American Woodmark Corp (AMWD) 2008 Q4 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 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 implies therein, will not be realized.

At this time, I'd like to turn the call over to Mr. Glenn Eanes. Please go ahead, sir.

Good morning, ladies and gentlemen. And I'd like to thank you for taking time this morning to participate in this American Woodmark conference call to review our fiscal 2008 financial results. Participating on the call this morning will be Kent Guichard, Chief Executive Officer and President; and Jon Wolk, Chief Financial Officer. Jon will begin with the review of our fourth quarter and full-year results followed by an outlook on the future. After Jon's comments, Kent and Jon will be happy to answer any of your questions that you might have. At this time, I'll turn the call over to Jon.

Thanks, Glenn. This morning, we released the results of our fourth quarter of fiscal year 2008 that ended April 30, 2008. In case you have not had the chance to read our earnings release, here are a few highlights. Net sales for the quarter were $143.3 million, down 14% below the prior year's fourth quarter. Net income for the quarter was breakeven, as compared with net income of approximate $6.2 million in the prior year's fourth quarter. Diluted earnings per share were breakeven for the quarter, as compared with income of $0.40 in the prior year's fourth quarter. For the 12 months ended April 30, net sales were $602.4 million, down 21% versus the prior fiscal year.

Net income was $4.3 million, as compared to $32.6 million in the prior fiscal year. Diluted earnings per share were $0.29, down from the $2.04 we earned in the prior fiscal year. As we have previously discussed, we completed our transition out of certain low margin products, including the in-stock cabinet business at Lowe's, 15 months ago. This this transition was essentially completed in the third quarter of the prior fiscal year, this will be the last time that I will provide a separate break out of the transition impact, as our prior year comparative numbers will no longer include this impact going forward.

Regarding our fourth quarter sales performance, net sales for the fourth quarter were 14% less than in the comparable period of the prior year. Net sales for the fiscal year were 21% below prior year levels. As we have mentioned in our previous calls, we transitioned out of the low margin products throughout the prior year. Net sales of core products, excluding the impact of the transition to low margin products, declined by 16% during the fiscal year. The fourth quarter sales decline of 14% was slightly lower in magnitude than the decline in the core sales for the year of 16%, but sales for the fourth quarter did come in less than we had expected.

In new construction, total residential housing starts have continued to drift down as the year has progressed, approximating the 1 million annualized level or 32% below prior year levels at this time, which at this point in the year, were still averaging about 1.5 million last year. Starts of single family homes fell even farther, down 40% to an average annualized level that approximates only 700,000 homes, which is down from about 1.2 million at this time last year. The short-term outlook for the new construction market continues to be negative, as our large builder customers continue to focus more on reducing their land positions and inventories of unsold homes than on their construction activities. Reinforcing the short term outlook, large builders continue to report limited to no visibility as to when an improvement in their sales order rates will occur. And builder confidence, according to the most recent NAHB Wells Fargo Housing Market Index, remains within 1 point of the low it reached in December 2007.

Our new construction sales were a bit more than 25% below the prior year's fourth quarter level, less than than we had originally expected and a disappointing result considering the market share gains that we made recently. During the fourth quarter, two more of our new construction customers became insolvent, causing us to add an additional $0.3 million to our provision for bad debts. Although the next construction market continues to be slow, we continue to aggressively bid and win new business. Focusing on companies that we believe have the staying power to outlast this downturn.

These share gains have not been a result of buying business through reduced prices but rather, we have both increased penetration with existing customers and secured new customers based upon our total package of service products and pricing. Importantly, these share gains have come at satisfactory margins that we believe will be sustainable over time. Based on the value of our Timberlake product line, our extensive service reach and our partnerships with many leading home builders; we believe we are continuing to grow our market share in what looks to be a relatively weak new construction sector for the next several quarters.

For the remodeling market, economic fundamentals remain healthier than for new construction but momentum continues to be negative. Existing home sales, a leading indicator for home improvement spending, have continued their steady decline, averaging just below the 5 million annualized level year-to-date, down 22% from over 6.3 million at this time last year. The consumer confidence index, as reported by the Conference Board, has steady declined from last year's levels, reaching a 16 year low last week. The median sales price of existing homes has been trending lower for the past 1.5 year and our two primary remodeling customers continue to report declines in their comparable store sales.

During the fourth quarter, our remodeling sales declined by a mid single digit percentage, as compared with the prior year's fourth quarter, driven entirely by reduced market performance in our product category. We continue to expect that the remodeling market will be flat to down until credit availability, housing prices and the associated headlines settle down. We remain bullish on the housing market's long term viability and so we continue to invest Company resources to pursue additional share gain initiatives. We believe that our market share gains and our market position as the value provider of goods and services, positions us well during this down phase of the housing cycle.

