Q2 2025 Worthington Enterprises Inc Earnings Call
Good morning, and welcome to the Worthington Enterprises' second quarter fiscal 2025 earnings conference call, all participants will be able to listen only until the question and answer session of the call. This conference is being recorded at the request of Worthington enterprises. If anyone objects. You may disconnect at this time I'd now like to introduce Marcus Rogier.
Speaker Change: Treasurer, and Investor Relations Officer, Mr. Rhodes you may begin.
Marcus Rogier: Thank you Regina good morning, everyone and thank you for joining us for Worthington Enterprises' second quarter fiscal 2025 earnings call.
Marcus Rogier: On our call today, we have Joe Hayek, Worthingtons, President and Chief Executive Officer, and Colin Sousa Worthingtons Chief Financial Officer.
Speaker Change: Before we get started I'd like to note that certain statements made today are forward looking within the meaning of the 1995 private Securities Litigation Reform Act.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ from those suggested.
Speaker Change: We issued our earnings release yesterday after the market close please refer to it for more detail on those factors that could cause actual results to differ materially in.
Speaker Change: In addition, our discussion today will include non-GAAP financial measures.
Speaker Change: A reconciliation of these measures with the most appropriate comparable GAAP measure is included in the earnings press release, which is available on our Investor Relations website.
Today's call is being recorded and a replay will be made available later on our Worthington enterprises Dot com website.
Joe Hayek: At this point I will turn the call over to Joe for opening remarks.
Joe Hayek: Thank you Marcus and good morning, everyone.
Joe Hayek: Welcome to Wilmington, Enterprise's, physical 2025 second quarter earnings call.
Joe Hayek: Our second quarter marks the end of our first full year as Willington enterprises I'd like to start by thanking our entire team for their hard work building the strong foundation and for embracing our philosophy that prioritizes a people first performance based culture to drive shareholder returns.
Joe Hayek: Financially, we had a solid quarter, despite mild but persistent macro headwinds we grew both adjusted EBITDA and earnings per share year over year and sequentially from Q1.
Joe Hayek: While we're pleased with our results in Q2, we continue to set our sights higher we're taking a fresh look at how we do things across the organization, we're thinking more like a startup and were pursuing initiatives to optimize our margins as we grow Worthington.
Joe Hayek: One of the things that sets Worthington apart is our ability to understand our customers' businesses and to partner with them to help drive their success innovate and open and expand in new markets.
Joe Hayek: A great example is our partnership with three of them on the power core engineered cylinder.
Joe Hayek: Our teams engineering prowess collaborative approach and relentless energy enabled three Fms October launch of a new water based adhesive using our power core cylinder, which is intended to make commercial adhesive work for construction and repair and remodel roofing more efficient and effective.
Joe Hayek: Innovation like this is a key element of the Worthington business system that anchors our growth strategy.
Joe Hayek: We continue to innovate in consumer products as well and our Halo versa Pizza oven was recently named one of this year's best gifts for the holiday season by food and wine magazine.
Joe Hayek: There are a number of new product launches planned in calendar 2025, and we are committed to continuing to bring innovation to our markets and our customers.
Joe Hayek: Inorganic growth as an equally important growth driver for us our strong balance sheet and ample liquidity position us very well to grow through acquisitions, and we're focused on acquiring market, leading businesses that leverage our strengths and enhance our margins free cash flows and competitive position.
Joe Hayek: We've completed the integration of our most recent acquisition <unk> and we are operating as one team in Europe with what we believe is the most comprehensive and sophisticated portfolio of LPG solutions in the world.
Joe Hayek: Another key component of the Worthington business system is sustainability.
Joe Hayek: We see sustainability as both an obligation and a source of strategic advantage for us.
Joe Hayek: Yesterday, we announced that Amtrust alpha located in Portugal, Portugal will produce and bring to market in the first sustainable or green propane cylinder made with Arcelor middles low carbon emission steel, which has a 73% lower carbon footprint than traditional steel.
Joe Hayek: Last month, we announced an initiative, we're calling the West Africa clean cooking fund along with a 1 million dollar commitment to that initiative from the Worthington Company's foundation that we along with our industry partners hope will encourage and facilitate the adoption of clean and safe cooking with LPG in a region, where over 250 million people.
