American Woodmark Corp (AMWD) 2010 Q4 法說會逐字稿

Good day, everyone and welcome to American Woodmark Corporation conference call. Today's conference is being recorded. The Company asked us to read the following Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statement 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 any publicly update or revise any 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 call over to Mr. Glenn Eanes, Vice President and Treasurer. Please go ahead, sir.

Good morning, ladies and gentlemen, and I'd like to welcome you to American Woodmark conference call to review the results of our fiscal year ended April 30, 2010. Thank you for taking time to participate. Participating on the call today from American Woodmark Corporation will be Kent Guichard, Chief Executive Officer, and Jon Wolk, Chief Financial Officer. Jon will beginning with a review of the year and the quarter with an outlook on the future. After Jon's comments, Kent and Jon will be happy to answer any questions that you may have. Jon?

Thank you Glenn. Good morning. This morning we released the results of our fourth quarter fiscal year 2010 that ended April 30, 2010. Our earnings release contained the following highlights for the fourth quarter.

Net sales for the quarter were $112.4 million, down 20% from the prior year's fourth quarter sales of $140.7 million. During the fourth quarter of the prior fiscal year the Company announced the permanent closure of two manufacturing plants, suspension of operations in a third plant and a Companywide reduction in force. These actions were completed during the first quarter of fiscal year 2010. The Company recorded expenses of less than $0.1 million relating to these initiatives during the fourth quarter of fiscal year 2010. The Company's net loss during the fourth quarter of fiscal year 2010 was $1.5 million, both including and excluding restructuring costs. The Company's fourth quarter results included the favorable impact of an insurance recovery and favorable tax adjustments, which collectively reduced the net loss by $1.7 million. These results compared with the prior year's fourth quarter net loss of $2.9 million including restructuring costs and net income of $3.1 million, exclusive of restructuring costs.

The Company lost $0.11 per diluted share in the fourth quarter of fiscal year 2010, both including excluding restructuring costs, compared with the prior year's fourth quarter loss of $0.21 per diluted share, including restructuring costs and income of $0.22 per diluted share, excluding restructuring cost. The Company had negative $2.1 million of free cash flow during the fourth quarter of fiscal year 2010, compared with positive $18.2 million of free cash flow generated in the prior year's fourth quarter. For the entire fiscal year 2010, net sales were $406.5 million down 26% from the prior year's $545.9 million. Net loss was $22.3 million in the first -- in fiscal year 2010. Exclusive of $1.7 million of net restructuring charges the net loss was $20.6 million. In comparison the prior fiscal year net loss was $3.2 million including restructuring charges and net income of $2.8 million excluding restructuring charges. The Company lost $1.58 per diluted share including restructuring costs during fiscal year 2010 and a $1.46 per diluted share excluding charges. The Company lost $0.23 per diluted share in the prior year including charges and earned $0.20 per diluted shares excluding charges. The Company had negative $10.2 million of free cash flow during fiscal year 2010 compared with positive $33 million of free cash flow generated in the prior fiscal year.

Regarding our fourth quarter sales performance, net sales for the fourth quarter of fiscal year 2010 were 20% less than in the prior fiscal year. In the remodeling market several factors suggest that the market is stabilizing although positive sales momentum has not yet began in our category. Gross private residential fixed investment as supplied by the Bureau of Economic Analysis has stabilized after dropping by more than half from its peak in 2005. This measure declined in the first calendar quarter of 2010 after two consecutive quarterly increases but was still within a relatively tight range for the last four quarters. Unemployment continues to approximate 10% compared with the approximately 9% one year ago, although the economy has began creating jobs. The Consumer Confidence Index as reported by the Conference Board continues to be stable, but at levels that are below those consistent with an economic expansion. The national median sales price of existing homes as supplied by the National Association of Realtors has been flat for the past 18 months, albeit at prices that are 20% below peak levels. Credit availability continues to be constrained as many financial institutions recover from losses sustained during the recession and our two primary remodeling customers experienced negative sales comps in our product category during their April quarters but the rate of decline appears to have moderated. These difficult conditions have severely impacted our market since the onset of the credit crunch that began nearly two years ago.

