Q3 2019 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to officially hardware third quarter 2019 results conference call.

This time, all lines and listen only mode, but following the presentation. We will conduct a question and answer session, which will be restricted to analysts only if at any time. During this call. You require me did assistance. Please press star zero for the operator note that this call is being recorded on Thursday October 3rd 2019 bonus you want me them limit.

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Ladies and we'll Miss you.

Good afternoon, ladies and gentlemen, <unk> and wake onto the especially for years course runs calling for the took water a nine month ended August 31st 29 team with me as I was wondering well.

<unk> as usual no. That's almost what is your she went to school looking information, which is provided with the usual disclaimer as reported you don't you know financial filings.

The show you that from well into two quarters.

As shown by increases in sales if it though net earnings and cash flows compared to last year.

Note that the took waldorf at one less business. They then that's you negatively impacting sales by 1.5%.

Despite the softer market that kinda, though.

Oh go to watch fuel by the contribution of all five acquisition made although the best was months, namely.

Yeah, what could actually components not going industries.

That's don't building products twofold building products and trusted they supply.

To go to the forced or a good performance no manufacturers markets, both in Canada and in the U.S.

That makes the George pockets of softness is spelled across Canada, but more importantly, no doubt and the Atlantic balances.

I saw the retailers market in Canada.

As mentioned in previous quarters, there's still soldiers joint venture we are going along with other customers combined with the softer market and then you got it and they got even back on all sales.

She can go sales were also lower this quarter.

However, we are particularly pleased with all U.S. performance, well sales increased by 8.2% and to the acquisition and also by the continued improvement.

No margins in this market.

Of course, there he did the EBITDA margin, but as a percent H say slightly increased.

The result of Eagle was controlled on gross margins as well as well thanks Lucas.

I would come back with additional information comments, but we know as onto one to go to the financial highlights one [noise].

Richard third quarter sales, it reached 269 million up by 3.4%, which 5% from acquisition and 1.6% from internal decrease.

In Canada sales amounted to 100, an 80 million up 5.7% of which 4.7% from acquisition and 4% from internal decreased.

Our sales to manufacturers reached 147 point ninemillion up by 3%.

That's for the hardware every theaters and renovation superstores sales stood at 32 million down 8.8%.

In the U.S. sales totaled 67.5 million in U.S. dollar an increase of 8.2%.

Sales to manufacturers reached 64.9 million in U.S. dollar an increase over 8.9% of which 3.1% resulted from internal growth and 5.8% from acquisition.

Sales to hardware, we theaters and renovation superstore were down 7.3%, however are showing year to date growth of 10.8%.

Total sales in the U.S. reached 89.3 million in can eat into all or an increase of 9.2% and we presented 33% of total sales.

For the first nine months of 2019 sales totaled 777 million up 4.2%, 0.4% from internal growth and 3.13, 0.8% from acquisition.

In Canada sales reached 507 million up by 3.3 million or 0.7% of which 2.7% resulted from acquisition and internal decrease of 2.1%.

South to manufacturers rose to 417 point Sixmillion.

By 12.9 million or 3.2%, mostly resulting from acquisitions.

Sales to hardware, we theaters and renovation superstores reached 89.1 million compared to 98.7 million down 9.7%.

In the U.S. sales amounted to 203 million in U.S dollars up by 7.5%.

1.6% from internal growth and 5.9% from acquisitions.

They reached 270 million in Sydney, then dollar by 11.5% accounting for 34.8% off total sales.

[noise] sales from manufacturers total hundreds and 85.3 million an increase over 12.5 million or 7.2% over the same period last year of which 28% resulted from internal growth and 6.4% resulted from acquisitions.

As reported in previous quarters, the internal growth in the manufacturers markets was affected by the termination of a supply agreement with the major customer.

No that that comparable sales level internal growth in the U.S. manufacturers markets would have been 3.4%.

Sales to hardware retailers into innovation superstores were up 10.8%.

Versus 28 feet.

Third quarter, EBITDA reached 3.2 million up by a 1.3 million or a 4.3% over last year.

Gross margin and EBITDA margin improved slightly the EBITDA margin stood at 11.2 per cent compared to 11.1 last year [noise].

[noise] for the first nine months EBITDA reached 78.3 million up 2%.

The gross margin remained stable that's for the EBITDA margin. It stood at 10.8, 10.1% compared to 10.3 last year.

The EBITDA was impacted by the slowdown in the hardware, we did or market than Canada end market development costs incurred to increase our offering and I were present in the retailers markets in the U.S.

