Q1 2025 Beacon Roofing Supply Inc Earnings Call
Yeah.
Speaker Change: Good morning, ladies and gentlemen, and welcome to the Beacon fourth quarter and full year 'twenty 'twenty four earnings call. My name is Chad should not be a coordinator for today at this time all participants are in listen only mode and will be conducting a Q&A session towards the end of this call.
Time, I'll give you instructions on how to ask a question.
Speaker Change: Any time during the call you require assistance. Please press star followed by zero and a coordinator will be happy to assist you.
Speaker Change: I remind that this conference call is being recorded for replay purposes.
Sandy: So now it's kind of cool I bet, you Miss it and its Sunday, Vice President capital markets and Treasurer. Please proceed Ms Sandy.
Sandy: Thank you Chad good morning, everybody and as always we thank you for taking the time to join our call today I'm joined by Julian Francis Our Chief Executive Officer, and Chris Gandhi Beacons, Chief Financial Officer, Julian and Brett will begin today's call with prepared remarks that will follow the slide deck posted to the Investor Relations section of <unk> website.
Sandy: After that we will open the call for questions.
Sandy: Before we begin please reference slide two for a couple of brief reminders first this call will contain forward looking statements about the companys plans and objectives and future performance.
Sandy: Forward looking statements can be identified because they do not.
Sandy: They do not relate strictly to historical or current facts.
Sandy: Words, such as anticipate estimate expect believe and other words of similar meaning actual results may differ materially from those indicated by such forward looking statements as a result of various important factors, including but not limited to those set forth in the risk factors section of the company's 2023.
Sandy: <unk> Form 10-K.
Sandy: Second the forward looking statements contained in this call are based on information as of today February 27 2025.
Sandy: As required by law the company undertakes no obligation to update or revise any of these forward looking statements.
Sandy: And finally this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in today's press release.
Sandy: The appendix to the presentation accompanying this call both the press release and the presentation are available on our website at <unk> Dot com.
Sandy: Let's begin with opening remarks from Julien Thanks, Ben and good morning, everyone. So let's begin on slide four.
Sandy: Our team delivered a record fourth quarter as a result of execution on our ambition 2025 plan.
Sandy: Over the past three years, our strategy has been repeatedly tested whether it be rapid inflation supply chain disruption or contracted just stocking and yet we continue to grow top and bottom line.
Sandy: We were challenged again in Q4 when after a record October November and December were well below the usual sales trend.
Sandy: The slowdown mostly impacted residential roofing, especially in markets in our north and west regions, yet, we still set fourth quarter records for net sales.
Sandy: EBITDA and cash flow.
Sandy: Sales per day were up approximately 3% year over year to $2 4 billion.
Sandy: Driven by contributions from recently acquired branches.
Sandy: Gross margin came in at the high end of our guidance.
Sandy: As a result of strong execution average selling prices rose in the quarter.
Sandy: Our concerted effort around operating efficiency, including our bottom Quintile branch initiative and cost actions taken earlier in the year.
Sandy: We delivered fourth quarter, adjusted EBITDA of $223 million.
Sandy: I'm also pleased with our management of working capital, we generated fourth quarter cash flow of nearly $360 million, which.
Sandy: Us to deploy resources towards our growth initiatives, including Greenfield locations and acquisitions.
Sandy: When we launched our ambition 2025 plan in early 2022, we set out to transform the company and our performance.
Sandy: I can confidently say that we have done what we said we were going to do over the last three years, we have the right team and an operating model to unlock our full potential.
Sandy: Now please turn to page five.
Sandy: At our Investor day in 2022, we laid out targets to drive above market growth deliver consistent double digit adjusted EBITDA margins build a great company and generate superior shareholder returns.
Sandy: In the last year of our plan, we have already achieved many of our goals and those that remain are in our sights.
Sandy: Building, a winning culture has been important for us throughout ambition 2025 is safe and respectful workplace as a foundation for attracting and retaining employees when labor is a scarce resource recruiting and retaining a talented workforce becomes a competitive advantage.
Sandy: We value, making everyday safer and have been working to ensure everyone gets home safely and I'm proud of our results last year.
Sandy: Our analysis showed that in 2023 strains and sprains for new employees was almost frequent injury.
Sandy: In 2024, we were determined to cut these injuries in half and I'm pleased to report that we exceeded that goal. In addition, our Osha total case rate a key safety metric was the best in <unk> history.
Sandy: Next investing in Greenfield as a major lever in driving above market growth and enhances our overall value proposition and customer reach giving us the opportunity to earn market share.
Sandy: I'm pleased to report that the 17 Greenfields in the class of 2022, the most mature of the portfolio contributed nearly $22 million to EBIT and full year 2024.
Sandy: Our online capability continues to be a clear competitive advantage for beacon the sales through our digital platform, increasing customer loyalty generating larger basket sizes, and enhancing margin by more than 150 basis points when compared to offline channels.
Sandy: In the fourth quarter, we grew digital sales approximately 20% year over year, driven by our value added integrations.
Sandy: Digital sales as a percentage of total sales reached approximately 16% at the end of the fourth quarter, nearly a 200 basis points improvement year over year led by sales to our residential customers. We will continue to invest in a differentiated digital offering and to build on our digital leadership.
