American Woodmark Corp (AMWD) 2006 Q4 法說會逐字稿

Ladies and Gentlemen, please stand by. We are about to begin. 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 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 maybe 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 the 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. Glenn Eanes. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen and welcome to this American Woodmark conference call, to review our fourth quarter results. I would like to thank you for taking time out of your busy schedule to participate. Also participating on the call today will be Jake Gosa, Chairman and Chief Executive Officer; Kent Guichard, Executive Vice President and Chief Operating Officer; and John Wolk, our Chief Financial Officer. We will begin with John, who will review the quarter and give us an outlook on the future. And after John's comments, Jake, Kent and John will be happy to answer any of your questions. Thank you. John?

Thanks, Glenn. Good morning and thanks for taking the time to listen to an update on American Woodmark's financial progress. This morning we released the results of our fourth fiscal quarter that ended April 30, 2006. In case you have not had the chance to read our earnings release, here are a few highlights. Net sales for the quarter were 216.4 million, up 4.5% over the prior year's fourth quarter. Net income for the quarter was 13.5 million, up 81% over prior year's fourth quarter net income of 7.5 million.

Diluted earnings per share of $0.83 for the quarter compares favorably with $0.44 earned last year. For the fiscal year that ended April 30, net sales were 837.7 million, up 8% over the prior year. Net income was 33.2 million, down 7% from the prior year. Diluted earnings per share were $2 per share, down 5% from the prior year's $2.11.

As we discussed in our last call, we're in the midst of transitioning out of certain low-margin products, including the in-stock cabinet business at Lowe's, over the next several quarters. As in the last call, I will provide a separate breakout of our transition status and impact, and continue to do so on future calls until the transition is complete.

Regarding our fourth quarter sales performance, our previous guidance anticipated flat overall sales for the quarter, inclusive of our transition out of low-margin products. Our overall sales growth of 4.5% exceeded that forecast. Our sales of core products, which include special-order sales to both Home Depot and Lowe's as well as sales to large builders, builder distributors and dealers, increased by 9%, higher than our expectation of mid-single digits. Sales of low-margin products declined, in line with our expectations. We completed the transition out of low-margin products in the Western region of the United States during the fourth quarter. The annualized sales value of the exited business today equates to approximately one-third of the total volume to be transitioned.

For new construction, recent indicators seem to be in line with the soft landing consensus projections that call for a 5 to 10% decline from the historically high levels at which the industry had been operating. Residential housing starts continue to be solid, although momentum is slowing. Monthly housing starts for April 2006 as reported by the Department of Commerce were 1.85 million units on an annualized basis, the second consecutive month below 2 million units and the first time below 1.9 million annualized units in more than a year. Inventory levels of unsold new homes have grown, especially in active markets such as South Florida, Phoenix, Washington D.C. and Northern California.

30-year mortgage rates -- fixed mortgage rates -- as recorded by Freddie Mac, rose to 6.67%. While still low by historical standards, rates stand at their highest level of four years.

The backlogs of the large builders to whom we sell have increased slightly, although several have announced increased cancellations and reduced sales activity as compared with the prior year. Although the new construction market appears to be cooling, we have been aggressively bidding and winning new business. Based on the value of our Timberlake product line, our extensive service reach and our partnerships with many leading home builders, American Woodmark expects to maintain and grow its market share in what looks to be a somewhat less robust new construction sector.

For the remodeling market, conditions have been mixed. Existing home sales, a leading indicator for home improvement spending, continue to hover between 6.7 million and 7 million annualized units, slightly lower than the record 2005 levels but still near historic highs. The consumer confidence index fell last month after reaching its highest level in four years. The unemployment rate as reported by the United States Department of Labor dropped to 4.6% as new job creation continues to remain strong. And the major big box retailers continue to demonstrate overall sales growth. We believe the remodeling market will sustain growth and support our sales forecast.

Moving on to gross profit -- gross profit for the fourth quarter was 21.1%, significantly higher than 17.6% in the fourth quarter of last year and 17.5% in our previous quarter. Efficiencies were gained in relation to nearly all of the cost components of gross margin on both a sequential and a year-over-year basis. As we described in our last conference call, numerous operating initiatives stabilized and improved margins during the third fiscal quarter that ended January 31st, 2006. These initiatives included focusing on operational efficiencies and disciplines, implementing selected pricing actions and rationalizing spending and headcount levels. Our transition out of low-margin products commenced in the third quarter and gained momentum during the fourth quarter. The reduction of these volumes enabled an improved sales mix of more core products with higher margins.

