Q1 2025 UFP Industries Inc Earnings Call
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Speaker Change: Good day and welcome to the Q1 2025, UFP Industries, Inc. Earnings Conference call and webcast. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
You will then hear an automated message advising your hand is race to withdraw your question Press Star one again.
Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Mr. Stanley Elliott Director of Investor Relations. Please go ahead.
Speaker Change: Good morning, everyone and thank you for joining us to discuss our first quarter results. Joining me on the call today are will Schwartz, our chief Executive Officer, and Mike Cole, our Chief Financial Officer will and Mike will offer prepared remarks, and then we will open the call to questions. This conference call is available simultaneously all.
Speaker Change: Interested investors and news media through the Investor Relations section of our website <unk> Dot com a replay of the call will be posted to our website as well before I turn the call over let me remind you that today's press release and presentation include forward looking statements as defined by the private Securities Litigation Reform Act of 1995. These.
Speaker Change: Statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties. Also include but are not limited to those factors identified in the press release and in the company's filings with the Securities and Exchange Commission I will now turn the call over to Bill.
Bill: Thank you.
Bill: Good morning, everyone and thank you for joining us to discuss our first quarter 2025 earnings results. The challenging trends, we discussed with you on our last call in February have continued in the macro environment has become increasingly uncertain.
Bill: Operations remained challenging and we are focused on multiple levers under our control to improve results going forward.
Bill: Despite a slower start in January and February we are more encouraged by recent business trends business activity improved sequentially in each month during the quarter with March trends continuing into the first three weeks of April.
Bill: While we are encouraged by these recent trends we would also note that visibility remains limited in this current environment.
Bill: Regardless of the backdrop, we have a sound strategy in place and the right people to execute on our strategies.
Bill: We will continue to focus on things under our control to deliver improved results going forward. We are on track with our cost out programs and have levers to pull should a market recovery fail to materialize our portfolio is more diversified and better positioned than at any point in our 70 year history to win in the marketplace. Lastly, we finished the quarter.
Bill: With $905 million in cash, giving us ample flexibility to continue investing in our future while maintaining our conservative capital structure. We believe this positions us well in any environment.
Bill: Turning to the quarter first quarter sales generally matched our expectations for low single digit sales declines despite the slower start to the year total sales declined 3% from year ago levels business improvement from January through the end of the quarter allowed us to recover many of those volumes lost early but.
Bill: <unk> variances and higher material costs couldn't be overcome.
Bill: Pricing remains competitive across most markets given the lack of forward visibility all of this contributed to our earnings per share of $1 30, and adjusted EBITDA of $142 million for the quarter.
Bill: Our margins remain pressured from unfavorable manufacturing variances competitive pricing higher input and transportation costs and unfavorable mix shifts.
Bill: We believe some of this shortfall is timing and we remain on track to realize $60 million of structural cost savings from our cost out and capacity reductions by 2026, we also stand ready to further adjust our cost structure, depending on what the market environment dictates.
Bill: Despite ongoing market volatility our go forward strategy remains unchanged and we will continue to focus on what is under our control and invest in the strategies that have made ufp's industries. So successful over the long term.
Bill: We will continue targeting markets that we believe can deliver higher growth rates and make the necessary organic and inorganic investments to drive these results.
Bill: We will continue to focus on expanding more value add products and innovation across the portfolio with a focus on expanding our margins, while deemphasizing underperforming products and operations.
Bill: We'll continue to closely monitor our expenses and our plant network as well.
Bill: Finally, all of this will be underpinned by our commitment to maintaining our strong return on capital profile and conservative capital structure, which will remain at the center and guiding our strategy.
Bill: New product sales totaled $106 million in the quarter or six 7% of sales. We continue to see a pathway for these new products to become 10% of sales over time.
Bill: We are seeing momentum across the portfolio and are excited about these products growth potential and margin opportunities over time.
Bill: Good example of this is our proprietary mineral base sure stone technology at the recent Ibs trade show in Las Vegas, We launched a new line of decking boards, featuring <unk> technology. We also introduced our <unk> base trim offerings, which will be released in late 2025.
Bill: Last quarter, we shared that we have secured 500, new retail locations for 2025, and we are also actively adding stocking relationships with traditional two step building products distributors, the new products are shipping to retailers and distributors as we speak.
Bill: To meet this demand we continued to invest in our existing manufacturing capabilities to drive increased productivity and throughput. We are also actively expanding the geographic reach of our manufacturing capacity in the quarter, We announced plans for a new decorators facility in the northeast all of this is part of our capital.