Our Company's remodeling sales outperformed the remodeling market through April of 2009, 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 fourth quarter's unusually positive remodeling sales results we believe the Company continued to gain sustainability market share. For example the Company's total fourth quarter sales were 22% below its fourth quarter sales from two years ago, slightly better than the market during that time. In new construction, total residential housing starts during the fourth quarter of the Company's fiscal year 2010 approximated 625,000 homes on an annualized basis, an increase of 21% compared with the prior year. In contrast, the Company's new construction sales increased by several percentage points better than the market during this time period. For the Company's fiscal year ended April 30, 2010, total residential housing starts were approximately 580,000 representing a 19% decline, compared with the 725,000 housing starts in the Company's fiscal year 2009.

The Company's new construction sales for its fiscal year 2010 declined by several percentage points less than the market's decline. Because the Company's sales continue to outperform the market we believe we have continued to gain market share. The short-term outlook for the new construction market has shown improvement from a historical low base. Last month the NAHB Wells Fargo Housing Market Index exceeded 20 for the first time since 2007 as builders expressed growing confidence in line with rising housing starts. What remains to be seen, however, is the degree to which the expiration of the latest housing stimulus program has impacted recent results. We continue to bid aggressively and win new business in this still challenging market focusing on companies that we believe will outlast the downturn. Our share comes have come from both increasing penetration with existing customers and securing new customers based upon our total package of service, products and pricing. These share gains have come at satisfactory margins that we believe will be sustainable. Based upon expectations for hired new construction starts we expect the Company will achieve new construction sales growth for the first time in five years during fiscal year 2011.

Regarding gross profit, gross profit for the fourth quarter of fiscal year 2010 reached its best level of the fiscal year at 16.5% of net sales but below the 19.6% we generated in the fourth quarter of the prior fiscal year. Gross profit was improved by 1.0% of net sales during the fourth quarter of fiscal year 2010 by the impact of an insurance recovery that reimbursed us for a loss we experienced at one of our plants. Gross profit for fiscal year 2010 was 12.0% of net sales including a benefit of 0.3% of net sales for the insurance recovery. Gross profit for the previous fiscal year was 16.4% of net sales. The primary driver to the reduced gross profit in both the fourth quarter and the entire fiscal year 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 under absorbed compared with prior year. These factors more than offset the beneficial impact of the more than $16 million of savings achieved in overhead costs related to plant closures.

Regarding SG&A, total SG&A expense was 19.9% of net sales in the fourth quarter of fiscal year 2010 compared with 16.6% of net sales in the fourth quarter of the prior fiscal year. Total SG&A expense was 20.5% of net sales for the entire fiscal 2010 compared with 15.9% of net sales in the prior fiscal year. Selling and marketing expenses were 13.0% of net sales in the fourth quarter of fiscal year 2010 compared with 10.4% of net sales in the prior year's fourth quarter and 14.0% of net sales for the entire fiscal year 2010 compared with 11.0% in the prior fiscal year year. Selling and marketing expenses in the fourth quarter were flat with prior year on a sales decline of 20% and down 5% for the entire fiscal year on a sales decline of 26%. Cost remained relatively close to prior year levels as increased sales promotional costs and increased business development activities partly offset the impact from volume driven cost reductions and savings from the Company's prior year reduction in force. General and administrative expenses were 6.6% of net sales in the fourth quarter of fiscal year 2010 compared with 6.2% in the prior year's fourth quarter and 6.5% of net sales for the entire fiscal year 2010 compared with 4.9% in the prior year. G&A costs declined by $1.3 million or 15% from the prior year's fourth quarter but were flat for the entire fiscal year.

The increased cost as a percentage of sales in the fourth quarter was primarily a result of the decline in sales which more than offset the impact of cost reductions related to incentive compensation from the Company's performance-based variable compensation program, as well as the prior year reduction in force and lower bad debt expense. The increased cost as a percentage of sales for the entire fiscal year was driven by reduced sales as well as the absence of a credit that occurred in the prior year related to the termination of our retiree health plan. As previously mentioned the Company closed two of its manufacturing plants and suspended operations at a third plant during the first quarter of fiscal year 2010. When these actions and the reduction in force of salary personnel were announced during the fourth quarter of the Company's prior fiscal year, the Company recognized pre-tax 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 fourth quarter of the prior fiscal year. In the first quarter of fiscal year 2010, the Company recognized additional pre-tax charges of $2.6 million offset by a income tax benefit of $1 million for a net charge of $1.6 million. For the remainder of its fiscal year the Company reported pre-tax restructuring charges of $0.2 million and $0.1 million net of tax. The Company has realized significant cost savings from these actions, saving more than $16 million in manufacturing overhead costs and nearly $20 million overall during fiscal year 2010.