Sandy: Our private label line of high quality building products sold under the <unk> brand delivers professional results for customers and yields between 510000 basis points of additional margin versus the alternatives.
Sandy: We have meaningfully invested in our brands to bolster its presence and expand its offerings to better serve our customers, including the launch of Tri built ISO a professional grade roof installation in the fourth quarter. We grew total private label sales approximately 7%.
Sandy: Our focus on driving operational excellence is anchored by our bottom quintile branch process and it continues to generate meaningful results, we added more than $7 million of EBITDA year over year in the fourth quarter.
Sandy: Productivity is key to ensuring that we offset inflationary pressures and leverage our operating expenses.
Sandy: We have discussed previously the many ways in which we are focusing on driving improvement everyday including leveraging our labor and fleet using technologies such as our routing software, we can track and executing on our strategic branch optimization.
Sandy: Also demonstrated the ability to adjust our cost base to changing market conditions as we did in the third quarter.
Sandy: These actions are delivering results.
Sandy: In the fourth quarter, we increased sales per hour worked by approximately 6% year on year, hitting a fourth quarter record.
Now, let me take a minute to talk about our M&A playbook.
Sandy: Hyatt branches from the class of 2020 to the first group under our ambition 2025 plan are delivering tangible results to the bottom line. The five acquisitions in aggregate delivered double digit EBITDA margins. In 2024. We believe this is indicative of our ability to improve businesses we acquire.
Sandy: And we continue to create shareholder value.
Sandy: During the fourth quarter, we completed the accelerated share repurchase program initiated in the second quarter.
Sandy: The share buyback program demonstrates both our commitment to delivering value to shareholders and our confidence in the ambition 2025 prime.
Sandy: Chris will give you the details, but let me highlight that since the start of ambition 2025, we have deployed more than one $5 billion to share buybacks three times, our initial ambition 25 target, reducing the as converted share count by more than 23%.
Chris Gandhi: In summary, we have built a business that has multiple paths to growth margin expansion and value creation in all market conditions. Our ambition 2025 plan has created an engine to drive our business model and systematically improved performance now I'll pass the call over to Chris to provide a deeper <unk>.
Chris Gandhi: <unk> on our fourth quarter results.
Chris Gandhi: Thanks, Julian and good morning, everyone.
Chris Gandhi: Turning to slide seven we reached over $2 4 billion in total net sales in the fourth quarter up four 5% driven by the contribution of acquisitions.
Chris Gandhi: Adjusting for one additional day in the fourth quarter of this year net sales increased by nearly 3%.
Chris Gandhi: Organic volumes, including those from Greenfields decreased approximately 3% to 4% on a per day basis, but overall price contributed 1% to 2%.
Chris Gandhi: Acquisitions contributed approximately 5% year over year.
Chris Gandhi: As Julian mentioned, we experienced a sharp slowdown in fourth quarter activity, particularly in December due to the weather patterns that impacted a significant portion of the country.
Speaker Change: To give you some context on a per day basis. Our typical November sales averaged around 95% of October sales in 2020 for November sales were less than 90% of October sales. Similarly December sales per day, typically average around 75% of October in 2024.
Chris Gandhi: December sales were they were less than 70%.
Chris Gandhi: Residential roofing sales were lower by less than 1% on a per day basis prices increase by low single digits percent year over year and acquisitions also contributed partially offset lower organic volumes versus a strong shingle comparable in the prior year period.
Chris Gandhi: While our residential volumes were down in the quarter, we estimate using IRI data that we grew in line with the market for the full year adjusting for movements and channel stocking.
Chris Gandhi: Residential sales per day increased by nearly 4% as our team continued to drive growth through the commercial acceleration initiatives.
Chris Gandhi: Prices declined by low single digits year over year and remained relatively stable on a sequential basis.
Chris Gandhi: <unk> volumes were nearly in line with a strong fourth quarter and 2023.
Chris Gandhi: Complementary sales per day increased by approximately 10% driven by acquisitions, including 15, new waterproofing branches in the last four quarters, which significantly expanded our specialty waterproofing products Division.
Chris Gandhi: Selling prices were stable year over year.
Chris Gandhi: Turning to slide eight we will review gross margin and operating expense gross margin was unchanged from the prior year quarter at 25, 7% and at the high end of our expectations and total price cost was up around 10 basis points year over year as higher selling prices offset increases in product costs.
Chris Gandhi: Higher sales through our digital channel and growth in our private label products continue to be accretive to <unk> gross margin. These favorable contributions were offset by a higher nonresidential sales mix and the dilutive impact of M&A. We've conducted in the past year that has yet to be fully synergize.
Chris Gandhi: Adjusted operating expense was $434 million, an increase of approximately $25 million compared to the prior year quarter.
Chris Gandhi: Adjusted operating expense as a percentage of sales increased to 18% up 20 basis points year over year.
Chris Gandhi: Is associated with acquired and Greenfield branches contributed approximately $31 million of the total increase in adjusted Opex. These increases were offset by approximately $6 million of lower operating expenses in our existing business, which included the benefit from our September cost actions.
