Q2 2024 JELD-WEN Holding Inc Earnings Call
Speaker Change: Good morning and welcome to the Jeld-Wen 2nd Quarter 2024 Earnings Conference Call.
Operator: Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press star, then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. I will now turn the call over to James Armstrong, Vice President of Investor Relations. You may begin your conference.
James Armstrong: Thank you and good morning. We issued our second quarter 2024 earnings release last night and posted a slide presentation to the investor relations portion of our website, which can be found at investors.jeldwen.com. We will be referencing this presentation during our call. Today, I am joined by Bill Christensen, Chief Executive Officer, and Samantha Stoddard, Chief Financial Officer. Before I turn it over to Bill, I would like to remind everyone that during this call, we will be making certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: Thank you and good morning, we issued our second quarter 2024 earnings release last night and posted a slide presentation to the Investor relations portion of our website, which can be found at investors Dot <unk> dot com, we will be referencing this presentation during our call today.
Speaker Change: I am joined by Bill Christiansen, Chief Executive Officer, and Samantha Stoddard, Chief Financial Officer.
James Armstrong: These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. Jeld-Wen does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results.
Speaker Change: Before I turn it over to Bill I would like to remind everyone that during this call we will be making certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our form.
William Christensen: Second quarter sales and EBITDA were in line with our expectations as a positive impact from our ongoing productivity actions helped mitigate the anticipated headwinds from softer demand in both North America and Europe. In the second quarter, our CapEx rose by about $16 million year-over-year, mainly funding projects linked to our transformation journey.
Speaker Change: 10-K, and 10-Q filed with the SEC <unk> does not undertake any duty to update forward looking statements, including the guidance, we are providing with respect to certain expectations for future results. Additionally.
Speaker Change: Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.
Speaker Change: The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Speaker Change: A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix of our earnings presentation.
Speaker Change: With that I would like to now hand, the call over to Bill.
Bill Christiansen: Thank you James and thank you everyone for joining our call today.
Bill Christiansen: I am pleased with our progress on the transformation journey and remain committed to strengthening <unk> Foundation.
Bill Christiansen: While facing various near term market challenges, we are confident in our ability to achieve enhanced performance going forward.
Bill Christiansen: Firstly I'd like to express my gratitude to our associates for their ongoing dedication in quite a dynamic macroeconomic environment.
Bill Christiansen: As we strive to meet our customers' expectations. We're also taking important steps to improve our financial performance.
Bill Christiansen: Today I'll initially share a brief overview of second quarter results and discuss some of the actions we've completed.
Bill Christiansen: I'll, then hand, it over to Samantha to discuss our financial results in more detail before returning to discuss future actions in our transformation journey talk about our 2024 financial guidance and take your questions.
Samantha Stoddard: I'll begin with our second quarter highlights on slide four.
Samantha Stoddard: Second quarter sales and EBITDA were in line with our expectations and the positive impact from our ongoing productivity actions helped to mitigate the anticipated headwinds from softer demand in both North America and Europe.
Samantha Stardock: In the quarter, we also announced that Samantha Stardock was promoted to CFO.
Speaker Change: Julie pursues other opportunities, we're thrilled to welcome <unk> to the call in our new and expanded role and look forward to you getting to know her in the months and years to come.
Speaker Change: I want to wish Julie all the best in her future endeavors and thank her for her contributions to <unk> during a pivotal time for the company.
Speaker Change: Finally, we repurchased approximately one 6 million shares at an average price of $15 18 per share.
Speaker Change: This move allowed us to offset dilution from the past 18 months at an attractive price utilizing existing authorization to execute the buyback quickly.
Speaker Change: Although we do not currently plan to repurchase more shares we will remain opportunistic with available cash to maximize shareholder value.
Speaker Change: Turning to slide five.
Speaker Change: We continue to make progress with our transformational journey and our focus on people and performance remains the same.
Speaker Change: In the second quarter, we further advanced our cultural transformation.
Speaker Change: Since launching approximately 1400 of our leaders, including both Samantha and myself.