Regarding capital spending, the Company's total outflow for CapEx and promotional displays deployed during the fourth quarter of fiscal 2010 was $4.2 million. This amount represented an increase of $1.6 million or 60% over the prior year's fourth quarter driven by increased shipments of promotional displays for its remodeling customers. The Company's total outflow for capital expenditures and promotional displays deployed during the entire fiscal year 2010 was $11.6 million. This amount represented a reduction of $2.1 million or 15% from the prior year, driven by reduced capital expenditures. The reduction in capital expenditures is in line with reduced capital needs associated with fewer plants and lower levels of production. 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 $25.6 million at April 30, 2010 and debt to capital was 12.7%. During the fourth quarter the Company had negative free cash flow of $2.1 million compared with positive free cash flow of $18.2 million in the prior year's fourth quarter. The primary drivers for this decline were the timing of accounts receivable collections and to a lesser extent, the increase in promotional displays deployed. For the entire fiscal year 2010 the Company had negative free cash flow of $10.2 million compared with positive free cash flow of $33 million in its prior fiscal year year. The Company had negative free cash flow of $9.1 million during the first quarter of 2010 and ran at nearly break-even free cash flow for the remainder of fiscal year 2010. The significant cash outflow in the first quarter was driven by severance and other payments associated with the plant closures. The key drivers to the $43 million decline in free cash flow during fiscal year 2010 included the $19 million increase in net loss, the aforementioned severance payments and the building of an income tax refund receivable of nearly $10 million that is expected to be collected in fiscal year 2011. The Company ended the quarter with a total of $67.7 million in cash, cash equivalents and restricted cash on hand.

In closing, we continue to manage the business with a 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. And we continue to maintain a strong balance sheet that enables operational and financial flexibility. The Company faced an extremely difficulty prior year comparison for the second half of its fiscal year 2010 driven by the market's continued headwinds and the changes in the retail promotional environment. These factors increased the magnitude of the Company's sales decline compared with the comparable period of the prior fiscal year.

Recognizing that the Company operates in a cyclical industry, management remains focused on maintaining the strength of its industry leading balance sheet. Despite the loss for the year, the Company was able to break -- operate -- at near break-even cash flow levels for the last three quarters of the fiscal year. The sales declines and net loss we experienced in fiscal year 2010 were disappointing but not unexpected in light of the economic environment. Most importantly, management recognizes that the Company's financial performance is the result of choices it has made and continues to make as stewards of the business -- balancing the Company's short-term performance against the Company's commitment to maintaining its manufacturing and field service capability to ensure it can support its customers in the manner they expect both today and at the 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 remodeling activity.

As we look forward to our fiscal year 2011, we continue to see a housing environment underpinned by sound population growth and demographic trends that will lead to the creation of approximately 1.25 million to 1.4 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 continue to improve. From a market perspective, we know several emerging positive trends. Existing home sales have exceeded five million homes on an annualized basis for ten consecutive months. Long term fixed mortgage rates continue to hover near 5%, their lowest levels in 40 years and housing pricing appear to have stabilized. 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 our new fiscal year, we expect that our remodeling customers will experience flat sales comps in our category and total housing starts will approximate 650,000 for our fiscal year ending April 30, 2011, an increase of approximately 12% above the 580,000 starts during our previous fiscal year. Assuming that the Company maintains its market share these assumptions suggest a mid single digit percentage sales increase for the Company in its fiscal year 2011. We further expect that the Company will generate a modest amount of positive free cash flow during fiscal year 2011. This concludes our prepared remarks. We'd be happy to answer any questions you have at this time.

(Operator Instructions) We'll take our first question from Sam Darkatsh at Raymond James. Please go ahead.

Good morning, Jon. Good morning, Kent. How are you?

Fine, thank you, good morning.

Talk about incremental margins now with the restructuring seemingly behind you it seems like -- what are you pegging your incremental margins at Jon?

Sam, the restructure has been behind us now essentially for a couple of quarters and we believe that our incremental -- for instance, in terms of incremental margins our break-even point has been reduced over the last two, three years by about half. So we believe that incremental margins will be strong as volume comes back. I'm not going to quote a specific percentage to you but I would say that our contribution ratio would increase compared to levels they'd have historically been at.

