Q4 2024 JELD-WEN Holding Inc Earnings Call
Speaker Change: Hello and welcome to the Jeldwyn Holding Inc. 4th Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question-and-answer session, and if you would like to ask a question during this time, please do so now.
Speaker Change: Please press star 1 on your telephone keypad. I would now like to turn the conference over to James Armstrong, Vice President Investor Relations. You may begin.
James Armstrong: Thank you and good morning. We issued our fourth quarter and full year 2024 earnings release last night and posted a slide presentation to the investor relations portion of our website, which can be found at investors.geldwin.com.
Speaker Change: We will be referencing this presentation during our call. Today, I'm joined by Bill Christensen, Chief Executive Officer, and Samantha Stoddard, Chief Financial Officer.
Speaker Change: Before I turn it over to Bill, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: 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.
Speaker Change: GLDWIN 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, during today's call, we will discuss non-GAP 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 financials measures calculated under GAAP can be found in our earnings release and in the appendix of our earnings presentation. With that, I would like to now turn the call over to Bill.
Bill Christensen: Thank you, James, and good morning, everyone. I'd like to start by recognizing the hard work and commitment of our team throughout what was a very challenging year.
Bill Christensen: We have continued making meaningful progress in our transformation, strengthening our ability to navigate current conditions while positioning ourselves for long-term success.
Bill Christensen: I also want to extend my appreciation to our customers listening today. We value your partnership and remain committed to being a stronger, more reliable partner in the years ahead.
Bill Christensen: Today, I'll begin by providing an overview of the quarter, after which Samantha will walk through our quarterly and full-year financial performance.
Bill Christensen: I'll then return to discuss our outlook for both the market and our business.
Bill Christensen: Looking at our fourth quarter highlights on slide 4, the software demand environment we anticipated last quarter materialized largely as expected.
Bill Christensen: and our adjusted EBITDA results came in within our guidance range.
as promised.
We delivered approximately $115 million of transformation benefits in 2024.
and we continue to take the necessary actions.
Bill Christensen: to align our costs with current market conditions while ensuring we are all well-positioned for future growth.
Bill Christensen: In the fourth quarter, we faced continued pressure from weaker volume and mix across both North America and Europe.
Well, our transformation initiatives provided some offset.
They were not enough to fully counteract these headwinds.
Bill Christensen: That said, we remain encouraged by the progress of our various initiatives, which are in our control.
Bill Christensen: These initiatives are helping us navigate the environment while strengthening our company for future performance.
Bill Christensen: Although we're pleased with the progress of our transformation, market conditions remain challenging.
Bill Christensen: We continue to see consumers trading down and delaying larger scale remodeling projects, which has impacted both our volume and mix.
Bill Christensen: Additionally, while housing starts have remained stable, the sharp decline in multifamily and higher-end home construction has significantly affected our VPI and La Contina businesses.
On a positive note,
Bill Christensen: While the overall market is soft, our interior door business has remained relatively stable as we picked up share.
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Speaker Change: In response to the continued soft market conditions, we are implementing cost reduction initiatives to further improve efficiency and adapt to our ongoing market dynamics.
Speaker Change: For example, in January, we announced the idling of our Windows plant in Grinnell, Iowa following the loss of a major Midwest customer's stocking business.
Speaker Change: With that, I'll turn it over to Samantha to walk through our financial results in more detail.
Samantha Stoddard: Turning to slide 6, fourth quarter revenue was $896 million, down 12% year over year.
Speaker Change: This decline was driven by lower core revenues reflecting the expected market-driven volume declines across North America and Europe, as well as a continued mixed shift in North America from higher price to more affordable options as customers prioritize cost savings.
Speaker Change: Adjusted EBITDA for the quarter was $40 million, a $47 million decline from the prior year, driven primarily by lower volume mix, resulting in an adjusted EBITDA margin of 4.5 percent.
Speaker Change: Free cash flow in the fourth quarter was a use of $28 million, including $56 million in capital investments.
