanded 190 basis points year over year.
Andrea H. Simon: From 32% to 32, 1%.
Andrea H. Simon: This year over year margin expansion was driven by cost savings from consistent execution on master brand strategic initiatives, specifically, our quality processes and carryover from last year's supply chain work and our continuous improvement efforts, which more than offset the negative impact of lower asps and personnel inflation.
Andrea H. Simon: Selling general and administrative expenses were $137 $8 million at one 8% increase compared to the same period last year, primarily driven by personnel and personnel related inflation and higher investments in our tech enabled initiative.
Andrea H. Simon: Net income was $37.5 million in the first quarter, a 7.1% year-over-year increase compared to $35 million in the same period last year. This increase was primarily driven by lower interest expense of $14.1 million in the first quarter compared to $17.4 million in the same period last year and lower income tax expense of $11.5 million, or a 23.5% effective tax rate, in the quarter compared to $12.9 million or a 26.9% rate in the first quarter of 2023.
Andrea H. Simon: Net income was $37 $5 million in the first quarter, a seven 1% year over year increase compared to $35 million in the same period last year.
Andrea H. Simon: This increase was primarily driven by lower interest expense of $14 $1 million in the first quarter compared to $17 $4 million in the same period last year.
Andrea H. Simon: And the lower income tax expense of $11 $5 million or 23, 5% effective tax rate in the quarter compared to $12 $9 million or 26, 9% rate in the first quarter of 2023.
Andrea H. Simon: Diluted earnings per share were $0.29 in the first quarter of 2024, based on 130.5 million diluted shares outstanding, an increase from diluted earnings per share of $0.27 in the first quarter of last year, based on 129.5 million diluted shares outstanding. Adjusted EBITDA was $79.4 million, compared to $81.5 million in the same period last year.
Andrea H. Simon: Diluted earnings per share or 29 cents in the first quarter of 'twenty 'twenty four based on $130 5 million diluted shares outstanding an increase from diluted earnings per share of 27 cents in the first quarter of last year based on $129 5 million diluted shares outstanding.
Andrea H. Simon: Adjusted EBITDA was $79 $4 million compared to $81 $5 million in the same period last year adjusted EBITDA margin expanded 40 basis points to 12, 4% compared to 12.0% in the comparable period of the prior year despite lower sales.
Andrea H. Simon: Adjusted EBITDA margins expanded 40 basis points to 12.4% compared to 12.0% in the comparable period of the prior year, despite lower sales. This margin expansion was driven by cost savings from our strategic initiatives and continuous improvement efforts, which more than offset the negative impact of trade down. Turning to the balance sheet, we ended the quarter with $153.7 million of cash on hand, and we remain undrawn on our $500 million revolver.
Andrea H. Simon: This margin expansion was driven by cost savings from our strategic initiatives and continuous improvement efforts, which more than offset the negative impact of trade downs.
Andrea H. Simon: Turning to the balance sheet, we ended the quarter with $153 $7 million of cash on hand, and we remain undrawn on our $500 million revolver.
Andrea H. Simon: Net debt at the quarter end was $554.3 million, resulting in a net debt to adjusted EBITDA leverage ratio of 1.5 times, consistent with the fourth quarter of 2023 and down from two times in the first quarter of 2023. Our balance sheet remains strong with the financial flexibility to invest in the business for growth. Operating cash flow was $18.7 million for the three months ended March 31, 2024, compared to $62.1 million in the comparable period last year and better than our expectations.
Andrea H. Simon: Net debt at quarter end was $554 $3 million, resulting in a net debt to adjusted EBITDA leverage ratio of one five times consistent with the fourth quarter of 2023 and down from two times in the first quarter of 2023.
Andrea H. Simon: Our balance sheet remains strong with the financial flexibility to invest in the business for growth.
Andrea H. Simon: Operating cash flow was $18 $7 million for the three months ended March 31, 2024, compared to $62 $1 million in the comparable period last year and better than our expectations. As you recall the first quarter of 2023 benefited from the planned inventory reduction from our 2022.
Andrea H. Simon: As you recall, the first quarter of 2023 benefited from the planned inventory reduction from our 2022 strategic build. The first quarter of 2024 also reflects a larger annual incentive compensation payout year over year due to a higher attainment percentage. Capital expenditures for the three months ended March 31, 2024 were $7 million compared to $2.9 million in the prior year period.
Andrea H. Simon: Two strategic build.
Andrea H. Simon: The first quarter of 2024 also reflects a larger annual incentive compensation payout year over year due to a higher payment percentage.
Andrea H. Simon: Capital expenditures for the three months ended March 31, 2024, or $7 million compared to $2 $9 million in the prior year period.
