American Woodmark Corp (AMWD) 2014 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 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 call over to Glenn Eanes, Vice President and Treasurer.

Please go ahead.

Thank you.

Good morning, ladies and gentlemen. Welcome to this American Woodmark conference call to review our financial results for our fiscal quarter and year ending April 30, 2014. Thank you for taking time to participate.

Participating on the call today from American Woodmark Corporation will be Kent Guichard, Chairman and Chief Executive Officer, and Scott Culbreth, Senior Vice President and Chief Financial Officer. Scott will begin with a review of the quarter and annual results, concluding with an outlook on the future. After Scott's comments, he and Kent will be happy to answer your questions.

Scott?

Thank you, Glenn.

This morning we released the Results of Our Fourth Fiscal Quarter ended April 30, 2014. The financial headlines for the quarter. Net sales were $189 million, representing an increase of 10% over the same period last year. Reported net income was $5.6 million, or $0.36 per diluted share, in the current fiscal year versus $5.2 million, or $0.35 per diluted share, last year.

For the 12 months ended April, year-to-date net sales were $727 million, representing an increase of 15% over the same period last year. Net income was $20.5 million, or $1.31 per diluted share, in the current fiscal year versus $9.8 million, or $0.66 per diluted share, last year. For the current fiscal year, the Company generated $40.5 million in cash from operating activities, compared to $24.5 million from last year.

Some additional comments on sales performance, starting with the new construction market. Single family housing starts impacting the Company's new construction business were effectively flat for the fourth quarter. Single family starts during December, January and February of the prior period averaged 628,000. Starts over that same time period from the current year averaged 615,000. With a 60- to 90-day lag between start and cabinet installation, the overall market activity in single family homes was effectively flat for the period covered by our financial fourth quarter.

Our new construction based revenue increased over 25% for the quarter, a reduction from the over 40% growth from the first half of our fiscal year, due to a combination of the flattening of market activity on a comparative year basis, and our efforts over the last 12 to 18 months to exit non-strategic, low-margin pieces of our business mix. Our growth in excess of starts continued to be driven by our partnerships with national and regional builders that are gaining share of total starts, an increase in share penetration with those builder partners, and the better-than-average health of the markets where we concentrate our business.

On the remodel side of the business, the picture remains mixed. On the negative side, residential investment as a percent of GDP for the first calendar quarter of 2014 declined for the second straight quarter, reversing a consistent trend of improvement. The index had increased to 3.2 for the quarter ended September 2013. For the quarter ended December 2013, the index declined to 3.1. And for the quarter ended March 2014, the index declined to 3.0.

Existing home sales continued to decline through the first quarter of 2014. Between January and March of 2013, existing home sales averaged 4.9 million units. That same period for 2014 averaged 4.6 million units. And last month's sales volume remained the lowest since July 2012, when it was 4.59 million units.

All-cash purchases rose from 29% in 2012 to 31% in 2013, and 33% in the first quarter of 2014. In Florida, more than half of all homes were purchased with cash. High levels of all-cash sales were also reported in Nevada, Arizona, and West Virginia, accounting for close to 4 out of 10 transactions. This trend is concerning, since cash purchases signal investor activity. And they are less likely to remodel than an own-to-occupy buyer.

Interest rates have risen approximately 80 basis points since the beginning of 2013, from 3.5% to 4.3%, for a 30-year fixed rate mortgage. Combined with an over 8% rise in average home prices, the affordability index has declined, both disqualifying first-time buyers and reducing discretionary funds available for major remodel activity on the part of the successful buyer. On the positive side, unemployment continues to improve. The U3 unemployment rate remains below 7%. And U6 remains high, but finally fell below 13% for the first quarter of 2014.