Moving on to gross profit. Gross profit for the fourth quarter was 16.3% of sales, below the 20.9% we generated in the fourth quarter of last year but sequentially higher than the 13.3% we generated in the third quarter of this year. The primary drivers to our decline in comparison with prior year were inefficiencies in labor, overhead and freight cost that were caused by the impact of lower sales volumes, as well as the impact of rising fuel prices that have increased our freight and materials costs. The sequential improvement in the gross margin percentage over the third quarter was driven by the beneficial impacts from the seasonal increase in sales volume that the Company experienced during the spring. Coupled with the absence of charges incurred in the third quarter relating to the closure of one of the Company's manufacturing plants that reduced third quarter gross margin by approximately 1% of sales.

The fourth quarter gross margin rate was also reduced by a change in the form of the Company's sales promotion reimbursement with one of its retail customer, that we had discussed during our two previous quarterly calls. This change in form did not affect net income but shifted costs that have previously been selling and marketing expenses to a reduction of sales revenue. Excluding this change, the Company's gross margin percentage would have been higher in the fourth quarter by 1.3% of sales.

Total SG&A expense was 16% of sales in the fourth quarter of fiscal 2008, as compared with 16.5% of sales in the first nine months of the fiscal year and 15.5% of sales in the fourth quarter of the prior year. SG&A expense was 16.4% of sales during fiscal year 2008, as compared with 14% of net sales in fiscal year 2007. Total SG&A expenses for the fourth quarter and the fiscal year ended April 30, 2008 were lower than in the comparable periods of the prior year by $2.7 million in the fourth quarter and $7.7 million in the fiscal year. These cost reductions amounted to 10% in the quarter and 7% for the fiscal year on sales declines of 14% in the quarter and 21% for the fiscal year.

Selling and marketing expenses were 11.6% of sales from the fourth quarter of fiscal 2008, up from 11.0% in the fourth quarter of the prior year, as the 9% reduction in cost was more than offset by the 14% decline in the fourth quarter sales. Selling and marking expenses were 11.9% of sales in fiscal year 2008, up from 9.3% in the previous fiscal year. The increased level of sales and marketing costs in relation to sales was driven by the Company's continued investments to gain additional market share, coupled with the sales decline during the year. These investments included costs associated with maintaining our customer touch points, increasing the number of product displays deployed with new customers in the new construction channel and costs pertaining to a new product launch.

General and administrative expenses were 4.5% of sales in the fourth quarter of fiscal 2008, the same as in the fourth quarter of the prior year. G&A expenses were 4.5% of sales for the fiscal year, down from 4.7% in the prior fiscal year. The reduction from prior year primarily reflected lower costs relating to the Company's pay-for-performance incentive plans, offset somewhat by higher bad debt costs.

Regarding our capital spending, the Company's capital expenditures and promotional displays deployed in the fourth quarter were $3.6 million. For the fiscal year, total CapEx and promotional displays deployed were $19.0 million, down 32% or $9.1 million below prior year levels. Spending for CapEx, exclusive of promotional displays for the year, was down $6.4 million or 43%, as the Company limited its investments, primarily to maintenance CapEx items. Investments in retail promotional displays for the year were also down by $2.7 million or 20%, driven by a reduced remerchandising requirement from our customers. The Company expects to continue to fund its capital spending from a combination of operating cash flow and existing cash on hand.

Regarding the balance sheet, the Company's financial position remains outstanding. Long term debt to capital, calculated on our book value basis, was 10.8% as of April 30, 2008. Cash provided by operating activities during the fourth quarter and fiscal year were $8.3 million and $47.6 million respectively. Generating free cash flows of $4.7 million in the fourth quarter and $28.6 million during the year. The Company used $1.9 million to repurchase it shares during the fourth quarter and $24.8 million to repurchase its stock during fiscal year 2008, encompassing 889,000 shares, representing a reduction of 6% of the beginning of the year share base.

Over the last three years, the Company has generated a total of $126.9 million in cash from its operating activities. Of which, 89% or $113 million has been returned to our shareholders in the form of stock repurchases and dividend payments. The Company ended the year with $57 million of cash on hand, roughly in line with where it ended the previous fiscal year. And the Company has approximately $94 million remaining on its stock repurchase authorization.

In closing, we continue to focus on improving the quality and breadth of the Company's products and services and continued to invest to drive market share gains and future growth. We believe this is the best course of action to be taking during this market downturn. We continue to manage the business with the objective of creating long-term value for our shareholders. In so doing, we are maintaining our touch points for our customer facing jobs and maintaining adequate manufacturing and field installation capacity to ensure adherence to our stated service levels. This strategy seems to be working, as we have been gaining not only additional market share but we have also won several awards and acknowledgments from our customers for delivering superior service to them.