Andrea H. Simon: As Dave mentioned on our last call, we made the decision to accelerate investment in the business, specifically in our TechEnable initiative, and we saw this higher investment spending continue in the first quarter. We plan to further ramp up our investment spending, and we still expect 2024 capital expenditures to be in the range of $55 to $65 million. Free cash flow was $11.7 million for the first quarter of 2024, compared to $59.2 million in the comparable period last year.
Andrea H. Simon: As Dave mentioned on our last call. We made the decision to accelerate investment in the business specifically in our Tech enabled initiative and we saw this higher investment spending continue in the first quarter.
Andrea H. Simon: Do you plan to further ramp our investment spending and we still expect 2020 for capital expenditures to be in the range of $55 million to $65 million.
Andrea H. Simon: Free cash flow was $11 $7 million for the first quarter of 2024 compared to $59 $2 million in the comparable period last year.
Andrea H. Simon: While lower year on year, this is relatively strong compared to historical first quarter performance, especially in light of some of the larger cash use. Finally, during the first quarter, we repurchased approximately $1.9 million of our common stock under our existing stock repurchase program. We have roughly $26 million left under our existing authorization.
Andrea H. Simon: While lower year on year. This is relatively strong compared to historical first quarter performance, especially in light of some of the larger cash uses.
Andrea H. Simon: Finally during the first quarter, we repurchased approximately $1 $9 million of our common stock under our existing stock repurchase program.
Andrea H. Simon: We have roughly $26 million left under our existing authorization.
Andrea H. Simon: Now, let's turn to our outlook. We are pleased with our performance so far, and the year is unfolding as we anticipated. While there is certainly increased macroeconomic uncertainty, as Dave mentioned earlier, and market demand is progressing as anticipated, we believe our growth initiatives will allow us to achieve our previously stated 2024 financial outlook while continuing to invest in the business for growth. We are therefore reiterating our full year 2024 guidance. We continue to anticipate our 2024 net sales will be in the range of down low single digits to flat year on year.
Speaker Change: Now, let's turn to our outlook.
Andrea H. Simon: We are pleased with our performance so far in the year is unfolding as we anticipated well there is certainly increased macroeconomic uncertainty as Dave mentioned earlier and market demand is progressing as anticipated. We believe our growth initiatives will allow us to achieve our previously stated 2024 financial outlook, while continuing to invest in that.
Andrea H. Simon: Business for growth.
Andrea H. Simon: We are therefore, reiterating our full year 2020 for guidance.
Andrea H. Simon: We continue to anticipate our 2024 net sales will be in the range of down low single digits to flat year on year.
Andrea H. Simon: Let me provide some additional color on the drivers of our net sales in relation to the market. Our 2024 outlook contemplates the continued effect of trade downs and a more normalized pricing environment, including customary promotion. We saw this pattern develop in the second half of 2023, so there is some annualization impact from the normal pricing and promotion environment in the first half of 2024, but we would expect to see less impact in the second half of the year as we get closer to normalized comparisons.
Andrea H. Simon: Let me provide some additional color on the drivers of our net sales in relation to the market.
Andrea H. Simon: Our 'twenty 'twenty four outlet contemplates the continued effect of trade downs, and a more normalized pricing environment, including customary promotions.
Andrea H. Simon: We saw this pattern develop in the second half of 2023. So there is some annualized <unk> impact from the normal pricing and promotion environment in the first half of 2024.
Andrea H. Simon: We would expect to see less impact in the second half of the year actually we get to a normalized comparisons.
Andrea H. Simon: We anticipate a more normal inflationary environment and will continue to evaluate prices quarterly in response to that. As Dave mentioned, our 2024 outlook assumes big-ticket repair and remodel will lag smaller-ticket items, resulting in a timing difference between our net sales and a broad R&R market recovery. To offset this net sales headwind, we have a variety of new products and channel-specific packages that launched late last year and in the early part of this year across both the new construction and repair and remodel markets.
Andrea H. Simon: We anticipate a more normal inflationary environment and we'll continue to evaluate price quarterly in response to that.
Andrea H. Simon: As Dave mentioned, our 'twenty 'twenty four outlook assumes big ticket repair and remodel will lag smaller ticket items, resulting in a timing difference between our net sales and up on the R&R market recovery.
Andrea H. Simon: To offset this net sales headwind, we have a variety of new products and channel specific packages that launch late last year and in the early part of this year across both the new construction and repair and remodel markets.
Andrea H. Simon: As part of our Align2Grow initiative, we have tailored these products to satisfy the specific end markets and regions best positioned for growth. As these products gain traction, these incremental sales will more than help offset the previously discussed impacts of trade downs and customary promotion.