For the remodel side of the industry, we continue to see a bifurcation of the consumer, with the upper part of the market sustaining a positive trend line and the middle of the market resistant to make big-ticket discretionary remodel projects. This plays out in the channels of distribution with dealers. We tend to have a more fluent customer base with household incomes over $100,000 per year. Outperforming big box and distributors with model operations, who tend to have more mid-level consumers with household incomes in the $50,000 to $60,000 range.

Our Waypoint dealer business continues to gain momentum, but we still over-index versus the industry to big box distribution. As a result, in this environment, we generated growth in our remodel business, but lagged the industry in overall growth on the remodel side, with a decline in units more than offset by mix and pricing.

Regarding gross margin performance. The Company's gross profit margin for the fourth quarter of FY14 was 17% of net sales versus 18.9% reported in the same quarter of last year. Although unfavorable to prior year, we did see an improvement of 160 basis points versus the third fiscal quarter result of 15.4%.

Year-to-date gross profit margins was 17.1%, compared to 16.3% for the same period in the prior year. Year to date, the Company has generated year-over-year incremental gross margin of $21.5 million, on incremental net sales of $96.1 million, resulting in an incremental gross margin rate of 22%, slightly below our target of 25%. Regarding gross margin versus the prior year for the fourth quarter, gross margin was negatively impacted by both material inflation and costs associated with crewing and infrastructure to support higher levels of sales and installation activity.

We continue to experience inflationary pressure across a broad range of direct material inputs during the fourth quarter, particularly on all species of hardwood lumber. Average unit material cost increased almost 12%. While the higher material cost was partially offset through customer management, product mix and some pricing relief, gross margin was still adversely impacted. We anticipate that material inflation will continue to impact us in the future.

Our third fiscal quarter results included negative gross margin impacts from our decision to retain accruing and infrastructure necessary to support higher volumes. We narrowed the gap in the fourth fiscal quarter, and believe that we have a return to the trend line in place prior to the government shutdown in October of last year.

Negative impact from rising material costs and additional infrastructure was partially offset by lower labor costs and leverage on fixed and semi-fixed overhead. Direct manufacturing labor cost improved as a result of higher productivity. The Company-generated a leverage of overhead, with spending increasing 6% on the 10% increase in sales.

Regarding operating expenses, total operating expenses improved from 13.7% of net sales in the fourth quarter of the prior year to 12.3% this fiscal year. Through 12 months, SG&A improved from 13.5% of net sales to 12.5%. Selling and marketing expenses were 7.9% of net sales in the fourth quarter this year, compared with 8.7% in the prior year. Selling and marketing costs generally fluxed with activity.

General and administrative expenses were 4.4% of net sales in the fourth quarter of FY14, compared with 5% in the prior year. The improvement in our operating expense ratio was a result of leverage from higher volume and lower pay-for-performance costs.

With respect to restructuring, the Company completed the sale of its Hazard County facility during the fiscal fourth quarter and retired associated debt of $3.2 million. The transaction also resulted in approximately $400,000 in favorable restructuring charges.

For cash flows, the Company generated operating cash flow of $40.5 million during FY14, an improvement of $16 million over the prior year. The improvement in operating cash flow was driven by higher profitability, more efficient inventory management, and lower pension contributions. Net cash used by investing activities was $9.6 million during the current fiscal year, compared with $6.1 million during the same period of the prior year. The increase was due primarily to higher proceeds from asset sales in the prior year.

The Company repurchased 100,000 shares of common stock in the fiscal fourth quarter at a cost of $3.1 million. The Company increased cash by $38.7 million during FY14 to $135.7 million.

In closing, the fourth fiscal quarter continued to present challenges. Most notably, weather impacts across the country that slowed construction projects and confidence in the middle-income consumer's appetite to purchase a new home or begin big-ticket discretionary home improvement projects. Material inflation continued to place pressure on margins, with upward momentum continuing.