Samantha: Each spent four hours on leadership alignment training.
Samantha: This training sets the groundwork for desire communication and behavior expectations for our leaders, creating a uniform language that is applicable across the company.
Samantha: Yeah.
Samantha: Additionally, our network of approximately 250 change agents continues to make culture improving strides.
We recently completed two projects springs that aim to drive both transparency and accountability across the organization.
Samantha: I also personally met with these changed agents, allowing some of our most influential team members to provide direct feedback.
Samantha: Moving on to performance during.
Samantha: During the second quarter, we remain focused on delivering cost savings as I mentioned in our last earnings call, we decided to close two facilities.
Samantha: The California composite windows facility, and the Hopkins, Wisconsin Windows facility.
Samantha: Closures are part of our strategy to simplify and streamline the business concentrating on sales quality and asset utilization.
Samantha: Collectively these facility closures are expected to generate at least $11 million.
Samantha: In annual EBITDA savings.
Samantha: We are on track with both projects to deliver results as part of our internal business plans.
Samantha: Additionally, and as announced we are increasing our capex spending to support operational improvements in.
Samantha: In the second quarter, our Capex rose by about $16 million year over year, mainly funding projects linked to our transformation journey.
Samantha: These include efforts to use materials more efficiently and increased automation, which will reduce costs and improve quality.
Samantha: Although we are still in the early phases of our transformational journey. We are encouraged by the progress to date.
Samantha: I am proud of our team's continued hard work and dedication in making <unk>, a stronger and more profitable company.
Samantha: I'll now turn it over to Samantha to discuss the financial results.
Thanks, Bill, it's an honor to be on my first earnings call as CFO, while I am new to the CFO role my tenure with <unk> spans four years during which I have held various key positions.
Samantha: Most recently I led the North American Finance organization, and oversaw corporate financial planning and analysis.
Samantha: During my time in North America, I met with large customers to understand their needs and sat with critical suppliers to gain insights into our supply chain in.
Samantha: In addition, I have spent time in our business to learn how our operations work and understand the areas of opportunity.
Samantha: These experiences have provided me with a comprehensive understanding of gelled win and I am confident that this background equips me with a great Foundation, allowing me to effectively contribute from the onset.
Samantha: As I reflect on my priorities in this new role I see opportunities to enhance our financial performance and position our company as the global leader It has the potential to be.
My immediate focus areas will be leading the organization to adapt to market challenges managing controllable factors and driving accountability.
Samantha: I am confident in our team's capability and they are already making notable progress in strengthening our foundation despite market challenges.
Speaker Change: Now turning to the financials and looking at slide seven our second quarter revenues were $986 million down 12.
Speaker Change: 5% from the prior year.
Speaker Change: This decrease was driven by a reduction in our core revenues due mostly to the expected market driven volume declines in both North America, and Europe, combined with a mix shift from higher priced to lower priced products as customers focus on affordability.
Speaker Change: Our adjusted EBITDA was $85 million in the second quarter down $24 million year over year, leading to an adjusted EBITDA margin of eight 6%.
Speaker Change: As you see on slide eight.
Speaker Change: Our second quarter revenue decline was driven by lower volume mix of 12%.
Speaker Change: With about 60% of the decline due to the mix shift from higher average selling price products, such as wood windows and exterior doors into lower priced products.
Speaker Change: I'll provide additional comments about our North America, and Europe market trends shortly.
Speaker Change: On slide nine you see that our second quarter, adjusted EBITDA decreased by $24 million year over year.
William Christensen: Despite significant volume mix and slight price-cost headwinds, we generated solid profit contributions from improved productivity and significantly lower SG&A costs. In Europe, we generated $275 million in revenue and $20 million in adjusted EBITDA in Q2.
Speaker Change: Despite significant volume mix and slight price cost headwinds, we generated solid profit contributions from improved productivity and significantly lower SG&A costs.
Speaker Change: We are on track to achieve our targeted cost savings of approximately $100 million this year.
Speaker Change: Additionally, due to timing a small portion of the $10 million one time costs associated with the previously announced plant closures are being incurred in the third quarter versus the second quarter.