Andrea H. Simon: As part of our aligned to grow initiative, we had tailor these products to satisfy the specific end markets and regions best positioned for growth.
Andrea H. Simon: These products gain traction these incremental sales were more than offset the previously discussed impacts of trade downs and customary promotions.
Andrea H. Simon: We remain confident that our existing manufacturing capabilities and our common box initiative provide the flexibility needed to adjust capacity up or down with demand. As we did in 2023, this flexibility, along with cost actions, should allow us to deliver strong margin performance. This flexibility also provides us with ample capacity to service our customers as demand strengthens. We will continue to be nimble and adjust our manufacturing network as needed to address any future market conditions.
Andrea H. Simon: We remain confident that our existing manufacturing capabilities and our comment box initiative provides the flexibility needed to adjust capacity up or down with demand as.
Andrea H. Simon: As we did in 2023, there's flexibility along with cost actions shall allow us to deliver strong margin performance.
Andrea H. Simon: Flexibility also provides us ample capacity to service our customers as demand strengthens.
Andrea H. Simon: We will continue to be nimble and adjust our manufacturing network as needed to address any future market conditions.
Andrea H. Simon: This ability to flex manufacturing, coupled with our strategic initiatives and continuous improvement efforts, will allow further investment in the business. As we highlighted on our previous earnings call, given the success of our early tech-enabled initiatives, we plan to invest an incremental $20 million in this initiative in 2024. With 2024 shaping up to be a relatively stable year, particularly from a demand perspective, we are taking this opportunity to further invest and position ourselves for future growth in a more robust demand environment.
Andrea H. Simon: This ability to flex manufacturing, coupled with our strategic initiatives and continuous improvement efforts will allow further investment in the business.
Andrea H. Simon: As we highlighted on our previous earnings call given the success of our early tech enabled initiatives, we plan to invest an incremental $20 million into this initiative in 2024.
Andrea H. Simon: With 2024 shaping up to be a relatively stable year, particularly from a demand perspective, we are taking this opportunity to further invest and position ourselves for future growth when a more robust demand environment returns.
Andrea H. Simon: With this in mind, we continue to expect Adjusted EBITDA in the range of $370 to $400 million, with Adjusted EBITDA margins of roughly 14 to 14.5% for 2024. Interest expense is still expected to be approximately 55 to 60 million dollars, and our anticipated tax rate between 25 and 26 percent is unchanged. As a result, our expectation that our adjusted diluted earnings per share will be in the range of $1.40 to $1.60 also remains the same.
Andrea H. Simon: With this in mind, we continue to expect adjusted EBITDA in the range of $370 million to $400 million with adjusted EBITDA margins of roughly 14 to 14, 5% for 2024.
Andrea H. Simon: Interest expense is still expected to be approximately $55 million to $60 million and our anticipated tax rate between 25% and 26% is unchanged.
Andrea H. Simon: As a result, our expectation that our adjusted diluted earnings per share will be in the range of $1 40 to $1 60 also remains the same.
Andrea H. Simon: As I mentioned earlier, we are still planning 2024 capital expenditures to be in the range of 55 to 65 million dollars. This investment is approximately 1.3 times depreciation, which is within our stated long-term goals. Given the steps we have already taken to reduce working capital and these other factors, we continue to expect free cash flow to be an excess of net income for 2024, but the magnitude of working capital improvements in 2023 will not repeat. With that, I would like to turn the call back to Dave. Thanks, Andy.
Andrea H. Simon: As I mentioned earlier, we are still planning 2020 for capital expenditures to be in the range of $55 million to $65 million. This investment is approximately one three times depreciation which is within our stated long term goals.
Andrea H. Simon: Given the steps we have already taken to reduce working capital and these other factors. We continue to expect free cash flow to be in excess of net income for 2024, but the magnitude of working capital improvements in 2023 and will not repeat.
Andrea H. Simon: With that I would like to turn the call back to Dave.
Dave Banyard: Thanks, Andy.
Dave Banyard: We're pleased with our solid start to the year. With continued year-over-year adjusted EBITDA margin expansion and better-than-anticipated first quarter pre-cash flow, we are reiterating our full-year 2024 outlook and are on a trajectory to achieve our long-term financial targets. Beyond the financial performance, I'm proud of the culture and associate engagement we're cultivating. We recently had our semi-annual employee satisfaction survey, and we continue to exceed manufacturing industry benchmarks and see sequential improvement across the organization. I want to thank our associates once again for their continued support as we work on building great experiences together. Now, with that, I'll open the call to Q&A.
Dave Banyard: We're pleased with our solid start to the year.
Dave Banyard: With continued year over year, adjusted EBITDA margin expansion and better than anticipated first quarter free cash flow. We are reiterating our full year 2020 for outlook and are on a trajectory to achieve our long term financial targets.