We continued to improve our direct labor efficiency, and generated favorable leverage on our semi-fixed and fixed overhead with additional volume. As discussed in last quarter's call, we indicated as we got into the spring, we would see if our channels of distribution returned to the trend line, or if the government shutdown and successive events had altered that trend line. Based on the activity we experienced during the fourth quarter, we are encouraged that the industry appears to be returning to the trend line. And we have closed the margin gap in our new construction business related to infrastructure and crewing investments.

Regarding our FY15 outlook. For the market, we expect single family housing starts to grow approximately 20%, with stronger growth projected in the back half of the year. Interest rates will continue to climb, along with increases in the average price of new homes, which will negatively impact affordability, particularly for the important first-time and first-upgrade buyers. Unemployment should continue to improve. In this environment, our expectations for Company performance are as follows.

The remodeling business will continue to be challenged until economic trends remain consistently favorable. But we expect to generate overall growth based largely on our dealer business. The new construction business should continue to perform ahead of the market, with rationalization efforts largely behind us. Although material inflation will persist, the Company expects to increase its gross margin rate and grow net income in FY15.

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

(Operator Instructions)

We'll take our first question from Sam Darkatsh with Raymond James.

Good morning. This is Josh filling in for Sam. Thanks for taking my questions.

Sure, good morning.

Could you talk a little bit more about your outlook for your own pricing plan for industry pricing?

What we saw certainly impacted the third and fourth quarters. Again, we talked about in the calls, the delay impact between when we experienced inflation and when we have an opportunity to recover from the marketplace. We saw some of that activity start last fall, if you go back the last couple of conference calls. Certainly, when it first comes in, the question is, will it hold in the marketplace? It looks like the activity that happened last fall has held in the marketplace, but as Scott mentioned, we continue to experience additional inflation.

The price in the marketplace we're seeing right now is fairly stable. We have heard some rumblings about industry movement, they recover additional inflation that's happened over the last, call it, nine months or a year, since the industry went to the market for a little bit of relief last fall. We haven't actually seen that on the street yet. We've picked up that some of that is going on. So my expectation, particularly in light of the increased inflation on the raw material side, is that the industry will continue to go to the market to try to recover that.

And just to make sure I heard correctly, you do expect higher gross margin for the full year in 2015 versus this year?

That's correct.

That's correct.

Okay. And one of your competitors talked a little bit about some promotional activity in this most recently completed quarter. Did you see any of that? And does that -- do you think that is something that persists, or was that just weather related?

I certainly don't think it was weather related. And it certainly wasn't consistent, either across manufacturers or even within manufacturers across channels. So we didn't see a widespread reversal or increase in the promotional activity. We did see it spotty in certain places, with certain accounts. But it was for very brief periods of time, primarily related to other promotional close-outs that were being run by the big box.

But for the year, we think that the promotional activity in the industry subsided again just a bit. It's still elevated versus where it was three or four years ago, but we didn't see a consistent trend returning to higher promotional activity.

Thanks. And one more, if I might. What's the remaining authorization on the share repurchase?

We had a $10 million authorization that we had announced that we would consume in this calendar year, 2014. So if you take the $3.1 million or thereabouts, you have $6.9 million left. We're about -- at the end of April, we were about one-third of the way through the year, and we've used about one-third of the authorization.

Thank you very much. Good luck with the next year.

Thank you.

We'll take our next question from Josh Chan with Robert W. Baird.

Hi. Good morning. I was just wondering if you would be able to quantify the gross margin impact from raw material, and also the accruing inefficiency?

With respect to the raw material inflation, what I can tell you is the overall impact was a little north of $6 million in the fourth quarter. I can tell you that it was approximately $17 million on the full-year basis as a percent of sales.

Okay.

With respect to accruing impact, the impact within the quarter was a little under 100 basis points impact on margin.

Okay. That's helpful. And how should we think about these headwinds going into next year? You talk about the accruing potentially moderating. Should we expect a bigger impact in the first half than the second half, and then a trailing impact? Is that the right way to think about it?