Joe Hayek: <unk> are still dependent on traditional biomass for cooking, which presents significant health deforestation and environmental risks.
Joe Hayek: Finally, Newsweek again, just recognized Worthington enterprises as one of America's most responsible companies I'm very proud to work with people that earn these honors every day because they are committed to being creative thoughtful and to doing our part in society.
Joe Hayek: Looking into 2025, we believe our best days are ahead of US our people first culture market, leading brands outstanding value propositions and our commitment to the Waddington business system are core tenants of who we are and they position us very well moving forward.
Speaker Change: Now I'll turn it over to Colin who will provide you with some details on our financial performance in the quarter.
Colin Sousa: Thank you Joe and good morning, everyone. In Q2, we reported GAAP earnings from continuing operations of <unk> 56 per share versus <unk> 36 in the prior year quarter.
Colin Sousa: There were a few unique items that impacted our quarterly results, including the following.
Colin Sousa: The current quarter was negatively impacted by net pre tax restructuring charges of $3 million or <unk> <unk> per share primarily due to charges related to an executive retirement.
Colin Sousa: Results in the prior year quarter were negatively impacted by 21 per share due to several items the largest being corporate costs eliminated at the time of separation and transaction costs associated with separating our steel processing business.
These were partially offset by a pre tax gain within equity income from a divestiture and our cabs joint venture.
Colin Sousa: Excluding these items, we generated adjusted earnings from continuing operations of <unk> 60 per share in the current quarter compared to <unk> 57 per share in Q2 of the prior year.
Colin Sousa: The current quarter was also negatively impacted by $2 million or <unk> <unk> per share due to an increase in our bad debt reserves specific to two customers, who recently declared bankruptcy.
Colin Sousa: Consolidated net sales in the quarter of $274 million decreased eight 1% from $298 million in the prior year.
Colin Sousa: The decrease was largely driven by the deconsolidation of our former sustainable energy solutions segment, which contributed $28 million in sales in the prior year quarter.
Colin Sousa: Our gross profit for the quarter increased to $74 million compared to $63 million in the prior year quarter and gross margin increased approximately 580 basis points to 27% in the current quarter.
Colin Sousa: Adjusted EBITDA in Q2 was $56 million up slightly from $55 million in Q2 of last year and up sequentially from $48 million in Q1.
Colin Sousa: Our TTM adjusted EBITDA is now $235 million in TTM adjusted EBITDA margin is 21%.
Colin Sousa: With respect to cash flows and our balance sheet cash flow from operations was $49 million in the quarter and free cash flow was $34 million.
Colin Sousa: During the quarter, we invested $15 million on capital projects, which included $5 million related to our facility modernization projects.
Colin Sousa: We paid $9 million in dividends and spent $8 million to repurchase 200000 shares of our common stock at an average price of $40 40.
Colin Sousa: We received $39 million in dividends from our unconsolidated JV during the quarter, which represents a 112% cash conversion rate on that equity income.
Colin Sousa: Turning to our balance sheet and liquidity, we closed the quarter with $296 million in long term funded debt at an average interest rate of three 6% along with $194 million in cash.
Our leverage remains extremely low with ample liquidity supported by a $500 million Undrawn bank credit facility positioning us well for the future.
Colin Sousa: Net debt at quarter end was $102 million, resulting in a net debt to trailing adjusted EBITDA leverage ratio of less than a half a turn.
Colin Sousa: Yesterday, the Worthington Enterprises board of directors declared a quarterly dividend of <unk> 17 per share payable in March 2025.
Colin Sousa: We will now spend a few minutes on each of the businesses.
Colin Sousa: And consumer products Q2, net sales were $117 million down 2% year over year, primarily due to a shift in product mix. Despite a 3% increase in volumes adjusted.
Adjusted EBITDA for the segment was $15 million with an adjusted EBITDA margin of 13, 3% compared to $13 million and 10, 7% respectively in the prior year.
Colin Sousa: The current quarter was negatively impacted by $2 million due to an increased bad debt reserve I mentioned earlier.
Colin Sousa: Despite continued macro headwinds our consumer team delivered solid results achieving year over year growth in adjusted EBITDA and EBITDA margins. We are very bullish on the business has growth potential as market conditions improve bolstered by strong retail partnerships and a commitment to providing essential products for outdoor living.