Chris Gandhi: Estimate the impact of these actions to yield annualized cost savings of $45 million approximately $30 million of which will be realized in 2025.
Chris Gandhi: Sales per hour worked in our existing branches of key productivity measure jumped 6% year over year in the fourth quarter nearly matching its highest level in the last 12 quarters.
Chris Gandhi: We continue to make investments to drive and support above market growth and margin enhancement. These included initiatives related to our sales organization private label pricing tools ecommerce technologies and branch optimization.
Chris Gandhi: Turning to slide nine we delivered record operating cash flow in the quarter of $360 million or more than a 160% of the $223 million and adjusted EBITDA driven by disciplined working capital management through close collaboration among our credit supply chain organization and the field team.
Chris Gandhi: We efficiently manage receivables and inventory, we had $87 million less in inventory compared to the third quarter contributing to the strong finish on.
Chris Gandhi: On a year over year basis inventory increased by $180 million as mentioned on our last call.
Chris Gandhi: Seasonal conversion.
Chris Gandhi: Product availability for our customers and the recent storm impacted regions of the country inventory from acquired branches and Greenfield load ins and inflation in our product costs all contributed to the increase year over year.
Chris Gandhi: In 2024, we generated nearly $420 million of operating cash flow. Following a record full year 2023 in which we generated $788 million over the last two years, we have generated over $1 2 billion in operating cash flow.
Chris Gandhi: Our ability to generate cash underpins our capital allocation approach to balance investments towards organic growth M&A and shareholder returns in the form of share repurchases. These include our ability to invest in greenfield and value, creating acquisitions, while maintaining balance sheet flexibility and liquidity net debt.
Chris Gandhi: Leverage return to our targeted range at two eight times cash and available lines of credit totaling more than $1 1 billion.
Chris Gandhi: As of December 31.
Chris Gandhi: Since the beginning of ambition 2025, consistent with our commitment to deliver strong shareholder returns have chosen to deploy $1 $5 billion of capital on the repurchases of equity have you chosen instead to reduce debt because net debt leverage would be at approximately one two times adjusted EBITDA.
Chris Gandhi: Well below the low end of our target range of two to three times.
Speaker Change: In 2024, we invested nearly $127 million capital expenditure to drive organic growth and to upgrade our fleet and facilities in support of our customers and employees, while Julien cover the share repurchase program. Let me provide you with some additional details in the second quarter of 2024.
Speaker Change: We executed $225 million accelerated share repurchase plan that resulted in the retirement of approximately $1 9 million shares or $180 million. The remaining $45 million equity forward contract settled in the fourth quarter of 2024 and resulted in the repurchase of <unk>.
Speaker Change: Nearly 500000 additional shares we retired a total of more than $2 4 million shares in the full year at an average price of less than $93 per share.
Speaker Change: Net of share issuances for stock based compensation, we reduced our common shares outstanding to $61 5 million on December 31 was $63 3 million at the previous year or act as we remain committed to delivering attractive shareholder returns, while maintaining a strong balance sheet.
Speaker Change: With that I'll turn the call back to Julian for his closing remarks.
Julian Francis: Thanks, Brett.
Speaker Change: Please reference page 11 of the slide materials.
Speaker Change: Before we move to the outlook I'd like to take a minute to reflect on 2024 results and the progress we have made towards the ambition 2025 targets, we laid out three years ago.
Speaker Change: In 2024, we produced sales growth of more than 7% to nearly $9 8 billion.
Speaker Change: And generated more than $930 million and adjusted EBITDA eclipsing last year's record levels.
Speaker Change: This despite significant headwinds throughout the year, including difficult year over year comparisons in Florida sluggish housing starts historically low existing home sales and lower commercial new construction.
Speaker Change: We delivered record sales in our national accounts private label and digital initiatives, which delivered both enhance growth and margin. We opened 19 greenfields across 12 states and two Canadian provinces further enhancing our reach to customers. These new branches are ramping up ahead of expectations and in total greenfield locations.
Speaker Change: <unk> more than $180 million to the top line in 2024.
Speaker Change: We welcomed 12, new acquisitions, adding 42 branches, new markets and new capabilities.
Speaker Change: Our acquisition portfolio is performing well acquired branches contributed more than 400 million to net sales and like our Greenfield strategy expanded our ability to serve our customers across the U S and Canada.
Speaker Change: We trained and developed leadership positions within our sales force lines of business and leadership ranks, including the launch of our commercial Academy in the roofing industry Center at Clemson University.
Speaker Change: We demonstrated our commitment to hiring a qualified workforce from diverse backgrounds, which enables us to win in our markets, including the rapidly growing Latino community.
Speaker Change: We generated a 20 million dollar contribution to adjusted EBITDA from our bottom Quintile branch initiative, bringing the three year total to $78 million.
Speaker Change: So passing a $75 million ambition 2025 target a year early.
Speaker Change: In 2024, we returned $225 million to our shareholders by repurchasing and retiring $2 4 million shares about four 4% of shares outstanding.
Speaker Change: However, there were also missed opportunities we will late responding to shifting market dynamics that impacted demand for example, the cut in interest rates did not spur more activity as expected and we carried too much overhead into Q3, when we took action.
