American Woodmark Corp (AMWD) 2010 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 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 implied therein will not be realized.

At this time, I would like to turn the conference over to Mr. Glenn Eanes. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to this American Woodmark conference call to review the results of our third fiscal quarter for fiscal 2010, ending January 31, 2010. Thank you for taking time to participate.

Participating on the call today from American Woodmark Corporation will be Kent Guichard, our Chairman and Chief Executive Officer, and Jon Wolk, our Chief Financial Officer. Jon will begin with a review of the quarter and an outlook for the future. And after Jon's comments, Kent and Jon will be happy to answer any of your questions. Jon?

Thanks, Glenn. Good morning. This morning we released the results of our third quarter of fiscal year 2010 that ended January 31, 2010. Our earnings release contained the following highlights for the third quarter.

Net sales for the quarter were $89.2 million, down 32% from the prior year's third-quarter sales of $131.2 million. During the fourth quarter of its prior fiscal year the Company announced the permanent closure of two manufacturing plants, suspension of operations in a third plant, and a company-wide reduction in force. These actions were completed in the current year's first quarter. The Company recorded a benefit of less than $0.1 million relating to these initiatives during its third quarter.

The Company recorded a net loss during its third quarter of fiscal year 2010 of $9.1 million compared with the breakeven result in the prior year's third quarter. The Company lost $0.64 per diluted share in the third quarter of fiscal year 2010 compared with earnings of zero per diluted share in the prior year's third quarter.

The Company generated $2.9 million of positive free cash flow during the third quarter compared with positive $5.3 million of free cash flow generated in the prior year's third quarter.

For the nine-month period ended January 31, 2010, net sales were $294.1 million, down 27% below the prior year's $405.2 million. Net loss was $20.8 million. Exclusive of $1.7 million of net restructuring charges, the net loss was $19.1 million in the current fiscal year compared with a loss of $0.3 million in the prior fiscal year.

The Company lost $1.47 per diluted share including restructuring charges during the first nine months of the current fiscal year. Excluding charges, the loss was $1.35 per diluted share compared with a $0.02 loss per diluted share in the prior year.

The company had negative $8.1 million of free cash flow in the first nine months of the current fiscal year, down from positive $14.8 million of free cash flow generated in the prior year.

Regarding our third-quarter sales performance, net sales for the third quarter of fiscal-year 2010 were 32% less than that in the prior year.

In the remodeling market, several factors suggest that the market is stabilizing, although positive sales momentum has not yet begun in our category. Gross private residential fixed investment, as supplied by the Bureau of Economic Analysis, managed its second consecutive sequential improvement since 2005, but was still 12% below prior-year levels. Unemployment continues to hover near 10% compared with approximately 6% one year ago, and the economy is not yet creating jobs.

The Consumer Confidence Index, as reported by the Conference Board, continues to be stable at levels that are above prior year but below levels consistent with an economic expansion. The median sales price of existing homes seems to be stabilizing, albeit at prices that are 20% below peak levels. (technical difficulty) availability continues to be constrained as many financial institutions recover from losses sustained during the recession.

Our two primary remodeling customers continue to experience negative sales comps, each reporting large-ticket sales among their weakest categories.

These difficult conditions have severely impacted our market, particularly following the intensification of the credit crunch that began one and a half years ago. Our Company's remodeling sales outperformed the remodeling market through April of last year, driven by customer promotions that favored our Company's products and price points. Since then, retail promotions have been more balanced and the Company's remodeling sales have performed more in line with the market.

Absent the impact of the prior-year third quarter's unusually positive remodeling sales results, we believe the Company continued to gain sustainable market share. For example, the Company's total third-quarter sales were 33% below third-quarter sales from two years ago, slightly better than the market did during that time.

In new construction, total residential housing starts during the first nine months of our fiscal year averaged 570,000 homes on an annualized level, roughly 28% below the prior year's average of 800,000. The Company's new construction sales declined by a lesser amount than the market during the nine-month period and by considerably less than that during the third quarter.

Because the Company's sales were down by less than the market, we believe we continued to gain share in this difficult market.

The short-term outlook for the new construction market is improving from a low base. The NAHB Wells Fargo Housing Market Index ticked up slightly last month but remained subdued and well below levels considered healthy by the industry.

We continue to aggressively bid and win new business in this challenging market, focusing on companies that we believe will be able to outlast this downturn. Our share gains have come from both increasing penetration with existing customers and securing new ones based on our total package of service, products, and pricing.

These share gains have come at satisfactory margins that we believe will be sustainable over time.

Based upon our incoming sales order trends, we expect the Company will achieve a positive sales comp for new construction sales during the fourth quarter. This will represent the Company's first positive year-on-year sales comp in this channel in four years.

Regarding gross profit, gross profit for the third quarter of fiscal year 2010 was 6.6% of net sales, well (technical difficulty) the 15.5% we generated in the third quarter of the prior fiscal year. The primary driver to the third-quarter gross profit decline was the impact of significantly lower sales volume, which in turn caused labor costs to increase as a percentage of sales due to lower productivity, and overhead costs to be underabsorbed compared with prior year, even though these costs were $4.3 million less than they were one year ago.

Regarding SG&A, total SG&A expense was 23.0% of sales in the third quarter of fiscal year 2010 compared with 15.9% of sales in the prior year's third-quarter. Selling and marketing expenses were reduced by $0.6 million or 4% below prior year on a sales decline of 32%.

Because costs were reduced by a lower magnitude than sales, the cost ratio rose from 11.3% of net sales to 16%. Costs remain relatively close to prior-year levels due to increased sales promotional costs compared with prior year, as well as increased business development activities.

General and administrative expense increased by $0.3 million or 4% above the prior year's third quarter, rising to 7.1% of sales from 4.7% of sales in the prior year. The increased cost percentage was primarily a result of decline of sales.