Colin Sousa: Celebrations and home improvement.
Colin Sousa: Building products reported Q2, net sales of $157 million, a 4% increase from $151 million in the prior year.
Colin Sousa: This growth was primarily driven by the recent acquisition of <unk>, which contributed $18 million in sales for the quarter.
Colin Sousa: Partially offset by lower volumes, particularly in heating and cooking.
Colin Sousa: The large format heating business returned to year over year growth, but that growth was offset by some softness in our gas grill tank business due to production limitations as we completed our facility modernization project there.
Colin Sousa: Adjusted EBITDA for the quarter was $47 million with an adjusted EBITDA margin of 30% compared to $46 million, 30%, respectively. In the same quarter last year.
Colin Sousa: Sequentially in the business showed solid improvement with adjusted EBITDA and margin increasing over 17% from $40 million and 28, 4% in Q1.
Colin Sousa: The year over year increase in adjusted EBITDA was primarily driven by the inclusion of <unk>, which added $4 million offsetting year over year declines in the remaining European business and higher equity earnings from wave.
Colin Sousa: Clark Dietrich contributed $10 million in the current quarter compared to $14 million in the prior year quarter the.
Colin Sousa: Clark Dietrich team has done an admirable job navigating a challenging demand environment and we are encouraged by the sequential improvement from Q1.
Wave continued its strong performance delivering $25 million in equity earnings for the quarter up from $21 million in the prior year quarter as that team continues to execute at a high level.
Colin Sousa: The building products team is navigating the current environment, well, we have strengthened our value proposition to customers with new products and responsive and reliable service, enabling us to gain market share.
We're also seeing steady performance from our joint ventures, and we are very well positioned as we head into the second half of our fiscal year.
Colin Sousa: At this point, we are happy to take any questions.
At this time, if you'd like to ask a question simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Kathryn Thompson with Thompson Research Group. Please go ahead.
Speaker Change: Hi, Thank you for taking my questions today.
Speaker Change: Good morning, Jeff kicked off good morning.
Speaker Change: First I wanted to get kicked off on your gross margins which were up.
Speaker Change: A healthy clip in the quarter.
Speaker Change: And definitely had the most recent quarters.
Speaker Change: Ive touched on some aspect of it in the prepared commentary but.
Speaker Change: Could you help us understand.
Speaker Change: The larger drivers even if you have say happens from some categories to another but really looking at mix shift from Destocking comps M&A.
Speaker Change: M&A.
Speaker Change: Or just better environment or just help rank order what drove the margin performance.
Speaker Change: Sure thing Catherine So just a few more details there.
Speaker Change: The gross margin was up 580 basis points.
If you recall.
Speaker Change: We had a recall of a product in the prior year quarter and then we're also excluding.
Speaker Change: Sales and margin from.
Speaker Change: Our <unk> business unit, which we formed a joint venture here.
Speaker Change: In our Q4.
Speaker Change: And that really led to 300 basis points approximately of margin expansion just with those items and then we layer on the inclusion of <unk>, which we acquired in June.
Speaker Change: And then in addition to that some positives kind of mix shift in our higher margin product. So we're overall pleased with where margins are this quarter at 27%.
Speaker Change: And that's about what we would expect our margins to be at this time.
Speaker Change: Okay helpful and with the addition of <unk>.
Speaker Change: <unk>.
Speaker Change: Just kind of a shift overall structurally this year, how should we think about SG&A.
Speaker Change: Kenny just given different focus as we look forward.
Speaker Change: So Catherine when we think about <unk>.
Speaker Change: SG&A, it's really in the context of how we're.
Speaker Change: Running the business right and so.
Speaker Change: A lot of the things that we've been after a strategically are bearing fruit do you look at the way that we've.
Speaker Change: Strengthen our value propositions over the last year, we talked about.
Speaker Change: The three.
Speaker Change: Although our partnerships in the consumer business.
Speaker Change: We continue to work with our partners and bring point of sale data and analytics to them so that they can.
Have adequate levels of inventory as they prepare for winter weather or storms and so that's really helping thinking about things you did mention this earlier on the <unk>.
Destocking, having run its course.
Speaker Change: Thats.
Speaker Change: More on the large format propane tank, but when we think about SG&A. Obviously, we inherited the SGA SG&A that comes from <unk>, but we're really focused on thinking about things and taking.