Speaker Change: And while we generated nearly $420 million in operating cash flow in 2020 for the majority of which was in the fourth quarter. This was below our expectations as we did not adjust inventory appropriately until later in the year.
Speaker Change: Despite these misses our performance in 2024 has created significant value for our customers and shareholders alike and has positioned us to capitalize on market opportunities and what is expected to be an equally mixed environment in 2025.
Speaker Change: Please turn to slide 12.
Speaker Change: Let me talk about our expectations for the market in 2025.
Speaker Change: Broadly many of the headwinds I described earlier will persist through the first half overall sentiment has weakened in recent weeks, particularly in new construction markets with higher interest rates likely to continue and input costs likely to rise in part due to expected tariffs there are increasing concerns with contract labor avail.
Speaker Change: Ability.
Speaker Change: While interest rates and tariffs may have a limited impact on our primary product categories, and we feel confident about our ability to attract and retain a workforce clearly all three of these elements create greater uncertainty in our end markets.
Speaker Change: We expect residential re roofing market demand will be down this year driven by our assumption that storm demand will tick lower after a modestly above trend year in 2024.
Speaker Change: We expect non storm repair and re roof to be higher on demand from the non discretionary replacement cycle of roofs and.
Speaker Change: In residential new construction as well as existing home sales are expected to remain sluggish.
Speaker Change: In commercial roofing the architectural billing index remains below 50, indicating contraction in new construction activity in the first half of the year, However, repair and re roofing activity is expected to improve.
Speaker Change: Despite these near term headwinds the underlying demand drivers remain strong underinvestment in housing U S migration towards areas impacted by severe weather and regulation and insurance trends that drive increased replacement activity.
Speaker Change: For the first quarter, we expect total sales per day to be down in the 3% to 5% range compared with the prior year quarter.
Speaker Change: This is primarily due to the harsh weather we've seen in January and February which typically results in more demand as the year progresses.
Speaker Change: With respect to first quarter gross margin, we expect it to be in line with the prior year quarter.
Speaker Change: Adjusted operating expenses are expected to increase year over year attributable to the higher expenses related to head count from Greenfield and acquired branches, which were mostly offset by cost management in our existing business.
Speaker Change: For the full year, we expect net sales growth in the mid single digit percent range, including contributions from acquisitions previously announced.
Speaker Change: Regarding gross margin structural improvements from our initiatives, including the implementation of our pricing model higher private label and digital sales are expected to be partially offset by the geographic and line of business mix impacts. It is important to note that we expect price cost to be neutral, resulting in a full year gross margin percentage in <unk>.
Speaker Change: And with prior year.
Speaker Change: We also expect to realize benefits from cost actions taken in the third quarter of last year to contribute approximately $30 million.
Speaker Change: With all that in mind, we expect adjusted EBITDA to range between $950 million and $1 <unk> 3 billion.
Speaker Change: Regarding cash flow, we expect inventory to follow a normal pattern of seasonality as we build inventory in the first half of the year and convert to cash in the second half for the full year, we expect to generate strong operating cash flow in the range of $500 million to $600 million.
Speaker Change: We will also invest in growth and plan to open 15 to 20, new Greenfield locations.
Speaker Change: We'll continue to execute on our pipeline of tuck in acquisitions with disciplined criteria and rigorous integration.
Speaker Change: Our focus will remain on delivering results, including enhancing our customer service pricing and daily execution on safety productivity and efficiency, we have a durable strategy, our resilient business model a great team in an attractive industry future.
Speaker Change: Future is bright and we look forward to helping our customers build more.
Speaker Change: Before we turn the call over to Q&A I do want to briefly address our ongoing matter with <unk>.
Speaker Change: Back on January 27, 2025, <unk> launched an unsolicited tender offer at $124 25 per share.
Speaker Change: Our board after consultation with independent financial and legal advisors unanimously determined that <unk> Alpha is not in the best interests of the company and its shareholders because it's significantly undervalues, the company and our prospects for growth and value creation.
Speaker Change: Therefore, the board strongly recommended that shareholders not tender their shares to <unk>.
Speaker Change: Importantly, though the board remains open to considering all opportunities to maximize shareholder value and beacon looks forward to sharing more on its future growth plans and 2028 long term financial targets at our upcoming Investor Day on March 13 2025.
Speaker Change: Please focus your questions on our business and a record fourth quarter and full year results, we will not take any questions related to <unk> tender offer and proxy contest on this call.
Speaker Change: With that operator, I'll turn it back to you and the question and answer session.
Speaker Change: Thank you, ladies and gentlemen, if you wish to ask a question. Please press star followed by one on your Touchtone telephone.
Speaker Change: Your question has been fit or you wish to withdraw your question. Please.
Speaker Change: Well.
Speaker Change: Each caller is limited to one question.
Speaker Change: The first question today comes from Mike Dahl from RBC. Your line is now open.
Speaker Change: Hi, Thanks for taking my question.
Speaker Change: Look I think one of the obvious ones is sluggish.
Speaker Change: Sluggish start to the year, but youre still bridging to a pretty healthy growth.