Our gross margin in the fourth quarter and for the year of fiscal 2008 was well below the level at which we feel we should sustainably operate. We are far from satisfied with these results and continue to take steps to manage our cost base with the expected level of market demand. As we look forward to fiscal year 2009, we continue to see a housing environment that is underpinned by sound macro economic and demographic fundamentals but remains overshadowed by the impacts of inventory overhang, falling home prices and the recent crunch. We believe that the impact of these factors and their associated media coverage have contributed to a reduced ability to obtain mortgage financing, as well as to a negative buyer psychology. We expect the outlook for the housing economy will remain uncertain until the credit crunch is resolved and housing prices have stabilize.

From a market perspective, for our fiscal year that ends April 30, 2009, we expect our remodeling customers will continue to experience weakness as compared with prior year comps. That existing home sales will approximate present levels, at a bit less than 5 million homes per year, down approximately 6% below the 5.2 million existing homes sold during our most recent fiscal year. And we expect that total housing starts will be approximately 1 million, down approximately 17% below the 1.2 million starts that occurred during our fiscal year that ended April 30, 2008. During the quarter, we continued to win a greater share of business from some of our existing national home builder customers that have solid credit worthiness. In addition, we continue to gain market share at the national home centers.

Because of our strong competitive position and focus on continuing to enhance and differentiate our value from that of competition, we believe that the market share gains our Company has achieved will continue for the foreseeable future. Our partnerships with the 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. Our market position as the provider of superior products and services at competitive price points is extremely competitive in a more challenging retail sales environment. Most of our new construction customers expect to continue to gain market share. Our partnerships with these national and regional builders position us well to manage and grow our market share.

This concludes our prepared we marks. We'd be happy to answer any questions that you have at this time.

(OPERATOR INSTRUCTIONS). And we'll go first to Keith Johnson with Morgan Keegan.

Just a couple of quick questions. First, maybe just housekeeping-wise, for -- as we look into fiscal '09, can you give us any guidance maybe on the depreciation and amortization line, capital expenditures and potentially what you're expecting on the tax line?

yes, sure, Keith. For depreciation and amortization, we would expect it to be relatively flat with the roughly $35 million that we had in fiscal year 2008.

Okay.

With regard to our effective tax rate, that's going to be similar to what we had in fiscal year 2008. We had sort of bounced around as the year progressed but we ended the year with about a 25% effective tax rate. And I think that's probably a reasonable expectation for fiscal year 2009.

Okay.

And sorry, your third question was?

Just looking at the capital, maybe CapEx and promotion line?

yes, I would expect that to be roughly the same as we had during fiscal year 2008. We have no big ticket items that we're planning on entertaining during the fiscal year.

Okay. I was wondering if you could just for a minute maybe, a little color on maybe the trends in the residential construction remodeling market as you progress through your quarter ending April? And then maybe, have you seen any change in those trends as we've gotten closer to the summer, as you've come through May into June?

You're talking about by month through the quarter?

yes.

yes, well, we had -- when we came out of the third quarter, which was of course seasonally low in addition to the general economic environment, we did see a pick up early in the quarter, particularly on the remodel side. The new construction side, I'd call more stable. We did get a somewhat, a slight upward trend on the new construction side. But we think that was more related to some specific accounts where we gained share, as opposed to a reflection of general market activity.

On the remodel side, we got into the spring selling season, as we started to get into the quarter, it started out relatively well, but it did not peak like it would normally. It kind of had the top chopped off. And then we got through the real heart of the spring selling season, it dropped off pretty quickly. One of the things that we're seeing on the remodel side is that the -- about the only thing that seems to drive activity is when one of the major retailers runs a good set of promotions.

Okay.

And that has a tendency to drive some activity. If they're not on promotion, the activity level is very low.

Okay.

And we're even starting to see that the promotional activity isn't necessarily driving primary demand. It may be more just moving it around within the period.

Okay.

As consumers and designers get kind of conditioned to an incentive environment. So overall, I would say we -- kind of to sum that up. I am rambling a little bit. But to sum that up, as we saw a spring uptick, it wasn't as high as what we would have liked or anticipated and it dropped off pretty quickly.

Okay. And as you kind of come into where we are now, there's been no change in those trends or --?

We are continuing to see, as we go through here, we're continuing to see a little bit of upward movement on the new construction side. Again, it's very market specific. The west is still very weak. We are starting to see some life in Florida. We-re starting to see some life in the mid-Atlantic. Again, this is on a sequential basis. You're still going to see year-over-year numbers that are pretty ugly but we are starting to see a little bit. Again, I think it's more to some of the share we've picked up than real market activity. I think the market is still pretty flat. On the remodel side, we're really through the spring selling season. Our first fiscal quarter, because of the seasonal nature of it, is usually below our fourth quarter. And we're certainly experiencing that as we speak.