Dave Banyard: Beyond the financial performance I'm proud of the culture and associate engagement, we're cultivating.
Dave Banyard: We recently had our semi annual employee satisfaction survey and we continue to exceed manufacturing industry benchmarks and see sequential improvement across the organization.
Dave Banyard: I want to thank our associates once again for their continued support as we work on building great experiences together.
Dave Banyard: Now with that I'll open the call up to Q&A.
Operator: If you would like to register a question, please press star and then 1. If you are using a speakerphone, please lift your headset before entering your request. Ladies and gentlemen, as a reminder, to register a question, please press star and then 1 on your telephone at this time. The first question we have is from Adam Baumgarten of Zalman & Associates. Please go ahead.
Speaker Change: Thank you.
Dave Banyard: If you talk to it just a question. Please press star and then one.
Speaker Change: If you are using a speaker phone please Mr hated before entering your request, ladies and gentlemen, as a reminder to register a question. Please.
Adam Michael Baumgarten: T space Star and then one on your telephone at this time.
Operator: The first question, we have is from Adam Baumgarten of Zelman and Associates. Please go ahead.
Adam Michael Baumgarten: Hey, good afternoon, everyone. Question on the top line. I think you said volumes were flat, so that would imply price was down around mid-single digits. Can you walk us through how much of that was trade-down versus like-for-like price reductions?
Adam Michael Baumgarten: Hey, good afternoon, everyone.
Adam Michael Baumgarten: Question on top line I think you said volumes were flat so that would imply price was down around mid single digits can you walk us through how much of that was trade down versus like for like price reductions.
Dave Banyard: Yeah, I think most of it's trade down, Adam, similar pattern to what we saw through the second part of last year. If you remember back, it sort of started in the late part of Q2 and Q3 last year, and the impact was roughly similar.
Adam Michael Baumgarten: Yeah, I think most of its trade down Adam similar pattern to what we saw through the second part of last year. If you remember back sort of started in.
Dave Banyard: The late part of Q2 into Q3 last year and the impact was roughly similar so it's mostly that to straight down as it occurs both.
Dave Banyard: So it's mostly that because trade down occurs both in, you know, primarily in new construction, because you have large customers there where you're kind of talking about large developments. But we're seeing the consumer also trade down inside the dealer network as well. So you see a lot of it there. And then there's, like we've highlighted before, the cabinet market has a normal customary promotional cadence to it. And you're seeing some of that here, and that's why it has less of an impact in the total picture. So it's mostly the trade-down effect.
Dave Banyard: And you know primarily a new construction because of large customers, there, where you're kind of talking about large developments, but we're seeing the consumer also trade down inside the dealer network as well so you see a lot of it there.
Dave Banyard: And then there's like like we've highlighted before there's the cabinet market has a normal customary.
Dave Banyard: Promotional.
Dave Banyard: Cadence to it and you're seeing some of that there and that's that's less of an impact in the total picture. So it's mostly the trade down effect.
Dave Banyard: Okay, got it. Thanks. And then on input costs, any change to how you're thinking about that for the year?
Speaker Change: Okay got it thanks, and then just on input costs any change to how you're thinking about that for the year.
Dave Banyard: Yeah, I think input costs are behaving in a, you know, there's a lot of things I've characterized this way in the current environment. It's sort of the normal pace, I'd say. In a normal environment, you have some ups and downs. We're seeing some commodities increase in price. It's sort of similar to the way it was prior to COVID. You have what I'd call some normal inflation in certain categories. And obviously, we still have labor inflation that has not changed.
Speaker Change: Yeah, I think in input costs are behaving in it.
Dave Banyard: There's a lot of things I'd characterize this way in the current environment is it's sort of a normal pace I would say you know in a normal environment, you'll have some ups and downs are we're seeing some commodities increase in material. It's it's sort of similar to the way. It was prior to Covid you have what I'd call some normal inflation in certain categories.
Dave Banyard: And obviously, we still have labor inflation that that has not changed.
Dave Banyard: And so we're.
Dave Banyard: And so we're, you know, reacting to that the way we normally do, which is evaluating our pricing every quarter to adjust to factor in if anything moves outside the boundaries of what we can, you know, overcome through productivity and other things. So it's not anything that I would call outside of a norm, a normal pattern. But we're seeing a little bit of firming up, I guess, I would say, in some of the commodities.
Dave Banyard: Reacting to that the way, we normally do which is evaluating our pricing every quarter or two to adjust to factor in if anything moves outside the boundaries of.
Dave Banyard: What we can.
Dave Banyard: Overcome through productivity and other things so it's not nothing.