Speaker Change: For the full year. So can you help us understand more dynamics around quarter to date sales.
Speaker Change: Whether you've seen an improvement.
Speaker Change: Over the past week, or so whether it's gotten a little bit better.
Speaker Change: And then within the full year guide help US breakdown you gave us the acquisition contribution, but how are you thinking about.
Speaker Change: Organic price and volume across your segments.
Speaker Change: Thanks, Mike I'll take the first part and just general trends, Chris can give you some some of the financial details as well.
Speaker Change: Yes.
Speaker Change: January was tough.
Speaker Change: I think I love the statistic there was snow in all 50 states.
Speaker Change: February has been extremely cold up until last week.
Speaker Change: The last week or so.
Speaker Change: We were down I think low teens in the in January.
Speaker Change: And February was was tracking towards that up until the last few days in the last few days, we've seen demand levels.
Speaker Change: Where we would expect to be in early March mid March which is a good sign like we said the harsh weather is generally create demand.
Speaker Change: And whether in general.
Speaker Change: Only creates demand will move it around it doesn't it doesn't take it away. So that's important for everyone to realize so we do think that that's.
Speaker Change: Fundamentally what's going to play out first quarter is going to be tough weather related we're seeing improvements coming in and as we said typically.
Speaker Change: Tough weather creates demand for us, particularly when it impacts.
Speaker Change: States that don't usually see this type of weather around the south so.
So that's what we're seeing so far and we've got a lot of confidence in our business, where we're driving to obviously the cost actions we took.
Speaker Change: Last year in the third quarter to get.
Speaker Change: Our staffing levels to where they should be.
Speaker Change: Going to carryover into this year. So we feel we feel very good about our prospects for top and bottom line growth just a couple of things to that micro on Q1 in particular, when you kind of break it down in terms of March we're expecting comp sales.
Speaker Change: Sales for the kind of flat to last year, and remember, where we did 12 acquisitions last year most of which were done after March. So so we've got some favorable structural benefits in terms of why why do we have confidence around Q1 in terms of the full year, let me start with sales in terms of our.
Speaker Change: Guide for kind of mid single digits.
Speaker Change: We are expecting.
Speaker Change: Total market. This is across all lines of business to be flat to slightly higher the M&A carryover is about 2% the price carryover from the shingle price increases last year, that's about 1% and then we have above market growth, including Greenfields in sales in the low single digit percent range.
Julian Francis: In terms of the EBITDA Bridge you start with the 930 as Julian said you took cost actions in September we expect to generate about $30 million of savings from those actions in 2025. The M&A carryover is in the order of $10 million and then we do expect to get operational lever.
Speaker Change: Rich.
Speaker Change: Especially in the existing business, despite adding new greenfields and so forth. So that's kind of how we get to the.
Speaker Change: The mid point of our guidance and in terms of the upside.
Speaker Change: We've said that we expect.
Speaker Change: Residential volumes to decline this year, because when you go back to the tenure storm average.
Speaker Change: We.
Speaker Change: Actually revert to what we saw over the last couple of years that would get us towards the high end of our guidance.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you. The next question is David Manthey from Bob Your line is now open.
David Manthey: Thank you and good morning, everyone.
Speaker Change: First just as we build up the top line.
Speaker Change: What number of new Greenfield additions are you budgeting for 2025, and then on the price front I think you said price cost is neutral and you get a 1% carryover from 2020 for pricing, but does your 2025 guidance include any price increases across any of your categories.
Speaker Change: Non res complementary.
Speaker Change: Yes, I think in our prepared remarks, we mentioned sort of 15% to 20 grief.
Speaker Change: Greenfield locations, we will toggle that based on what we see in market conditions and availability of.
Speaker Change: Rental units for lease so that would be our greenfields.
Speaker Change: The target for this year somewhere in that range.
Speaker Change: I think that we've got a residential price increase that has been announced for April.
Speaker Change: So we do have that factored in.
Speaker Change: Obviously.
Speaker Change: It's difficult to predict exactly what's going to happen with projected tariffs and.
Speaker Change: How that will impact the overall macro.
Speaker Change: And our pricing strategy, but we've got one one residential increase so far that has announced that it is sort of baked in but price cost neutral.
Speaker Change: Got it thanks Julien.
Kim: Thanks Kim.
Speaker Change: The next question is from Trevor Allinson from Wolfe Research. Your line is now a penny.
Trevor Allinson: Yes quick question on <unk>.
Speaker Change: SG&A clearly been a focus for you guys here the last few quarters, you've talked about managing that back.
Speaker Change: 17% overtime, you've got the restructuring in place here, but just looking at your guide it looks like maybe you're expecting to be a bit above the 17% number in 2025. So what do you need to see happen to get back to 70% of these need to digest some of the M&A and Greenfield you've done or are there other.
Speaker Change: <unk> to pull there.
Speaker Change: Yeah I'll touch on this driver then ill give some.
Some of the details as well so fundamentally your thesis is right we've got to digest some of the.
Speaker Change: Yes.
Speaker Change: The acquisitions that we've done obviously, we are going to continue to invest in.
Speaker Change: <unk>.