Okay. And one last question, you made the comment, you had I think two more customers that were insolvent during the quarter. Are you guys seeing that trend steadily increasing as we've come over into the summer months and the spring selling season is just very slow or was that starting to stabilize?

I would -- Jon can comment on this. I wouldn't call it a trend.

Okay.

I think this these things are kind of one-offs. One thing that does happen during a cycle like this, is it does identify people that don't have either a competitive offering to the ultimate home buyer, consumer or have done some things that have hurt their financial ability to withstand one of these cycles. They levered up too much, whatever it is. So I wouldn't exactly -- from our perspective, at least our customer base that we're familiar with, I wouldn't call it a trend, as much as you just get a couple of these folks that they get into trouble and they just can't take it anymore. And they don't have any ability to absorb shock. So if they get a shock, a couple of them have done that. But as we've gone through and looked at our credit evaluation, again you never know, but I wouldn't classify it as a trend.

Okay.

I just think there's some companies out there that, after two years of this, they've just reached the end of their road.

Okay. All right. Thanks for the time.

We'll go next to Robert Kelley with Sidoti.

Good morning, thanks for taking my question.

Good morning.

Just maybe on the competitive dynamics in the marketplace. One of your public competitors talked about bringing on new capacity. Has that been a short term opportunity for you guys to go after share?

I am not sure what you're referring to. We -- could you help me a little bit in terms of what you're after in terms of capacity?

yes, one of your public guys brought on new facility, they talked about some inefficiencies they ran into. Have you been able to grab some share there?

From our competitors because of their inefficiency?

yes.

I wouldn't -- we do believe that we continue to gain share in this environment for a variety of reasons. We are the value -- generally speaking, we-re the value price point. So you are getting, we think, some rotation down in the consumers that are out there. As Jon mentioned in his comments, we do think some of the improvements we've made on our quality and logistics platform, our ability to service the customer, are certainly part of that. There are many things go into that. I wouldn't relate it to either capacity or inefficiencies of the competitive set in terms of maybe start up or whatever other issues they might have when they've got some capacity coming on stream. Generally speaking, those are very, very short lived. We've had the same experience over the years when we bring on new capacity. When you try to bring it up, you do get a few hiccups as you go through that. Those are generally relatively minor and they really don't have a lot of legs to them. So again, we do believe we're bringing up -- picking up share but we don't believe that it has anything to do with a misstep by a competitor from that perspective.

Okay, thanks. That's helpful. And then you talked about a sustainable gross margin north of 21%. Is that in a housing start environment of 1.3, 1.5 million? Maybe a little help there.

yes, I would say in a normal environment, whatever that. But that's probably around 1.5 million on the new construction side. If you go back and look historically, really back to the 50's and you kind of run a line through the ups and downs of the industry, somewhere around 1.5 million is probably the right number in terms of sustainability. Being able to keep up with job growth, population growth, immigration, all of those types of things, is you probably need to run about 1.5 million. On the resale side of existing homes, you're probably in the $5.5 to $6 million, probably closer to $6 million range.

1 million homes.

1 million homes, excuse me, not a $1 million, 1 million homes. So, if your turnover is 6 million of the existing housing stock and you're building 1.5 million, that's what we would define as a normal environment. In a net environment, with the volume that comes with that, that allows you to absorb your fixed and semifixed overheads, we think we can get back into those low 20's on a gross margin basis.

Okay. Great. Thank you.

We will go next to Joel Havard with Hilliard Lyons.

Thank you, good morning everybody.

Morning, Joel.

Kent, I'm presuming that you're not planning on introducing a low priced line into the big boxes to catch some volume any time soon. So what might be some opportunities to ratchet down that cost base instead? Is this a plant closure? Is this an extended shut down maybe of one or two on a rotating basis? Can you give us some thoughts on maw how you might work your way through that?

Was the first part of that a question, Joel or --?

The first was a historical joke, thanks.

Okay. Yes, I think from our perspective, maybe I'll answer it -- start with a pretty broad answer to that. Is that, we don't really see this as a cost problem. This is a market cycle, kind of volume-driven kind of problem. We have and I have completely exited the forecasting business. We decided our track record wasn't so good. And I think the big reason is is because, while there is certainly economic impact, there's -- we think it's driven more by a psychological impact. That's why we can't figure out when this thing is -- how long it's going to be and when it turns around.