So then how should we look at gross margins then? Most of your cost of sales would be variable. I'm trying to get a sense of the benefit of absorption of increased volumes on gross margin.

I think Sam that you are going to see significant efficiencies brought to bare as volume increases. At these volume levels you are going to see gross margin levels that are going to rattle around where they have been. You can see the range that we had during the fiscal year, it was a fairly wide range. But we are mired in this overall level -- at these production levels -- but hopefully as we get out beyond the upcoming fiscal year and into the subsequent fiscal years, as the volume increases, you'll see some pretty good leverage.

A couple more questions. Oak prices seem to be rising a little bit if at least my source is correct. Are you starting to see that and is there a chatter of raising prices in the channel?

I'll talk to the prices that we are experiencing and Kent can talk about pricing to the channel. In terms of prices that we are experiencing, you are correct that we have seen lumber prices increase -- certainly oak being the leader there. Some of that is seasonal. Some of that is weather related from the difficult winter. Some of it is increase in volume. We have been experiencing material price pressures as the fiscal year 2010 was rolling along and we expect to experience them in fiscal year 2011 to an extent.

Yes, Sam, this is Kent. Jon is right. We have started to see some pressure actually in addition to lumber, we have seen it certainly in liner board -- if you go out and look at liner board, those markets have been pretty tight for certain grades. And what we see on the horizon has come back -- we do think there will be some material inflation. As we talked about -- you've followed us for several years now is -- over time we have shown -- the industry has shown -- demonstrated an ability to get back fundamental and sustainable raw material increases through the channel. It does take us a little while to do that.

If the material prices come back and there's a lot of inflationary pressure, over time, history would suggest that the industry can do that. In the environment we are in today, our opinion, my opinion is that you are not going to get a lot of short-term relief in the marketplace from a pricing perspective, an ability to get price increases out of the market, just because you are still in a situation where demand is so low that the dynamics of the market just don't allow for pricing action in the short-term.

One last question and I'll defer to others. Jon, the other long term liabilities line looked to have jumped I think sequentially. Was there something driving that or can you give color to that?

Yes, Sam. The primary driver there is the pension accounting. We peg our discount rate to long term interest rates and so forth according to a yield curve. And because long term interest rates went down from the prior year -- I believe the discount rate went down from 7.16% to about 5.9%. The present value of our pension liabilities went up pretty significantly and that is what you see in that line.

So the funding status as it stands?

The funding status became less fully funded because the liability went up, but the value of our net assets recovered nicely during the rest of the year as well. But there is a bigger gap than there would have been before.

Thanks much.

We'll take our next question from David MacGregor with Longbow Research. Please go ahead.

Good morning, everyone.

Good morning.

Can you help me just think about the portion of revenues now from new homes versus remodels. I've thought of you as being 75% remodels and 25% new construction. Can you update us on that?

Typically, historically over time, we are about two-thirds remodel and one-third new construction. That's been pretty much our ratio. Last year at this time because of the home center promotional environment that we had, we got well above that in terms of the remodeling mix. This year we've been a lot closer to the traditional ratio although still a little bit higher in remodeling than new construction.

Thanks for that. I know the home centers have just extended their promotions and I'm just wondering do these extensions relieve you of any sales promotion expense going forward?

I'm not sure where you -- they extended and that relieves us, is that your question?

Well, they've extended Home Depot's through early '11, Lowes right now is through July, but they'll probably extend through '11. And, I'm just wondering if that relieves you of any anticipated promotional expense?

No. We certainly have our annual marketing agreements with both accounts. We support certain levels of promotional activity. They as a retailer do promotional activity above and beyond that in terms of the operation of their business.

So the calendar comes and goes and it goes through -- it ebbs and flows. We pay our piece. They pay their piece. So when you see them extend the stuff, they are rolling out the next phase of their calendar and it doesn't really impact us in terms of more or less expense. You are just getting from the marketplace more visibility into the calendar that they are running.

Good. Last question I know within the building business you saw a pick up this quarter. ';veI always thought of the building business as being pretty price sensitive business. Is that still the case? If so, can you talk about the impact on revenues from that mix shift this quarter?