Dave Banyard: What I would call outside of a normal a normal pattern, but it's we're seeing a little bit of affirming. This I guess I would say in some of the commodities.
Dave Banyard: Okay, got it. Then just last for me, just to think you have any and if you could size it, just multifamily exposure. Very little, if any.
Speaker Change: Okay got it and then just last for me just to extent you have any and if you could size it just multifamily exposure.
Dave Banyard: Very little, if any. We might have some through some of our distribution partners. We don't always see what they're bidding on, but it's very limited to minimus.
Dave Banyard: Very little if any.
Dave Banyard: We might have some through some of our distribution partners.
Dave Banyard: We don't always see what they're bidding on but it's very limited de minimis.
Speaker Change: Okay, great. Thanks.
Speaker Change: Thank you.
Garik Simha Shmois: The next question we have is from Garik Shmois of Loop Capital Markets. Please go ahead.
Speaker Change: The next question, we have some kind of a choice of loop capital markets. Please go ahead.
Garik Simha Shmois: Oh, hi, thanks. Just first on pricing, it sounds like you're expecting the pricing comps to ease in the back half of the year, just given the timing of when you started to see the trade-down effect and some of the normalized promotions back in 2023. But just kind of curious, a big ticket repair and remodel continues to lag as you expect. What gives you some of the confidence that, you know, promotions will be at normal levels in the second half of the year? You're not going to, you know, have to see another kind of step down in that activity.
Garik Simha Shmois: Oh, hi, thanks.
Garik Simha Shmois: Just first on pricing it sounds like Youre expecting the pricing comps to ease in the back half of the year just.
Garik Simha Shmois: Just given the timing of when you started to see the fruit on effect in some of the normalized promotions back in 2023, but just kind of curious to big ticket repair and remodel.
Garik Simha Shmois: <unk> told lag as you expect.
Garik Simha Shmois: What gives you confidence that you know.
Garik Simha Shmois: The motion will.
Garik Simha Shmois: Be at normal levels in the second half of the year, you're not gonna have to see another step down.
Garik Simha Shmois: Yeah.
Dave Banyard: Yeah, that's a good question. I think it's the pace that we've seen. It really hasn't changed much, and we're now, you know, nine months past the point where prices sort of stopped growing, and so I think that we're able to see, you know, can the consumer absorb the current price environment, and we're seeing that. It's, you know, I wouldn't say that we're disappointed with volume. I think volume is kind of coming in exactly where we thought, and so, you know, there's really no impetus one way or the other on price in the way the consumer is behaving through the dealer network. So that's, I mean, that's the best you can do.
Speaker Change: Yeah, It's a good question.
Dave Banyard: I think it's the pace that we've seen it really hasnt changed much and we're now.
Dave Banyard: Nine months past the point, where.
Dave Banyard: Price sort of stopped growing and so I think that we're able to see kidney as consumer absorb the current price.
Dave Banyard: Environment, and we're seeing that it's you know I Wouldnt say that were disappointed with volume I think volume is kind of coming in exactly where we thought and so you know, there's there's really no impetus one way or the other on price and the way the consumers behaving through the dealer network. So.
Dave Banyard: That's I mean, that's the best you can do you have to feel the markets for price and it feels like this is the normal environment. So that's a it just gives us comfort that you know based on the way to <unk>.
Dave Banyard: You have to feel the market for price, and it feels like this is the normal environment, and so that just gives us comfort that, based on the way that things have progressed, there's been some choppiness in the interest rate category, but that hasn't really changed behavior in a way that affects our outlook. So I think we're, again, seeing the sort of normal steady pace that when you watch the business and it performs in a normal cyclical, or excuse me, normal seasonal pattern, that gives you confidence that the rest of the year will follow that same pattern.
Dave Banyard: Things have progressed you know there's been some choppiness in the interest rate category, but that hasn't really changed behavior.
Dave Banyard: In a way that it affects our outlook. So I think we're again, we see the sort of normal steady pace.
Dave Banyard: When you watch the business and it performs in a normal cyclical or excuse me its normal seasonal pattern that gives you confidence that the rest of the year, we will follow that same pattern.
Dave Banyard: Just to reiterate for us we start seeing that business pick up in the second quarter.
Dave Banyard: You know, and just to reiterate for us, we start seeing that business pick up in the second quarter. The third quarter is typically the strongest because the orders are coming in in the second quarter, and they're delivered in the third, and then the fourth quarter sort of tempers down from that. So that's our normal pattern, and we're seeing that the order patterns are following that. It feels very much like we're in a normal year, and so that's what gives us that confidence.