Raw material input costs were stable, despite increasing cost pressures. The significant increase in diesel fuel did not impact us until just after the fourth quarter ended and the inflationary pressure from rising commodities and petroleum-based materials was mostly offset by the benefit provided by the improving sales mix. The combined impact of these actions and market dynamics improved productivity and reduced costs during the fourth quarter.

Regarding our operating expenses, total SG&A expense was 11.1% of sales in the fourth quarter of 2006, down from 11.8% in the prior year. Selling and marketing expenses declined to 7.7% of sales from 8.9% in the fourth quarter of the prior year, primarily reflecting the timing of sales promotions and reduced spending. General and administrative expense increased from 2.9% to 3.4% of sales as the Company resumed a more typical run rate of costs associated with its pay-for-performance incentive plans.

With regard to our capital growth plans, total capital expenditures and promotional displays deployed aggregated 26.6 million for fiscal 2006 as compared with 74.2 million in fiscal 2005. Capital expenditures were the reason for the decline, as outlays for promotional displays were flat. The reduction in CapEx reflected the completion of two manufacturing plants in fiscal 2005. Outlays for the quarter included a variety of maintenance and cost savings projects and equipment deposits. We expect capital expenditures and promotional displays deployed in fiscal 2007 will be approximately 10 million higher than in fiscal 2006, comprising a variety of small to medium-sized projects but no new plant construction activities. The Company expects to continue to fund its capital spending from a combination of operating cash flow and increasing cash on hand.

Regarding the balance sheet, the Company's financial position remains outstanding. Long-term debt to capital was 10.3% as of April 30th, 2006. Cash on hand improved to 48 million, and the Company repurchased 2.8 million of its common stock during the fourth quarter, bringing the total repurchase for the year to $15.3 million, representing 3.2% of the Company's outstanding share base. Since 2001, the Company has repurchased over $43 million of its capital stock.

In closing, overall we are very pleased with the continued improvements we made in our operational performance and gross margins during the quarter. As I previously stated, the timing and magnitude of this improvement exceeded our expectations. However, inflationary cost pressures will make it difficult to maintain margins at these levels. As we have stated in the past, management believes the Company should generate sustainable gross margins in a range of from 21 to 23%. Accordingly, we continue to work toward achieving this objective.

As we look forward to the first quarter of fiscal 2007 we see a mixed housing environment that should continue to support our sales forecast. We believe the Company remains well-positioned to maintain and grow its market share. The remodel side of our business presents continuing opportunities for growth through the continued expansion of the home improvement market. Our partnerships with existing big box retailers, each of whom continue to grow their store counts and market coverage, position the Company to capture a growing share of remodeling activity.

Most of our new construction customers expect to continue to gain market share. The new construction sector appears to be slowing down, but our partnerships with both national and regional builders position us well to maintain and grow our market share. Now that the operational difficulties which impacted the Company in the beginning of fiscal 2006 have been resolved, we're focused on regaining market share that we temporarily lost, particularly in the West, where we have begun to recover.

During our fourth fiscal quarter that ended April 30th, 2006, we experienced higher growth, temporarily stable material and fuel costs and improved sales mix and beneficial timing of our sales promotional calendar, all of which combined to yield results that far exceeded our expectations. For the first fiscal quarter that ends July 31, 2006, we expect that mixed remodel and new construction markets will support coarse product sales growth of 3% to 7% over prior-year levels. We expect the low-margin product transition will continue for the next several quarters. Taking this transition into account, we expect overall sales levels will be flat to 4% higher than prior year. We expect the Company's gross margin rate will remain over 20%, driven by the favorable impact of operational improvements, previous pricing actions and continued transition-driven improvements in the sales mix. We expect that first quarter gross margins will decline somewhat on a sequential basis, driven by significant inflationary pressures in petroleum-based materials, liner board, diesel fuel and record high levels of particle board.

We expect the Company's SG&A costs in relation to sales will be higher than we experienced in the first quarter of 2006, due to the resumption of more typical levels of pay-for-performance incentive compensation. The Company has implemented FAS 123R during the first quarter of fiscal 2007, using the prospective transition method. Accordingly, the Company will recognize a charge for stock-based compensation expense for the first time in its fiscal quarter ended July 31, 2006. Exclusive of the FAS 123R impact, we expect the Company's diluted EPS will be in a range of from $0.55 to $0.70 per share as compared with $0.45 per share in the prior year's first quarter.

