Yahoo Finance JELD-WEN Holding, Inc. (NYSE:JELD) Q1 2024 Earnings Call Transcript
JELD-WEN Holding, Inc. (NYSE:JELD) Q1 2024 Earnings Call Transcript May 8, 2024
JELD-WEN Holding, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the JELD-WEN First Quarter 2024 Earnings Conference Call. [Operator instructions] I would now like to turn the conference over to James Armstrong, Vice President of Investor Relations. Please go ahead.
James Armstrong: Thank you, and good morning. We issued our first quarter 2024 earnings release last night and posted a slide presentation to the Investor Relations portion of our website, which can be found at investors.jeld-wen.com. We will be referencing this presentation during our call. Today, I am joined by Bill Christensen, Chief Executive Officer; and Julie Albrecht, Chief Financial Officer. Before I turn it over to Bill, I’d like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC.
JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today’s call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix to our earnings presentation. With that, I would like to now turn the call over to Bill.
Bill Christensen: Thank you, James and thank you everyone for joining our call today. I am pleased with the progress we are making on our transformation journey and we continue to focus on strengthening JELD-WEN’s foundation. While there are various near-term market challenges, we remain confident that we can deliver improved future performance. Let me start by first thanking all of our associates for their continued commitment as we work together to meet our customers’ expectations while also taking important actions to bolster our financial performance. Additionally, I want to thank the new senior leaders that recently joined our team. Within their first 100 days, they have rolled up their sleeves to learn the business, visit our facilities, and quickly add value to our transformation journey.
I know they will help us achieve the short and long-term goals we have for JELD-WEN. Today, I will initially share a brief overview of first quarter results and discuss some of the actions we’ve completed. I’ll then hand it over to Julie to discuss our financial results in more detail before returning to discuss future actions in our transformation journey, provide our updated 2024 financial guidance and then take your questions. I’ll begin with our first quarter highlights on Slide 4. Despite the continued challenging market environment, first quarter sales and EBITDA were in line with our expectations as the positive impact from our ongoing productivity actions helped mitigate the anticipated headwinds from soft demand in both North America and Europe.
In early April, as part of our ongoing activities to streamline and simplify our manufacturing footprint, we announced the closure of two North America windows facilities. While these were difficult decisions, it’s critical that we continue taking the actions needed to improve JELD-WEN’s financial results. I’ll talk more about one of these decisions in a few minutes. Turning to Slide 5. We continue to make solid progress on our transformation journey, including actions to fix our foundation. Focusing on our people, during the first quarter, we took important steps to strengthen our culture. In January, we gathered 130 of our top leaders from around the globe to align our vision and goals for the year. We also discussed how we will work together to execute on our transformation actions including both cost reductions and top line growth initiatives.
We also began training more than 1,600 senior leaders about the skills and behaviors we expect along with giving them the tools to succeed in building a values-based organization. Shifting to performance. During the first quarter, we maintained our focus on improving cost efficiency. As I just mentioned, we recently announced our decision to shut two facilities, our Vista, California composite windows facility and our Hawkins, Wisconsin Wood Windows facility. These closures are part of our plan to simplify and streamline the business with a focus on quality of sales and asset utilization. Together, the closure of these two facilities is expected to deliver at least $11 million of annual EBITDA savings. I’m also pleased that we are increasing our CapEx spending to enable and deliver on operational improvements.
In the first quarter, our CapEx increased approximately $10 million year-over-year with much of this additional capital funding projects that are part of our transformation journey. Examples include projects that help us use materials more efficiently and increase automation and production processes, all resulting in driving costs out of our business while also improving quality. We continue to be in the early innings of our transformation journey. However, we are pleased with the progress. I am proud of our team for their continued hard work and dedication in making JELD-WEN a stronger and more profitable company that we all know it can be. I’ll now turn it over to Julie to discuss the financial results.
Julie Albrecht: Thanks, Bill. Looking at Slide 7, our first quarter revenues were $959 million, down 11% from the prior year. This decrease was driven by a reduction in our core revenues due mostly to the expected market-driven volume declines in both North America and Europe. Our adjusted EBITDA was $69 million in the first quarter, down $10 million year-over-year and leading to an adjusted EBITDA margin of 7.2%. Our Q1 margin was just 10 basis points lower than the prior year’s first quarter, showing how our productivity is helping to offset the impact from lower volume mix. As you see on Slide 8, our first quarter revenue decline was driven by lower volume mix of 12%, with marginal positive impacts from price and foreign exchange translation.
As we mentioned in our February earnings call, our first quarter volume mix in North America included an approximately $30 million headwind from unusually high backlog at year-end 2022 that increased our first quarter 2023 sales. Excluding this impact, our first quarter 2024 volume mix decline would have been approximately 9%. I’ll provide additional comments about our North America and Europe market trends shortly. On Slide 9, you see that our first quarter adjusted EBITDA decreased by $10 million year-over-year. Despite significant volume mix headwinds, we generated solid profit contributions from improved productivity and also benefited from higher other income. Moving to our segment results on Slide 10. In the first quarter, our North America segment generated $680 million of sales, which was a decline of 11% from year ago levels.