Speaker Change: As a reminder, these $10 million of closure costs are not being added back to adjusted earnings.
Speaker Change: Moving to our segment results on slide 10.
Speaker Change: In the second quarter, our North America segment generated $711 million in sales, which was a decline of 13% from prior year.
Speaker Change: This was driven by a reduction in core revenues up 13% due to lower volume mix.
North America's adjusted EBITDA decreased to $76 million from $109 million year over year.
Speaker Change: This decline was due to the lower volume mix I, just referenced as well as slightly negative price cost in the quarter.
Speaker Change: In Europe, we generated $275 million in revenue and $20 million and adjusted EBITDA in Q2.
Speaker Change: Core revenues decreased by 10% year over year, driven by lower volume mix of 12%.
Speaker Change: Adjusted EBITDA declined $4 million, leading to margins of seven 4%.
Speaker Change: The decremental impact from lower volume was mitigated by solid productivity improvements and slightly better price cost.
Speaker Change: Now turning to the market outlook on slide 11, I'll provide some high level comments.
Speaker Change: Starting with North America as interest rates remain elevated and consumer confidence weakens. We now expect North America volumes to be down by low double digits in 2024.
Speaker Change: The market is trending moderately worse than our previous guidance.
Speaker Change: We still anticipate that new single family home construction will be higher by low single digits.
Speaker Change: The outlook for repair and remodel activity remains challenging and we expect R&R activity to be down by mid to high single digits, which is trending slightly worse than we previously disclosed.
Speaker Change: Furthermore, though our multifamily exposure is relatively small the pace of market decline has accelerated.
Speaker Change: We now expect the combined multifamily in Canadian market to be down more than 25% year over year.
Speaker Change: The European market remains under pressure and is also trending towards the weaker end of our previous guidance due to the ongoing macroeconomic and geopolitical challenges.
Speaker Change: However over the last quarter the rate of decline has slowed.
Speaker Change: Overall, we continue to anticipate volumes in the region to be down by low double digits.
Speaker Change: I'll now turn it back to bill to talk about our transformational journey.
Bill Christiansen: Thanks Samantha.
Bill Christiansen: On slide 13, Youll see that my three key focus areas continue to be people performance and strategy.
Bill Christiansen: Our current transformational journey phase emphasizes both people and performance.
Bill Christiansen: Our investment in culture is focused on training of key topics, such as safety continuous improvement and accountability.
Bill Christiansen: This included health and safety one on one courses that were given to plant managers maintenance personnel and group managers as well as the leadership alignment training that I mentioned earlier in this call.
Bill Christiansen: Focusing on our performance we are implementing numerous initiatives that are balancing growth with cost reductions.
William Christensen: We began with approximately 800 projects in the pipeline and have completed about 350 today. However, with the continued weakness in our markets, we expect EBITDA phasing to be 55-60% in the second half. We continue to believe that divestiture of Tawanda is no longer warranted, but there are no assurances that our motion will be granted.
Bill Christiansen: We began with approximately 800 projects in the pipeline and have completed about 350 today our.
Bill Christiansen: Our disciplined process ensures that we continually refresh our project pipeline keeping various opportunities for improvement in view.
Bill Christiansen: We currently have about 500 active projects.
Bill Christiansen: We have done in previous quarters, I would like to highlight a few more specific examples in the subsequent slides.
Bill Christiansen: The first project I want to highlight on slide 14 is our initiatives to align door specifications across our network.
Speaker Change: Historically <unk> growth through acquisitions, and not all of the businesses where integrated oral lines.
Speaker Change: As a result, we produced our doors differently at various locations using different components fasteners and even dimensions in some cases.
We are now standardizing our production across the entire North American distribution network, which brings numerous benefits.
Speaker Change: We will be able to better load balance our network has all sites will be making the same products. Additionally by producing the same product across multiple locations, we can better track and improve quality as well as efficiency.
Speaker Change: By implementing these actions, we anticipate more than $4 million indirect benefits over the next five years more importantly, these measures will help us consolidate our footprint and mitigate supply chain risks caused by portfolio complexity.