Speaker Change: In new Greenfields, we believe that we will continue to add capacity with the.
Speaker Change: That will continue to invest in value, creating projects that we have.
Speaker Change: But as a greenfield mature.
Speaker Change: The earlier classes, which none of them have really gotten there yet.
Speaker Change: We'll start to see that come down and I think that if you sort of Peel away.
Speaker Change: All of those things, we've got our underlying very good story about.
Speaker Change: Where we sit today.
Speaker Change: But first I'll have some more detail so.
Speaker Change: In terms of just how we're thinking about the opex in the coming year.
Speaker Change: We were expecting to have about $60 million of additional expense from acquisitions in greenfields and so that means we will actually have some leverage within the existing business over the coming 12 months and then we're continuing to drive productivity and.
Speaker Change: And other.
Speaker Change: Operational excellence initiatives that we think will enable us to get further progress in this area.
Speaker Change: Understood. Thank you for all the color and good luck moving forward.
Speaker Change: Thanks.
Speaker Change: Thank you. The next question is Brian <unk>.
Speaker Change: Thompson Research group your line is now open.
Brian Thompson: Hey, good morning. Thank you for taking my question could you expand a little bit more on the non res demand between new and R&R I think last quarter, you, maybe starting to see R&R demand picking up a little bit that seems to be continuing based on your comments.
Brian Thompson: Is that maybe a slow and steady improvement or maybe that's kind of accelerating throughout the year just any more color on kind of how those two are expected to perform through the year would be helpful. Thank you.
Brian Thompson: Yes, absolutely happy to do that Brian.
Brian Thompson: You've almost got a rewind back to the supply chain disruptions that we saw in 'twenty, one 'twenty, two and a little bit into 'twenty three with all the contracted as stocking Youll remember.
Brian Thompson: Yes.
Brian Thompson: Because of all those supply chain disruptions the markets.
Brian Thompson: <unk> prioritized new construction because that was just so much more money tied up in that so the market prioritize new construction.
Brian Thompson: And because there was a lot of supply chain disruption product availability was very tight.
Brian Thompson: It ended up pushing the repair and replace cycle out a little bit.
Brian Thompson: Obviously, it never goes away.
Brian Thompson: So what we saw in the last year as the contracted just stocking worked its way through the supply problems diminished for the most part.
Brian Thompson: We saw sort of a remixing.
Brian Thompson: Away from the new construction, a lot of which had gotten done.
Brian Thompson: And.
Brian Thompson: More towards the.
Brian Thompson: The repair and replace cycle.
Brian Thompson: Other thing we started to see last year was a little bit of the.
Brian Thompson: Yes.
Brian Thompson: It's a trend that we mentioned in the prepared remarks, the architectural billing index being below 50 indicates a contraction in the new construction cycle as well so there's a little bit of a muted demand I think there's a lot of steel.
Brian Thompson: That goes into commercial construction, so the impact there.
Brian Thompson: Potential tariffs coming in.
Brian Thompson: A muting effect on new construction is likely to continue we believe so that's sort of where we see it.
Brian Thompson: As regards to your question about are we seeing a more bullish sentiment around repair and replace we think theres a little bit of catch up I wouldn't say, it's more bullish I think it's more of a mix that new commercial is down a little bit.
Brian Thompson: And the repair and replace cycle of commercial is sort of steady.
Brian Thompson: It just has to get done.
Julian Francis: It's a capital project for most of these building owners. So they just kind of work through it on their own on their own timeframe. So I wouldn't say, it's a it's more bullish on that its just steady and the mix towards that because new construction is down yes, just one thing to add to what Julien said I think we've also been really focused on.
Gaining share in accelerating our commercial efforts and those are.
Julian Francis: We target certain growth markets, we targeted 19 in 2024, and we delivered above market growth in those markets and where we're focused on that in 2025 with 25, new markets and so that's another thing that may be different in our business, we're very deliberately focus.
Julian Francis: Gaining share and growing above the market in this area.
Julian Francis: Thank you.
Julian Francis: Okay.
Speaker Change: The next question is from Garik <unk> from loop capital. Your line is now open.
Speaker Change: Hi, Thank you just wanted some clarification on residential pricing I appreciate the expectation would be price cost neutral.
Speaker Change: But just wanted to bridge that.
Speaker Change: Remarks, I think you talked about.
Speaker Change: Carryover pricing from last year's guidance.
Speaker Change: Okay.
Speaker Change: You can expand on.
Speaker Change: Whether or not you are expecting.
Speaker Change: Traction on the April price increase.
Speaker Change: So how much of that is in the guidance.
Speaker Change: Would there be anything unusual.
Speaker Change: Our realized oil price increases.
Speaker Change: Some of the choppy markets right now.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: When you realize royalty.
Speaker Change: Yeah. Thanks, Joe a question in terms of kind of what we've assumed in our forecast for the April price increase and we're kind of assuming.
Speaker Change: Similar type of realization.
Speaker Change: Last year, and the year before which were.
Speaker Change: Small basis boring.
Speaker Change: Inventory.
Speaker Change: But overall as we said price neutral.
Speaker Change: Over the full year.
Speaker Change: Yes, I think.