On the new construction side, the worst thing that can happen to you is to buy a house and two months later your neighbor moves in and paid 10% less and got a free plasma TV in their finished basement. On the remodel side, it's just very, very difficult even if you don't plan on selling your house, you like where you live and all those other types of things; there's a psychological hurdle that you have to get over to invest $20,000, $25,000, $30,000 in an asset that's declining in value. Even if you believe all of the long term and you'll get your money back. There's just a psychological hurdle of investing in an asset that's declining in value.

So that's really what the issue is here from our perspective. And from our perspective, it's not a cost issue. It is really is a volume issue. And so, as it relates to us doing anything structural with our product line, in terms of changing the basic construction of our box to cheapen the box, we are just not interested in doing that because we really don't think that's what the issue is. The issue is the market.

In terms of what you do between now and when the cycle comes back, it's not a question in our mind of if it comes back, it's when it comes back. So, the question that you get, that we get all of time, is; "Well, when do you think it's going to be over?" But we don't spend a lot of time on that question because I just don't think it's answerable. What we spend time on is; What do we do in the meantime? Where do we invest our energy in the meantime? And it's really making sure that we're prepared to participate in the recovery and that we continue to make baseline improvements in our service platform, the quality of our products, all of those other types of things. That's really what our focus is.

If you look at closing down capacity, you're not -- even if you look at that from a cost standpoint, mothball it or whatever, that's going to have an 18 to 24 month breakeven because of the costs associated with that. And that number is actually extending out due to transportation costs. When we run the numbers in terms of, particularly an assembly facility, of significantly curtailing it or even mothballing an assembly facility, that breakeven really rolls out there. With diesel pushing $5 a gallon, which is pretty much where it's headed and you're shipping a lot of air in a 53-footer full of cabinets. And so, those breakeven points are not very attractive. And you really have to come to the conclusion that this cycle and the turnaround is way out there for that to make economic sense because --.

Well now, are you -- what you're describing though are some fairly -- share gains, that's incremental. My thought is rather than shutting down a plant and absorbing the freight, I understand that point. That's well taken. Is it a small head count reduction, you run one shift less every other week, something like that? Are those the sorts of mechanics you can pursue to sort of hold the line on margins here or do you really just kind of have to weather the storm? Is that what I'm hearing you say?

Well, I think it's a little bit of both. I think that we do have some flexibility and we do take curtailment days. We do take partial days. We do take shut down days. In a JIT environment, to continue to support our customers, it's very difficult, almost impossible to take weeks at that time.

Yes.

Because you just don't have inventories and you'd have to tell your customers that they've just got to wait weeks for any product, new or replacement product. So extended periods like that are really not an option. But we have and continue to do other things that don't hurt the strategic base of the business to drive out hours, manage hours out of the plants, run partial days, run curtailments, even do certain -- at times, shut down days across the entire system. And I think that we've been pretty successful with that. Now, there still is a wait-it-out component. But as Jon talked about, there's a relative and an absolute basis on performance. And on an absolute basis, we're obviously not happy with the results of the Company. Given context of the environment that we're in, I think that we've been very, very successful at getting cost out of the system, that doesn't have long term, unintended negative consequences.

Working capital oriented, Kent?

Pardon me?

Something working capital oriented, inventory oriented?

All of the above. Yes, we continue to generate cash. Obviously, we continue to do things on the working capital side, get inventories down, get our receivables, make sure our collections stay the same, those types of things. But there's also your throughput costs, managing your throughput costs. But I think that from a contextual standpoint, I saw a chart a couple of weeks ago that somebody had that went through the top 10 public builders in the United States, their latest quarter. And their sales are all down 20% to 40%. And all but one, is in a loss position and losing, quite frankly, significant amounts of money. And so we're really in the second year. We're starting the third year of really the downturn here in the housing industry. And we've managed to maintain our profitability and as Jon mentioned, generate cash. From fiscal '07 to fiscal '08, on a net sales basis, we dropped $160 million or 21% off the top line. We made money and we generated about $30 million of cash, almost all of which went back to the shareholders in either dividends or stock buybacks. So, from a relative basis, we've done all of those things that you've mentioned. It's tough to find them because of the almost overwhelming magnitude of the market decline. But all of those things, we couldn't have remained profitable and continued to throw off cash if we hadn't done those things.

And one other theme I'd like to explore, Kent is, what was it, three or four years ago, we went through a real disruption on the diesel front, specifically, as part of fuel costs in general. But as diesel affected you all, you made some adjustments with consolidating the number of freighters and some other clever moves logistically. Have those opportunities all been explored or are there other things you can do to help mitigate, certainly not reverse, given what -- I drive a diesel too, by the way? Is there anything left that you can do with regard to the number of freighters you're using, how you schedule et cetera?

