Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- JELD-WEN Holding Inc (JELD, Financial) achieved second-quarter sales and EBITDA in line with expectations, despite softer demand in North America and Europe.
- The company repurchased approximately $1.6 million shares at an average price of $15.18 per share, offsetting dilution from the past 18 months.
- JELD-WEN Holding Inc (JELD) is on track to achieve targeted cost savings of approximately $100 million this year.
- The company is making significant progress in its transformational journey, with 350 out of 800 projects completed, focusing on cost savings and operational improvements.
- The promotion of Samantha Stoddard to CFO is expected to bring a fresh perspective and continuity, given her extensive experience within the company.
Negative Points
- Second-quarter revenues were down 12% year-over-year, driven by a reduction in core revenues due to market-driven volume declines.
- Adjusted EBITDA decreased by $24 million year-over-year, leading to an adjusted EBITDA margin of 8.6%.
- The North America segment saw a 13% decline in sales and a significant drop in adjusted EBITDA from $109 million to $76 million year-over-year.
- The European market remains under pressure, with core revenue decreasing by 10% year-over-year and adjusted EBITDA declining by $4 million.
- The company expects continued market softness, with North America volumes projected to be down by low double digits in 2024, and the European market also trending towards weaker performance.
Q & A Highlights
Q: Can you talk about the priorities within sales force efficiency, go-to-market processes, and pricing optimization, and how much you can achieve in these areas when volumes are pressured?
A: William Christensen, CEO: We are holding our pricing well despite the competitive market. We have implemented "win rooms" to improve sales efficiency by analyzing project volumes, conversion rates, and lost projects. We are under-indexed with windows on large builders in North America and are working to increase our share. However, there is a lag of three to six months before we see the results of these efforts. We expect to see some wins materialize later this year or early next year.
Q: How do you feel about the 500-plus projects you're working through and their impact on the second half of 2024 and early 2025?
A: William Christensen, CEO: We have seen some incremental inflation, particularly in labor and benefits, and are pulling ahead additional projects to offset these costs. We expect to add $10 million to $15 million of benefit to the $100 million target for this year. We are constantly refreshing our pipeline of projects, currently with about 500 active and 350 completed. We will continue to prioritize projects based on resource allocation and opportunities.
Q: Your outlook seems to contemplate a sequential expansion in margins in the back half of the year. Can you break down the factors supporting this?
A: William Christensen, CEO: We have pulled ahead some additional benefits into our transformation pipeline, which we expect to drop in Q4. This includes $10 million to $15 million of additional upside. Samantha Stoddard, CFO: The $100 million cost savings target includes both COGS productivity and SG&A reductions. We expect about one-third of the savings in the first half and two-thirds in the back half of the year.
Q: How do you balance growing volume relative to holding price to offset inflation and protect margins?
A: William Christensen, CEO: We are monitoring price cycles and managing our cost structure effectively. There is a mix down currently, with softness in the R&R sector in North America. We are working hard to get ready for a recovery and are focused on improving our cost structure, service levels, and quality. We have done a better job in Europe of holding price, and some smaller competitors are struggling, leading to some pickup in volume for us.
Q: Can you help us better understand the North American volume expectations, now expected to decline low double digits year over year?
A: William Christensen, CEO: We are underrepresented in windows for new single-family construction, which is comping slightly better. We see dramatic declines in our multifamily and project-driven business, including our VPI windows and Canadian business, which are down close to 30%. These segments make up about 10% of our North American business, dragging us into the low double-digit expected decline.
Q: How should we think about the price versus cost pieces of the new outlook, with price cost expected to be about a 1% headwind now versus flat?
A: William Christensen, CEO: Pricing is competitive but generally stable. We are seeing some cost inflation, particularly in labor and benefits, which is why we are ramping up and pulling ahead some cost measures in our transformation package. This should have an impact in the back half of the year, leading to a 1% decline on the price cost lever, mainly in North America, and fairly neutral in Europe.
Q: Can you give us more perspective on how to think about the 3Q versus 4Q EBITDA contribution, given the $10 million cost pushed out to 3Q and the $10 million to $15 million savings weighted in Q4?
A: Samantha Stoddard, CFO: The majority of the plant closure costs fell in Q2, with about one-third in Q3. We saw a lower seasonal uptick this year due to lower consumer confidence. We are accelerating transformational initiatives, with most of the $10 million to $15 million savings hitting in Q4. Q3 and Q2 will be similar, with Q3 being slightly more profitable and a larger uptick in Q4.
Q: If we get rate cuts this fall, what's the lag you see in your business for R&R, new construction, and multifamily?
A: William Christensen, CEO: There is a lag of at least a month or two for resale homes to start kicking in with lower rates, which will drive R&R traffic. For new construction, there is a lag of three to six months for our products to be built in. Multifamily and commercial projects have a much longer-term lag, probably six months-plus.
Q: Has the variance between higher-end and lower-end window and door categories widened since the start of the year?
A: William Christensen, CEO: The volume growth on the lower end new construction is solid, particularly with top builders. We are under-indexed on windows and are working to build a better position and sell our products into those builders. The variance has been relatively stable.
Q: Can you provide an update on retail channel inventory levels?
A: William Christensen, CEO: There has been no significant reload of channel inventory, and the seasonal uptick has not occurred. Inventories remain thin, and big-ticket items and discretionary spends are being pushed due to high uncertainty and mortgage rates. We expect a quick pull-through when demand picks up, but no short-term changes are anticipated.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