Speaker Change: A fresh look at things when we think about <unk>.
Speaker Change: Optimizing and growing Worthington.
Speaker Change: We did we have sort of taken a step back and we're thinking about things.
Speaker Change: Little differently, and that's going to allow us to be successful in any demand environment. The one that we're in now we characterize as.
Speaker Change: Kind of flattened steady sequentially, but when some of the markets that we participate in return to growth.
Speaker Change: That discipline is going to really manifest itself, we think in some great things.
Speaker Change: Okay, great. Thank you just a follow up on wave.
Speaker Change: The wave JV.
Speaker Change: <unk> performed well up double digits for six of the past second quarters, obviously, there's more than just office.
Speaker Change: But could you.
Speaker Change: Could you talk about.
Speaker Change: Just expand on trends that are driving this performance and how we should think about growth as we face tougher comps.
Speaker Change: Going into the next calendar year. Thank you.
Speaker Change: Sure.
Speaker Change: <unk> wave as you know is.
Speaker Change: Terrific business with a great leadership team and it's a great JV.
Speaker Change: That between ourselves and Armstrong debt that I think both companies are very proud of and one of the reasons that they can continue to do as well as.
Speaker Change: They're able to is there in our value proposition, which really it comes back to understanding their customers and being able to.
Speaker Change: Create and supply reliably solutions that save their end user contractors time and labor and so you can.
Speaker Change: By the way products, which is a portion of the overall spend but then as you are installing those ceilings in different areas.
Speaker Change: Your labor cost is an even bigger spend and so we think about.
Speaker Change: Right commercial and office is a little soft we've seen continued.
Strength and this applies to an extent to Clark dietrick, as well, but education health care.
Speaker Change: Data centers and transportation, specifically the larger Eric.
Speaker Change: Airports train stations or things like that and so.
Speaker Change: I think we would we would expect.
Speaker Change: Wave two wave and Clark Dietrich two to both.
Speaker Change: Kind of be around here sequentially.
Speaker Change: For the next couple of quarters with with the with on the Cart Dietrich side.
Speaker Change: The caveat being.
Speaker Change: What happens with steel prices, but based on what we can see.
Speaker Change: We think steady as she goes for both of the Jv's.
Speaker Change: Okay.
Speaker Change: Okay Perfect and then just final question one thing that we have seen in terms of talking to some of our.
Speaker Change: Industry contacts in the field and the construction downstream value chain and that just transfer kind of lackluster in the spring and into the summer.
Speaker Change: And then over the past one to two months, you've seen a definite pickup in activity.
Speaker Change: What are you seeing in terms of your businesses are there some Marian center.
Performing better more recently versus others. Thanks, so much and best of luck.
Speaker Change: Thank you Catherine Yes, I think it's a it's probably a little bit of a similar answer to the one that we just walked through.
Speaker Change: I think that some of the.
Speaker Change: Infrastructure oriented spending in some of the stimulus from gosh now a couple two three years ago has started to make its way into projects.
Speaker Change: The chips Act and some of the money that's being allocated for some of these infrastructure project has has helped.
Speaker Change: With some of the larger projects that are out there.
Speaker Change: Yes.
Speaker Change: Generally speaking.
Speaker Change: When we get into talking about residential spends and things like that it'll be a little different but.
Speaker Change: Yes, I would absolutely agree that.
There is there still some.
Speaker Change: As we referred to them.
Mild, but persistent headwinds, but we are starting to see some green shoots in certain areas.
Speaker Change: Great. Thanks, so much.
Sure.
Speaker Change: Next question comes from the line of Daniel Moore with CJS Securities. Please go ahead.
Speaker Change: Thank you good morning, Joe Good morning, Colin I appreciate the color.
Speaker Change: Maybe start with building products, just elaborate and maybe differentiate from what Youre seeing.
Speaker Change: I said building products, but just more generally I should say on the heating and cooking space.
Speaker Change: I guess the large format on the one side.
Speaker Change: And kind of smaller consumer on the other and I know this is <unk>.
Speaker Change: Seasonally not the strongest period, but.
Speaker Change: What are you seeing in terms of maybe bottoming and expectations as we think about calendar 'twenty five.
