American Woodmark Corp (AMWD) 2005 Q3 法說會逐字稿

Good day, and welcome to this American Woodmark Corporation conference call. Today's call is being recorded. The Company has asked us to read the following Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors that may be beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include but are not limited to those described in the Company's filings with the Securities and Exchange Commission and annual report to shareholders. The Company does not undertake to publicly update or revise its forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. At this time, for opening remarks and introductions, I would like to turn the call over to the Vice President and Treasurer, Mr. Glen Eanes. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to the American Woodmark conference call to review our third-quarter results. I'd like to thank you for taking time out of your busy schedule to participate. At this time, I will turn the conference call over to Jake Gosa, our Chairman and Chief Executive Officer, who has some opening remarks and introductions.

Thanks, Glen. As you all know, last May, I announced the promotion of Kent Guichard, formerly Chief Financial Officer, to the position of Executive Vice President of Operations. Since December, Kent has been working with John Wolk, our new Chief Financial Officer to affect a smooth transition. That's gone well. Beginning today, John will be delivering the prepared remarks. Kent and I will continue to be available to participate in the Q&A sessions. So going forward, I just wanted to alert you this would be our new standard format. With that, I'll give you John.

Thanks, Jake. Again, thanks to everybody for taking some time to hear more about the performance and progress at American Woodmark. This morning, we released the results of our third fiscal quarter ending January 31, 2005. In case you have not had the chance to read our earnings release, here are a few highlights.

For the third quarter, net sales for the quarter were 183 million, up 12 percent over the prior year. Net income for the quarter was 7.1 million, down 7 percent from the prior-year net income of 7.6 million. Diluted earnings per share of 42 cents for the quarter compares with 46 cents last year. For the nine-month period, the comparable figures are net sales of 570 million, up 17 percent over the prior year; net income of 28.1 million, up 21 percent from the prior year; and diluted earnings per share of $1.67, up 19 percent from last year's $1.40 per share.

Regarding our third-quarter performance. Our guidance issued at the end of last quarter anticipated sales growth of between 8 percent to 12 percent for the third quarter of 2005. Our actual sales growth of 12 percent was at the high end of that range. The overall level of new construction activity remains at historical highs. Residential starts continue to be robust. Total monthly housing starts for January, as reported by the Department of Commerce, are on their highest pace in 21 years, at over 2.15 million units on an annualized basis. Single-family starts continue to account for more than 80 percent of total starts and at 1.76 million annualized units in January, achieved an all-time high level. Mortgage rates, as reported by Freddie Mac, are at their lowest levels in the last nine months. The thirty-year fixed mortgage rate remains well below 6 percent. Based on the value of our Timberlake product line, our extensive service reach and our partnerships with many leading home builders, American Woodmark continues to see strong underlying demand from the new construction sector.

Strong market conditions also continue on the remodeling side of our business. Existing home sales, a leading indicator for home improvement spending, remains at historically high levels. Annualized sales remain well above 6 million units. Demand for our products from home remodeling remains strong. The strength in the remodeling industry is reflected in both the overall growth and the comparative store performance at the major big box retailers. Home Depot and Lowe's each announced record fourth-quarter sales and earnings this week. Both retailers reported double-digit top-line growth and healthy comp stores sales growth of 4.6 percent and 6.9 percent respectively. Demand for our products and services reflects this strength in the marketplace.