Third quarter net earnings attributable to shareholders totaled 18.6 million up 1.3% [noise].

Net earnings per share were 33 cents basic and diluted an increase of 3.1%.

For the first nine months net earnings attributable to shareholders reached 48 million down 2.6% dilute student diluted net earnings per share stood at 84 cents.

Third quarter cash flow from operating activities before net change in working capital balance amounted to 23 point fourmillion or 41 cents per share an increase of 4.3%.

For the first nine months, there were up 5.6% totaling 61 million or one daughter and six per share.

For the third quarter of 2019 dividend paid amounted to 3.6 million up by 4.4% since the beginning of fiscal year, we repurchase common shares for $9.4 million, including 4.9 million during the third quarter.

During the first nine months, we paid dividends of 10.8 million up by 4.3%.

We also invested 28.4 million for business acquisition, and 7.6 million, primarily for equipment to maintain and improve our operational efficiency.

We continue to benefit from a healthy and solid violent financial position cash by then so 14.8 million almost no that are working capital of 346.8 million Foraker Wintery sure 4.5, [laughter] I now turn it over to Richard.

Thank you as well.

Ongoing utilization Luckily nutrition strategies enabled us to go into this market segments. All development efforts in specialized markets such as the only the window hardware closet glass outerwear, Okay. That's what other web and suddenly see importance for stairs dinosaurs and readings worthy.

As far as well I always want to acquisition, resulting in a 20% sales growth in these markets.

We continue to improve operational efficiency and customer service Oh, what do we source system every month and that she continues to deliver a span expectation.

I think system is highly effective well I vote and provides you with a significant over the competitive advantage would just launch.

New project to extend the current auto store footprint to add up to 5000 podunk location.

This will require an investment of about $500000.

Speaking about competitive advantage. We also have constantly and this thing you know unique website, which is obviously use bio customers and he is the website is a very important contributor to our success.

We are also promote to increase all presence and sees Newmarket. Unfortunately in the important New York market.

Well, we are moving our long island city location to a larger one in the same area. It would be a key locations that will include a state of the art and Waco me, whom I've been able for customers.

And we all kick it takes on designers.

Turning to our outlook, we let me focus on outstanding customer service Mckittrick gain in Canada and the U.S.

The new synergies opex it only deficiencies. Unfortunately, the and you acquisition opportunity compatible with our growth objective. We remain confident that's always studies are ongoing innovation musket development and acquisition. We've continued doing good result.

And end the year with a strong and stable. Its initial position we have grown this company two to one big $1 billion sales, although I wonder if you're on the on dollar exhibit though with no debt.

Parity apparel with these to continue on the Patrick the better growth by entering because we always have to strategies human resources and system in place in order to keep our leadership and remained a strong you know that is and customer driven company. Thanks, everyone.

I'd be happy to answer your questions.

[noise]. Thank you.

Ladies and gentlemen, if you do have a question. Please press star followed by one on your touched on Tom You will then here Athree, Tom prompt acknowledging your class questions will be taken and you would do perceived and if you should wish to withdraw your request. Some people ask star followed by too and we do after that if you're using a speakerphone. Please lift the handset.

Before proceeding any keys.

And your first question will be from Zachary ever shut at National Bank Financial. Please go ahead.

Good afternoon, thank for taking my questions [laughter] good afternoon.

I was hoping you could speak more about the auto store expansion what is being added.

We're just not location. So we're going to open a add about you're supposed to be steel costs totaling between five and 7000 more production to do it will source. The d. The result of that we'll be able to increase our operational efficiency as well as to a.

Charleston, although it will lead time, which is the fastest weve fastest way to deliver the type of product that will sitting at the sugar. So that's will add to our competitive advantage as well to expedite you all did you raise and save cost.

Thank you that's helpful and it's actually Mike tie into that a U.S. sales made up a larger portion of consolidated sales versus the same quarter last year and you have indicated in the past the U.S. margins are generally lower than your margins in Canada.

At this quarter, despite softening markets and growing especially in the U.S. margins increased 10 basis points year over year on EBITDA.

To provide us with some insight into where that's coming from.

It certainly are you said I think its is that's a result of a legal cost control, although margins and then not to name a setting prices as well as the open up additional costs as they also a working hard in order to save a on the cost of that a freight which is actually a quite expensive <unk> not let me go I mean.

Although the world. So basically it's a I think we have a good team in the U.S. The a have a good plan and the did drive the businesses, the which would be good.