Bill: Expansion plan for Decorators, which provides the foundation for our plans to double market share overtime.
Bill: In addition to our investments and decorators in retail more broadly we have identified growth runways across each of our other business units that meet our high return threshold, we remain committed to our plan to invest $1 billion in growth capital investments over the next five years, but also maintaining the flexibility to pivot some of that.
Bill: Capital earmarked for Greenfield operations to M&A should the right opportunities arise.
Bill: We would prefer M&A to greenfield expansion in most cases, but only when valuations are in line with our expectations for return.
Bill: Our goal with all investments is to expand our growth runways, and new and value add products strengthen our core portfolio and improve our cost position and become more efficient across all layers of the organization.
Bill: All of these projects will be accretive to margins either by improving product mix or by lowering our manufacturing cost. We will continue to invest heavily in automation technology, new product development and capacity expansion that will leave us better positioned to drive margins and create shareholder value.
Bill: In all cases any investments are expected to meet our internal return on capital threshold M&A has always been an important part of <unk> history, and a key part of our growth strategy and as I mentioned, a moment ago, we are willing to pivot more towards acquisition growth versus greenfield growth should the right opportunity arise.
Bill: Our M&A team continues to be extremely active and we would say our pipeline is better today than at any point over the past few years.
Bill: I think some of this is that the expectations between what buyers want and what sellers are willing to pay has rationalized as earnings are normalizing post COVID-19.
Bill: Some of the recent macro uncertainties have likely contributed to this uptick in activity as well given the fragmented nature and many of our markets, regardless, we want to grow sales aggressively, but we will be mindful and that we are growing the right sales that drive higher margins and support our strong return profile.
Bill: We also view share repurchases as an attractive way to return capital to shareholders and have been very active through April with the additional 100 million authorization provided by our board. We anticipate remaining active throughout Q2 as long as the price is below our target turning.
Bill: Turning quickly to our segments.
Bill: Retail sales declined 3% in the quarter compared to a year ago.
Bill: <unk> were largely driven by 4% decline in volume with 1% positive pricing, helping offset.
Bill: Much of the quarter decline was due to a customer shift whether it's been our decorators business, which will become less impactful as the year progresses.
Bill: With new product placement and recent distribution wins, taking place throughout the spring season, we expect this business will help offset soft demand.
Bill: We expect the decorators business will build momentum through the rest of the year as more stores begin to stock our share stone decking profits.
Bill: Profitability should improve also as our capital investments not only expand our capacity, but allow us to produce more efficiently.
Bill: On the pro side recent price increases should help offset material cost increases packaging unit sales declined 2% in total and 3% excluding the acquisition of pallet manufacturer <unk> products. This past December weaker sales in our structural packaging and pallet one businesses drove the declines <unk>.
Bill: <unk> remains competitive and recent increases in material costs pressured margins further we've said on calls in the past and if we arent at a bottom we continue to think we're getting close.
Bill: Construction sales were largely unchanged from year ago levels of 3% boost in volumes for the business unit was offset by a similar decline in price in the quarter.
Bill: And our factory built business was largely offset by softness in our site build business.
Bill: This trend has shown up in our results for the past several quarters and with the downgraded housing outlook in many homebuilders lowering their full year forecast. We expect this dynamic will remain through the balance of the year.
Bill: Turning to our outlook, we expect the business conditions that impacted our first quarter results will carryover for the remainder of 2025.
Bill: <unk> is around tariffs on Canadian lumber is only created additional headwinds the 90 day reprieve on any tariffs has helped the overall lumber market remained relatively stable, but the overall environment is fluid and if something changes the industry would most likely see some levels of inflation as prices are ultimately passed along to the.
Bill: Consumer from an impact standpoint, we would note that we import less than 15% of the lumber we purchase from Canada with also note that southern yellow pine is domestically produced and represents over 70% of our purchases of lumber historically, a tighter lumber market has allowed us to have better availability of product.
Bill: Including low grade for packaging applications as a result of our scale. This has allowed us to improve our market share and lower costs, along those same lines software patches. When the economy have allowed UFP to use our scale strong financial position and lower cost manufacturing position to gain share in the marketplace.
Bill: While all of this uncertainty is contributing to our lack of visibility beyond the first half of 2025, regardless of the outcome, we remain confident in our ability to navigate any potential tariff impacts.
Bill: Longer term, we are well positioned to take advantage of favorable demographic trends and an under built housing market.
Bill: Land to position our business to take market share as well, we remain committed to our long term targets, which include 7% to 10% unit growth.