Speaker Change: The number is about a 1% incremental asps for the full year.
Speaker Change: And the April increase helps us get that.
Speaker Change: But obviously, we've sort of said price cost neutral.
Speaker Change: And I can say garik.
Speaker Change: The impact of that.
Speaker Change: Look the costs this year, a little opaque right now because of sort of where we sit.
Speaker Change: Both in the year.
Speaker Change: You'd mentioned choppy markets, but that's certainly what we see.
Speaker Change: But again the absolute level of demand is really good.
Speaker Change: So this.
Speaker Change: There's still a reasonably strong underlying demand for all the products.
Speaker Change: And as we mentioned.
Speaker Change: The potential for upside remains.
Speaker Change: Which is new construction remains below trend existing home construction is well below trend, maybe expect sport storms to revert and take down.
Speaker Change: Slightly so.
Speaker Change: Even with that in all our guide we remain pretty confident about what the future holds for us and.
Speaker Change: Cautiously optimistic about the year, but overall demand levels in both residential and commercial construction markets.
Speaker Change: And our waterproofing business are pretty solid.
Speaker Change: Got it thank you.
Speaker Change: Thank you. The next question is from Trey Grooms from Stephens. Your line is now open.
Speaker Change: Hey, good morning, everyone. This is ethan on for Trey Thanks for taking my question.
Speaker Change: So.
Speaker Change: I wanted to touch a little on the cost front.
Speaker Change: Maybe could you walk us through what youre seeing within the various cost buckets and your assumptions for 2025, and then given that price increase announced for early April and the timing there.
Speaker Change: How should we think about price cost trending through the year.
Speaker Change: Well I'll touch on the price cost for the year, we said it would be neutral for the full year tips.
Speaker Change: Typically obviously, we liquidate inventory prior to the price increase so we get a little bit of.
Speaker Change: Margin expansion that narrows over the year. So that's all factored in.
Speaker Change: But we don't we don't break out.
Speaker Change: Individual cost buckets. So we.
Speaker Change: Focused on driving efficiency driving productivity.
Unless you got anything to sort of add to that.
Speaker Change: Yes.
Speaker Change: We are.
Speaker Change: Certainly believe that we will.
Speaker Change: We will grow EBITDA margin this year.
Speaker Change: Our adjusted EBITDA margin will grow and that's we're very focused on driving it through productivity given the price cost will be about neutral that sort of all flows through.
Speaker Change: Efficiency.
Speaker Change: And realizing the benefits of improving previously acquired.
Speaker Change: Our branches are maturing of our Greenfield branches, and then driving productivity in the branches that we already have including a.
Speaker Change: Bottom Quintile branch process. So those are the big areas that we focus on for driving improved bottom line like I said, we do believe that we will grow.
Speaker Change: Adjusted EBITDA margins this year.
Speaker Change: Thank you.
Speaker Change: Thanks Keith.
Speaker Change: Thank you. The next question is from David Mcgregor from Longbow Research. Your line is now open.
David McGregor: Yes, good morning, and thanks for taking my questions.
David McGregor: Julian was 15 to 20, new locations in 1995, how much of those would fall into OTC markets versus non OTC configurations, and then also just with the growth in the number of branches both required a greenfield how are you.
David McGregor: Right now on capacity utilization on your Rbc's distribution infrastructure and talk maybe if you could about the need to invest there at some point.
David McGregor: How soon they're going to rise.
Yes so.
David McGregor: In 2025.
David McGregor: <unk>.
David McGregor: <unk>.
David McGregor: The vast majority of those branches will probably go into our OTC markets in some way shape or form.
David McGregor: It's difficult to see right now I mean, we've had cases, where you can negotiate a lease.
David McGregor: Mark has changed a little bit we delay it things like that but the vast majority of our business is now inside one of our OTC markets and so as we continue to expand on.
David McGregor: The benefits, we think we get from networking our branches together the competitive advantage. We think it gives us an in big markets. We will continue to deploy that strategy and our greenfields will primarily be focused on that but we also.
David McGregor: We also do think there are underserved markets and as I've said before.
David McGregor: Frequently when we add a location all of the market all of the branches inside that OTC get a little bit better because.
David McGregor: Service proposition to our customers improves across our entire network.
David McGregor: No.
Speaker Change: I'm trying to think what outside in terms of maybe one thing is I think one of the things David is we're going to be doing a lot more in the waterproofing space remember we've just built this great platform over the last two years and they are really in their infancy apply.
David McGregor: Applying the 825 playbook and so we're going to.
David McGregor: Make some investments in greenfield and in big areas for them, where we currently have gaps and so that should be very good in terms of growth for that business.
David McGregor: Just going back to the fundamental strategy around Greenfields and your question about capacity.
David McGregor: Yes.
David McGregor: We look at very carefully.
David McGregor: <unk>.
David McGregor: We add and how we add to ensure that we've got a great service proposition, we think that there is.
David McGregor: This industry is a very high service proposition industry I mean, it's we never go back to the same address and the same 20 year period.
David McGregor: Driving up People's Driveways, and its dogs and cats and people.
David McGregor: Putting.