Moving on to gross profit. Gross profit for the third quarter was 18.8 percent of net sales, down from 20.8 percent in the third quarter of last year and from 21.1 percent in the first six months of the current year. The primary drivers to our lower gross margin rate were underutilized, fixed, and semi-fixed overhead costs and an increase in freight costs. For the first time in recent memory, the Company actually had more manufacturing capacity than we could utilize during the third quarter of 2005. Until December of 2004, we had been operating at 100 percent of our manufacturing capacity for essentially the last two years. To keep up with the continuing demand, we brought up our South branch West Virginia facility last fall and followed that by commencing operations at our new Allegany, Maryland plant in January of this year. Entering the third quarter, we planned for normal backlogs, normal demand, and the aforementioned increases in our manufacturing capacity. We expected that given these factors, we would operate our plants at 90 to 95 percent. However, we underestimated the impact upon our incoming order rates of last fall's four hurricanes that hit Florida and to a lesser extent, the East Coast. Order rates were reduced for a longer time than we expected. The reduced order rate caused us to underutilize our increased manufacturing capacity and we operated at about 80 to 85 percent. As a result, our third quarter was a quarter of two distinct pieces. We operated at 95 percent of capacity in the first month and at 80 percent in the last two months, falling well short of our plan. We were able to manage our direct labor costs to achieve efficiencies as a percentage of sales despite these factors. However, we could not fully absorb our increased overhead costs. Toward the end of the third quarter, demand resumed its normal seasonal pattern, in line with our original forecast.

Our freight costs reflected general industry trends that have been impacting the large package home delivery segment of the transportation industry. These factors include driver availability, new DOT regulation, the impact of Internet shopping, and the continuing high cost of fuel. We are actively working to address this problem. Because of the nature of these industry-wide factors, we expect that freight costs will be an ongoing challenge for the foreseeable future.

Material costs were flat as a percentage of sales for the quarter. During the third quarter of 2005, we were able to successfully offset much of these pressures through a combination of a previous price increase, manufacturing process changes, and material substitutions. However, these cost pressures continue to impact us, exerting upward price pressure on several of our key raw materials, including market prices for maple, the price of petroleum-based finishing materials, and the price of steel. Historically, the industry has been able to cover general material and freight cost increases when experienced by all manufactures.

Regarding our capital growth plans, capital expenditures for the third quarter were 14.9 million. Outlays for the quarter included a variety of maintenance and cost-saving projects, equipment deposits to expand capacity, and outlays to complete construction of the two new plants. The new component facility in South Branch, West Virginia continued to ramp up production. The Company's sixth assembly plant in Allegany County, Maryland commenced operation as I said in January of this year. Based upon the completion of the Allegany plant and several other projects, we expect CapEx of approximately 5 to 7 million during the fourth quarter ending April 30th, 2005. The Company will continue to fund its capital spending plan from a combination of operating cash flow and existing cash on hand.

Regarding SG&A costs, selling and marketing expenses increased from 8.9 percent of sales in the prior year to 9.1 percent in the current year due to an increase in advertising and promotional efforts. General and administrative expense was down from 4.2 percent to 3.4 percent of sales due to ongoing cost management efforts as well as a reduction in costs associated with the Company's pay-per-performance incentive plans.

Regarding our balance sheet, the Company's financial position remains outstanding. Long-term debt to capitalization was 11 percent as of January 31st, 2005. Cash on hand at the end of the third quarter was $27.7 million. The Company repurchased 1.7 million in common stock during the quarter, bringing our year-to-date total to 7.3 million of stock repurchases.

In closing, we continued to make progress in the third quarter, although we are not satisfied with our profit margins and bottom-line results. The Company continued to generate top-line growth across all channels. The combination of our market positioning and favorable market conditions should continue to generate incremental sales volume and improve product mix. Productivity continued to improve across our manufacturing platform. Our capital expansion program has us well positioned to fulfill growing demand from our customers. We continue to generate strong operating cash flows to fund our future expansion while maintaining our strong balance sheet.