Bill: 12, 5% EBITDA margins, all while maintaining our strong return on capital profile and conservative capital structure.
Bill: The timeline to achieve these targets is pushed out due to the current economic environment, but the goals remain unchanged.
Speaker Change: Before I turn the call over to Mike I want to thank our 15000 plus employees for their hard work and dedication the uncertain macro environment will undoubtedly pass and it is with their effort that will emerge from this period, a much stronger and more profitable company. Thank you well our consolidated results this quarter.
Speaker Change: Include a 3% decline in sales to $1 6 billion driven by a 2% reduction in volumes and a 1% reduction in selling prices.
Speaker Change: The decline in selling prices, primarily resulted from a slower start to the year and weaker demand, which led to more competitive pricing in our construction and packaging segments.
Speaker Change: The volume declines were primarily due to a seasonally weaker January and February across most business units.
Speaker Change: Lower volumes pricing pressure higher material costs, and a less favorable product mix weighed on profitability. This quarter as adjusted EBITDA declined 21% to $142 million, while our adjusted EBITDA margin fell to eight 9% even with these headwinds our return on invested capital remained resilient.
Speaker Change: At 15, 5% well above our weighted average cost of capital. We believe this highlights the strength of our business model and the efforts of our team demonstrating the strong returns our business can achieve even when faced with more challenging market conditions are.
Speaker Change: Our balance sheet continues to be a competitive advantage for providing us with the flexibility to pursue our financial and strategic objectives to drive sustained returns and long term value even in uncertain or challenging environments moving on to our segments sales in our retail segment were 607, million% to 3% decline compared to last year.
Speaker Change: Due to a 4% decline in units, partially offset by a 1% increase in price unit decrease was comprised of a 3% decline in volume with big box customers, while our volume with independent retailers declined by 7%.
Speaker Change: By business unit, we experienced a 3% decrease in <unk> and an 11% decline in decorators.
Speaker Change: The majority of the decorators decline was driven by a customer change that temporarily reduced volumes as we transition business.
Speaker Change: This was primarily experienced in our railing and wood plastic composite decking categories as our sales of these products dropped 26%, while our sales of <unk> increased 24%.
Speaker Change: <unk> was more than 50% of our total composite decking sales this quarter and will continue to benefit from the summit product launch expanded distribution, new and more efficient capacity coming online and our increased marketing efforts to build the sheer stone brand.
Speaker Change: Our year over year gross profits and gross margins declined in retail due to the decrease in volume and unfavorable manufacturing variances given the slow start to the year as well as higher material cost on certain product sold with a fixed price.
Speaker Change: However, we are optimistic our margins will improve in future quarters, given recent price increases implemented to offset these higher costs and benefits for more efficient manufacturing as a result of capital investments made to produce our stone product.
Speaker Change: Our operating profits and retail declined by roughly $20 million as a result of the decline in gross profit as we were able to hold SG&A flat as an increase in decorators advertising cost was offset by a decrease in bonus expense.
Speaker Change: Moving on to packaging.
Speaker Change: Sales in this segment dropped 3% to $410 million, consisting of a 3% decrease in organic units and a 1% decrease in selling prices.
Speaker Change: Partially offset by a 1% increase from the recently completed C&I wood products acquisition.
Speaker Change: Customer demand in this segment remained soft in the environment remains competitive, but we continue to gain share with key customers.
Speaker Change: As a result of soft demand competitive headwinds and an increase in material costs, our year over year gross profit dropped by $16 million for the quarter and gross margin declined by 316 basis points.
Speaker Change: The margin decline was also due to an unfavorable change in product mix this quarter as our largest and most profitable business unit structural packaging experienced the greatest decline in volume.
Speaker Change: Operating profits in the packaging segment declined by almost $10 million to a total of $22 million for the quarter due to the decrease in gross profits offset by a $6 million decrease in SG&A, primarily due to lower bonus and sales incentives and our cost reduction efforts.
Speaker Change: Turning to construction sales in this segment were largely flat at $516 million as a 3% decline in selling prices was substantially offset by a 3% increase in units.
Speaker Change: The increase in volume was due to a double digit increase in our factory build business and low single digit growth in both our commercial and concrete forming business units.
Speaker Change: These increases were partially offset by a mid single digit decline in our site built business.
Speaker Change: The volume increase in our factory built unit was primarily due to an increase in industry production as this market continues to outperform.
Speaker Change: Selling prices were largely stable across the business with the exception of our site built unit.