Inclusive of the Company's provision for stock-based compensation expense, we expect the Company's diluted EPS will be in a range of from $0.60 to $0.65 per share.

This concludes our prepared remarks. We would be happy to answer any questions you have at this time.

(OPERATOR INSTRUCTIONS). Eric Bosshard, Midwest Research.

First of all, the better performance in the core business -- can you characterize a little better where that's coming from in terms of the market relative to your market share? And then, secondly, can you clarify your comment about what you think your new construction business will do on the top line as we see this contraction in housing starts?

Well, there's a lot in that. I guess, from the standpoint of the core businesses, the remodeling business is pretty much on forecast for the quarter. The new construction business is pretty much on forecast for the quarter. And the way I will characterize that is, for us, it has been, as we indicated in the last call and reinforced in this one, continued softness in the West. And that is driven by two things; and that is one, and we have a lot of business in California. Those are two markets that are particularly hard-hit right now with the kind of the reversal of the speculators coming out of the market as well as suffering from a couple of years of real high house inflation, house price inflation, along with the impact of our big event last year. So we are recovering out there in terms of market share. That is getting offset quite a bit by softness in, particularly, places like Northern Cal and Phoenix. If you go east of the Mississippi River, it's a mixed bag. But overall, it was pretty much on forecast. So in addition to that, I'm not sure what else I can tell you.

The upside in the core revenue growth, the up 9 versus the up mid-single digits, which side of the business? Where exactly did that exactly come from?

Remodel. Remodeling guidance.

And then, secondly, as you look into the coming quarter and coming period, you commented that you thought new construction would slow, but that you're with the right builders, and those builders are gaining share. How you expect that to play out in terms of your revenue performance out of your new construction business?

Well, we think we'll stay on forecast with right now. There's nothing -- we haven't seen anything that is really shocked us, Eric. I went to the spring forecast, three or four weeks ago, down at NAHB in Washington. And I think pretty much what they are still talking about is what we're seeing play out, and that is particular downward pressure in about six or seven markets where expected spending is particularly high. And that is South Florida, other parts of Florida, Arizona, Northern Cal, Northern Virginia, et cetera. There are other markets which are playing out very positively, such as Texas, Carolinas and a lot of the infill markets. We are doing quite well with major builders in secondary markets. You might have a Centex Home that's under a lot of pressure, say in Arizona or California. But they may be doing really well in Nashville or Cincinnati or something like that.

And so there are some offsets there. We started more aggressively building our bid files last fall, when we saw some of this activity. We anticipated some of this. In some markets we have not kept up as well as we would like, such as out West, where I think the pressure is particularly strong. But in some of our East Coast markets, that has paid off well and we have been able to offset builders' loss of activity with new share.

So it's a real mixed bag. The problem with it is, if you look at just the impact of speculative activity, that if you figure that's 7 or 8% of the national housing starts last year -- just pick a number; that's, I think, a pretty good one -- the problem is, is that could be 30% of the activity, say, in the South Florida market or the Phoenix market. And so we are adjusting to that.

I think the next quarter, next two quarters for sure, will clear up a lot of uncertainties, particularly in the new side of the business. But for right now we're not seen anything that's really kind of a low-wage shock or anything.

You commented that promotional spending was down in the quarter due to some timing. The overall promotional environment in terms of spending in that area, and you had impressive remodel growth even without the promotional spend -- do you expect the promotional spending environment to increase from this point or go back to normal or remain down? How do you think about that?

We think it will resume kind of planned levels, basically what happened was we just hit one of those periods where the timing of these things sort of work around either side of the quarter, relative -- a little more than I think you would normally anticipate. But I think promotional activity is already planned at a pretty strong level, and we will continue with that plan. It will pick up next quarter.

Sam Darkatsh, Raymond James.

First off, you mentioned that -- I think your quote, John, was the timing and the magnitude of the gross profit initiatives were the surprise. Can you be more -- add some more color to that? What specifically surprised you to the positive with respect to the factors that helped gross margin?