This was driven by a reduction in core revenues of 12% due to lower volume mix. Excluding the impact of the unique backlog in last year’s first quarter, North America’s volume mix decline would have been approximately 7%. North America’s adjusted EBITDA decreased to $61 million from $79 million in last year’s first quarter while margins fell 130 basis points to 9%. This decline was due to the lower volume mix that I just mentioned. In Europe, we generated $279 million of revenue and $15 million in adjusted EBITDA in Q1. Core revenues decreased by 12% year-over-year driven by lower volume mix of 14%. Adjusted EBITDA declined by $3 million, leading to margins of 5.2%. The decremental impact from lower volume was mitigated by solid productivity improvements.
Now turning to the market outlook on Slide 11. I’ll provide some high-level comments on our market outlook then will cover additional details on Slide 12. Starting with North America, due mostly to continued uncertainty around U.S. interest rates, we now expect North America volumes to be down by mid-single digits in 2024 versus our previous forecast of a low single-digit decline. We anticipate that new single-family home construction will be higher by low single-digits. However, the outlook for repair and remodel activity remains challenging and we currently expect R&R activity to be down by mid- to high single digits. The European market continues to remain under pressure and is experiencing higher-than-anticipated demand weakness due to the ongoing macroeconomic and geopolitical challenges.
Overall, we anticipate volumes in the region to be down by low double digits versus our previous forecast of a high single-digit decline. Residential construction markets remained soft across Europe, and we continue to expect that these volumes will be down by high single digits. Additionally, commercial project volumes are slowing in Europe, and this demand is expected to decline by low double digits versus our previous outlook of mid-single digits. Given the changes in our market outlook, since we updated you in February, I want to provide additional details on the current market dynamics. So turning to Slide 12, I’ll start with North America. As many of you know, single-family housing starts are improving slightly year-over-year. With existing home sales still sluggish and little inventory in the market, buyers are turning to new construction to fill the gap.
The largest builders are driving much of this improvement with much of the demand coming from entry-level homes. While this is a positive for our doors business, we are underrepresented with the largest homebuilders in our windows business. As such, our North America business is not seeing as much lift from single-family construction as the overall market data would suggest. Our team is working on the opportunity to increase our windows sales where there is potential growth with this market trend. Bill will describe a specific example of this in a few minutes. The repair and remodel market continues to be weak and the softness is greater than we expected 3 months ago. A combination of slow real income growth and continued high mortgage rates is causing consumers to delay large projects.
Finally, while our multifamily and Canada projects business is only around 10% of our North America sales, these markets are facing much sharper declines than we anticipated due to the uncertain interest rate outlook. We believe that we are doing better than the market overall, but we are seeing sales in these markets down by around 20%. Turning to Europe. The market continues to be soft across all countries. Commercial construction activity remains weak, and the updated forecast now shows 10% to 15% declines in commercial projects while permits are already trending down 12% year-over-year. Like in North America, European commercial construction activity is being delayed due to continued high interest rates. Residential housing also remains challenged with housing starts down by high single-digits with weakness in almost every region.
I’ll now turn it back to Bill to talk about our transformation journey.
Bill Christensen: Thanks, Julie. Staying consistent with what we have previously said, we are taking a two-pronged approach to improve JELD-WEN. As we show on Slide 14, our short-term focus remains on strengthening the foundation of our business. We continue to make progress on reducing our operating costs and improving our operational performance. However, we have a lot more work to do on getting the basics right, like quality and delivery. In addition to this short-term focus, we continue to assess opportunities to grow our business and we commit to only invest where we have the right to win. While this review is ongoing, we do see opportunity for profitable organic growth across our current portfolio. This includes the premium, multifamily and high-performance areas that we currently participate in, but can do more.
Turning to Slide 15. My three focus areas continue to be people, performance and strategy. Our transformation journey is currently focused on people and performance. As we spoke about last quarter, we are investing more in our culture, including training around important behaviors such as safety, continuous improvement and accountability. We are then measuring our progress and closing the loop with feedback from our teams. Shifting to performance, our numerous initiatives include a balanced focus on both growth and cost reduction actions. As I’ve mentioned before, we began with approximately 800 projects in the pipeline and have completed more than 300 projects today. Through our disciplined process, we continue to refresh our project funnel as we still have many opportunities to improve.
Focus areas remain commercial excellence, manufacturing network optimization, automation and leveraging our scale to improve sourcing among many other smaller initiatives across the organization. I would like to highlight a few specific examples in the subsequent slides. On Slide 16, you see a growth project that our North America windows team is working on. As Julie mentioned in her market update, our team identified an opportunity to address our under-representation in a growing part of single-family home construction. After meeting with the top builders throughout the country, we heard consistent themes. They need shorter lead times, higher service levels and less callbacks from window installations. To address this, we developed our Windows Stock and Service Program.