Speaker Change: Given the impact of lower EBITDA and our continued investment in transformation initiatives, our net debt leverage ratio increased to 3.8 times, above our target range of 2 to 2.5 times.
Speaker Change: As we look ahead to 2025 and beyond, one of my top priorities will be to return to our targeted leverage range through EBITDA improvements and appropriate capital allocation.
Speaker Change: As shown on slide seven, our fourth quarter revenue decline was primarily driven by a 12% decrease in volume and mix, with approximately half of the decline attributed to a shift from higher average selling price products to more affordable options.
Speaker Change: I'll provide additional insights into North America and Europe market trends shortly.
Speaker Change: As shown on slide 8, adjusted EBITDA declined by $47 million year-over-year, largely due to the sharp drop in volume and mix.
Speaker Change: As expected, cost pressures remained a headwind in the quarter, driven primarily by labor and material inflation in glass and other commodities.
Key Factors Contributing to Negative Price-Cost Dynamics
Additionally, lower volumes led to operational inefficiencies.
limiting our ability to generate meaningful productivity gains.
Speaker Change: Moving to our segment results on slide nine, our North America segment generated $640 million in revenue for the fourth quarter.
Speaker Change: A 14% decline year-over-year. This was driven by a 14% reduction in core revenues, primarily due to lower volume and mix.
Speaker Change: The decline was more heavily weighted towards mix, as consumers continued to shift toward more affordable products.
Speaker Change: Additionally, earlier in the year, we exited certain higher-priced products with dilutive margins.
Speaker Change: North America's adjusted EBITDA declined to $42 million from $94 million in the prior year, reflecting the impact of lower volume and mix, as well as negative price-cost dynamics and productivity headwinds stemming from significantly lower volumes.
Speaker Change: In Europe, revenue for the fourth quarter was $256 million, with adjusted EBITDA of $17 million.
Speaker Change: Core revenues declined 6% year-over-year, driven by a 7% decrease in volume and mix, almost entirely attributable to volume. However, adjusted EBITDA improved by $1 million, resulting in a margin of 6.5%.
Speaker Change: The impact of lower volumes and slightly negative price cost was more than offset by strong productivity improvements.
Speaker Change: Turning to slide 10, full-year revenue declined 12% year-over-year, reflecting the ongoing impact of lower volumes and mix throughout the year.
Speaker Change: In addition, late in the year, our sales were affected by the loss of a major Midwest retail customer's window stock business.
as well as the strategic pruning of unprofitable business.
Speaker Change: Adjusted EBITDA and margins were pressured by lower sales, with these impacts only partially offset by productivity gains from our transformation initiatives.
Speaker Change: For the year, we faced approximately $160 million in headwinds from lower volume and mix, along with an additional $40 million decline from negative price costs and productivity challenges stemming from sharp volume declines.
However, our transformation efforts delivered meaningful results.
Speaker Change: allowing us to offset nearly half of these pressures in 2024. As a result, adjusted EBITDA declined 28 percent year over year with margins contracting by 150 basis points.
Speaker Change: I'll now hand it over to Bill to talk about the outlook into 2025.
Thanks.
Speaker Change: With the financial results covered, I would now like to shift focus to the broad market environment and our expectations for 2025.
Turning to slide 12.
Speaker Change: When we provided our initial market outlook last year, we were outside the consensus in anticipating a market decline.
Speaker Change: While we were directionally correct, the downturn was steeper than we had expected.
Speaker Change: This year, we see the potential for continued volatility in North America, with significant uncertainty around how conditions will unfold.
Speaker Change: Potential tariffs, persistently high interest rates, and the possibility of renewed inflation all contribute to this uncertainty.
Speaker Change: Additionally, affordability remains an issue as both unit costs and interest rates remain elevated.
Speaker Change: Finally, reports indicate that new home inventory is at a decade-high level and discretionary spending on home improvements remains subdued, especially on big-ticket discretionary items.
Speaker Change: Therefore, we believe there is a meaningful risk of further market declines in North America.
Speaker Change: Specifically, we expect both new construction and repair and remodel demand for windows and doors to decline by low to mid-single digits.