Speaker Change: Yes, Great question Colin mentioned it when we talk about heating and cooking one of the one of the core tenets of our growth strategy is transformation and we have been focused pretty resolutely on our call at the gastro market.
Speaker Change: <unk> market rate the smaller.
Speaker Change: Propane tank market and we saw in the quarter.
Speaker Change: A return to growth.
Speaker Change: Turning to more seasonally normal and growth in the large format heating tanks.
Speaker Change: And in the smaller tanks.
Speaker Change: We had a.
Speaker Change: I came full of things that we needed to get done on that facility modernization project and in the quarter that hampered our ability to produce as much as we would have liked to and as you would imagine in a manufacturing environment volume matters both.
Speaker Change: There are sales to be had in there also.
Speaker Change: <unk> costs and things like that so through that transformational project and as that's completed.
Speaker Change: <unk> upgraded that facility put in robotics and automated that facility and so as we look forward that project is done.
Speaker Change: And we feel much better about that business moving forward given that one we finished that project into we've had some market share wins in the interim.
Speaker Change: Really helpful and maybe kind of taken a back up to.
Speaker Change: 30000 feet, but.
Speaker Change: One of the comments you made to us.
Speaker Change: Trying to think more like a startup I'm wondering if you can elaborate on that and then.
Speaker Change: Just you talked about any meaningful differences are in strategic direction.
Speaker Change: Now that you've been at the helm of CEO for a couple of months in both organically and in terms of where your focus from an M&A perspective.
Speaker Change: Sure. So it's.
Speaker Change: It's a it's a great honor and privilege to lead this company and I would say start with what's not.
Speaker Change: Going to change our culture.
Speaker Change: It gets people first performance based culture, it's a huge advantage for us it's something that we're pretty proud of and we're <unk>.
Speaker Change: Pretty protective of it but it's also something that we leverage.
Speaker Change: We have great people and we also have really solid strategies and value propositions, we talked about the <unk>. The example, I gave you in building products and then what we talked about in <unk>.
Speaker Change: Consumer and so those those things are fundamental to who we are and it's something we're very proud of and we're not going to change deal with respect to thinking more like a startup.
Speaker Change: 70 year old company, but we're a one year old company as Worthington enterprises, and so it gives us the opportunity to to look back and to think about what we want the next five years to look like and what we're trying to do ultimately is.
Optimize and grow the company and as you optimize sometimes you need to reset a little bit and think about things differently. The way that we have historically done things matters, a lot, but the way that we do things now and try and ultimately to optimize.
Speaker Change: Our business in the current environment is going to prepare us to really be able to focus on growth and as we look at.
Speaker Change: What's possible for us from a margin perspective, if we are able in the next kind of.
Speaker Change: 12 months to 18 months to really position ourselves.
The way that we want to it's going to lead to really good things in any environment, but particularly.
Speaker Change: As growth returns to some of our end markets.
Speaker Change: That's helpful. Maybe one or two quick ones just housekeeping, but the sustainable energy now JV was just above breakeven.
Speaker Change: Do you expect to remain around those levels. Just wondering if you expect it to be.
Speaker Change: A modest drag or a modest contributor as we think about the next sort of four to eight quarters.
Speaker Change: I'd say, you're right on it will probably be flattish.
Speaker Change: Got it and then lastly from a capital allocation perspective bought back 200000 shares still have.
Speaker Change: Well over $5 million remaining on the authorization.
Speaker Change: Sure is still trading at relatively depressed valuations you know my words, not yours, but wondering.
Speaker Change: What do your aggressiveness from a <unk>.
Speaker Change: Buyback perspective might be going forward. Thanks again for all the color.
Speaker Change: Yes no.
Speaker Change: It's a great question, Dan and then when we think about capital allocation.
Speaker Change: We.
Speaker Change: Still have a bias for growth and if you look at our if you look at our Capex in.
Speaker Change: Quarter.
Speaker Change: On I'll call. It a run rate Capex was closer to $5 million on top of $5 million in Q1, and so you're kind of run rating at a capex level of two five ish to.
Speaker Change: $30 million and relative to our sales when we get through our facility modernization projects, we're going to be able to generate a fair amount of additional free cash flow and we have as we've talked about we have kind of goals for our free cash flow conversion rates that are out there. So when we think about capital allocation, we're still going to.
<unk>.