Sam, I'll make a comment on that and then I'll turn it back over to John or Kent can add their color. But, if you went through the kind of operating environment with all of the issues that we were involved in since last spring -- and we went through some really severe operating challenges. Back in December, clearly in my mind, I saw the operations really begin to improve. And as we reported our fiscal third quarter, from '06, I think we indicated that our operations were running quite well. What I didn't anticipate was that we would get really kind of a period where we were going to hit on all cylinders. When you are coming through a period like we went through, if you don't have a little bit of pessimism in your bones, there's something wrong with you. So what we were doing in terms of a forecast for this quarter was assuming that there were going to be some more reasonable levels of puts and takes, based on the previous six to nine months that we have been through.

In what happened was that pretty much things happened as we planned them. And so nothing really happened that we didn't plan; it's just that the plan just worked awfully well. And we didn't get like a huge shock on inflation or anything like that, or material costs; it's just that we have a lot of initiatives. Those initiatives have been well thought out. There are a lot of new systems that were put in place by Kent and the operating team that are playing out well -- good quality programs particularly paying off.

And so we just have a lot of things that really improved. And that's the big surprise for me. John, I don't know if you have anything else to say to that?

No, Jake I think you covered it.

Well, then, if you could help us in this respect -- of the factors that aided gross margin in the quarter, could you rank them in order of importance from labor savings to pricing to the mix away from the low-margin walk away business? Can you help us in terms of which are the biggest levers?

Yes, Sam, it's John. Overall, margin was up about 350 basis points year-over-year. I think the way you need to look at that is that it was primarily materials and labor as a component of cost of sales that drove virtually 85% of that improvement. And within the materials and labor breakdown, it's sort of a 2-to-1 for materials versus labor. And the drivers for improvement in materials -- most of that improvement was driven by improvement in sales mix, as we spoke about, previous pricing actions that we took earlier in the year to recover some of the inflation that we had experienced and then improved quality, because there has been a real emphasis within the Company on improving quality of our processes and so forth -- and of business use and handling. So within the materials side, those were the primary drivers.

On the labor side, that improved focus, as we talked about, really improved the productivity. We worked less overtime, operations were back in balance. And so, simply put, it took fewer direct labor hours to produce roughly the same level of output that we had done six months ago. So those were really the drivers, sort of a 2-to-1 in terms of material versus labor. And those collectively were about 85% of the margin improvement.

So you are including pricing within the materials savings?

Yes, that's right, because that's where we sort of see that improvement versus the cost that we had in place before, yes.

Second question, and the transition away from some of the lower-margin business -- I'll call that, for lack of a better term, your walk away business. As I understand it or understood it, you have got roughly $90 million in total of walk away eventually, in aggregate. You are saying you had a third of that already accounted for. Does that include the first quarter assumptions as well, or is that just Q3 and Q4? Because I'm trying to get the numbers to work, and I am struggling with it.

On an annualized basis, we've exited about a third of that business as of the end of the fourth quarter. Most of that exit happened progressively throughout the fourth quarter. It started in the third, but most of that happen progressively throughout the fourth quarter.

So, there's a seasonal aspect to the business that you walked away from in the fourth quarter that it will -- it progressively becomes more impactful to sales comparisons as the year progresses from a seasonal aspect; is that how I should look at it?

Well, not really, because the business that we are exiting wasn't really that much seasonally driven. Our core product sales are more seasonally driven. We have got a spring selling season and a fall selling season which are big for us. This business we are exiting wasn't really that much seasonally impacted.

So as a percentage of sales mix, it may vary from quarter-to-quarter because of those seasonal factors, but in terms of what we are exiting, it's more driven by our timing with the customer than it is seasonality.

I'll make sure my math is correct with you off-line. I've got one or two more quick questions, if I may. This probably points to what you were referring to Jake, in that you try and give yourselves a bit of a cushion. But if I take a look at the total sales expected in Q1 versus Q4 sequentially, they are roughly the same. And you mentioned that the gross margin should be a little bit less sequentially. You are also going to be expensing options sequentially. But I'm looking at the guidance of about -- call it somewhere between $0.20 and $0.30, maybe $0.20, $0.25 less than Q4. And I am trying to understand why the large variance in operating results Q1 versus Q4, given similar topline, which is at expectations.

I think that you are right; it's certainly something we look at sequentially quarter-to-quarter. A couple of other factors that are impacting it really is in the SG&A area. So you have got inflationary -- first, on margins, you have got inflationary pressures in materials that we're seeing coming through. You have got diesel fuel, which has really ratcheted up, commencing in May. So those two factors are going to hit margins to some extent. As we said, we still see margins above the 20% level, but some degradation is possible or foreseeable, in our opinion.