I'll start with that and then Jon may want to chime in. Builders -- there's a lot of different breeds of builders out there in terms of what their strategies are and how aggressive the upgrade and what price points they go after. Certainly in this environment, the starts that you are seeing, the gross numbers that Jon referred to earlier -- there is still -- particularly as it relates to the historical baseline, more activity at the low end of the market in terms of just the house price. And that of course rolls into how much money is available to -- for the kitchen in addition to the other things. So the industry is still -- versus historical baseline -- is still in much more of an opening price point activity. Certainly what you would have seen -- even greater an extent to what you would have seen two, three, four years ago.

We are part of that and you see us ship more at the lower levels of our price points because that's the only houses quite frankly that are being built and moving. So that does have a tendency to rotate down our average job as you go through this period. We don't think that's a fundamental structural change in the industry. We just think that is the mix of where the housing activity is at this point.

So there are builders that are price sensitive and go after that. There is more of that going on than there has been historically, but again we think as prices start to come back, and the supply and demand starts to firm up, employment, those type of things -- that we'll go back to a more of a traditional mix.

Just back to what Kent said, we had a -- out of our sales increase we actually had a slight decline in the sales price per unit shipped in the new construction segment. But volume was very healthy.

Good. Thanks very much gentlemen.

Sure.

We'll take our next question from Joel Havard at Hilliard Lyons. Please go ahead.

Good morning everybody.

Good morning Joel.

Kent, any sense of the promotional calendar with the DIY guys over the course of calendar '11. Would you characterize it as taking a step forward or more status quo versus a year ago?

Did you say calendar '11 or -- ?

Or your fiscal, however you want to look at it.

Basically the next six to 12 months. I would say again you have to refer more to them. I hate to speak for them but my sense of it is that the promotional environment is pretty stable.

I think you'll -- the promotional activity if you go back and look historically -- certain ways that you do promotions have shelf lives to them. You'll come up with a particular promotional and you'll be able to run it for a couple of years until it gets stale and then you have to come up with another one. That is not just in big box home improvement, that's almost in any retail environment. There is just a certain life span to the types of promotional -- buy two get one -- 50% -- whatever structure they run, there's a life span to them. In terms of the actual structure you will probably see the structure change a little bit would be my guess. Because the promotions that they've been running are a couple of years old so they probably have a little bit of the luster off of them.

In terms of the real economic value of the promotion, I would say we are -- in the period going forward, I would suspect it will be pretty stable. Again, it may come in with a different form, with a different wrinkle, but I would expect the promotional level in terms of the economics involved to be pretty stable over the next period.

I was of course referring to your fiscal '11. Thank you for clarifying. If I recall right, you guys price -- is it one or two books a year?

Well, historically the industry has generally dropped two disks in the 2020 design software -- one in the spring and one in the fall -- and where that has come from is that was a product introduction cycle. As new products came out right ahead of the spring selling season and then again right ahead of the fall selling season -- that over the last few years has slowed down to some degree and even gone off cycle.

We went through several years where the major manufacturers really only had one product launch per year. So there was only really if you one will disk -- or your terminology one book dropped -- but it really goes -- still goes around in the spring and the fall and whether or not you are going to launch new product in that window. That is what really drives whether or not you drop a new disk.

That is what I was trying to come back to that. Do you have in your plans now -- via your two favorite customers -- something that would indicate some effort to capture what looks like still a hamstrung home equity lending environment.

I'm not sure I'm connecting all those dots that you laid out. What we -- our product introductions are really related to seeing what the consumer is demanding in the marketplace, the way the fashion is moving, certainly the competitive set, what other people -- but really what consumers are demanding. And we have seen in the last six to 12 months a little bit more activity in terms of some changing of consumer taste.

So we have gone back to -- this year for example -- to two launches. We had a launch in the late winter, early spring. We'll have another launch this summer. That is really what drives it. It doesn't really have anything to do with home equity markets or anything else. We just need to make sure we have the product -- that our customers have the product that they need to satisfy the wishes and dreams of their customers that's coming to re-do their kitchen.

That comes from all sorts of places -- it comes from home magazines and TV shows and everything else in the world. And we have seen a little bit more activity in terms of changing tastes and new products being requested in the marketplace. So that is why we upped our activity. It really doesn't have to do with the other things that you mentioned.

It is driven more by design than by trying to engineer in price points?