Andrea H. Simon: Okay, no, thank you. The follow-up question is just on some of the... (inaudible)
Dave Banyard: Third quarter is typically the strongest because the orders are coming in in the second quarter and they were delivered in the third and then the fourth quarter.
Andrea H. Simon: Sort of tempers down from that so that's our normal pattern and we're seeing the order patterns are following that it's it feels very much like where we're.
Andrea H. Simon: In a normal year and so that's what gives us that confidence.
Speaker Change: Okay. Thank you.
Speaker Change: Follow up question is just on some of them.
Speaker Change: Tech enabled initiatives that you're accelerating any way to size that is there maybe some things.
Speaker Change: Back on on costs or SG&A or Capex.
Speaker Change: You know over the next several quarters or are you pulling from future years, because you see opportunities right now so just a little bit more color on what you're doing there and maybe some of the financial impact.
Andrea H. Simon: Sure. Yeah, it fits within the construct of the guidance we've given both on capital as well as on expenses and EBITDA. I will say that it can be a little lumpy in some cases. To some extent, there are a number of discrete projects you're working on, so it's not just one big lump of money. There are a number of discrete projects, each with its own value and reach, you know, evaluated on their merits.
Speaker Change: Sure Yeah, it's it fits within the construct of the guidance, we've given both on capital as well as in expenses and EBITDA.
Andrea H. Simon: I will say that it can be a little lumpy in some cases it to some extent there theres a number of discrete projects. We're working on so it's not just one big lump of money. It's there are a number of discrete projects each with their own value and reach you know evaluated on their merits, we will probably see a bit more of that app.
Andrea H. Simon: We will probably see a bit more of that activity in Q2, certainly than we did in Q1, and year over year, certainly more. So Q2 will probably have a little higher spend rate on some of these. And that's purely a function of, you know, you do a project, you plan it, and then once you hit the ground with the implementation of it, that's when you really start spending. There's a little spending in the planning phase, but on a lot of these, there's a lot of implementation costs, and some of that's capital, but in most cases, it's SG&A-type costs.
Andrea H. Simon: Activity in Q2.
Andrea H. Simon: Certainly than we did in Q1 and year over year, certainly more so Q2 will have a little higher spend rate on some of these and that's purely a function of you know you do a project you plan. It and then once you hit the ground with the implementation of it. That's when you really start spending theres, a little spending and the planning portion but.
Andrea H. Simon: And a lot of these there's a lot of implementation cost and in some of that capital.
Andrea H. Simon: But in most cases, it's SG&A type costs, so I would expect to see a little bit more than the average in Q2 this year.
Andrea H. Simon: So I would expect to see a little bit more than the average in Q2 this year within that sort of tapering off towards the end of the year, which is a little different than last year in terms of the flow of that cost. So the unfortunate part is it's a little lumpy, but all the benefits come sooner if you do it quicker. So that's partly our impetus to plan out a lot of these and feel we have the bandwidth to execute on them, so why not do it quickly? All right.
Andrea H. Simon: With them that sort of tapering off towards the end of the year, which is a little different than last year in terms of the flow of that cost.
Andrea H. Simon: So it's the unfortunate part is it's a little lumpy but.
Andrea H. Simon: You know all the benefits come sooner if you'd do it quicker. So that's partly our impetus to we've planned out a lot of these and feel we have the bandwidth to execute on them. So why not do.
Andrea H. Simon: Do it quickly.
Garik Simha Shmois: Understandable. All right. Thanks for that. I'll pass it on.
Speaker Change: Understood Alright, thanks for that I'll pass it on.
Garik Simha Shmois: Yeah.
Tom Mahoney: The next question we have is from Tom Mahoney of Cleveland Research. Please go ahead.
Garik Simha Shmois: The next question we have is from Tom Mahoney of Cleveland Research. Please go ahead.
Tom Mahoney: Hello, good afternoon. I was wondering if you could call out any differences in demand by region of the country, if anything sticks out in the trends you're seeing so far this year to date.
Tom Mahoney: Hello, Good afternoon.
Tom Mahoney: I was wondering if you could call out any differences in demand by region of the country if.
Tom Mahoney: If anything sticks out in the trends you're seeing so far year to date.
Dave Banyard: Yeah, I think the thing that stands out the most so far this year is it's a little bit of the opposite of last year where the strength through, you know, I'll start with new construction. Let's go there.
Tom Mahoney: Yeah, I think the the thing that stands out the most so far this year is it's a little bit of the opposite of last year, where the strengths through.
Dave Banyard: I'll start with new construction, let's go there.
Dave Banyard: The new construction last year in the early part of the year was was weak in a lot of places, but there was still some strength in the south east and that's flipped a little bit as other regions have come back a lot of the larger builders have.
Dave Banyard: Either they built ahead to keep their business going last year in that region and so they backed off a little bit or there's maybe it's us.