This project leverages things we do well in various parts of our windows business and brings an offering to the traditional channel that meets their needs. We are starting small with this program, only targeting select regions with partners that understand the value that we are providing and as such, our revenue and EBITDA projections remain modest. However, we see significant potential to expand this program as we continue to focus on providing what our customers find valuable. Turning to Slide 17. Another example of our transformation journey, which I mentioned briefly at the beginning of the call, is the closure of our Vista, California manufacturing facility and along with it, the exit of our Auraline Composite Window business. Despite significant efforts from our teams, Auraline was not achieving our business plan objectives.
Following a critical review of the product line, we did not see a reasonable path to get to an acceptable level of profitability. As a result, we are in the process of winding down the business and expect the site closure to be completed by the end of this year. An important part of this process included doing a postmortem review so we can improve similar activities in the future. Finally, as part of our transformation journey, we’re reviewing products and customers to identify opportunities to improve the quality of our sales where margin profiles are well below expectations. While some of these decisions may have a negative impact on our near-term financial results, these are critical actions to increase future shareholder value. I now want to discuss our 2024 guidance.
As you see on Slide 19 and mostly driven by weaker-than-expected macroeconomic conditions, we are lowering our revenue and adjusted EBITDA guidance for the year. Specifically, we are lowering our revenue guidance to between $3.9 billion and $4.1 billion from $4.0 billion to $4.3 billion previously. Our core revenues are now expected to be down 5% to 9% versus our previous expectation of flat to down 7%. This change is underscored by three main facts: continued high interest rates, leading to increasing project delays in both North America and Europe, a slower seasonal demand ramp up in the second quarter, especially in our North America retail business. And finally, as part of our transformation journey, we are proactively evaluating our product mix and may give up certain short-term sales to drive higher long-term profitability.
We are lowering our adjusted EBITDA guidance due to our updated revenue outlook. We now expect our 2024 adjusted EBITDA to be in the range of $340 million to $380 million versus our previous range of $370 million to $420 million. Our updated EBITDA guidance reflects the impact of lower expected revenue at a 25% to 30% decremental rate. Though we are reducing our revenue and adjusted EBITDA guidance, I’ll highlight that the EBITDA margin of our new guidance midpoint is 9%, an improvement from 2023. This is a good example of how our continued focus on cost efficiency is mitigating the current market headwinds. I’d also like to provide some information about our expected second quarter sales and EBITDA. The largest driver to our updated full year revenue guide is a lower seasonal demand ramp-up in Q2 than initially expected.
Specifically, we were originally forecasting a sequential increase in Q2 sales of approximately 10%. Our revised outlook now calls for a mid-single-digit sequential increase. In addition, our second quarter EBITDA will include onetime costs of approximately $10 million due to the closure of 2 North America window facilities that we announced in early April. Now back to our full year outlook. We continue to be on track for the $100 million of cost savings this year, which is a combination of approximately $50 million of carryforward benefits from last year’s actions and new initiatives that will be completed this year. As we look at the phasing of earnings this year, we continue to expect benefits from our cost savings actions and investments to ramp up throughout the year.
Considering the timing of both our sales and productivity actions, we expect to deliver approximately 40% of our EBITDA in the first half of the year and the remainder in the second half. On Slide 20, you see our updated cash flow outlook for the year due to our lower sales and EBITDA expectations, we now expect that this year’s operating cash flow will be approximately $325 million before we incur an estimated $100 million of non-repeating cash expenses to fund portions of our transformation journey. We expect our free cash flow to be approximately $50 million to $75 million, which reflects both our strong commitment to investing in JELD-WEN’s future and our ability to self-fund these investments with operating cash flows. Let’s turn to Slide 21.
Before I wrap up, I want to give a quick update on Towanda. As noted in our 8-K last week, we have filed a motion to vacate the court order divestiture of our Towanda operations. In light of changed industry and market factors, we believe the divestiture of Towanda is no longer warranted and we are asking for relief from the initial ruling. We believe this motion is in the best interest of the company and our shareholders, but there are no assurances that the motion will be granted. This is the only update we will provide at this time. Despite the difficult macroeconomic conditions that we are facing, we continue to make strong progress on our transformation journey, which will set JELD-WEN up for success as the market improves. While our near-term demand outlook is challenged, our long-term view has not changed, and we believe the underlying fundamentals for North America and European housing remained very positive.
We take our commitment seriously, and one of our commitments has been transparency and clarity with our investors. Because of this, we believe now is the right time to adjust our guidance based on the softer-than-anticipated market conditions. I remain confident and optimistic about the number of long-term value-creating opportunities available within our business. We appreciate your continued interest, and I’ll now turn it over to James to move to Q&A.
James Armstrong: Thanks, Bill. Operator, we’re now ready to begin Q&A.
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