Speaker Change: Profit for the segment decreased by $24 million year over year with gross margin down 448 basis points driven by the decline in safe built selling prices higher material costs and a less favorable product mix as safer comprised a lower percentage of our total sales.
Speaker Change: Our operating profits declined by $18 million to a total of $28 million for the quarter due to the decline in gross profit offset by a $6 million decrease in SG&A due to lower bonus and sales incentives and our cost reduction efforts.
Speaker Change: As we progressed through this cycle, we're mindful of our cost structure and working to strike the right balance of making sure. The company is appropriately sized relative to demand while still investing in the resources needed to achieve our strategic long term objectives for growth product innovation building brand awareness and improving our efficiency through technology.
Speaker Change: <unk>.
Speaker Change: Our consolidated SG&A expenses declined $16 million for the quarter.
Speaker Change: Due to a $14 million decline in bonus and sales incentives and a $2 million decline in our core SG&A, which includes a $5 million increase in our decorators advertising costs to support the <unk> summit product launch as we remain excited about the growth opportunity of this brand.
Speaker Change: Looking forward, we have targeted an annual run rate of EBITDA improvements from cost and capacity reductions of $60 million in 2026.
Speaker Change: Our plan for SG&A expenses this year, excluding highly variable sales and bonus incentives tied to profitability remains at $565 million. This is flat when compared with 2024 and is comprised of $26 million of anticipated cost reductions offset by $6 million of planned increases primarily associated.
Speaker Change: Good with new Greenfield operations technology improvements in product innovation, and a $20 million increase in our decorators advertising spend as we invest in building. The <unk> brand. We are also planning for current year bonus expense of 16% to 17% of pre bonus operating profit.
Speaker Change: $27 million of vesting expense associated with prior year share grants and sales incentives of about 3% of gross profit.
Speaker Change: In addition to SG&A cost reductions, we've taken actions to curtail capacity at locations that are not meeting our profitability targets.
Speaker Change: We are confident these actions will have a favorable impact on gross profit totaling at least $15 million in 2025 base.
Speaker Change: Based on the actions we've taken to date and opportunities for continued improvement we are optimistic we will achieve our 2026 call.
Speaker Change: Moving onto our cash flow statement, our operating cash flow was a use of $109 million in the quarter compared to a use of $17 million last year, primarily due to a seasonal investment in net working capital, which was $55 million higher this year as well as a decline in our net earnings and noncash expenses, which were 37 million.
Speaker Change: Lower.
Speaker Change: We expect the seasonal increase in net working capital of 239 million to be converted to cash by the end of Q3.
Speaker Change: Our investing activities included $67 million in capital expenditures, comprising $19 million in maintenance Capex and $48 million of expansionary Capex as a reminder, our expansionary investments are primarily focused on three key areas expanding our.
Speaker Change: Our capacity to manufacture new and value added products geographic expansion and core higher margin businesses.
Speaker Change: And achieving efficiencies through automation finally, our financing activities, primarily consisted of returning capital to shareholders through almost $21 million of dividends and $70 million of share repurchases during the quarter.
Speaker Change: Turning to our capital structure and resources, we continue to have a strong balance sheet with nearly $905 million in surplus cash, while our total liquidity, including cash and amounts available to borrow under our long term lending agreements is $2 2 billion at quarter end with respect to capital allocation, we remain committed to our <unk>.
Speaker Change: Balanced and return driven approach as we've discussed our highest priority for capital allocation is to drive organic and inorganic growth results in higher margins and returns.
Speaker Change: Our strategy also includes growing our dividends in line with our long term anticipated free cash flow growth.
Speaker Change: Purchasing our stock to offset dilution from share based compensation plans and opportunistically buying back more stock when we believe it's trading at a discounted value.
Speaker Change: With these points in mind, our board approved a quarterly dividend of <unk> 35, a share to be paid in June representing a 6% increase from the rate period a year ago.
Speaker Change: On April 23, our board amended and increased our share repurchase authorization from $200 million to $300 million.
Speaker Change: The authorization expires on July 31, 2025.
Speaker Change: During the first quarter, we repurchased 649000 shares for $70 million and so far in April we've repurchased over 1 million shares for $107 million.
Speaker Change: Our remaining authorization through the end of July is $122 million.
Speaker Change: Regarding capital expenditures, we currently plan to approve new capex projects totaling $300 million to $350 million for the year.
Speaker Change: Through the end of March we have already approved $167 million with another $87 million pending approval large projects. This year include expanding our capacity to produce our <unk> product, our corrugate packaging footprint and our site built presence in Utah.