In addition, operating expenses are going to step up for a couple of reasons. The primary driver there is the resumption of the sales promotional calendar, and the timing and so forth. So we see an increase in selling and marketing expenses as well as probably a little bit of a bump up for this pay-for-performance incentive plan because, now that we're operating much better, we expect to pay more incentive-related compensation.

So, if you take those into account plus, as you say, the stock compensation expense, that's how we get to our forecast.

Sam if you -- one of the things, I think, that a lot of sales force you have got to realize that the fuel surcharges that we get hit with are indexed, and they get rolled over on a monthly basis. And so this last run-up didn't hit us in this quarter, but we know what it's going to be in the coming quarter. So, there's going to be a lot of volatility there. We'll take some action -- appropriate action -- based on what happens throughout the year. But, given the coming quarter, I think we will incur that.

Also there's a couple of raw materials, particularly particle board, liner board, that are markets that either -- had been very active in terms of cost pressures or we anticipate a lot of activity, for various reasons, in those industries. But we have got a few things factored in to the numbers that were not in the last quarter, that are impactful to our business and particularly our material cost.

So if my numbers are right, then, you did 21.1 in gross margin in the fourth quarter. You are saying it's going to be north of 20% in the first quarter. Every 1% change in gross margins equates to somewhere around $0.10 of earnings. So that's somewhere less than -- somewhere between $0.01 and $0.10 negative impact sequentially from gross margin. You've got about a $0.05 hit from the options, which leaves about $0.10 or so on the high end from a negative hit on the SG&A, which would be a full percentage point excluding the options, which means that you're looking at something around 12.6, 12.7% overall SG&A for the first quarter. Is that what we should be looking at?

Well, we don't guide specifics in terms of gross margin percentage and SG&A down to tenths of percentages, as you know. But the forecast that we have got out there, we believe, is a fair representation of our expectations for Q1. We believe gross margins will degrade, we believe that SG&A expense will increase. And working the math, as you say, that's how we get there.

Okay, one final question -- thank you -- one final question. Utilization rates right now -- you are saying that you are not going to be adding new facilities at this point. Kent, what do you think your utilization rates are at present? And John, I don't know if I caught the CapEx over this quarter versus depreciation; if you could help with that?

Yes, I will start with that. And again, from last call there's utilization of hard capacity and then there's utilization of what we're crewed to. The hard capacity number has been changing with the change in mix. As we get out of the low-margin businesses, they have a tendency to include products that are easier to make from a capacity utilization standpoint; they don't utilize as much capacity, especially in certain of our bottleneck areas. So our capacity is actually changing. Our fixed capacity, our hard, if you will, asset capacity is dropping as that mix changes.

But we still have, as John mentioned, we believe, plenty of room there with potentially a little bit of retooling of a couple of those bottleneck operations. And we don't anticipate having to put a new plant in the ground at least for probably 12 to 24 months, again depending on how we backfill the low-margin business.

From a utilization standpoint, in terms of where we are on a crewing basis, again, it's very different by region of the country and those types of things. But from a crewing standpoint, we are in pretty good shape. We're probably running the 90% kind of range in utilization. So when we get these promotion-driven bubbles that come through, we can handle and that from a crewing standpoint. And, given a little bit of time, if the whole thing picks up, we certainly have the hard capacity to deal with a significant increase, once we get the plants crewed up to those new levels.

So you don't expect any overtime over the next 12 to 24 months or, I should say, maybe 12 to 18 months or so, based on current crewing levels?

well, we always run a base level of overtime because we are a JIT manufacturer. So we always run some base level of overtime to deal with what comes through the plants. What I would say is that we don't anticipate any excessive overtime as we go through the next 12 to 18 months to deal with the fact that we're running the plants over straight time capacity.

Joel Havard, BB&T Capital Markets.

The first question would be about that in-stock line. Jake or Kent is probably where this one would go. Did operating margin contribution on that line of business get much worse or noticeably worse over the last 30 to 90 days, or did it kind of stay where it had been the last couple of years?

Yes, it's about the same, Joel. We have not seen any real degradation of that over the last 30 to 90 days. It is what it has been last year, pretty much.

And that was just, obviously, quite subpar, okay. Jake, a couple that are more for you. The builder-related field offices, these eight centers -- I know you've got some satellites -- what is the experience about how long it takes to get a new market up and running?