Yes, there are a few things, but not anything that's going to make a -- significantly offset, certainly, something pushing $5 for a gallon of diesel. The reality is that, again, in a JIT environment, if you're going to service your customers, the trucks have to go when the trucks have to go. And the issue now is that you're just not curbing our and you're just not utilizing. Our runs are pretty efficient in terms of how we get to market. We just don't have enough volume on the moving stock that's going around the system.

Is there any surcharge flexibility for you?

Well, you always look at pricing. We price to market, obviously. And one of the things that's happened in the marketplace, particularly on the remodel side, is the consumer is starting to put pressure on retailers that they consider delivery in the price. And you go buy an appliance and you expect the price that you pay is delivered and installed and they take the old one away. And so, we still do get as an industry, we still do get delivery fee. It doesn't cover the cost generally speaking, that delivery fee but the marketplace hasn't, as of yet, really opened a window for anybody to get pricing recovery. So, we'll see where it happens. The one that you mentioned, a few years ago, the diesel really was a spike. It went up and came back down pretty quickly. This one has obviously rocketed up very quickly, where it ends up is anyone's guess. If it gets up -- if it stays where it is now, eventually, the system is going to have to recover that. That's just not a cost, that will eventually get passed on to the consumer. We just haven't seen any opportunities that the marketplace has accepted that yet.

Thanks for the answer. Jon, if I can hit you with just a couple of backgrounds. What did you say was left on the repurchase authorization?

$94 million, Joel.

$94 million. All right. And I know, we'll see the K soon enough but if you've got the numbers handy, the actual interest expense versus other income, do you have that approximate yet?

That's -- is that in the release?

No, we it's net other income and expenses.

I think you had a consolidated number in there for both.

It will be in the K, Joel.

All right, if you don't have it handy. And the same thing then, if you don't have payables broken out from total other liabilities and --?

Not at my fingers, Joel.

And then thematically, final question, finished goods, it sounds like from what we are hearing today that that's part of the working capital effort. No noticeable change in its relation to sales?

We really don't have finished goods, Joel. Being a just-in-time supplier.

Right, right.

We have wood drying in kilns and we've components and so forth. We really don't have finished goods.

I'm sorry. Exactly. All right, thank you very much.

We will go next to Peter Lisnic with Robert W. Baird.

Jon, is there a way you can maybe help us understand what freight is doing to gross margin in the current quarter?

Well, in the current quarter, Pete, it's definitely a head wind. That's for sure. But it's not quite as material as, quite frankly, the impact of volume. So what we've had during the quarter, is this diesel fuel has been so volatile and it's been rising so quickly. It -- when we closed out the month in April, our fuel surcharge calculation still hadn't quite included the impact of diesel over $4 a gallon. And as Kent alluded to earlier, it's probably closer -- it is closer now to closer to $5 a gallon than it is to $4. And that's just happened in the few weeks that have transpired since the quarter ended. So the impact in our quarter wasn't as significant as it's going to be if diesel fuel stays as it is right now.

Okay. And how long is the lag on your surcharge or repricing mechanism?

It varies contract by contract. It can either be weekly or it could be monthly. It depends on how we've got these negotiated. So, there's no set answer to that but it's pretty quick.

Okay.

Peter, the other thing I would add is, when we talk about this we have a tendency to focus on freight. There is another delay, that if it stays up here, anything that's petrochemical based, so anything that's made out of plastic, anything -- basically, all of our stains and finishing materials, it's pretty tough to get away from stuff that's petrochemical based. So, if it does stay up here for awhile, my guess, is you're going to see a wave come through first on the direct freight. Because there is a relatively short pass through on diesel costs on surcharge coming out of freight carriers. People that use it as a major input, for example, such as stain and finishing suppliers, there's more of a lag there. And they of course, have the same issue we have in terms of getting price increase windows in the marketplace. If it does stay up here for an extended period of time, you're going to see a second wave that comes through raw material costs.

Okay. All right. That's helpful. And then, if I'm looking at the sequential gross margin that you posted and if I adjust for the restructuring costs that you incurred in the third quarter, it looks like 200 basis points of improvement or an incremental of around 40% or north of 40%. And to me that looks like a pretty good number. So can you maybe get behind a bit more what exactly you're doing to drive those sorts of incremental gross margins with the top line head winds that you're facing?

Well, as I alluded to in my comments, Pete, third quarter for us is always a real low point, seasonally speaking. That's the quarter that ends in January. There's just not a lot of construction or remodeling activity that's going on relative to the other times of the year. And spring selling season tends to be our best season. So, seasonally speaking, we had volume uptick that occurred during the first quarter that we did -- or sorry, the fourth quarter that we didn't have in the third quarter. And that was the principle driver for what improved things.

All right. So, is that another way of saying that incremental gross margins of around 40% are sort of typical for you guys?