Speaker Change: Finally, we continue to pursue a pipeline of M&A opportunities that our strong strategic fit while providing higher margin return and growth potential.
Speaker Change: As we pursue these opportunities we will remain disciplined on valuation.
Speaker Change: I'll finish with comments about our outlook.
Speaker Change: On our last call, we guided to expectations for modest declines in demand and pricing in each segment through the first half of the year, which stopped short of providing context for the full year given the uncertainty in the market at this point visibility into the second half of the year has become even more challenged as will indicated earlier, we saw revenue and profit momentum improved through the <unk>.
Speaker Change: <unk>.
Speaker Change: Still many of the same market dynamics and uncertainties remain in place. We continue to approach the second half of the year with a sense of caution.
Speaker Change: The prospect for tariffs only adds more uncertainty and increases the likelihood of inflation and demand challenges going forward.
Speaker Change: Against this backdrop, we anticipate demand will remain slightly down in each of our segments through the remainder of the year.
Speaker Change: While we believe demand in factory built will increase we believe it will be offset by declines in site built in the other business units in our construction segment.
Speaker Change: As a result of the soft demand environment, we anticipate competitive pricing will continue positively we anticipate market share gains in most business units will help mitigate the decline in demand and benefit the company going forward in the current environment. We will continue to focus on what's in our control to manage through these more challenging conditions in the short term.
Speaker Change: Reducing costs, eliminating excess capacity and divesting underperforming assets.
Speaker Change: While positioning ourselves for eventual improvements in market demand and executing our strategies to drive long term growth and margin improvements with that we'll open it up for questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.
Speaker Change: And while we compile the Q&A roster.
Speaker Change: And our first question will come from the line of Kurt Yinger with D. A Davidson your line is open.
Speaker Change: Great. Thanks, and good morning, everyone.
Speaker Change: Kurt.
Speaker Change: Good morning, just on the outlook.
Speaker Change: It seems like some of the caution around demand is prudent at this stage I am curious when you talk about kind of the competitive dynamics and pricing pressures persisting is the expectation that maybe those get incrementally more challenging kind of as the year progresses or just that kind of the current set of challenges.
Speaker Change: As remains but is kind of stable sequentially over the next few quarters.
Speaker Change: Okay, I guess I'll jump in on that one.
Speaker Change: At this point.
Speaker Change: <unk> the current challenges to continue in future quarters.
Speaker Change: When I look at the packaging segment.
Speaker Change: Margins, they're up a little bit from Q4, which you would expect with volumes improving a little bit, but it seems like margins there at more or less stabilized.
Speaker Change: The challenge there, though is that we have had some cost increase that has been difficult to pass along fully.
Speaker Change: On the construction side the cycle to area in particular has been more challenged and as you saw big step down in the construction margins drift driven by pricing challenges and cycle out.
Speaker Change: Would expect those to continue for the balance of the year and like packaging. We've we've we've experienced cost increases.
Speaker Change: The materials side of things lumber in particular.
Speaker Change: And it'll be challenging I think in a softer demand environment to pass those maybe fully along.
Speaker Change: To builders so.
Speaker Change: I think those areas I think we expect them to continue that trend we saw in Q1 positively though.
Speaker Change: Zinc and retail.
Speaker Change: A completely different story I think you see youre going to see benefits on the decorator side from the more efficient capacity coming online in Q2.
Speaker Change: And then the cost increases we've seen on some of the fixed price products. We have had success in implementing price increases isn't as an offset and so those werent fully enacted in.
Speaker Change: In Q1.
Speaker Change: So we expect to get the benefit of those more or less going forward for the balance of the year. So we're optimistic on the retail side bouncing up and more or less continuing in the tougher tougher environment. The other two segments.
Speaker Change: Well said, Mike nothing to add there.
Speaker Change: That's great and it kind of dovetails into my next question that you referenced around lumber prices right and historically the business has done a great job kind of managing fluctuations there I think what.
Speaker Change: The variable versus fixed price you kind of have a natural hedge but it does seem like a unique environment in terms of demand soft competitive pressures, but at the same time lumbers been inflationary I guess, how do you balance.
Speaker Change: The desire to pass that through and not see that kind of price cost spread narrow versus the desire to keep the plants busy and the recognition that there is.
Speaker Change: Some cost absorption if you walk away from business at this stage I guess, how are you kind of managing that balance in the current environment.
Speaker Change: Yes, that's a really good question and what I would tell you is we do not want to give up market share at the same time, we're managing those margins. We think we can mitigate most of those increases, but but we want to retain and grow market share as Mike described in his in his.