Having said that, we are disappointed with our profit margins and our net income for the third quarter. We believe that increased production for the fourth quarter will enable us to achieve efficiencies that will offset the relative inefficiencies of our two new plants as they continue to mature. The market forces impacting the cost and availability of transportation services are impacting many industries. Although we expect freight costs will continue to be an issue for the foreseeable future, we expect we will operate at higher margins in the fourth quarter than we did in the third quarter. As we look forward to the fourth quarter of fiscal 2005, we see an environment supporting continued sales growth. The remodel side of our business presents continuing opportunities for growth through the expansion of the home improvement market; our partnerships with existing big box retailers position the Company to capture a growing share of remodeling activity; the new construction sector also remains strong as low interest rates and other factors continue to drive housing starts; our strategic partnerships with major builders in established markets provide a strong base for growth. For the fourth fiscal quarter, we anticipate an increase in sales from 15 to 20 percent over prior-year levels. Our higher level of production capacity is sufficient to support a higher level of peak demand. Considering the anticipated increase in sales as well as the many factors influencing our costs, we expect that diluted earnings per share will be in a range of 53 to 59 cents for the fourth quarter as compared with last year's fourth quarter earnings per share of 50 cents. This concludes our prepared remarks. We would be happy to answer any questions you have at this time.

(Operator Instructions). Sam Darkatsh of Raymond James.

Hi. It's actually Budd Bugatch pinch hitting for Sam who's traveling on the road. A couple of questions. The miss in the quarter -- can you quantify how much was due to be fixed cost absorption? One way I can get a fixed cost delta of about 8 million and another way of about 4 or $5 million. What do you think the un-absorption was?

Generally speaking, I would say that about two-thirds of the shortfall was probably directly attributable to the volume.

To the volume? So two-thirds -- can you put a number on that, Jake, in a pretax way? What's that -- about 5 million or --? 3 million?

I really can't, but -- we haven't really specified that kind of stuff in the past. If you look at the shortfall to our range, our estimate, it was about two-thirds related to the volume of the balances related to the normal expected operating inefficiencies. When you go through a period where the first half of the quarter demand is running at a pretty normal level and all of a sudden we miss it -- we miss the forecast by a substantial amount, utilization rates drop 10, 15 points over a very, very short period of time. And so as you're scrambling to get back in line, that causes you some interruption or some inefficiencies in the business. But the real story was the drop in volume coupled with the startup of that capacity, which we forecasted we would need. Throughout the quarter, we turned out not needing it and so we took the hit.

So that equates to -- if my numbers are just very quickly -- something along the order of $2.4 million of un-absorption due to that if it's two-thirds of the shortfall on a pretax basis. And the other third of it is what, Jake -- to make sure I understand that -- just normal inefficiencies of a startup?

Well, just there's startup inefficiencies coupled with the fact that we had a lot of freight issues. We had an environment where the first month of the quarter, orders were doing very, very well. The impact of these hurricanes was really pretty substantial to us. We have a very large stake in the new construction business, particularly in the Southeast.

It was substantial down here too. I will tell you that.

Oh yes, very substantial. And those hurricanes rolled on up through the East Coast so that we were in a situation in October where we actually had a couple of weekends where as far north as Central New England, we had home center stores shut down with floods and high winds. We had figured that to bounce back relatively quickly as our customers were telling as it would, particularly on the new construction side. What they didn't understand was the fact that they were not going to be able to get trades to get to this normal resumption of their business because the trades were all off reroofing storm-damaged properties. So that caused a delay that we just didn't see and couldn't see. And so that freight -- the inefficiencies going with a significant quick drop in your business, which kind of falls off the table to the tune of 10, 15 percent utilization rates at the same time you're bringing up new capacity. So you got three things kind of hitting you there that caused pretty much the rest of the problems.

So does the un-absorption go away now? I mean you're at a rate now where as you exit the third quarter, if that -- let's just use my number -- that you had a $2.5 million or thereabouts pretax un-absorption. Does that now go away and we don't have that?

Well, I'm not sure it's as black and white as that, Budd. We will utilize what we had planned to use in the third quarter. That capacity will be utilized. We will, however, continue to ramp those facilities up. So we'll have some ongoing costs that we'll be picking up, and we'll have normal startup inefficiencies with those operations. There's nothing abnormal going on.

Well, see, when you gave your guidance for the third quarter, you would have known about those inefficiencies. You would have planned for those I would have thought.

Yes.

So in the 50 to 55 cent guidance, you would have had those already planned in. I'm trying to understand what the shortfall caused -- if that happened as expected, then the shortfall happened for something else. Right? Am I wrong? Is that logic that fallacious?