No, that's, I don't think I'd quite say and I am not sure. Maybe you're -- are you saying, incrementally, if you just took the incremental margin from Q4 over Q3 divided by the incremental sales?

Yes, and then if you take out the $1.3 million or so that you booked in restructuring costs in the third quarter. I think the number I'm coming up with is like 42%.

Yes, I think there's probably some other adjustments that impact both numbers in both quarters. So, I don't think I'd use that number as sort of a given or a typical number for us. But certainly, we have a very good contribution percentage for incremental unit volume. But I don't call it 40% or 42%.

So, it sounds like lower? I'm, of course, trying to get you to answer that question.

Yes, as you probably expect, I'm not going to answer that question. But certainly, it's higher than what our reported gross margin would be.

Okay, alright, that is very helpful. Thank you.

It's highly leveraged.

We we'll go next to Eric Bosshard with Cleveland Research.

Good morning. This is actually Mark stepping in for Eric. A couple of quick questions. Can you guys comment on your ability to get price in fiscal 2009, both in new construction and at the home centers and maybe compare that what you've seen in prior years?

By price, do you mean price increase?

Yes, pushing it through.

Just passing through price increase?

Yes.

Yes, our feeling is, certainly as we begin the fiscal year, is that there really isn't a lot of opportunity in the marketplace to do that. You can do some things in terms of product mix and some of those types of things but from a pure pricing standpoint, there really aren't a lot of windows to do that. And that's twofold. The first is is that you're, obviously, in a down cycle. There's not a lot of volume out there. You do have quite a bit of capacity chasing volume. And so while we've been able to maintain pricing and mix to keep our take stable, we haven't seen it move backwards. The opportunity to move it forward in an environment where you just have a lot of capacity chasing not a lot of business, is just not a good economic model to try to put that on the marketplace.

Did you see price -- just to remind us quickly, did you see any sort of price realization in fiscal 2008?

Well, again, we've to go back to price realization. If you talk about just pure pricing, same thing, you just pay me more for it. No, there was not a lot during that period either. If you look in terms of our ability to introduce new products and services that increase the value of a particular transaction, we continued to do that over the last year through new products, new services, customer targeting, a customer that has a different mix, targeting a builder that does more upgrade business than opening price point housing. Those types of things allowed us to continue to increase the average value, if you will, of a sale. But pure price, no, we haven't seen that.

But you've that over. And let me get the other point out there. And that is, if you exclude the recent run up in energy costs, particularly in diesel, if you look at the other basis of raw materials for the industry, it really has not increased over the last couple of years. Now, you've got some puts and takes with hardwood lumber offsetting increases in other categories. But if you net-net up the raw material inputs into the industry, there really hasn't been an increase for several years. So again, the underlying economic basis to go to the marketplace and get a price increase could not be based on increases in inputs, in raw material costs. And the history, except for diesel, which is relatively recent. In the history of the industry, at least in the 15 years I've been involved with this Company, has been that generally, the way you get to recover pricing from the marketplace is to pass through legitimate raw material increases. And we really haven't seen those for the last couple of years.

You mentioned the average value of sale. Have you seen any change there over the past three to six months, where you kind of suggest that the consumer is starting to purchase -- I know you already kind of sit at the value end of the market. But have you seen any change to the average ticket of cabinets purchased?

For us personally, no, we've been very stable.

And then, quickly on remodel, it seems like you continue to gain share there. How should we expect that gap to move going forward? In terms of a competitive response, are you seeing anything different from your peers? Is that gap going to stay consistent, grow, shrink as we move through 2009?

Well, we're seeing lots of things in the competitive marketplace. Some of the things we are trying, some of the things our competitors are trying. We have, as you know, very capable competitors and in a lot of ways, we welcome that. I think that's made the industry much better over the years. And we all try to, obviously, capitalize on our strengths and bring programs to the marketplace that are beneficial to us. And that's really no different than we've done for a long period of time. I don't think in this marketplace, we're seeing our competitors doing anything more or less innovative or more less competitive. They've always been innovative and they've always been very competitive, both at the accounts and with the end consumer. And they continue to do those things, just as we do.

We do feel that we'll continue to be able to gain share within major accounts on both sides, both remodel and new construction. Part of it is, that as the value player, we do have some wind at our back in this marketplace. The consumers that are out there are probably more budget conscious than they were a couple of years ago. And that certainly benefits us. And we also do believe that some of the new products and service programs we've brought to the street are helping us a little bit too. So in this environment, as the value player, the stock price point, in this environment, we would expect to continue to be able to gain some share.

And in the remodel, you said flat to down, with expectations going forward. A little more color on what is meant by down, maybe relative to the down 5% you saw in the fourth quarter?