Speaker Change: We also anticipate continued double-digit declines in both multifamily and Canadian markets, consistent with last year's trends.
Speaker Change: In Europe, we believe the market will continue to decline this year, albeit at a lower rate than North America.
Speaker Change: Given this backdrop, we expect European residential construction activity to decline moderately, while commercial projects are likely to be slightly down.
Speaker Change: Given the challenging market outlook, and as part of our ongoing transformation, we are taking further actions to strengthen our network.
Speaker Change: As shown on slide 13, we are launching a comprehensive program to optimize our North American network, ensuring it is aligned to both support and deliver on our long-term commercial strategy.
Speaker Change: Specifically, we'll be realigning our footprint to support future growth at both the regional and product levels, ensuring we have the capability to manufacture the right product with the right capacity in the right locations.
Speaker Change: At the same time, we are accelerating automation investments to drive further efficiency and enable additional facility consolidation.
Speaker Change: Finally, to improve customer service levels, we are enhancing the planning and execution of all projects in this area to minimize service disruptions and maintain strong customer support levels.
Speaker Change: While much of this optimization work is already underway, we do not expect a significant financial impact from the program in 2025.
Speaker Change: However, as the consolidation progresses, we anticipate it could generate an additional $60 million or more in benefits on top of our ongoing transformation efforts once fully implemented.
Speaker Change: In addition to the mid-term optimization of our network, we are also implementing shorter-term actions to reduce costs and align with current market conditions.
Speaker Change: As shown on slide 14, we have identified several near-term initiatives.
Speaker Change: First, we are right-sizing our factories. That includes adjusting our salaried workforce. In several regions, demand has further declined while we continue to run multiple shifts.
Speaker Change: As we progress with our long-term network optimization, we are making near-term adjustments by reducing shifts and scaling back support staff to better align short-term costs with current and expected market realities.
Speaker Change: Additionally, with the evolving tariff landscape, we are proactively preparing for a higher tariff environment, particularly in North America.
Speaker Change: We are modeling options to optimize our supply chain to reduce costs, prioritize regional sourcing, and in-market production wherever possible.
Speaker Change: These short-term initiatives are expected to have a meaningful impact on 2025 earnings.
when combined with our broader productivity efforts.
Speaker Change: They are projected to generate approximately $50 million in annual savings.
Speaker Change: These near-term adjustments will help stabilize our cost structure as we recognize that 2025 will likely bring additional volume challenges.
I'll turn to our guidance for the year.
Speaker Change: Turning to our guidance on slide 16, we anticipate continued softness in North America compounded by the impact of share loss and the strategic business pruning last year.
Speaker Change: As a result, we expect net revenues to range between $3.2 billion and $3.4 billion, reflecting a projected 4 to 9 percent decline in core revenues.
Speaker Change: Up to 4-9% reduction in core revenues, which excludes the impact of Tawanda.
Speaker Change: About half is a result of the roll forward of changes that happened last year, including the loss of the large Midwest retail business.
Speaker Change: while the other half is related to the anticipated additional market weakness.
Speaker Change: Lower volumes are expected to flow through to EBITDA at an approximate 30% decremental rate, partially offset by ongoing transformation initiatives.
Speaker Change: Based on these factors, we now forecast an adjusted EBITDA range of $215 million to $265 million.
Speaker Change: Given our EBITDA expectations, we anticipate operating cash flow of approximately $15 million in 2025.
Speaker Change: In response to the low levels of operating cash flow, we are adjusting our capital expenditures to approximately $150 million, considering our expected elevated leverage levels by year-end.
Speaker Change: This results in a projected use of free cash flow of approximately $135 million.
Speaker Change: While this CAPEX guidance is lower than previously outlined, it remains well above historical levels, representing approximately four and a half percent of sales.
Speaker Change: We remain committed to funding our transformation to position the business for long-term success.
Speaker Change: The cash impact will not be as severe as our free cash flow guidance might suggest.
Speaker Change: This year, we received approximately $110 million in cash from the required divestiture of Tawanda.
which we will use to support our transformation efforts.