Yes.

Okay. A thorough answer. Kent I always thought you were one of the great optimists -- and Jay before you -- about the American economy I know you really showed your medal over the course of the last couple of years.

Jon, your guidance on the positive outlook for new build -- I want from both of you -- is that very much low end driven per your prior comments? Or are you seeing maybe a recovery moving up market a bit? And why?

Joel, I don't know that we've really spent a lot of sometime trying to determine the mix of housing that will be built in the next year. And I'm not trying to imply that we have any special inside on new construction start vis-a-vis the others pundants who will pine on this -- but we are looking at the variety of opinions out there and trying to make an assessment on what we think will be the most likely case for fiscal year 2011 and that is the guidance that we have offered in today's call. But I don't know that we have any special insights into the mix. Although, I would suspect that given the market conditions at this point that the mix wouldn't change very dramatically.

Joel, I would add to that and it's not showing up as anything statistically yet. It is my conversations with a lot of our customers out there in the field. I think that the major -- my opinion is that the major production builders will continue -- to Jon's comment -- will continue to focus most of their efforts at the lower price points -- because they just have to move a lot of stock. Their business model -- they just need to run volume across their platform and that's where the activity is at this point.

We are also, however, starting to see a lot of startups. I can't remember in my now almost 20 years in building -- the building material business and being around construction -- a time where we have seen as many green shoot startups -- green startups of new builders. There is new land. They are buying it out of the banks at pretty attractive rates. So they are getting some good land deals. Land prices are -- in a lot of markets on the way up -- and some of these outfits -- when you think about a lot of the large builders, they had 20, 25, 30 divisions at the peak -- and they are down to single digit divisions. And all that talent went someplace. Some of it certainly left the industry.

But a lot of it has gone into startups and they managed to get a foot hold by getting some of this land that was really on a fire sale out of the financial institutions after foreclosures and those types of things -- on developers -- and the big buildings showing up their balance sheets by getting it off their books. And, they are recognizing that they don't want to -- or maybe they can't but it's not their business model to compete with the large builders at the low end --- and most of them are building middle of the road houses. They are building houses that are targeting that $275,000 to maybe $325,000 range with a nice mix of upgrades in it. Now their volume at this point is still pretty small.

So I would give you that split answer. I think the large builders are going to continue to have to focus on the lower end of their price points just to keep activity going and keep the lights on. But I also think you are seeing a whole new breed of builders come in that I think are going to be a real force when we get well into the recovery here -- that are not going to focus there -- they are going to focus on the mid level price with some really nice upgrade activity in it.

That's a really interesting answer. Thanks. One last question -- with all the restructuring now behind us, where would you place capacity -- total capacity -- on a shift dollars basis now.

We can achieve double at these levels and still be able to produce it.

That's good enough. Thank you. Best of luck.

Thank Joel.

We'll take our next question from Robert Kelly at Sidoti & Company. Please go ahead with your question.

Good morning. A point of clarification Jon. You had said $16 million in savings. Was that all in 4Q or for fiscal 2010?

Fiscal year 2010.

Does that click up with your mid single digit outlook for growth in FY11, does that saving number grow?

I think that that's baked in at this point and I would expect if anything we might spend more as production starts to ramp-up hopefully.

On the quarter on quarter you saw a pretty big sequential jump. Can you just parse out what new construction and remodel did compared to 3Q -- the growth rates?

We have given you what they did versus last year. Remodel -- well start with new construction. New construction grew during the quarter because in line with starts and in line with market share and so forth. So I think housing starts went probably up sequentially about 10% or so.

And looking here -- new construction sales for us actually had a decent jump in the fourth quarter versus third quarter as a function of backlog on when the orders came in and so forth. So we were up quarter to quarter on new construction more than 20% in the fourth quarter versus Q3.

Okay.

You are going from a seasonally low third quarter just seasonally low because of the winter. So we had sequential increases on both sides but the sequential increase on the new construction side was significantly greater.

Right. So I'm really just trying to get a sense of the remodel market what you saw at the turn in the year. It just seems, given how low we are, it's tough to compare a year ago with all the noise you had with the incentives. Whether they are flat, you are calling out for FY11 might be on the conservative side.