Dave Banyard: The new construction last year in the early part of the year was [inaudible] A tougher comp, if you will, for them in those regions because, I mean, if you look at the overall building activity across the country, it's grown year over year nicely, but sequentially, it's sort of steady. And so I think that there's been a buildup of activity in other parts of the country. The Southwest is an example.
Dave Banyard: It's a tougher comp if you will for them in those regions because I mean, if you look at the overall building activity across the country. It's it's grown year over year nicely, but sequentially, it's sort of steady.
Dave Banyard: So I think that theres been a buildup of activity in other parts of the country in the southwest as an example that part of the country. It was pretty slow last year. This time and it's much better this time this year.
Dave Banyard: That part of the country was pretty slow last year this time, and it's much better this time this year. The Northeast and Midwest are typically, you know, obviously they're not building as much in the winter. But the weather was a little more favorable, I think, so we did see some activity in those regions through the months, which we don't normally see.
Dave Banyard: Northeast and Midwest are typically you know obviously, they're not building as much in the winter weather was a little more favorable I think so you did see some activity in those regions through the months, which we don't normally see.
Dave Banyard: But the pace there is, again, steady and normal from what we would expect. So on the R&R side, I'd say it's pretty even across. We tend to, obviously, have more presence in larger metropolitan areas, so you tend to see more renovation going on in the New York area, for example, or Miami or places like that. So that tends to follow where people are moving and where people are sitting. And so that's always, over the past couple of years, it's been stronger in the South than it has been in the North, but we're pretty happy with how the North is behaving right now.
Dave Banyard: But the pace there is again steady and in normal from what we would expect so on the R&R side, it's a I'd say, it's pretty even across.
Dave Banyard: We tend to obviously have more.
Dave Banyard: Presence in larger metropolitan areas. So you tend to see more.
Dave Banyard: Our model going on in the New York area for example, or Miami or places like that so.
Dave Banyard: That tends to follow where people are moving in or people where people are are sitting and so that's always over the past couple of years, it's been stronger in the south but it has been in the north, but we're pretty happy with how the north is behaving right now in that and particularly the northeast So I wouldn't call out any particular region as being.
Dave Banyard: I mean, to be fair, Tom, it's not a super robust market. Don't, don't get us wrong. We're saying steady and normal, but it's, it's still not, there's no inflection here where all of a sudden people are piling into remodels. It's, it's sort of steady along as we go here at that pace.
Speaker Change: Hi, well I mean, it's not.
Dave Banyard: To be fair child, it's not super robust market don't don't get us wrong, we're staying steady at normal, but it's still not a there's no inflection here, where all of a sudden people are.
Dave Banyard: Piling into remodel, it's sort of steady along.
Dave Banyard: As we go here at <unk>.
Tom Mahoney: Yeah at that pace.
Tom Mahoney: That's understood. You talked a little about the SG&A cadence and some of the investments that come through during the year. I was interested in corresponding, if there are any gross margin, if there is any cadence to the productivity savings as they come through on gross margin we should make sure to consider as you move through the year. And then was 1Q better than you guys expected it to be on gross margin, or kind of right in line? How do you think?
Speaker Change: Understood and are you.
Tom Mahoney: You talked a little about the SG&A cadence and some of the investments that come through.
Tom Mahoney: Through the year I was interested if corresponding if there are any gross margin.
Tom Mahoney: Is there a cadence to the productivity savings as they come through our gross margin, we should make sure to consider as you move through the year and then almost <unk> better than you guys expected it to be on gross margin or <unk> or kind of right in line. How do you think about that.
Dave Banyard: Yeah, I mean, I'll answer, and then maybe Andy can fill in some more details. You know, I think gross margin is something we try to keep as steady as we can. And when you're in a steady state environment, you should be able to do that. Obviously, that's where certain inflationary things might pop up. Labor is a big component of our cause, so you'll see some in there.
Tom Mahoney: Yeah.
Speaker Change: I'll answer and then maybe Andy can fill in some more details.
Dave Banyard: I think gross margin is something we try to keep it steady as we can it's it's and when you're at a steady state environment, you should be able to do that obviously, that's where certain inflationary things might pop up labor is a big component of our of our Cogs. So you'll see some in there, but I think generally where we're sitting is where we.
Dave Banyard: But I think generally where we're sitting is where we project forward. And then the consumer's improvement either overcomes any inflation they have or it adds productivity. And so, you know, generally you tend to see a little bit of improvement as the year goes on. But I think we're kind of in a pretty good spot there. Dan, do you want to add anything?
Dan: <unk> forward.
Dan: And then the continuous improvement either overcomes.