Speaker Change: However, with lower EBITDA, we still expect to end the year with leverage above four times, exceeding our target range, and we will be taking steps to address this.
Speaker Change: As you know, we typically do not provide quarterly guidance and do not expect to do so moving forward.
Speaker Change: However, the first quarter of this year is shaping up to be particularly challenging as the market remains weak and we begin to experience the full impact of last year's share loss and required divestiture.
Speaker Change: To maintain transparency and support your modeling, we currently expect a Q1 sales range between $750 and $775 million, with adjusted EBITDA of approximately $20 million.
Speaker Change: That said, we anticipate an improvement in Q2 and throughout the remainder of the year, driven by normal seasonality and the ongoing benefits of our transformation and cost management efforts.
Speaker Change: As a result, we do not expect these exceptionally low levels to persist.
Speaker Change: On slide 17, we provide a detailed breakdown of the key factors driving our EBITDA guidance midpoint to support your modeling.
Speaker Change: As shown, the impact of the Tawana divestiture, combined with volume declines and the reversal of one-time benefits,
Speaker Change: is only partially offset by the significant improvements we are achieving through targeted near-term actions and our broader transformation initiatives.
Speaker Change: As we enter the third year of our transformation, we remain focused on driving meaningful progress based on the things we can control.
Speaker Change: As shown on slide 18, we expect to deliver another $100 million in annualized adjusted EBITDA improvements this year. While there is still significant work and opportunity ahead to strengthen the foundation of our business,
Speaker Change: The results so far demonstrate that our efforts are making a tangible impact in a challenging market environment.
Speaker Change: Turning to slide 19, we expect the majority of the year-over-year variance to come from our North American segment.
Well, we anticipate some early signs of stabilization in Europe.
Speaker Change: In North America, lower volumes are expected to have the greatest impact, driven by a weaker market, the required Tawanda divestiture,
Strategic Business Pruning and Share Losses from 2024
Speaker Change: While we anticipate strong productivity gains in the region, they are unlikely to fully offset the impact of declining volumes.
Price cost is expected to be flat in the year.
Speaker Change: Conversely, while European sales volumes may present a headwind, we expect these pressures to be more than offset by the productivity improvements generated through our transformation initiatives.
Speaker Change: Although we do not anticipate a significant year-over-year increase in EBITDA, we do expect both absolute EBITDA levels and margins to improve modestly in 2025 compared to 2024.
Speaker Change: As in North America, we anticipate price costs will be roughly neutral in 2025.
Speaker Change: Finally, corporate expenses are expected to be higher this year as certain one-time benefits do not repeat and we reinstate variable incentives across the company.
Speaker Change: While the exact impact remains difficult to predict, we currently expect corporate expenses to land between 2023 and 2024 levels.
Speaker Change: As we look to the next phase of our strategy, one that positions Geldwin for long-term success despite continued near-term headwinds.
2025 will be a pivotal year for GELDWIN.
Speaker Change: Over the past two years, we have successfully reduced annual run rate costs by more than $200 million.
Yet persistent market weakness has offset these improvements.
Speaker Change: As a result, we are now shifting to the next phase of our transformation.
Speaker Change: Turning to slide 20, our focus in 2025 centers on three key priorities.
First, re-establishing strong partnerships with our customers.
Speaker Change: Our service levels have not consistently met our customers' expectations, and we're taking steps to improve both service and quality across the company.
Speaker Change: By focusing our organization on safety, quality, and delivery metrics, and linking variable compensation to these metrics, we aim to deliver what customers expect. The right product, at the right quality, on time, and in full.
Speaker Change: As we continue to execute on these improvements, we fully expect to regain market share that has been lost in recent years.
Second, optimizing our network.
Speaker Change: As we discussed earlier, we still have too many facilities operating below optimal levels. We are taking a disciplined approach to realign our long-term footprint, ensuring we maintain the right capacity while minimizing customer disruptions and enhancing service levels.
Finally, continuing to invest in cost and efficiency gains.