Speaker Change: Our bias for growth, but when we look at.
Speaker Change: M&A.
Speaker Change: On the M&A market in 2024 was expected to be a big.
Speaker Change: Breaking up the logjam and it turned out that.
Speaker Change: Interest rates were stubbornly high and then there was some uncertainty around.
Speaker Change: The election, that's past us and so now I think a lot of folks are.
Speaker Change: Suggesting that 25 will be that more active market for M&A.
Speaker Change: Our M&A criteria I think we've talked about companies that make us better improve our margins and our free cash flows, but if ultimately we look at our.
Speaker Change: Stock price or our.
Speaker Change: Ability to.
Speaker Change: Think about what that looks like from a buyback versus how expensive M&A is or how attainable M&A is that's always a toggle that we can.
Speaker Change: Go back and forth on I would expect us to at least you will buy back shares that will offset dilution, but anything above and beyond that our authorization is still pretty healthy.
Speaker Change: And we have that.
Speaker Change: Lever, we can pull if we deem it appropriate.
Speaker Change: Okay.
Speaker Change: Our next question will come from the line of Susan Mcclary with Goldman Sachs. Please go ahead.
Speaker Change: Thank you good morning, everyone.
Speaker Change: Good morning, Susan Good morning, Joe and congrats to you and calling on both of your your new roles there.
Speaker Change: Very nice of you to say thank you. Thank you yeah.
Speaker Change: Is can you talk a bit about price cost as we think about the deflation that's come through steel.
Speaker Change: Just where we are in that process of realizing those moves and then how youre thinking about price as we look to the next couple of quarters.
Speaker Change: Sure so.
Speaker Change: Input costs for us.
Speaker Change: Part of transformation for us is ultimately thinking about her.
Speaker Change: How we approach.
Speaker Change: Our inputs right, how we approach manufacturing, how we approach purchasing and things like that relatively speaking.
Speaker Change: The deflationary environment, I think you'd probably mostly talking about steel, we would expect that to be relatively flat.
Flat year over year, we are absolutely doing everything we can to keep our costs down to decrease.
Speaker Change: What we need to put into it.
Speaker Change: Getting our products out the door with with efficiencies and things like that but the market for pricing generally is.
Speaker Change: I would say okay.
Speaker Change: Don't think that.
Speaker Change: As it is is more of a macro economic statement that.
Speaker Change: Nobody wants.
Speaker Change: Reignited inflation, we'll see what the.
Speaker Change: It comes in the next three months with the New administration, but.
I don't think that we anticipate.
Speaker Change: Are prices going up.
Speaker Change: Very very significantly because we're working on the backend and our efficiencies.
Speaker Change: And trying to be sensitive to.
Speaker Change: The elasticity that's out there as well.
Speaker Change: Okay. That's helpful color and then maybe thinking about the administration that will come in next year and some of the policies that they could implement as you think about the global competitive environment that you operate within and the potential for some tariffs or some other trade actions to come through what could that mean for Worthington how are you.
Speaker Change: Turning the business relative to that just any thoughts there strategically on how things could come together.
Speaker Change: Well it's a.
Speaker Change: Great question.
Speaker Change: We don't think anybody actually routes for tariffs, but I think it's that everybody wants a level playing field so that their businesses can compete.
Speaker Change: Compete on their merits.
We don't want to speculate on the incoming administrations goals or theyre likely actions, but I think they're smart people.
Speaker Change: And our sense is that they want the same thing, which is that level playing field and so in that context and you know this Susan the majority of our revenue in the U S comes from products that we manufacture domestically and we do absolutely face price competition from imports and so we potentially be a net beneficiary of actions that.
Speaker Change: Create and sustain that level, playing field and support U S manufacturing.
Speaker Change: And we have spent a lot of time on this and we will continue preparing for various scenarios around trade policy.
Speaker Change: And that we can more effectively anticipate and adjust to dynamics as they present themselves, but bottom line I think which was your question is we think we're pretty well positioned in any scenario and.
Speaker Change: And we also think that the and we're pretty confident that the incoming administration is really focused on what we think would be the best case scenario.
Speaker Change: Which is creating that level, playing field, while not igniting new inflationary pressures, which wouldn't be good for anybody.
Speaker Change: Yeah. Okay I appreciate all the color. Thank you good luck with everything.