Yes, we are -- my comments were reflecting, Mark, our expectations for the market. And really, we are looking the at the level of sales of existing home sales as a leading indicator for where the remodeling market may be headed. So, what I said was that the level of existing home sales right now in the first four months of this year, year to date, has been about 4.9 million homes on average being sold. Between 4.9 and 5 million, which is down about 6% below what we saw in the average level in our fiscal year that ended April 2008.

And just one quick on the capacity, just to make sure I heard correctly. You have not changed anything within capacity or you are not evaluating any plant closures at this time?

Well, of course, we announced the closure of the plant in the third quarter, which was completed in our fiscal fourth quarter. We are changing practical output in the sense of crewing and schedules. We are not -- have not, in addition to the one we did just recently, we have not announced or anticipated closing any hard assets, just actually shutting down a facility. The crewing in our facilities and the output is, obviously, down with the market.

Thanks, guys.

(OPERATOR INSTRUCTIONS). We will go next to Sam Darkatsch with Raymond James.

Good morning, this is Jeff calling in for Sam. How are you?

Fine thank you.

Doing, good. I have just two quick questions for you. First off, I was hoping you could expound a little bit on what you said earlier on promotional activity in the remodel channel. Maybe talk about what you're seeing there versus, even as recently as, three or six months ago? Has that picked up? Are you happy with what the retail partners are doing? Would you like to see more promotion, those kind of things?

Yes, I would say versus six months ago, it's probably picked up a little bit. Yes, I wouldn't say it's over the top. Part of it is seasonal. They'll run heavier promotions, obviously, when there are consumers in the stores. But even six months or a year ago, they were still running a good slate of promotions.

I would say from our perspective, is that we're supporting our customers' promotional schedules. We think the level of promotions is the right level of promotions. There is a point where you get to diminishing or no returns. Promotions, in our experience, in the big box environment, they don't really -- if you're not going to do a kitchen, the fact that you run a promotion, that you get a gift card or a free product or a free upgrade of product, that's not going the drive somebody into the market and create primary demand. It may get people that are out there, it may get them to actually pull the trigger. Somebody that's been out there shopping and getting a kitchen design, it may actually get them to pull the trigger and place the order. There may be some competitive nature that goes between retailers, whether it's big box retailers or dealers, whomever it is, that moves it around.

But generally speaking, I think we're at the point where the promotional schedules they're running are appropriate for the activity that's in the marketplace. If they run fewer promotions, I think some that there are some people that would otherwise buy that would not. If they got more aggressive, I think as an industry, we would just be transferring value to the consumer. I don't really think you're going to generate any incremental sales if we get more aggressive than we are now. So, that's kind of a long way of saying that I think we're at a good level and I think it's an appropriate level, given the environment we're in.

Okay, great. And then, just my last question, I think you mentioned lower hardwood prices year-over-year. And I know we've kind of been tracking some, at least, modest declines year-over-year in the stuff that we look at. Have you in fact seen lower hardwood priests prices year-over-year and has that maybe offset at least some of the diesel inflation you've been dealing with?

You can track that, Jeff, in the hardwood market report. So, for instance, the price of maple, the price of oak, the price of cherry, they've all down a bit versus this time last year. And of course, those lower purchasing prices are reflected in our results. As Kent mentioned, though, there are offsets, particle board, plywood and other finishes, stains and so forth. There's inflationary pressures elsewhere. So, from a raw material input perspective, it's been kind of stable overall, with the puts and takes. But the one constant that we've been talking about is this increase in diesel fuel. And that's really the thing that's changing the game a bit.

Excellent. I appreciate it.

We'll go next to [Linc Reardon] with HG Wellington.

In this admittedly difficult environment, I'd like your present thinking on guidance to sales and earnings for the year and whether, given let say so 10% to 20% lower housing starts, you can have a profitable quarter?

Well, Linc, we've discontinued giving guidance going forward, given the market, given the difficulties out there.

Well, perhaps just a framework of thinking then?

I think from a framework point of view, certainly, we are managing the business, trying to maximize profit. And I think it's not unreasonable to assume that we can make money even in this environment in our fiscal '09. But there's a lot of head winds, there's also a lot of activities, initiates that we've got underway to try to offset those and to thrive.

Okay. Perhaps, I'd just like wider parameter but parameters.

We're not giving them at this time. So, we don't want to change that policy.

All right. Well I can try. Thank you.

Sure.

That does conclude today's question-and-answer session. I'd like to turn the call over to management for any additional or closing remarks.

Well, since there's no additional questions, this concludes our conference call. Again, thank you for participating. And speaking on behalf of management of American Woodmark, we appreciate your continuing support. Thank you. Have a good day.

Ladies and gentlemen, that does conclude today's conference, we appreciate your participation. You may disconnect at this time.