Speaker Change: Underinvestment over the past decade has left us with a fragmented network and many manual processes.
Speaker Change: We will accelerate automation and select manufacturing operations as we still have significant opportunities to improve efficiency and reduce costs across our network.
We expect 2025 to remain challenging, with continued market-related headwinds.
Speaker Change: However, we are taking the necessary actions on items that we control to navigate near-term pressures while positioning GELDWIN for long-term success.
Speaker Change: I am incredibly proud of our team's hard work to deliver long-term value.
Speaker Change: We continue to invest in the right systems, processes, and people to deliver the long-term value.
Speaker Change: Thank you for your continued interest. And with that, I'll now turn it over to James for the Q&A.
Thanks, Bill. Operator, we're now ready to begin the Q&A.
Speaker Change: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We ask that you please limit yourself to one question and one follow-up. Please ensure you are not on speakerphone and that your phone is not on mute when called upon. Thank you.
Speaker Change: Your first question comes from Philip Ng of Jeffries. Your line is open.
Philip Ng: Hey guys, appreciate all the great color in terms of how you're tackling some of these dynamics.
Philip Ng: But I guess my first question was really around the step up in your earnings progression even from 1Q to 2Q implicitly goes from $20 million to $64 million.
and certainly...
Philip Ng: first half versus back half pretty noticeable pick up there. So I think number one to be helpful to kind of give us a little more color on how you know that progressed whether it's the hundred million transformation or the 50 million headwind mitigation how did that get layered in?
Philip Ng: And I guess in a more normal demand environment, do some of these savings in the short-term kind of reverse as well. Help us think through progression. It would be really helpful.
Samantha Stoddard: Thanks, Phil. This is Samantha. So, to think about the progression, as we talked about, we're going to be taking both some near-term actions, about $50 million this year, as well as the transformation.
Samantha Stoddard: Many of those actions will begin to take effect in Q2. So, you know, we have to adapt to the ongoing market dynamics by optimizing our factories, our support staff, and our SG&A, and most of that takes effect beginning in the beginning of Q2.
Speaker Change: Are you assuming any ramp-up in demand, Matt, in terms of...
Speaker Change: First half versus back, we're pretty steady state throughout the year.
Speaker Change: So, there's going to be the normal seasonality that we expect beginning in Q2, so combined with the actions we're taking, that's kind of the lift up that you see. So, we do expect more of a normal seasonality beginning in Q2 and Q3.
Okay
Speaker Change: And then from a price-cost standpoint, you're calling for a pretty neutral price-cost this year. So, I guess, first, on the price part, you know, have you taken any pricing actions and how are your competitors reacting?
Speaker Change: And then certainly the unknown out there is around tariffs. The China tariffs feel pretty firm. There's metal and aluminum tariffs.
Speaker Change: And then there's talks of potentially China and Canada. I'm particularly interested on the Canadian front, just given the amount of lumber this country imports. How are you thinking about all those things and what's baked into your four-year guide as well?
Bill Christensen: Hey, it's Bill. Morning, Phil. So yes, it is a complicated picture currently if you're trying to run a global supply chain. Let me try and work through these one at a time based on the questions you asked. So yes, we are taking price
We expect, currently, given our visibility to the supply chain,
on the cost side. Secondly...
Bill Christensen: If we look at metals coming in from China, very little exposure.
Speaker Change: Yes, there is some lumber, I would say global exposure to lumber, and right now we're running through different scenarios and modeling implications. We feel fairly well set up given our current situation.
production network, which is fully domestic.
Speaker Change: both Canada and U.S., but we're waiting to see if there's some cross-border tariffs and it would be Canada, U.S. that could potentially have an impact, but we are running scenarios, haven't baked anything in addition.
Speaker Change: into the guidance that you currently have in front of you.
Speaker Change: Okay, so the $50 million does not account for any, the $50 million cost headwind you called out, Bill, does not account for any tariffs, whether it's China or Canada at this point, correct? No. No. Okay. That would be over and above, but there are obviously factor cost headwinds, and that's why we have selectively taken price in the market.