Speaker Change: Thank you.
Speaker Change: Once again for any questions Press Star one and our next question comes from the line of Brian Mcnamara with Canaccord Genuity. Please go ahead.
Good morning, guys. Thanks for taking our questions.
Speaker Change: Absolutely Brian good morning.
Speaker Change: Congrats Joe and calling on the promotions I'm curious was this the plan all along in terms of succession and does anything change in terms of your longer term financial targets, particularly the 6% to 8% kind of top line growth target.
Speaker Change: Yes.
Speaker Change: Nice to say that Brian.
Speaker Change: The plan ultimately.
As is typically the plan right before a planned happens and so timing wise were.
Speaker Change: Very blessed and appreciative and grateful for the work that Andy did in our entire teams continue to do but to your other question as we look forward those those targets I would I would say that based on the way that we're trying to drive the business and we're trying to optimize the business.
Speaker Change: The.
Speaker Change: Our goal ultimately is to kind of maintain or grow our gross margins and overtime work down our SG&A as a percentage of sales.
Speaker Change: That's going to create.
Speaker Change: Margin expansion for US again, this isn't happening tomorrow, but as we look out into the next.
Speaker Change: 12 months to 18 to 24 months, we think that's something that we're going to be pretty committed to doing and really the only.
Speaker Change: The only the only place where maybe we need a little help on those goals that we have out there is just the markets themselves Youll note that were relatively flat year over year and that's a function of markets that are.
Speaker Change: Flat steady.
Speaker Change: I think actually I've heard this I think maybe Susan mentioned this on one of our notes Bud repair and remodel markets are steady but slow.
And so our growth in those <unk>.
Environments is more around our value propositions and our ability to take share it's certainly around.
Speaker Change: Destocking, having run its course, but ultimately.
Speaker Change: We will.
Speaker Change: It'll be much easier to get to those targets.
Speaker Change: And it won't be necessarily linear right. So if you think about five years, if you're flat for a couple there's there's likely to be.
Speaker Change: Catch up at some point and so that six to eight clearly isn't where we're at right now.
Brian: But as we've talked Brian some of that.
Brian: M&A and some of that's organic.
Brian: The markets as they get on stocks will help us really drive that top line organically and where.
Brian: We're certainly focused on making good strategic M&A decisions, which hopefully kind of gets us the rest, but that's really the one thing I would say right now is.
Brian: As you look at it we're probably not where we'd like to be mostly because of the markets that we're in.
Speaker Change: Great I appreciate the color on that secondly on gross margin I just wanted to confirm I think Colin said, 27% is where you expect to be moving forward does that protect hearing that right.
Speaker Change: I don't yes, without sort of giving guidance quote unquote, we were at 27% and as we look forward the dynamics.
Speaker Change: That he mentioned.
Speaker Change: That where the year over year comps.
Speaker Change: We will be in place as we go forward.
Speaker Change: Okay, and then just one final one on M&A, particularly in consumer.
Speaker Change: And three pretty different end markets with tools outdoor living celebrations, where are the M&A opportunities.
Speaker Change: Do you see them today, and kind of where in consumer do you want a bigger presence in order of priority.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: Great question, our consumer business is doing exceptionally well and their value proposition is so sophisticated and so when we think about <unk>.
Speaker Change: Consumer and we think about adding companies to our umbrella. It's really one companies that we can make better and so that is utilizing our relationships with either our retail partners or distribution partners. If it's going into the kind of more of the professional channel.
Speaker Change: This Brian a lot of our customers in the consumer space, our do it yourself versus or their contractors that happen to shop in various places and so we want to be where they are.
Speaker Change: But again, it's I would say, it's more going to be focused on the value added tools space.
Speaker Change: And in those markets.
Speaker Change: As opposed to some of the others that were in today.
Speaker Change: Okay.
Speaker Change: And that will conclude our question and answer session and I will hand, the call back over to you Joe Hayek for any closing remarks.
Joe Hayek: Thank you Regina and thank you everyone for joining us this morning.
Joe Hayek: Please have a safe and a very happy holiday season, and we will look forward to speaking everybody again soon.
Joe Hayek: And that does conclude our call today. Thank you all for joining you may now disconnect.
Joe Hayek: Yes.
Joe Hayek: [music].
Okay.