Speaker Change: The second project I want to highlight on page 15 is the further automation of our Bifold door Assembly operations.
Speaker Change: Currently when producing bifold doors, and operator manually loads to slabs and three hinges into aging equipment.
Speaker Change: After the machine drilled holes and places the hinges the operator manually on most of the product to the packaging line and then manually stacks the finished product.
Speaker Change: This project will establish an assembly station that automates the process of loading drilling applying the hinges unloading and stacking the finished product by.
Speaker Change: By reducing labor, improving quality and increasing throughput we can achieve significant cost savings.
Speaker Change: Additionally, similar to the previous project mentioned this initiative will standardize to buy full door assembly process across our operations.
Speaker Change: In addition, the project is expected to enhance safety by reducing the manual handling of large awkward door panels.
Speaker Change: With these automation projects, we anticipate a five year savings of over $2 million with a capital investment of approximately $1 $6 million.
Speaker Change: I would now like to discuss our 2024 guidance.
Speaker Change: As Youll see on slide 17, we are maintaining our revenue and adjusted EBITDA guidance for the year.
Speaker Change: We anticipate results at the lower end of our range with increasing softness anticipated across most of our end markets spur.
Specifically, our revenue guidance remains $3 nine to $4 1 billion.
Speaker Change: With core revenues down 5% to 9%.
Speaker Change: As with our revenue guidance, our adjusted EBITDA guidance remains $340 million to $380 million and reflects the impact of the lower expected revenue at a 25% to 30% decremental rate.
Speaker Change: Furthermore.
Speaker Change: We now expect price cost to be down approximately 1% year over year.
Speaker Change: Partially offset by further actions, we're taking to reduce SG&A and improved productivity.
Speaker Change: We do expect to deliver $100 million of cost savings. This year, which is a combination of approximately $50 million of carryforward benefits from last year's actions and new initiatives that will be completed this year.
Speaker Change: As we look at the phasing of earnings. This year, we continue to expect benefits from our cost savings actions and investments to ramp up throughout the year.
Speaker Change: However, with the continued weakness in our markets, we expect EBITDA phasing to be 55% to 60% in the second half versus the 60% we mentioned in last quarter's call.
On slide 18.
Speaker Change: See our updated cash flow outlook for the year.
Speaker Change: Due to continued market softness combined with inventories expected to be slightly higher at the end of this year. We now anticipate that this year's operating cash flow will be approximately $200 million.
Speaker Change: This is after we incur an estimated $100 million of nonoperating cash expenses to fund portions of our transformational journey.
Speaker Change: With the update we expect our free cash flow to be approximately $25 million to $50 million.
Speaker Change: Let's turn to slide 19.
Speaker Change: Before I conclude I would like to give a brief update on two Wanda.
Speaker Change: Thank you.
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Speaker Change: Our first question comes from the line of Steven Ramsey with Thompson Research Group. Please go ahead.
Steven Ramsey: Hi, Good morning wanted to your hear more thoughts on the growth part of your improved performance plan. The sales force efficiency go to market processes and pricing optimization can you talk to priorities within those areas and how much you can achieve.
Speaker Change: In these areas when volumes are pressured.
Speaker Change: Yes, Thanks for your question, Steve and good morning.
Speaker Change: So let me start with pricing I mean, obviously its competitive in the market environment that we're in but where we're holding.
Speaker Change: We feel comfortable in the progress that we've made this year. So I'd say, that's the first point regarding sales efficiency.
Speaker Change: We have a win rooms that are part of our transformational projects streams, where we're really digging in in different segments and different geographies to really get down to the details on project volume pipelines conversion rates when rates.
Speaker Change: Equation, that's been a bit higher than we had expected on labor and benefits and obviously with the tougher headwind.
Speaker Change: As we alluded to in our prepared remarks. We're also pulling ahead. Some additional projects. So we expect probably the top $10 million to $15 million of benefit onto the 104. This year, which is I think starting to show the strength of the portfolio of projects that we have.