Dave Banyard: Any inflation that you have or it adds productivity and so you know generally you tend to see a little bit improvement as the year goes on but I think we're kind of in a pretty good spot there Dan do you want to add any yesterday I mean.
Andrea H. Simon: Yeah, so I mean, the big part of that gross margin improvement overcoming that personnel inflation is the current CI and SD, but it's also that carryover of our supply chain initiatives last year. Because that really started coming through mid-second quarter last year, so we got some carryover effect of those supply chain initiatives in Q1 that helped build that gross margin. And then from an SG&A perspective, that tech investment is all in SG&A, so you won't see that in growth.
Andrea H. Simon: A big part of that gross margin improvement overcoming that personnel inflation is that is the current C. I S. T. But it's also that carryover of our supply chain initiatives last year, because that really started coming through mid second quarter of last year. So we got some carryover effect of the supply chain and he says in the Q1 that helped build that gross margin.
Andrea H. Simon: And then from an SG&A expect.
Andrea H. Simon: Perspective that tech investment is all in SG&A.
Andrea H. Simon: So you won't see that in restaurants.
Speaker Change: Got it.
Tom Mahoney: And then, just the last one, if I could squeeze it in, any key variables that you're looking at between the low end versus the high end of the range, is it just demand-related and revenue-related, or any other moving pieces that you're thinking about? Yeah, I think the bigger the better.
Speaker Change: And then just just a last one if I could squeeze it in.
Tom Mahoney: Any key variables that you're looking at between the low end versus the high end of the range or is it just a demand related than revenue related are there any other moving pieces that you're thinking about.
Dave Banyard: Yeah, I think the big thing we're looking at, and we highlighted it a bit in our prepared remarks, is what might limit builders from being able to grow more than what's in our forecast. We think demand is there, but we think there are some constraints that builders may face. And frankly, some of those constraints may be that demand slows, but I don't think that we don't need to have an acceleration in demand to achieve our forecast.
Tom Mahoney: Yes, I think the big.
Dave Banyard: The Big thing we're looking at is that we highlighted it a bit in our prepared remarks is this what might limit builders from.
Dave Banyard: Being able to grow more than than what's in our forecast and that's we think demand is there.
Dave Banyard: But we think theres some constraints that builders may face and you know frankly some of those constraints may be that demand flows, but I don't think that.
Dave Banyard: We don't need to have.
Dave Banyard: The acceleration in demand to achieve our forecast so I think the.
Dave Banyard: So I think if some of these constraints don't come to fruition, and what I mean by that is land availability, labor availability, those kinds of things, perhaps some other commodity challenges that they may face, if those don't come to fruition, we may see the higher end of the range. But I think at this point, we think R&R will be fairly steady throughout the year, and we're not looking for an inflection there
Dave Banyard: If some of these constraints don't come to fruition and I mean, what I mean by that is land availability.
Dave Banyard: Labor availability those kinds of things, perhaps some other commodity challenges that they may face if those don't come to fruition, we may see that the higher end of the range.
Dave Banyard: I think at this point are we think R&R will be fairly steady throughout the year and we're not looking for an inflection there. So certainly if that happens great but when.
Dave Banyard: So certainly, if that happens, great, but we're not planning on that to achieve the high end of the range if we were to get there. So it's really mostly around new construction, and I think that we're pretty well balanced for what we're seeing in the market right now.
Dave Banyard: Not planning on that to achieve the high end of the range. If we were to get there. So it's really mostly around new construction and I think that.
Dave Banyard: We're pretty well balanced for what we're seeing in the market right now.
Speaker Change: Thank you very much very helpful.
Operator: There are no further questions at this time, and with that, I would like to hand the call back to Farand Pawlak for any Thank you, operator. Thank you, everyone, for joining us. We appreciate your interest in your continued support. We look forward to updating you on future calls. This concludes our call for today.
Dave Banyard: No no further questions at this time and with that I would like to hand, the call back to Sam Pollock for any closing remarks.
Farand Pawlak: Thank you, operator. Thank you everyone for joining us. We appreciate your interest in your continued support. We look forward to updating you on future calls. This concludes our call for today.
Farand Pawlak: Thank you operator, and thank you everyone for joining US we appreciate your interest and your continued support we look forward to updating you on future calls this concludes our call for today.
Farand Pawlak: Yeah.
Farand Pawlak: [music].
Operator: Thank you for joining the MasterBrand First Quarter 2024 Earnings Conference Call.
Speaker Change: Thank you for joining the most a bad first quarter 'twenty 'twenty four earnings conference call.
Operator: Yeah.
Operator: [music].
Operator: Yeah.
Operator: Yeah.
Operator: Okay.
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Operator: Right.
Operator: [music].