Thank you. Appreciate the call. Yeah, you're welcome.
Speaker Change: The next question comes from John Lovallo of UBS. Your line is open.
Speaker Change: Hey, good morning guys. This is actually Spencer Kaufman on for John. Thank you for the question. Hey, Spencer. Hey, good morning. Maybe just the first one. Can you just talk a little bit about your line of sight into it? You know, really just how confident you are in achieving the $50 million of the mitigation savings and the $100 million transformation savings in this year?
Speaker Change: You know, given your market view here, and I guess on top of that, is the right way to think about it that, you know, the transformation you'd be doing anyways in the 50 million is just like, you know, how you would approach a, you know, a more challenging market environment.
Yeah, so I think your last statement is fairly
Speaker Change: clear and spot-on. On our transformation, this is our ongoing business to really improve the foundation and strengthen the future for GELDWIN, so we have
Speaker Change: I'd say we have active projects that are already in flight, 80-85% of the 100 million, they're already running.
Speaker Change: So we have pretty good conviction on being able to deliver that, and I think our historical track record would suggest we're able to do what we say in this regard.
Speaker Change: The additional 50, that is reacting to what we think will be another demand-challenged environment.
Speaker Change: And so we have to adapt our cost structure accordingly and make sure we're ready. Yes, we'd love the market to be turning up, but right now we don't see any signals from any of our competitors.
Speaker Change: customers or market research that would suggest a turn so we're getting ready for a challenging year and making sure we're doing what we can control and doing that effectively.
Speaker Change: Okay, if that makes sense. In your slides, you mentioned that NICS is expected to remain, you know, at the entry level price point. How should we think about that in the context of your 2025 revenue bill? Is NICS expected to continue to be a year of your headwind, or are we sort of lapping all that now? It should be somewhat neutralized.
Speaker Change: Yeah, I think it's probably baked in and it's kind of a run rate that's rolling forward. If you just think about that dynamic of the market, we still expect.
Speaker Change: SoftMarket. As we've said, download amid single digits both on new and retail R&R.
Speaker Change: With that situation, the large builders obviously are going to continue to sell out. Inventories are building there, but it's lower end volume and product, which has a detrimental mix to our business, but we feel that's fairly baked in now and probably continue for the near term.
Okay, thanks guys. Yeah, thanks. Thanks.
Speaker Change: The next question comes from Susan McClary with Goldman Sachs. Your line is open.
Thank you. Good morning, everyone.
Speaker Change: Good morning. My first question is can you talk a bit about organic efforts to regain share, especially given the environment that we're in? Any progress that you're seeing there or projects that we should be looking for as we move through this year?
Speaker Change: Yeah, so there's a couple things that we're doing on the growth side. Susan, clearly, this is a challenging demand environment, but there are always growth opportunities for us, both on doors and in windows. So there's two buckets that we're focused on. Number one is being more effective on the sales side. So we've set up
Speaker Change: Pretty strenuous pipeline review processes in both our Doors and Windows organizations.
have weekly stand-ups, we're building project pipeline.
Speaker Change: and we're creating conversion models that will allow us to better predict where we think we're going to end the year. We're not ready to disclose detail around that, but I'm very pleased with the pipeline progression.
Speaker Change: So that would be the organic piece. Second would be really driving service improvements. Clearly there are certain areas where we have to improve.
Speaker Change: from a service level. I'm talking about quality and delivery because there are some pockets in this market that are still going and demand is strong, such as interior doors in the Southeast market. Unfortunately, there was many hurricanes last year and that's really pushed a demand.
Speaker Change: from some of our key partners in the region. So we need to make sure we can fulfill that effectively. So quality, delivery, and organic pipeline growth in the sales organization are the three levers that we're working on and feel pretty confident that we're gonna be able to gain back some of this share that we elected to step away from last year, just based on profit pool weakness or the Midwest retailer that elected to go offshore.