William Christensen: some additional projects. So we expect to tack 10 to 15 million more benefits onto the 100 for this year, which is, I think, starting to show the strength of the portfolio of projects that we have. It's all about prioritizing resource allocation and bringing projects in that we've already identified, our organization has already identified, as they can add value. We just haven't focused on them based on priorities. So we are constantly refreshing our pipeline of projects. As we said, we currently have about 500 active projects, 350 are completed, and we continue to sequence projects.
Speaker Change: It's all about prioritizing resource allocation and bringing projects in that we've already identified our organization is already identified that they can add value. We just haven't focused on them based on priority. So we're constantly refreshing our pipeline of projects as we said we can.
Speaker Change: We have about 500 active 350 are completed and we continue to sequence projects based on resource allocation and where we see the opportunities as we said just in my prior comment growth initiatives are a little longer.
Operator: Our next question comes from the line of Susan Maklari with Goldman Sachs. Please go ahead.
Speaker Change: We have pulled ahead, some additional benefit into our transformation pipeline, which which we feel will drop.
Speaker Change: Definitely and in for Q, So that 10 to 15 of additional upside and lift is something that you should expect a later this year based on measures that we're currently implementing and we have line of sight too. So I think that's why there's some conviction that we're trying to control our destiny as much as we can and.
Speaker Change: As you have heard in our prepared remarks, we don't expect significant changes in the market as we get into the back half of the year. So it's all about the measures we can control and what we're trying to do about that but Samantha can share some more details on splits.
Speaker Change: Sure.
Samantha: Then you know the way I think about it is again $100 million approximately that we announced in 2023, we have carryover effect from that about half and half with 50% carrying over into 2024, then we have the new projects, we have the new transformation initiatives that we kicked off earlier this year.
Samantha: Which will be incremental into 'twenty, 'twenty, four and of which we are actually accelerating more to pull that in.
William Christensen: So from a phasing standpoint, you've got to think maybe one-third in the first half, two-thirds in the back half. And again, it's more of a timing of when those initiatives start to bear fruit. And then the similar instance will happen into 2025, with expectations of, you know, approximately half of that carrying over into 2025.
William Christensen: There are a couple of things that I think we need to think through. Clearly, volume is one lever, but mix is the other.
William Christensen: As Samantha noted in her comments, there is a mix down currently. We continue to see softness in the R&R sector in North America. Consumers are waiting for discretionary large ticket items. There was not a significant, I would say, seasonal reload. Inventories are very thin.
William Christensen: That signals to us that there's a lot of caution on the spend side, and people are waiting. As we monitor this reality, we still have a lot of homework that we need to do. We are really working hard on getting ourselves ready for a recovery, which will arrive. The question is when, and that's probably something that people have very differing views on. Our position is
Speaker Change: Cost measures. So I'd say, that's probably from a big picture, how we're looking at it we've done I'd say, probably a little bit of a better job in Europe of holding price.
Speaker Change: We are more spec driven if you look at our portfolio of mixed across Europe, and clearly there's softness on the project side of the business, but we are able to hold and we continue to see which is an interesting dynamic some of the smaller competitors that have been oh, a bit less structured.
Speaker Change: On price, let's put it like that are having significant troubles in this market environment and we've seen some of them actually collapse. So that's leading to some pickup of volume in certain markets, where we've just been managing ourselves more effectively for a longer term platform and growth trajectory.
Operator: Okay, that's very helpful, Collar. Thank you both and good luck with everything. Thank you.
Speaker Change: Okay. That's very helpful color. Thank you both and good luck with everything.
Speaker Change: Very much Susan and I have a good day.
Operator: Our next question comes from the line of John Lovallo with UBS. Please go ahead.
Speaker Change: Our next question comes from the line of John Lovallo with UBS. Please go ahead.
John Lovallo: Good morning, guys. Thanks for taking my questions as well.
John Lovallo: Hey, good morning. The first one is just if you could help me better understand just the north American volume expectations, you're now expecting them to decline.