In the environment we lived through for the last three, four years, we probably need to get away from conservative and optimistic and all of those other things -- because those are relative based on your view of the world. What we have seen now for -- really since last summer -- is we have seen pretty steady -- relatively flat slope -- but a pretty steady upward on the new construction side. Last fall that was driven a lot by the first tax credit. Which then fell off in the November, December period because the builders at large over built spec. They thought that that tax credit was going to move more homes than it did.

So they had to work that back off. Once that worked off and we got into mid January we started to see it pick up again. Now, the $64 question is -- how much of what we have seen this spring is the second tax credit. But we have seen is pretty steady although not spectacular and not a real steep slope increase on the new construction side. On the remodel side once you adjust for promotional periods that come and go and move some volume around, it has a tendency to concentrate volume around the close out of the promotion on the retail side.

But once you smooth all that out it's pretty much flat. It's not going up. It's not going down.

Great answer. As far as your total capacity you just called out -- you can double sales from here. Is there any point in time when you start to go harder after the independent channel? Do you have enough revenue to service your opportunity with big builder -- and DIY customers -- where you would have some excess to go after that third channel?

Sure. We have what you call, I think you are referring to is that dealer channel. We've always had a presence there. It's never been large in relation to the other two. And we've never emphasized it like we have the other two because we needed to use our capacity there. But we've always had historically -- we've always had a presence in that dealer channel. The question is do you increase your energy over there and increase your efforts. And certainly, what we don't want to do is start to sign up a bunch of customers that we can't take of. We have been in that channel. We are in that channel. We continue to do -- be active over there. But, we want to make sure that any customer that we sign up, regardless of the channel, that we can take care of them during the recovery.

Thank you.

(Operator Instructions) We'll go next to Peter Lisnic at Robert W. Baird. Please go ahead.

Good morning, gentlemen.

Good morning.

I guess first question on the cash flow forecast -- positive free cash flow in fiscal '11, would that be the case excluding the $10 million tax refund that you are getting?

Pete it would be pretty close excluding the $10 million tax refund.

Is there any material or significant pension funding that you are also thinking about for fiscal '11?

We are not thinking of making any material payments there in fiscal '11.

Nothing required. And then as you are coming out of the bottom here -- obviously the question is how fast and how significantly you are coming off the bottom -- you given that you are going to be free cash flow positive, great balance sheet, any thoughts on potentially more aggressive dividend policy or buy back in the near future?

At this point Pete we want to see the whites of the recovery's eyes before we think seriously about either of those two things.

I understand. I want to go back to some of the commentary that you made on some of the new business that you are winning and margins. As you pick up some of this new business and presumably some of it does require spending on your part -- how should we think about the incremental margin or the margin profile of some of this new business? Is it pretty consistent with what I'll call the legacy margin structure of the business? Is it better margin business, is it lower, and then maybe take that to if you do go more aggressively after the dealer channel, how that might impact the margin profile?

For now what you want to do is model out a consistent margin profile. Reality is it will be different, lots of things will be different going forward. But I think for modeling right now I would just use our traditional ratios.

Okay. That is very helpful. Thank you very much.

Sure.

Next question is a follow-up from David MacGregor, Longbow Research. Please go ahead.

If I go back to the dealer channel, a question that was raised a few moments ago -- we are hearing the dealers are starting to come down market a little more into the semi-custom and the stock categories to a greater extent than they've been historically. Are you seeing that? Is there opportunity for you there and how does that impact your home center business?

Yes. Again like I mentioned previously on the builders, the dealers there are many, many different kinds of what people call dealers out there. There's thousands and thousands -- ten of thousands of them -- and they all have different models.

From our experience, their mix of product has been consistent. They generally have three to four maybe five manufacturers in there across a variety of price points. They use a different terminology -- almost everything to them is -- semi-custom to them is that can order a kitchen at a time as opposed to say a truckload deal that you would get with a distributor. So certainly within their lines, they have a wide breadth. I would venture that they are selling more down in their price points within their lines than up line. But from what we have seen there hasn't been a real mass movement on the dealer side to move towards bringing in lower cost lines -- or lower cost manufacturers -- as opposed to they are not doing as many bells and whistles and they are probably selling door styles and other things that are lower within the range of price points they get from a manufacturer.

As it relates to the home center side, to a great degree, they are different consumers -- there are different customers. The big box retailers -- their traditional consumers is a different consumer than a dealer consumer. And so the DIY kind of guy or kind of consumer. So they cross paths occasionally, but their business models are very different in terms of what they offer. And they really target in a lot of ways a different consumer. So we haven't seen a lot of head to head competition quite frankly between them because they are going after different segments of the market.