Speaker Change: Script, so we're going to pay to bite that we know that pack.
Speaker Change: Packaging and construction will be more difficult than retail, but certainly don't want to give up market share.
Speaker Change: And the team is well aware of what market pricing is and what their variable costs are so they're making good business decisions every day about market share absolutely.
Speaker Change: Got it Okay, and then just lastly on decorators.
Speaker Change: You referenced some of the timing dynamics that impacted that this quarter.
Speaker Change: Is that something that you expect to kind of be fully in the rearview as we move into Q2.
Speaker Change: And all considered I guess, how are you thinking about decorators growth. This year is that is it somewhat of a transitional year and as those new retail wins ramp maybe 2026, we're talking about growth or can we get to year over year kind of sales growth. This year, even with some of those timing dynamics, yes.
Speaker Change: Yes, so certainly timing in the first quarter.
Speaker Change: Hit us.
Speaker Change: Q2, we're about 30% of the way through that load in that we talked about on the last quarter call. The 500 plus stores. This year stone product. So youll see that really taking place in Q2, we believe by the end of the year, we will actually have gains over 2024 and volume in the secondary piece that I would add to that.
Speaker Change: <unk> piece on the decorators side, who didn't really realize the benefits of a lot of that capital expenditure piece and in fact, it probably hindered us in Q1 and the load in as we're still working through Capex improvements a lot of disruption at the plant that also will take place in Q2 that will be behind us. So we believe the second half of the year have been really good.
Speaker Change: Awesome. Thank you I appreciate the color.
Speaker Change: Yes. Thank you thanks, Robert Thanks.
Speaker Change: One moment for our next question.
Operator: And that will come from the line of Reuben Garner with benchmark. Your line is open.
Reuben Garner: Thanks, Steve Rosenberg.
Reuben Garner: Just a follow up on that decorators comment.
Speaker Change: Just to be clear are you are you.
Reuben Garner: Are we missing.
Reuben Garner: Business with one retailer and only partially way through the load on the other side and Thats why Theres a volume headwind how do we think about that or is there still headwinds to come I know I know you've got a lot of moving pieces there.
Speaker Change: No real headwinds to come you described it well, it's just transition period. So I mean, that's for the most part behind us and Youll see that really change in Q2.
Speaker Change: Okay and then.
Speaker Change: Term question on decorators and the capacity you've added can you update us on kind of what the.
Speaker Change: What capacity you will have after this latest round of announcements in terms of.
Speaker Change: Revenue opportunity and how that kind of compares to what revenue you did in 2024 and decorators.
Speaker Change: Yes, there is three parts to the capacity increase I think for decorators for vintage is.
Speaker Change: There's about a $100 billion I'd say in capacity EBIT.
Speaker Change: More recently added at our Soma plant Theres, another 100 million.
Speaker Change: That will come into play later this year from a further expansion there and then we have the Buffalo plant, which we're really excited.
Speaker Change: This should be fully operational early next year so.
Speaker Change: The two expansions at Soma again $100 million each and then the Buffalo expansion gives us the ability to to get to that goal that five year goal of doubling our market share, but it also allows us to.
Speaker Change: Look at new products manufacturing new products.
<unk> product for example that you saw at Ibs.
Speaker Change: So Mike just to be clear I mean does that imply that you are more than doubling.
Speaker Change: Sure.
Speaker Change: <unk> I assume there is market growth baked in.
Speaker Change: The doubling your market share you've got a growing market over the next five years am I thinking about that the right way or would you need incremental capacity additions to get to that goal.
Rubin: Youre exactly right Rubin.
Rubin: Okay, and then a follow up on the competitive pricing.
Rubin: Comments, you made I guess, specifically in site built.
Rubin: I see.
Rubin: I wanted to be clear. So this has gone on for a few quarters now is your expectation that youll still have year over year headwinds in the second half meaning it.
Rubin: It's kind of sequentially getting worse.
Rubin: At this point or have you seen a stabilization in pricing there and we're just not anniversarying the start of it yet.
Rubin: Visibility is tough room, and there is a significant step down from Q4 to Q1, obviously you can see that in the margin.
Rubin: For construction and Thats really driven by site, though.
Rubin: We're expecting at this point that that trend continues forward. So I think this is a time when.
Rubin: Seasonality, we've always encouraged you to look at year over year when looking at modeling.
Rubin: But I think this is a time where cost and price trends.