David McGregor: People are on roofs, it's a dangerous job. So the service levels required are really high so having the capacity to serve at a very high level is really meaningful and value, creating for our customer base.
David McGregor: And their customer base as well, it's a really important role that we play in making these deliveries so we.
David McGregor: We worry less about the overall capacity than it is about the service level. The total capacity is less of a limit on us than it is really just our ability to create great service for our customers.
David McGregor: Got it thanks very much.
Speaker Change: The next question is from Keith Hughes Suntrust. Your line is now open.
Speaker Change: Well. Thank you talked at all about the first quarter and the weather I think a lot of that was.
Speaker Change: The residential singles if you could just talk about first quarter of complementary products.
Speaker Change: How much trending so far in the quarter.
Speaker Change: Yeah sure on the complementary products side, I mean, youre going to see the same sort of <unk>.
Keith Hughes: <unk> Keith.
Keith Hughes: Ultimately really cold weather.
Keith Hughes:
Keith Hughes: Yes.
Keith Hughes: No.
Keith Hughes: These things impacts all of the exterior products.
Keith Hughes: In the same way and they have no principal have some details on it but generally speaking that.
Keith Hughes: Probably broadly in line with our overall.
Keith Hughes: Market, while we do have is a lot of acquisitions in that space because of the waterproofing. So.
That's having an impact year over year as well, yes, so generally Keith I think in terms of volume.
Keith Hughes: Similar across all three lines of business kind of.
Keith Hughes: High single digits type decline.
Julian Francis: But back to what Julien said.
Julian Francis: We've done a lot of acquisitions and those help us in terms of kind of a mid single digit type growth in the quarter and so.
Julian Francis: That's kind of how we get our guidance for.
Julian Francis: The color that we provided for Q1.
Keith Hughes: Fundamentally Keith.
Keith Hughes: Whether impactful the exterior products and sustainable way.
Keith Hughes: Thanks, everyone.
Keith Hughes: Yes. Thank.
Keith Hughes: Thank you.
Keith Hughes: Thank you.
Speaker Change: Mind, you if you'd like to ask a question. Please press star followed by one on your Touchtone telephone.
Keith Hughes: The next question.
Speaker Change: And from Jefferies. Your line is now open.
Maggie: Hey, Good morning, this is Maggie on for Phil.
Speaker Change: Wanted to touch on the bottom Quintile branch initiatives.
Speaker Change: And I think you said that was a $7 million benefit import maybe you remind us what that was for the full year.
Speaker Change: This is an ongoing multiyear initiatives, probably a lot of the low hanging fruit.
Speaker Change: Uh huh.
Speaker Change: Ben.
Speaker Change: Accomplished by now so maybe if you could just talk about how you think about that opportunity.
Speaker Change: Okay.
Speaker Change: Going forward.
Speaker Change: Yes, absolutely.
Speaker Change: So it was $7 million in the quarter. It was $20 million for the full year and since we kicked off ambition 2025, we generated $78 million in three years.
Speaker Change: Is the $75 million full year target so.
Speaker Change: We're really really pleased with what we've seen there its a disciplined process and obviously the way we structured it.
Speaker Change: Is that.
It's a bottom quintile process, we will always have 20% of the branches at the bottom of the pile and we work to ensure that they are improving now like you said the low hanging fruit that we had early on in my tenure.
Speaker Change: Has certainly gone away.
Speaker Change: You can see we keep generating and keep finding ways to generate improvements in those branches. We provide focus we provide resources, we provide guidance on where to look for these opportunities. So while it's not.
Speaker Change: Okay.
Speaker Change: We'll never be done.
Speaker Change: But it's like you said the low hanging fruit is there.
Speaker Change: <unk>.
Speaker Change: So I'll give you some indication.
Speaker Change: Bottom quintile.
Speaker Change: Branch profitability.
Speaker Change: Three years ago.
Speaker Change: About 3% EBIT.
Speaker Change: So our margins to get in.
Speaker Change: Hey, it's nearly double digits, it's closer to double digit to get into that brand should sort of 7% to 8% and it's been growing every year. So we continue to see great opportunity.
Speaker Change: We're also narrowing that band as well.
Speaker Change: It's been just been a great process for us.
Speaker Change: Excited about it.
Speaker Change: And we will continue to keep working it there'll always be that bottom 20%.
Speaker Change: Alright, thanks for the color.
Speaker Change: Thank you.
Speaker Change: Thank you that concludes the questions.
Julian Francis: Now I'd like to turn the call back over to Mr. Francis for his closing comments.
Julian Francis: Thank you.
Speaker Change: I just wanted to say thank you to all of you for your support of Beacon listening in on our earnings call I'm incredibly proud of the team weathering.
Speaker Change: This storm and the challenge that we.
Speaker Change: Faced with market conditions so.
Speaker Change: The last year.
Speaker Change: Certainly been a lot of headwinds, but we're excited about the business. We're excited about where we're positioned we're excited about producing another record year for beacon.
Speaker Change: And we believe that 2025 is the start of another record year, and we will continue to deliver results for our employees our customers and our shareholders with that we look forward to seeing you on March 13th in New York City, Thanks very much.
Speaker Change: Okay.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: Yeah.