Well, it's not fast. But it depends a lot. If you were going to go to a new market and you were going to go there because, say, a couple of large national accounts had a presence there were unhappy with existing service and they were asking you to make the move along with them, it could be relatively quick.

If you elect to go somewhere because it's purely opportunistic on your part and you go in and start competing from scratch for everything, it can be fairly slow. So what you really need to do with these things is get them up to a base level of volumes. In our experience it's usually a couple of years before they start to get above breakeven.

On the other hand, there's not a lot of fixed overhead in there. There's a few people, there are some variable costs and labor costs based on what kind of volume you are doing. But it isn't terribly expensive to go seed one of these things; it's not like opening a new plant or something like that.

You all talked about Chicago and Vegas in the past. Any thoughts on when we might want to start factoring in that ninth major metro?

I think that -- no; I really -- I wouldn't look for that anytime soon. That could change. But Chicago -- we are pretty happy with our distribution up there and the programs that we have there to service our major accounts. And we have some ways to get in the Vegas market and service that where we need to, as well.

So I think we are -- it's hard. The centers that we have, big direct centers, we see lots of opportunity to expand those. We think they are pretty well-positioned. So for right now I think we are -- certainly, for this year's planning we had grown before we got to them.

That's interesting. Jake, I want to try and tie that question to the next one. If you don't anticipate needing to go into a new new-build market right now, it means that the strength of DIY is such that you believe core growth there is sufficient to keep pushing the right way on a utilization basis. What is your experience regarding the remodel trend, the consumer side of it, in environments where new build activity is slowing?

I think that the experience is that if you over the last 30 or 40 years, there's a high correlation of those two markets moving in tandem, new and remodel. Big-ticket stuff, and so when one goes down, the other one goes down. I would not say that we aren't going to push into new markets. We just are not going to open new builder centers. But we have a distributor channel that works very closely with our direct operations and our national account group. And they are very aggressively pursuing new construction national account business in the secondary markets, the tertiary markets, of which there are a number of those which we think have lots of opportunities. I think the thing that is still uncertain about the remodeling market is that, historically, when new construction is going down -- certainly for the last 30 years since I've been in this business -- is all of the recessions, in the '70s, '80s and in '91 as well, were pretty much characterized by very, very high inflation numbers, high single/double-digit inflation accompanied by very, very high interest rates, historically high interest rates -- I think, much bigger unemployment numbers.

We have right now, though, a situation where the Fed has made 16 moves. We have got still, historically, relatively good long-term rate (multiple speakers) less than 6.75, still. Builders have big margin structures -- they can buy these things down, they can do lots of things with incentives. And we have great jobs picture, and we have the consumer sitting out there with a record balance sheet in terms of home equity on their balance (multiple speakers). And so, if you factor all of this together, most of the consensus, the stuff that I listen to, they are saying that remodeling is going to hang in there and actually grow a little bit over the next couple of years in the face of a cooling new construction market.

So the basics are a little bit different. We'll just see. I think the next -- this quarter that we are in and the next quarter, I think, will be very interesting to help us kind of clear up the uncertainties of how this thing is going to pan out. But we are still -- you can see our forecast that we put out here this morning. And right now we are sticking with that.

Finally, and this may be more of a Kent and John type question, with new builds slowing down, I would suspect that would have eased pressures on the processed wood products side. John, am I hearing you that your particle and ply costs are starting to move back up, though?

Yes, Joel, if you are talking about in terms of particle board suppliers?

Yes.

Yes. Really, what is happening over there is that industry is shutting some capacity. There was a major plant in the Upper Midwest that was recently shut down. So what has really happened there is, it's not so much a demand-side that's impacting that as it is supply; there's a lot of capacity that is coming off the market. And it has really changed the supply-demand balance and it has really put a lot of pressure on that pricing.

How long do you think that will take to kind of smooth itself back out, Kent?

Boy, I wish I had that crystal ball.

How much are you buying right now, yes?

What has a tendency to happen on these is that, because an individual plant represents so much capacity that the plan will come out, it will readjust and it will sit for a while until somebody makes another major move, either taking a plant down for retooling or opening up a new plant. So I would suspect that we're going to continue to see quite a bit of pressure for the market to settle out through the summer. We might then get a kind of a little bit of a flattening in the fall, and then we'll just have to see what happens that next round. But the next 60 to 90 days, I think we're going to continue to see quite a bit of pressure on particle board as the capacity that that plant was servicing finds another home and things shift around until they stabilize again.