Rubin: Really kind of lend itself to looking at the sequential trends as well and I think going from Q4 to Q1 and seeing that adverse price trend in the cost trend as well I think you want to you want to look at carrying those forward.
Rubin: With respect to whether or not we've found the bottom I think thats tough to say im reading through where your question is.
Rubin: Visibility is just too tough to be able to say I think right now.
Mike Cole: No that's really helpful. Mike appreciate it thanks, guys and good luck. Thanks Dara. Thank you.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Keith <unk> with BMO capital markets. Your line is open.
Speaker Change: Good morning, Mike.
Keith: Thanks for taking my question.
Speaker Change: I Wonder if I could.
Speaker Change: Decorate those.
Speaker Change: Is there any way to sort of just.
Speaker Change: Just rough order of magnitude the EBITDA in back in Q1.
Speaker Change: From this customer shifts that we are talking about them in detail is there any way for us to sort of just think about that.
Speaker Change: Well you have a.
Speaker Change: Do you have an 11% unit.
Speaker Change: Unit decline.
Speaker Change: I think you probably have enough information to take 11% unit decline in estimated an incremental impact there.
Speaker Change: But I think.
Speaker Change: Just throw in there as well that the manufacturing variances associated with the.
Speaker Change: The decline in units were a negative $2 million and so obviously.
Speaker Change: We're looking at those things, obviously reverse and going forward, we think the sales will pick back up.
Speaker Change: Manufacturing variances will be eliminated and then back half of the year once that debt more efficient capacity comes online.
Speaker Change: Margins will improve materially.
Speaker Change: Got it so that's fair to say then that.
Speaker Change: The 11% volume decline is all due to this volume clip than underlying market from what you've Ics on a flattish at this point is that is that a fair way to think about it.
Speaker Change: Yes, that's fair absolutely.
Speaker Change: Got it and then as you move from Q1 to Q2.
Speaker Change: Just to sort of.
Speaker Change: Satisfied.
Speaker Change: Should we assume that all of that all of this shift is laid out and as you move into Q2, we are kind of back to kind of more normal.
Speaker Change: Business trends are better.
Some sort of this shift to left to be paid out in Q2.
Speaker Change: Yes, Kian I think Thats, a fair assessment I think by the time, we have that load in we see and realize the remainder of that store load in youll see more normalized levels and then the second half of the year I expect that to actually be up year over year.
Speaker Change: Understood. Okay, and then just switching to <unk>.
Speaker Change: M&A.
Speaker Change: I mean, who you are.
Our comments in the prepared remarks that the M&A pipeline is quite active.
Speaker Change: I'm curious as you as you see the world today run on one side, you have kind of macroeconomic uncertainty which should.
Speaker Change: Provide opportunity for you guys balance sheet is obviously very strong.
Speaker Change: There do you see the most opportunity from a growth standpoint in recent years, we've seen kind of investment M&A investment bank and packaging.
Speaker Change: Curious as you see the world today, where do you think there is most M&A growth opportunity.
Speaker Change: Yeah, So I'll hit on that in a little bit.
Speaker Change: The exciting part for US is really we see opportunities existing in each of our views and runways.
Speaker Change: We've got a much more robust pipeline than we've had in the past and so we see opportunities across the board.
Speaker Change: And we're actively pursuing that if we see that we can't get something done and one we can pivot to another but we have a very.
Speaker Change: <unk> pathway to growth, which is also one of the reasons that you didn't see a greater share buyback number because we really want to wait that towards growth and we think we're going to have more opportunities going forward than we've had for the last few years.
Speaker Change: Got it.
Speaker Change: Restaurant sales for tuck in type M&A or would you also be open to something larger if the right opportunity were to come.
Speaker Change: Alright.
Speaker Change: Tuck ins.
Speaker Change: Just the part of what we've done.
Speaker Change: We would certainly look at larger transactions pallet, one in Spartanburg, and sunbelt transactions might be a few that reference that are examples of larger transactions. We've had a lot of success with I think when it comes to larger transactions you can take comfort from the fact that we're going to be very disciplined.
Speaker Change: And valuation, we're going to be very disciplined on our capital structure and we're going to stay close to the core and what we know.
Speaker Change: Perfect. That's all from me good luck.
Speaker Change: Thank you. Thanks, Thank you and we do have a follow up question and that will come from the line of Kurt Yinger with D. A Davidson your line is open.
Kurt Yinger: Great. Thanks for taking my follow ups.