Speaker Change: Okay, that's helpful, Collar. And then maybe just turning back to the full year guide and thinking about the first half versus the second half, any thoughts Julian or Samantha, how we should be thinking about the exit rate on that EBITDA margin for this year as some of these initiatives do start to come through and gain momentum?
Yeah, that...
Speaker Change: Toward the end of the year, as they're gaining momentum, you are going to have kind of the tail end in Q4, when you think about the drop off from a seasonality impact, but I would say it's a good, it's a good practice to think about our margin rate exit around 9%, 8 to 9% at the end of the year.
Speaker Change: Okay, all right. That's very helpful, Collar. Thank you both. Good luck with everything. You're welcome.
Speaker Change: Your next question comes from the line of Mathieu Boullée with Barclays. Your line is open.
Speaker Change: Good morning, you have Anika Dlakhia on the format today. Thanks for taking my questions. First off, hi, good morning. Within your 150 million CapEx guide for the full year,
Anika Dlakhia: I'm wondering if you can give more detail on what this is being allocated to. Is it more on the productivity side, or is it growth, or is it maintenance? Any details on that would be helpful. Thanks.
Anika Dlakhia: Sure, so I would say it's balanced right now between network optimization and improving automation in our facilities.
Anika Dlakhia: And with some portion also being towards our growth. So, you think about our special order project that we announced on a previous earnings call. There's a lot of work going into that around the...
Anika Dlakhia: Updating of displays, making sure that we have the right systems in place to facilitate better special order process in our retail partners stores.
Anika Dlakhia: When you think about the overall 150 you got to think a little less than 100 is tied to maintaining the asset base
for our overall network.
Anika Dlakhia: So, the $50 million of, let's call it incremental to that, is really the transformational capex around network optimization, automation, and then some growth initiatives.
Awesome. That's super helpful.
Anika Dlakhia: And then I guess secondly, on Europe, the volume and mix remains under pressure. Have you guys seen any pockets of strength in this region, specifically in commercial, I know it's guided down slightly? And then can we assume any recovery as we move through 2025, or how do you expect the volume cadence to trend there? Thanks.
Yeah, you're welcome. So
Europe is
Anika Dlakhia: Again, just to remind you, the build cycle for a European unit is probably 9 to 12 months before a product goes in versus 6 to 9 in the U.S. So as the starts pick up...
Anika Dlakhia: Interest rates are coming down, which will definitely help, and we're also seeing some competitors in specific markets that are in financial distress, so we're able to pick up some additional volumes.
Anika Dlakhia: starting to pick back up, but obviously that also has a pretty long gestation period based on the size and the scope of the of the project. So that's like 12 months out. So it's a 26 story and we are controlling what we can't control in 25.
Awesome. Thank you, and good luck.
Thank you very much. Thank you.
Speaker Change: Once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad. Your next question comes from Mike Dahl of RBC Capital Markets. Your line is open.
Speaker Change: Thanks for taking my questions. First one is that I go back to Phil's questions on tariffs. $50 million is not a significant amount if that's not inclusive of Canada, so can you just help us?
Speaker Change: understand if that's the incremental cost, you know, what specifically is it related to in terms of the spend that you're bringing in?
Speaker Change: Yes, so the 50, hey Mike, good morning, so the 50 is, that's not tariff related, that's just inflation costs.
on our sourcing stack.
Speaker Change: So, there's freight, there's labor inflation, there's material inflation, those are the big buckets that fill the 50.
Speaker Change: So it's separate and distinct to potential tariff headwinds, which are currently not baked into that number. And our expectation is that we're gonna be price cost neutral on that in the market for 2025.
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Speaker Change: Okay that is that's a very helpful clarification. Thanks for that. This is my second question is kind of related. I mean if we look at kind of the bridges and it's always helpful how you draw the waterfalls.
Speaker Change: You know in 2024 you had caught 200 million dollars of EBITDA headwinds you offset 95 million of that give or take 90 to 95 in this bridge
Speaker Change: You kind of inclusive of Tawanda you have another 200 million I guess exclusive of
Tawanda, like 150 exclusive of Tawanda and your...