Operator: Okay, thank you guys. Yeah, you're welcome, John. Have a good day.
Speaker Change: In the fourth quarter can you give us a little more perspective as to how to think about the rookie versus 40 EBITDA contribution.
John Lovallo: Sure. Thanks, Bill so when I think about maybe I'll address the plant costs first when you think about the phase of that the majority of those costs did fall in Q2, I'm, probably about two thirds with another third happening in Q3. So yes, we have some additional costs.
Speaker Change: But not significant.
John Lovallo: The other piece that we have to really look at is that normally we do see a pretty strong seasonal uptick in conjunction with the spring and summer building season, we saw much much less of that this year.
Speaker Change: With lower consumer confidence to spend on big ticket items that is getting pushed out. However, we are accelerating as bill mentioned some of our transformational initiatives, which we now expect to start paying back in Q3 and Q4, so again, that's kind of offsetting.
Bill Christiansen: Additional amounts now the 10 to 15 that bill referenced that is over and above kind of 100 million dollar cost savings target that will hit almost all of it in Q4. So when you think about phasing Q3, and Q2 will be similar with Q3 being slightly more profitable.
Speaker Change: As with any larger uptick in Q4.
John Lovallo: Thanks for taking my questions today. So it sounds like higher-end window and door categories continue to be challenged while the lower ends benefit from production builder growth. So has the variance between these demand trends widened since the start of the year or been pretty stable at this point?
Speaker Change: Building products that consumers.
Speaker Change: I really want to get into.
William Christensen: That's very helpful, Bill. Thank you. And then, just wondering if you could provide an update on retail channel inventory levels. You know, you previously highlighted that seasonal trends were delayed in the second quarter as restocking was pushed back due to soft large ticket R&R demand. And I just wondered if that occurred in line with expectations during the quarter, or maybe it was, you know, a bigger pushback than anticipated.
Speaker Change: No. That's very helpful. Bill. Thank you and then just wondering if you could provide an update on retail channel inventory levels. You know you've previously highlighted that seasonal trends were delayed in the second quarter as restocking was pushed.
Speaker Change: Pushback due to soft large ticket R&R demand and just wondering if that occurred in line with expectations during the quarter or maybe it was you know pushback more than anticipated.
Speaker Change: Yeah, so yeah.
Speaker Change: Message number one Jeff no significant reload of channel inventory that we saw.
Speaker Change: So our conclusion is still that inventory is very thin.
Speaker Change: And the seasonal uptick that you would typically see in the summer has not occurred.
Speaker Change: So the market remains relatively flat and the same trends are very visible big ticket items in discretionary spends are being pushed.
Speaker Change: Because there is a high level of uncertainty in mortgage rates are relatively high.
Samantha Stoddard: We did start taking actions around managing our SG&A a little closer. I would call it the end of 2023, beginning of 2024. So we are seeing that materialize in the year, or excuse me, in the quarter.
Samantha Stoddard: From that perspective, we do expect the inventory to bleed down throughout the remaining part of the year, but we do have slightly higher than expected inventory as opposed to what we guided to previously.
Operator: Got it. Okay. Thanks, Phil. And then second, just on cash flow, it's a specific question.
Speaker Change: Well costs, and what's kind of the incremental there versus the prior guide.
Speaker Change: So when I think about this Mike from a cash flow perspective the.
Mike: Recurring costs are going to be mostly in the investments, we're making in ourselves and when you think about the year over year, we don't expect the transformation cash to be as high next year as we do in 2024. So we don't expect the same levels of elevation.
Mike: On the legal standpoint, the majority of this cash costs are again related to the transformation. The legal is not driving a majority of that.
Mike: Okay.
Speaker Change: Got it okay. Thanks a lot.
Mike: Alright, Thanks, Mike I have a good day.
Mike: There are no further questions at this time I will now turn the call back over to James Armstrong for closing remarks.
James Armstrong: Thank you for joining our call today, if you have any follow up questions. Please reach out I'll be happy to answer anything you have this ends our call and please have a great day.
Speaker Change: This concludes today's conference you may now disconnect.
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