Well, what I was trying to explain to you earlier is we had some significant freight costs.

Okay. Can you quantify that?

Excuse me?

Can you quantify that?

No, we haven't -- we don't quantify that. But the other piece of it -- or the unplanned inefficiencies, when you drop from a 95 to 100 percent utilization rate unforecasted to an 80 percent rate. And that's what happened to us over the course of October -- on into -- excuse me -- from the end of November through December and January. And so you have a lot of labor on hand that you don't need. You have to figure out how to get those hours out. You have to figure out whether or not you think that's for real, that drop off or if it's short-term. Our customers were telling us know, no don't go away. Our business will be there. And while they were still selling houses, they were unable to continue to working on those houses because of the unavailability of trades. Which I think down in Florida, you're probably pretty aware of that situation. If you've lost your roof, you've got on up to a three to six-month waiting list. Builders couldn't get roofers to put on houses because they could go off and reroof damaged homes and make several times the money.

I'm very painfully aware of that one, Jake.

I know you are. And so that caused us some unplanned costs, Budd, that were not related to normal startup inefficiencies.

So if you had made the 90 to 95 percent type capacity on utilization in quarters -- in periods two and three of third quarter, would you have made your 55 cents, or 50 cents?

Yes.

We would have made it.

And you're running at that rate now. Okay. And then the other question is then in the first period of the quarter, if you assumed they are all equal periods and you were running at some rate of around 17 cents in the first period of the quarter and then the 25 cents for the other two periods of the quarter. Would that be a fair question?

No, there are different days in the months (multiple speakers). It really doesn't break out that way.

Let me ask you just a quick one other question or two other questions. Did you have -- your price increases, any impact on that in the --?

We raised prices back in the summer, and pretty much realized those increases through the quarter. That made a contribution. We are still, as John mentioned in his remarks, we're still under some material cost pressure, particularly in those three areas he mentioned. And we're absorbing some freight cost pressure. We anticipate that the industry will be able to recover those. We'll continue to endeavor to do that ourselves.

Are we seeing a fuel surcharge now or anything like that?

We are not doing that. We are paying fuel surcharges. Our industry has been sporadic in how they would recover fuel for freight costs. And fuel surcharges has not been a consistent way that we've seen that done. But that is one consideration.

And my last question is any new capacity coming online now? Any new change in plans?

No change in plans. Just ramping up what we have for the foreseeable future.

I'll let others ask. Thanks, Jake.

David Campbell, Thompson, Davis.

Good morning. Thank you. Hi, Jake, I just didn't really understand the fact that your sales came in at the high end of your expectation, but utilization was below your plan. So was there a disconnect in the forecasting or just can you better elaborate on exactly what happened?

Yes, the -- we were -- when we got into September, we had taken a number of steps. We were forecasting the fall. We knew we were bringing up some capacity and we were also seeing the business was coming in, but it was not coming in at the torrid pace that it was earlier in the year. We felt that we should forecasted sales a little bit on the conservative side, not knowing what the winter would bring, because we hadn't been through a normal winter in over two years. And so we kind of forecast sort of the footprint we were on. I guess my response to that would be that we came in at the high end of the range. But 12 percent is a pretty low number for us if you look at our top-line sales is compounded closer to 20 percent for the past several years. So we did see a little bit of a soft winter there based on some things in September and October, which were probably storm related. The thing that we really missed was the normalization of business post storms. And I think the thing that makes this hard to understand if you don't have the inside look at the business, we have a very large concentration of new construction business in Florida and the Southeast. And the predominance of the remodeling activity happens in the Northeast. And these storms have some impact and what would have been some much stronger or weakened sales levels in the New England and the Eastern -- big cities of the East, particularly in October.