Speaker Change: You're effectively assuming all of that is offset and then you still have kind of these price cost issues, which I appreciate You're assuming neutral, but that's still stuff that you need to do to get it there so just
Speaker Change: I guess the question is going back to level of conviction. It seems like a lot to offset to get to kind of a flat-ish even thought a number. So help us with that walk a little.
Speaker Change: and maybe as part of that also the corporate side that's a very wide range on corporate costs so maybe a little more detail on what's happening there.
Thank you very much.
Speaker Change: Okay let me try and hit it at a high level and then maybe Samantha can give some additional color if some buckets are unclear. So I think you've kind of framed it correctly. The Tawanda divestment, again just so it's clear, that was court-ordered.
Speaker Change: and we did divest based on an order from the court and that has cost us expected $175 million in revenue and $35 million in EBITDA.
Speaker Change: So that is one bucket, clearly, of headwind. The second bucket of headwind, as we've shown on the waterfall, is market...
Speaker Change: And the market is bucketed into a couple areas. Number one, volume mix headwind. And number two, pruning and share loss, things that are kind of rolling forward, the Midwest retail loss, some of the pruning that we've done in our portfolio, what we didn't like.
Speaker Change: from a profit pool standpoint last year and that's a pretty big number so based on our expectation on where we see the headwinds this year we feel that the hundred million in transformation that we're driving to and we've committed to is not going to be enough to counteract this so we need to do more.
Speaker Change: So, we're going to take some tough actions on the structural cost to make sure we're ready.
Speaker Change: for the Rebound and we still feel that this is a great story when the volume comes back and we've cleaned up our cost structure and our manufacturing footprint. So that's still what we're working on this year. Maybe there's some additional details that Samantha can give to help you.
Speaker Change: a better understand the buckets and how we're looking at balancing this.
Speaker Change: So, from a corporate cost perspective, when you think about last year, we already started some of the corporate, I would say, cost management.
Speaker Change: to make sure that we're better aligned to market conditions. That'll continue into 2025. There is going to be about 15 to 20 million of headwind simply because of a variable comp issue year over year that will be reinstated in 2025.
Speaker Change: So when you factor it all in, think about modeling this year being $15-20 million higher than 2024, net of all the puts and takes.
Got it. Okay. Thank you.
You're welcome.
Speaker Change: The next question comes from Keith Hust of Truist. Your line is open.
Thank you.
Speaker Change: You're talking about price costs flat with $50 million of traditional inflation headwind. There's so much mixed pressure in your industry. What areas do you think you can get priced? It just seems like this would just get mixed down whatever you raise prices on. Where are you going to get that?
Yeah, well, I...
Speaker Change: on the mix when we look at kind of our stack for expectations on volume around the builder side, on the new construction, and then on the retail and R&R side.
Speaker Change: So this is, you know, just us working extremely hard with our partners to make sure that we're doing what we can to control our costs. But, you know, if there is inflation, and there still is inflation in the system, then we need to pass it through.
Speaker Change: and Keith, the other thing to think about is some of this has already, like the price has already been in the market. This is in there from last year, so some of this is carryover impact that you're feeling in 2025, but this is already, you know, in the market.
Speaker Change: Okay, and the big customer loss in the Midwest, when will you anniversary that? And can you give us any idea what kind of revenue loss over 12 months that is?
Yeah, so it's going to be kind of Q3-ish.
September, around September.
End of Q3.
Speaker Change: And one final question. The previous comment on the corporate cost of $15 to $20 million headway, is this just normal compensation expense coming back, or was there something unusual about it? That's exactly it.
Speaker Change: Yeah, it's essentially normal, essentially bearable compensation coming back in 2025. It's nothing out of the ordinary other than that.
Okay, thank you.
You're welcome.
Speaker Change: This concludes the question and answer session. I'll turn the call to James Armstrong for closing remarks.
Speaker Change: Thank you for joining our call today. If you have any follow-up questions, please reach out. I'll be happy to answer them. This ends our call, and please have a great day.
Speaker Change: This concludes today's conference call. Thank you for joining. You may now disconnect.
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