Kurt Yinger: Just on pro would historically I believe that's kind of a pretty explicit price mechanism kind of tied to publish market pricing. It sounds like there was a price increase maybe separate from that so can you just help me understand what that price increase was as well as maybe a little bit of a refresher on the.
Kurt Yinger: Fixed price products that would be under that kind of program umbrella.
Kurt Yinger: So yes first of all let me talk about that.
Kurt Yinger: During the quarter.
Kurt Yinger: Following up on previous years, we experienced some cost increases that it took a little time through the quarter to get passed along to customers and we were able to do that so that should be behind us as well and you will see more normalized margins in that space as we move through Q2 and through the rest of the year.
Kurt Yinger: Between the fixed and variable pricing there is a portion of the business that is fixed based on some of the <unk>.
Kurt Yinger: More value added products that are worked through the year.
Kurt Yinger: But most of the business that is we'll call it more more of the commodity side is directly tied to the market indicators and moves on a weekly basis. So we feel like most of that's behind us and more normalized margins going forward will be realized.
Speaker Change: Okay, that's great and then just lastly on.
Speaker Change: The two step expansions you'd referenced clearly that should kind of.
Speaker Change: Support the growth in the retail business that youre seeing how does that fit into the strategy in terms of maybe expanding share in the dealer channel.
Speaker Change: And does this maybe represent a shift in terms of your own strategy of what has historically been more of a kind of self distribution model.
Speaker Change: No really good question, it's actually both.
Speaker Change: It shows the value that's seen in our products and in the mix. So we continue to grow with traditional two step distributors, but we continue to also grow internally.
Speaker Change: It's one of the things we've talked about for the last few years, it's actually one of the things that we've invested heavily in to be able to utilize our existing facilities to get product to the end customer is actually very healthy and and gives us access in places that we might otherwise not be able to get to so it's a long term strategy for us we will continue to work both ways.
Speaker Change: Great. Thank you I appreciate the color.
Speaker Change: Thank you. Thanks, Kurt Thank you and we do have a question coming from the line of Jay.
Speaker Change: Jay Mccanless with Wedbush Securities. Your line is open.
Jay Mccanless: Hey, good morning, everyone. Thanks for taking my questions.
Speaker Change: The first one I had.
Jay Mccanless: Okay.
Speaker Change: So James Hardie has announced that theyre going to be borrowing is that assuming that deal is successful what type of opportunities does that open up for for decorators and for sure stone in the market.
Speaker Change: If you have a large one of the larger players maybe.
Speaker Change: Maybe going through a transition period.
Speaker Change: Yes, I'll look at that.
Speaker Change: We've looked at that activity and obviously you got to really respected well operated companies both with good brands good products and.
Speaker Change: The best thing I can explain to you is really a carryover from the last question I answered, which is if anything I see potential disruption two step distribution and it really just.
Speaker Change: It gives us even more reason to invest heavily in our own ability to get product to market. If it becomes more challenged and more leverages place there, but that's all I can really add there color.
Speaker Change: Understood and then my second question.
Speaker Change: Can you talk about the concrete forming business and it sounds like the Trump administration is trying to pull back on some of the spending that had been allocated through jobs Act et cetera. What are you seeing any cancellations. There are people slow walking business whats going on that please.
Speaker Change: No not really we haven't really seen anything substantial in that space and I would tell you that the value added products that we're able to create put in the field.
Speaker Change: Continue to gain market share.
Speaker Change: We don't really we haven't seen that or experienced it today.
Speaker Change: Okay, that's good to hear.
Speaker Change: And then.
Speaker Change: I think you talked about <unk>.
Speaker Change: Able to pass pricing through.
Speaker Change: Are there any other commodity goods, we need to be mindful of where you've been able to raise price along normal contract lines and should help on the margin side.
Speaker Change: Nothing specific to speak of.
Speaker Change: Again, we continue to experience pressure in the two spaces construction and packaging the most but.
Speaker Change: Nothing really there to speak up greater than that the biggest cost by R. J as lumber and panel costs and so being able to.
Speaker Change: So experiencing the cost increases there and having some success passing along just not fully.
Speaker Change: <unk>.
Speaker Change: As encouraging but still more work to do.
Speaker Change: Okay sounds great. Thanks for taking my questions.
Speaker Change: Okay. Thank you. Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call over to Mr will switch for any closing remarks.
Speaker Change: Thank you. Thanks again for taking time to join the call today. Despite this more challenging macroeconomic environment, we remain confident in our ability to navigate and win thanks to the people and strategies, we have in place thanks and have a great day.
Speaker Change: This concludes today's program. Thank you all for participating you may now disconnect.
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