That being the case, we did have some visibility in this thing. So we forecasted a range of 8 to 12. What we didn't see was that this thing would last on through the winter. And basically, what happened there was that I think the people that did not remodel due to the storm in October just had waited until after the first of the year. On the new construction side, the builders that continued to sell houses through the winter months, and demand -- and starts have been very strong -- were unable to complete as many houses as they would have liked. And so we'll see a surge of housing activity, of closures in the first quarter of this year. They forecasted a quicker normalization of closings and completions at the end of the year. They passed that onto us. We forecasted, it didn't happen.

Okay. And is there any way for you to improve your visibility on demand in your business? Or are the leadtimes just so short that you can't do that?

Well, we have -- over the past, we've generally been pretty good at forecasting our demand. What we haven't been able to do is predict events. And this is an event-driven phenomenon. It's not a trend-driven phenomenon. So the fundamentals of the business -- the demand side of the picture looks very, very strong. And we're bullish on the outlook going forward. And we've forecasted a resumption of more normal looking at top-line going forward. So that visibility hasn't really changed. But the impact that I just described to you and Budd are really episodic in nature. It's not systemic or it's not related to any longer-term trend that we see.

And what about gross margin -- you're gross margin is still somewhat below where it was a couple of years ago. What are your objectives for that over the next year or two?

Yes, over the next couple of years, we're still saying that we'd like to get our gross margins back in that 23 to 25 percent range. And given activities that have been undertaken in the material, the freight and the labor areas, we still plan on working the Company back into those kinds of targets.

How soon do you think you can do that? And what are some of the key variables there?

Well, we'll do it as soon as we can. As you know, we don't forecast gross margin. But the key variable short-term is freight costs and material costs, is right behind it. We have managed to -- between some aggressive pricing activity through the year and some material substitutions and other types of activities, we managed to keep the capital on that. Freight costs are going to be a big challenge. They are a big challenge now and they'll continue to be a big challenge for us. And we're still hearing pretty strong drumbeats from the marketplace in the area of certain hardwood species, particularly cherry and maple. Steel, particularly affected by the availability of steel and the exchange rates. Most of our stuff comes from overseas, so a weak dollar is driving up the cost of those imports. And anything petrochemical related, obviously, as long as we have $45, $50 oil, we're going to continue to get some pressure there. So finishing costs and things of that nature. Those are the areas we're working on. We continue to take aggressive action to offset those. We have a number of programs that we're benefiting from. I think John in his prepared remarks mentioned that we've had some progress in the labor area. We've had some productivity gains for the past few quarters. We expect to continue to get those. So that's the other key area for costs that we'll be managing.

Thanks. Good luck.

(Operator Instructions). Dan Romanoff with Credit Suisse First Boston.

Good morning, Jake. Good morning, John. Welcome aboard. I just had a few questions. One is housekeeping in nature. Depreciation for the quarter -- did you say that?

No, I did not. 9.1 million.

Thank you. And then, Jake, can you break out the impact of pricing versus mix on sales growth for the quarter?

No we can't. We don't do that, Dan.

Even directionally, like more mix versus pricing?

No, we haven't done that in the past.

Okay. Promotional expenses seemed to creep up a little bit. Is that just strong (ph) --?

Nothing out of the ordinary. More timing issues than anything else.

Okay. And then did you -- was the dividend lowered? Or is that just a result of the split?

The split.

Okay. And one last issue -- the new plant in South Branch and Allegany, what type of plants are those again?

The South Branch plant is a component facility. They receive hardwood component parts, of which we make doors, drawer fronts, and frames for the front of the cabinet. They receive those parts from these dimension facilities, which process the lumber; they dry it and mill it. They take those raw or whitewood parts as we call them. They finish mill those parts. Actually build the frames to the doors, and then finish them and send them onto an assembly plant. Allegany would be one of those assembly plants, of which we now have six located around the country. Those assembly plants receive various flat and component parts from different plants, assemble and ship the cabinet to the customer.

Thanks.

(Operator Instructions). Sam Darkatsh, Raymond James.

Yes, just make sure I do understand on the guidance, Jake. Your capacity utilization projection on the revenues now, the guidance -- the revenue guidance -- is 90 to 95 percent?

Yes, I'd say pushing up toward 90 percent -- maybe a little better than that.