On restructuring charges, as previously mentioned, the Company closed two of its manufacturing plants and suspended operations at a third plant during its first quarter. When these actions and a reduction in force of salaried personnel were announced during the fourth quarter of the Company's prior fiscal year, the Company recognized pretax restructuring charges of $9.7 million that were offset by a tax benefit of $3.7 million, for a net charge of $6 million.

In the first quarter, the Company recognized additional pretax charges of $2.6 million, offset by an income tax benefit of $1 million, for a net charge of $1.6 million. The Company recorded a small net charge of $0.1 million in its second quarter and a small net benefit of less than $0.1 million during its third quarter relating to these activities.

The Company has been realizing a significant cost savings from these actions. The Company's manufacturing overhead costs during the third quarter and first nine months of fiscal year 2010 were reduced by $4.3 million and $13.1 million, respectively, compared with the comparable periods of the prior fiscal year.

The Company continues to estimate that savings of approximately $20 million per year will be realized from these initiatives.

Regarding the Company's capital spending, the Company's total outflow for capital expenditures and promotional displays deployed during the third quarter of fiscal 2010 was $2.7 million. This amount was $1.5 million or 36% lower than in the prior year's third quarter.

On a year-to-date basis, the Company's spending on capital expenditure has been reduced by $0.7 million or 22%, in line with reduced capital needs associated with having fewer plants operating and lower levels of production.

The Company deployed fewer promotional display units, in line with reduced numbers of new home center store openings and lower rates of store remodeling, causing outlays for promotional displays to be reduced by $3.2 million or 39%.

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 was $25.7 million at January 31, 2010; and debt-to-capital was 12.3%. During the third quarter, the Company generated positive free cash flow of $2.9 million compared with positive free cash flow of $5.3 million in the prior year. The primary drivers for the $2 million decline from the prior year were the increase in the Company's net loss, which was offset in part by a reduction of working capital deployed.

During the first nine months of the fiscal year, the Company had negative free cash flow of $8.1 million compared with positive free cash flow of $14.8 million. The key drivers to the decline were the $21 million increase in net loss and severance payments made earlier in the fiscal year, offset in part by reductions in working capital deployed.

During the third quarter, the Company terminated its primary credit facility with Bank of America and entered into a $35 million (technical difficulty) line of credit agreement with Wells Fargo Bank. Pursuant to the terms of the new credit agreement, $14.3 million of the Company's cash now serves as security for this agreement and has been classified as restricted cash as of January 31, 2010.

The Company ended the quarter with a total of $70.6 million in cash and restricted cash on hand, up $1 million from the previous quarter.

In closing, we continue to manage the business with the primary objective of creating long-term value for our shareholders. We continue to make investments to improve the quality and breadth of the Company's products and services. We continue to invest in both driving market share gains during this downturn and maintaining the capability for a significant amount of future growth once the downturn has ended.

The Company faced an extremely difficult prior-year comparison for its third quarter. This factor, coupled with the market's slowing but continued negative sales momentum, led to the increased magnitude of the Company's sales decline.

Recognizing that the Company operates in a cyclical industry, management remains extremely committed and focused on maintaining the strength of its industry-leading balance sheet. Despite its loss for the third-quarter, the Company was able to generate positive free cash flow; and its financial position affords it the flexibility to increase (technical difficulty) experienced sales declines and net losses like those encountered during the current fiscal year while at the same time continuing to maintain its financial resources at a more than acceptable level.

The sales decline and net loss we have experienced in the current fiscal year are far from satisfying to us. However, we recognize that our financial performance is the result of choices we have made and continue to make as stewards of the business. Balancing the Company's short-term performance against the ability to maintain adequate manufacturing and field service capability, that ensures we can capably support our customers in the manner that they expect both today and when the inevitable market upturn occurs.

The Company continues to retain the organizational and production capacity and know-how to service demand in a market with average to above average new construction and remodel activity. As we look forward to the last three months of our fiscal year 2010, we continue to see a housing environment underpinned by sound population growth and demographic trends that will continue to lead to the creation of approximately 1.5 million households per year. However, many consumers are still unwilling or unable to make large-ticket purchases because of uncertainty, lower home prices, and the credit crunch. We believe the near-term housing outlook will remain uncertain until the credit crunch is resolved and employment and housing prices have stabilized.

From a market perspective, we note several emerging positive trends. Existing home sales exceeded 5 million homes on an annualized basis for six consecutive months for the first time since 2007. The inventory of unsold homes is at its lowest level in over three years. Long-term fixed mortgage rates continue to hover near 5%, their lowest levels in nearly 40 years.

We believe that these factors will eventually bode well for remodeling activity, once the factors that continue to limit aspirational spending -- such as unemployment and job losses -- are mitigated. For the remainder of our fiscal year, we expect that our remodeling customers will continue to experience negative sales comps in our category and that total housing starts will approximate 590,000 for our fiscal year ending April 30, 2010, down approximately 18% below the 725,000 starts during our previous fiscal year.

We expect that the Company's remodeling sales will continue to reflect the industry's sales trends for the remainder of fiscal year 2010.

Our prior-year fourth-quarter sales comparison is also a difficult comp; but we expect the Company's results will be less worse than those experienced during the third quarter. We further expect that our new construction sales will exceed the prior year's relatively low levels during the fourth quarter.

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

(Operator Instructions) We have no questions at this time. (Operator Instructions) At this time we have no questions. I would like to turn the conference back over to Mr. Eanes. Please go ahead, sir.

Thank you. Since there are no questions, this concludes our call. Again, thank you for taking time to participate. Speaking on behalf of the management of American Woodmark, we appreciate your continuing support. Thank you.

This concludes today's conference. Thank you for your participation.