Would you mind giving us a sense of what that year-over-year increase is on the wood side currently?

Wood or particle board?

On the particle board; I'm sorry.

Well, if you go by the market reports, if you project out what likely is to be June and July increases here, you can see in the market report increases that are in the 30 to 35% range over about a 12 or 18-month period. It's significant.

John Haushalter with Robert W. Baird.

I just got a question -- walking through the raw material costs you guys are getting, are you kind of anticipating any pricing actions in July to kind of recover that?

It's Jake, John. We have been very flexible for the last 18 months -- 18 to 24 months -- in trying to recover our freight and material costs, and we remain that way. We have planned actions to offset all of these inflationary pressures that we've been talking about. I won't specify when or where we are doing that, but we are planning and taking actions to offset the kind of cost pressures we've talked about. And we think we will be able to do that.

And if I remember right, you've generally targeted the builder side a bit more than the home center side, just kind of given relative power between the two. As the builders get a little bit more -- well, that business model just gets a little bit tighter, do you see them as being receptive to price increases?

I don't think we characterize the builder over the remodel side of the business. But we may have said something that led to that conclusion. But that wouldn't be our feeling here. I think that we price the market, and obviously the builders -- you get kind of a situation over there where most of the them are looking to backfill business right now. A lot of them have relatively high cancellation rates and draining down their backlogs. They get through this "bubble" effect in some of their major markets.

Obviously, that puts pressure on everyone, including them. The offset to that is that we have a very competitive bid pricing situation in the builder business. Every job gets bid, and so that keeps that pretty lean over there. And when we have legitimate, documentable cost increases like you're seeing in, say, diesel fuel, freight charges and particle board, let's say, the industry tends to get those back.

The other thing, I think, that is going for the industry is that as the large builders have built up extraordinarily high gross margin structures over the last two or three years, that they can work that off and still make a lot of money and build houses. So I think emphasis on everybody is going to kind of keep the stream going. But, I think it may not be any easier to get it, but it wasn't easy to get price increases out of that market when these guys were raising their prices and making just incredible profit. So it's a tough, every-job-you-bid kind of market, period. And it just kind of goes on that way.

Fritz von Carp, Sage Asset Management.

I think our question has been asked and answered; thank you.

(OPERATOR INSTRUCTIONS). Robert Kelly, Sidoti & Company.

John, did you say 26.6 million for CapEx in fiscal 2006?

That's right.

Do you expect that to go up in a range of about 10 million?

Roughly, that's right.

As far as the share repurchases, can we expect a similar pattern that we saw in the past couple of quarters? Are you going to remain aggressive repurchasing now that you have all the cash coming on?

Yes, Bob. It's our expectation that we're going to stay in the market. We have a good amount of authorization, and if we exhaust that, we can go back to our Board and ask for some more. So we expect to continue to be in the market.

And on the new construction side, you guys talked about the expectations of a 5 to 10% decline. Are you confident that your ability to bid and win new business will at least keep you stable on that side or offset most of the loss? How do you look at that going forward? That is really the big question surrounding you guys.

I think that's a question. If you look at our forecast, it would tell you that we believe that. And if you don't see anything happening in the new construction market, really at variance with what has been going on there since last fall, then I think we're okay. But there's a lot of variables in there, and the consumer is a big one. And so we will just see what the consumer does. But right now, that's what we are betting on. But if you really want to see what affects our business, the bigger question is the remodeling purchase. If the remodeling purchaser stays in the market, that offers us, given our mix of business, a lot more opportunity to continue to offset these downward pressures in new construction, because it represents a much bigger chunk of the business. So they are both big, but really the remodeling thing is a bigger question in my mind, right now.

Has the momentum, as far as what you saw in the fiscal fourth quarter, continued on the remodeling side into this quarter? Can you get into that at all?

There is not a huge change. That market is kind of okay. You know what our growth rates normally are, and you see what we are forecasting now. So it's a pretty sanguine kind of a market, and we are moving along.

(OPERATOR INSTRUCTIONS). And, ladies and gentlemen, at this time we have no further questions. I'd like to turn it back to Mr. Eanes for any closing remarks.

Since there are no additional questions, I like to thank you again for taking time out to participate in this American Woodmark conference call. Speaking on behalf of the management of American Woodmark, we do appreciate your continuing support. This concludes our call. Thank you.

And, ladies and gentlemen, once again, this does conclude our teleconference for today. We thank you for your participation, and you may disconnect at this time.