Thanks very much.

Sure.

(Operator Instructions) We'll go next to Mark Herbek at Cleveland Research. Please go ahead.

Good morning, guys.

Good morning.

Going back to remodel quickly, you have now lapped the 20% off promotions at the home centers and probably have been able to look at your numbers over the past two or three months in remodel. You've guided to pretty flat trends and flat fiscal 2011. Is that what you have seen here over the last two or three months now that the the noise with the 20% off is out of the picture? Has your remodel business been closer to flat over the last two or three months? Just trying to get a general sense of remodel trends March, April, May.

I would say that's probably about right. One of the things that is very difficult on the remodel side -- particularly the big box side -- is the promotional activity really does move demand around. There is a certain feast or famine nature to the way the business has developed during this downturn. As I mentioned a minute ago, when we are closing out a promotion on the retail side, there is a sense of urgency within the store and with the consumer to get the deal done. So you get excited because you see some business in there and then you get to the other side and it drains out the quote logs and drains out the activity. So on a year-over-year basis you really do have to do rolling three months, rolling six month deal because you have to take out the different timing in terms of the entrance and exit to the promotional activity.

But as a general comment I would say that what we are seeing now is you are right. We do have that heavy promotional period out of -- if you will -- the year-over-year comp period. Certainly from an inbound order rate and what we are seeing is we are generally seeing about level or flat activity.

Okay. So over the past 90 days it's fair to say -- the remodel business has been running closer to flat and you are sticking with that run rate for the rest of the year -- not anticipating much improvement from these levels?

Yes it will ebb and flow again with seasonality and with promotion -- but from what we can see now we think the market has bottomed -- but we don't see a whole lot of lift in it.

In terms of the competitive environment it looks like you've been forced to continue to spend at a pretty high rate to drive sales and some of your peers have brought new product to market. Some of your peers have dropped out some of the lower end product. And, it looks like the retailers are bringing some new product in the second half. Can you just talk about the competitive environment -- if you see anything set to hit going forward that may require you to get more aggressive or is it pretty much status quo as to what you have seen over the past year or two?

I would say that all of the manufacturers -- you are in a period now where what we all did is there is a baseline of volume that you need just to be able to operate. But the industry at large -- I won't call out any specific competitors -- but the industry at large is trying to walk the balance between trying to spur demand, get enough demand for the industry to start with -- and then get our piece of it so that we can keep our operations just viable. At the same time you recognize there is another side of this and you don't want to start to set pricing structures and expectations in the marketplace -- that really means that the industry as a whole can't earn an adequate return going forward.

We are all trying to walk that line about -- how do we get at least enough volume through to keep the machines running -- but let's not do anything that has these long term unintended consequence for the industry. With that ebb and flow there are lots of moving parts. There's product coming in. We've added product. Our competitors have added product. There are people that have gotten out of certain lines of business for certainly a variety of reasons. There are people that again -- going back to my answer earlier -- that have come up with different ways to present and package promotions and how you actually get dollars to the consumer to create a little bit of excitement.

Once you roll all that together, what we are seeing is the economics are pretty stable. Again the format may change a little bit, but the economics of the business are pretty stable. People are getting their share -- their piece. When somebody goes in and tries to do something, one of the analogies I use is the airline industry -- I think we've all learned pretty quickly that nobody is going to let you buy business in this environment. So if you go in and you think you are going to buy share, everybody will meet you pretty quickly. But on the other hand if you go out there and you try to raise prices the market doesn't support it.

I think we are seeing an environment where everything is pretty stable all in. And I think it's going to remain that way until we start to see one of the things -- either the market gets even worse which is difficult to imagine or the market starts to come back. When the market starts to come back I think you are going to get some real interesting dynamics because I think you are going to start to run into product shortages.

Thanks guys.

Sure.

With no further questions within the queue, Mr. Eanes, I would turn the conference back to you for any additional or closing remarks sir.

Thanks everyone for participating today. Since there are no additional questions this concludes our call. Speaking on behalf of management of American Woodmark, we appreciate your continuing support. Thank you. Have a good day.

This does conclude today's presentation. We thank everyone for their participation.