Towards 90 percent.

We're going to really try and stay ahead of it, but we've been under a great deal of pressure the last two years because we've been operating the Company at about probably 102 to 105 percent of capacity and it just wears things out. We have no redundancy, so it's hard to get efficiencies, particularly in things like freight material flows. And you're working your work force overtime all the time. So we're going to really try and stay in about a 90 to 95 percent band. Assuming that our top-line forecasts are close enough, we'll endeavor to keep ramping up capacity in line with that.

And leadtime today is what about --? (multiple speakers) coming in the door is how long?

Normal leadtime -- two weeks or less. Just normal leadtimes, depending on the channel.

So nothing abnormal on that?

No, no abnormality.

You're able to fulfill that.

Yes, we're fulfilling orders as the service policy requires.

And the sources of demand between the home center channel and the builder channel, how is that running? What are you seeing on that?

In terms of the vitality of it, you mean?

Yes, who's -- where is the demand source? Is it equally robust at each channel or is it one more than the other?

Well, I think that the remodeling channel has been very good and very steady. We've seen just an enormous run-up in demand and the builder for the past year. With building starts running at 2 million, and with the consolidation dynamic going on around the top 20 or 30 builders out there, we seem to be benefiting even beyond those growth rates in the industry. That's where an awful lot of the sharp run-up in demand has come from.

So of your delta in sales, would you say two-thirds of that is the builder channel and one-third out of the --?

No, no. It's not like that. But we've seen more variability in the builder than we have the remodeling business over the last two or three quarters.

I'm confused there. Make sure I understand the color on that. You said the builder channel has been more robust than the remodeling channel -- it's been good, but the remodeling channel has not been as robust as the builder. And I'm just wondering --

No, the remodeling is 75 percent of the industry and new construction is 25. So you can have a pretty sharp run-up in your builder business and it still won't affect the Company nearly as much as a strong run-up. If one business is up 15 percent and the other one is up 12 percent, we see that as a big difference. The resulting impact, though on the totality of the business is quite different. You get that -- reverse those figures and you get your remodeling business running up 15 to 20, your building running up 10. They have very different impacts on capacity. Because of the share of business that they occupy here at the Company and the marketplace in general.

I got it. But overall, though, the builder rate of growth has been faster than the remodeling, but the remodeling is much larger for you than the builder.

Is much larger and they are both very good.

Okay. Thank you very much.

David Campbell, Thompson, Davis.

Do you have a new plant coming onstream this year in Grantsville, Maryland?

We have -- David, we appropriated money to buy a site in that location, which we did. In preparation, just to be on the safe side, we secured a site and got ourselves in position to move more nimbly or more quickly for a dimension facility when the need arises. At the present time, it's in our forecast out there, but we haven't announced a date. So it's not in the current thinking. But we do have a site. And with that site, obviously, we went ahead and made a press release, because word would've gotten out anyway.

Do you have any update on the size of the industry for 2004? The last data I have is wholesale size of about 9 billion for 2003.

We have it more like 10 plus, 10 to 11 billion 2004, maybe at wholesale. Somewhere in that range.

Okay. And where do you think American Woodmark's share is (multiple speakers) --

Somewhere around 7 percent. Somewhere in that neighborhood, 7.5, maybe.

Are there any industry shifts or changes that you are -- that are different or that you might be able to comment on?

I don't see any significant shifts out there in share and who's occupying the space. The general phenomenon of the big three, which is Masco, Fortune Brands, and us, are the principal suppliers to Home Depot, Lowe's, and the 20 largest builders in the United States. And to that extent, we do see a continuation of that trend.

Okay. Alright, great. Thanks again.

(Operator Instructions). Dan Romanoff, Credit Suisse First Boston.

Just one follow-up here regarding gross margin. It's been asked a lot. If you're still targeting 23 percent as your gross margin longer-term -- 23 percent or more, and you've been at 100 percent capacity for more or less for the last couple of years and your margin has been somewhere around 20 to 21 percent, can you comment a little bit on where you might be able to get those additional couple hundred basis points from?