And do you think that there's more you can extract there.

There will always we'd be more to extract.

Moving on to the activity in Canada, which has been poor year to date have you seen any signs of end markets turning a corner.

No the a that the softness in the third quarter was a west felt pretty much all across the all across Canada, but like we said that severe and more importantly, India. The Atlantic provinces and also the a in Alberta, Alberta is done by something like like 10%, Quebec, we filled the up.

Compared to two less the last year and as well as BC a the rest of the market's a slightly negative the true the Ontario, which is down by a 4%, but I want to go into as you would that would so what's on the although information, but I can say do though that's including acquisition. These sales increased by 6%, Ontario.

<unk> increased by 9.7% as a result, then they have the lead this acquisition Western Canada, we'd be a decreasing by only 0.3% compared to 2.5 without acquisitions.

So oh, the already Canada has mentioned the.

Ones report sales increased by 3.1%, so basically with quite happy with the with the resolved including all acquisitions.

Thank you for the extra information and that's that's very helpful.

Any any sign of things turning around in the month since quarter end.

No I would say, it's up to 10 for the manufacturers luquette, but I think we got into the retail market in the first quarter of a foot or when you fully fiscal I think we're going to see improvement he kind of be worse, because we know the the percentage of sales Oh, the sake that pharma Inspur Pos.

For our big <unk> detailing customers and that actually we we see this is a big difference between the purchases I Wonder if you ask that foreman so that means that the key but as you were seeing and realigned inventory. So a that kind of last forever. So we expect that to be improving in the future quarters.

So even Judy mentioned it would be back to normal.

Oh, thank you.

Except for the store closure will do well, though that that flows we don't expect them to the open.

That's fair.

And then and the impact there we're seeing on the retailer front how much. She thing is attributable to the inventory rightsizing and how much is end market slowness.

I would see it say, 80% in the end venture with alignment the rest is in self market yes.

Acts and thank you.

And we have brought this up in the past, but the home depot, new self pickup lockers are seeing positive reaction. So are you seeing any impact on your sales or have any customer has mentioned.

No.

No.

Doesn't have an impact with us.

That's clear.

Moving onto the M&A pipeline always an important topic how's it looking these tests x. I think so we're busy and we keep walking on than that we and if the business become more difficult that would be just nothing more but should we be liquidation before the timing I think this is a very healthy.

I would like list a of acquisition that we have an all tables and we we will probably maybe other moves a very soon.

And in context of the weaker marketing, Canada do you think that may cause an acceleration of the pace of M&A.

Yes.

That would certainly be probably able to that.

Excellent and one one last one from me then how did the various end markets perform any weak spots in your manufactures and markets.

No. The its was it was pretty pretty steady and all of our of our all of our markets as act.

Axon. Thank you very much for the extra color I'll turn it over.

Thank you.

Ladies and gentlemen, once again, if you do have any questions. At this time. Please press star followed by one on your Touchtone phone.

And your Noakes next question will be from John Novak.

Oh. Please go ahead.

And so and can you just talked to the working capital it looks like you've taken a lot OTA, both inventory and receivables.

How do you see the rest of the you're playing out from a front from a working capital perspective.

Yes, I, usually the a the fourth quarter is a is it is pretty neutral. So third quarter is usually a favorable but if you will also if you remember that.

Last question in the second quarter, we had a very large sales to a very large cyclical sales. So basically we we got the receivables and during the third quarter and and then we're also working are working very hard to two to reduce the air to where there was inventory, but I'm not I'm not expecting.

Your major reversal on the in the fourth quarter over quarter. So the major reversal, we got us into third quarter. So should be a should be neutral way in a in the fourth quarter and usually the first quarter is where you invest in euro and your inventory in for the in that.

In order to capture the the busier markets and then this spring.

Okay, and lastly should we expect the same pace.

Use on the normal course issuer bid in the in the next quarter.

Yes.

Okay. Thank you very much.

Thank you.

Ladies and gentlemen, as a reminder, if you do have a question. Please press star followed by one Touchtone phone.

And at this time, we have no other questions I would like to turn the conference back over to Sean Law. Please go ahead Sir.

Thank you very much and it's always a figure to talk to you. So we being you know office. If you have sort of questions was a pleasure to talk to you have a good afternoon.

Thank you ladies and gentlemen, this doesn't do you conclude your conference call for today once again, thanks for attending and at this time, we ask that you. Please disconnect your lines enjoy the rest of your day.