Well, a couple of things -- one, I would point to material costs. And two, I would point to the fact that you're running over 100 percent capacity is not necessarily an efficient way to run. And I'll just give you a couple of quick examples. If you've got multiple facilities as we do, when your running at say 102, 103 percent of capacity, your material flows are going wherever you can get material to wherever it's needed. It's not taking the most efficient routing. So you could have say -- if you have excess assembly capacity in Jackson, Georgia and you have needs in Texas or Oklahoma or someplace like that, you may have truckloads running all the way out there which are far outside their normal service or desired service radius. We've do a lot of that -- a lot of Gassody (ph) production, for instance, has gone into the East. A lot of Jackson production has gone in to support the Southwest. So that's very, very inefficient.

The other thing that really hits you badly is the utilization of your labor. And anytime you're running 100 or 100 plus capacity, you've got plants that are running consistent overtime every week, every weekend. And then you've got plants that are running sporadic overtime. So you end up with a lot of overtime hours which are premium to start with. And typically when you run overtime premium hours over a long haul in a plant let's say an extended period of time six months or more, you can expect to see labor inefficiencies start to creep in. Absenteeism, pieces for man-hour shortages, things of that nature.

So, we have not been running for the last couple of years in an environment that really fosters great efficiency. My earlier comment -- I think it was to Budd, was an endeavor to stay in the 90, 95 percent utilization range. While you have a little more of an absorption problem to deal with, you can deal with these labor and material flows issues, which are really important to a business like this when you want to attack gross margin and pick up a few basis points here and there on a regular basis. So that's really the shift in environment internally that we're trying very hard to effect.

Okay thanks a lot.

Joel Havard with BB&T Capital Markets.

The -- we're on voice-over-internet protocol here, so we have all sorts of communication problems. A lot of the questions have been asked by the other guys already. But John or Jake or maybe it was Kent said you didn't really have a comment on units or pricing. Maybe it was the way the question was asked. Historically, you'll have reported unit volume versus unit pricing change in the Q. Does that man you just don't have it handy yet for the call?

Yes.

Okay, fair enough. Touching on, actually, I think this question was asked was how much is on the repurchase authorization currently?

What do we have left?

6.7 million is left.

$6.7 million? Alright. And regarding Grantsville, that is projected to be another assembly operation?

No, Joel, that would be a dimension operation, which is where we buy green lumber, dry it and process it. (multiple speakers). It's at the far end of the treatment.

Yes, stage one, taking trees, as it were.

That's it.

Okay. The --

And the reason we wanted to have that arrow in the quiver is if you -- as you run your demand up over time, if you end up with any significant time overlap between your maximum capacity on the dimension side and bringing up a new mill, that forces you into the KD lumber markets (multiple speakers). And the penalty for that is really enormous. (multiple speakers) that before. So that really is the strategy.

Right. And that one should come up sometime over the course of fiscal '06?

Not necessarily. We're not sure about that yet.

Oh, okay. What about the next assembly plant? When ought we be thinking '06, '07 to look for another assembly operation?

We don't really have one on the radar screen at the present time.

Alright. Well another projected time question would be when might the Company be ready to step into a new builder territory? Obviously, you've had a lot of success with that. The consolidation story is there. As we understand it, it seems to us from our company's coverage of the builder world that they would love to see you all in as many new metro markets as you could stand to open.

We opened Denver last year. We'll be expanding in Denver at the present time. Capacity allowing, we have a couple of other locations that we've been requested to move into that we would consider.

That you are considering? Okay. Well that takes care of it, guys. Thank you.

And we're standing by with no further questions. I'd like to turn the call back over to Mr. Eanes at this time for any additional or closing remarks.

Again, I'd like to thank everyone for taking time to participate in this conference call and we'd like to thank everyone for their continuing support of American Woodmark. This concludes our conference call. Thank you.

And once again, that does conclude today's conference. You may now disconnect.

Thank you.