I think it all depends on the market. And how -- if we are back to the trend line, which we certainly have indications of, how quickly you jump back on that, and then start hopefully on -- to experience the growth. If -- when we talked about it last quarter, if it doesn't come along, we'll go ahead and make some adjustments to that infrastructure.

For next year, what I would do with Scott's comments is, we still think the remodel market is going to be pretty subdued. We don't see -- particularly in the first half, we don't see a lot of dynamics coming together to really bring that $50,000 to $60,000 consumer back in a big way. So it's really going to be, I think, driven in large part by -- or predominantly by new construction.

So if you watch the new construction, particularly the single family starts, I think that's a good indication about how we think the year's going to roll out. And whether or not we can grow into the rest of that infrastructure, or whether or not we have to get in there and re-balance it based on the business that's out there or available in the market.

Okay. Definitely appreciate the color there. And you mentioned the dealer business should grow nicely. Is there a way to give us an understanding of what size the business is, relative to the overall currently? And maybe where you're gaining share in the dealer business?

Yes, you can look at it two ways. You can look at it to the overall business, and we're in the higher -- mid to higher single digits on that. If you look at it as a percentage of our remodel business, we're well into the teens of our total remodel business. We launched about three or four years ago, and really at ground zero. So it has, as we've talked about -- we haven't talked about the last couple calls, which, you go back maybe three or four calls ago, it's starting to move the overall growth needle.

Okay. And lastly, can we talk about your repurchase philosophy? You set the target for the year. But if there's an opportunistic chance to make a more aggressive repurchase, do you think the Board would be willing to implement a larger authorization based on what's available in the market?

Yes, and we've talked about this before. Certainly as a baseline going forward, our baseline is that we'll offset the dilutive impact of our equity plans. On top of that, based on what the Board sees coming in terms of -- we and the Board see coming in terms of the investment cycle, and what funds might be needed, as well as where we are in terms of the stock price and the market, that the Board would certainly be open to doing another authorization sooner if all of those stars lined up and it made sense.

Great. Thank you for the color, and thank you for your time.

Sure.

We'll take our next question from Rick Johnson with Thompson Research Group.

Yes, hi. This is Rick filling in for Nick this morning. Thanks for taking my question.

Sure.

With TRG, looked at volumes for other building products companies, coming out of winter, we have seen volume improvements, but not what the industry was expecting. How American Woodmark's post-winter volumes compared to your expectations?

We had -- the winter is, as I would say, that we're probably similar to everybody else. Certainly, I think that there was a hangover in the aftermath of the shutdown that impacted the consumer psyche, particularly, again, that middle market consumer. On top of that, we had the weather, which is very difficult to quantify. But you have to assume that, with the weather we had, particularly in the Midwest and the Northeast, that had some impact on people's either physical ability to get out or emotional willingness to go out and launch a project, such as redoing a kitchen.

As we got into the spring selling season, what I would say is that our -- we were hopeful but a little bit subdued, based on the baseline. We did see a spring selling season that I would say was probably consistent with our expectations. It was not a weak selling season, but it wasn't a real strong over-the-top selling season. So we had a decent selling season on the remodel side that was probably consistent with our expectations, as we got into it in February and maybe March. The new construction side has been a little bit slower to come back versus what we saw as a stalling out in that November, December, January period.

There are lots of dynamics to that. In some areas it's weather. There are some land limitations that some of our builders, some of our big accounts have. And again, we've got this affordability issue that Scott mentioned between the price going up, compounded with the interest rates up almost a full point. So that is steady state. We'll see -- the last month starts were -- permits and starts were a little bit encouraging, but that has probably lagged a little bit. So again, to wrap it up, I'd say remodel was probably consistent with our expectations, and new construction was probably a little light versus our expectations.

Thank you, gentlemen.

We'll take our next question from Garik Shmois with Longbow Research.

Hello, thanks for taking my question. This is Mark in for Garik today. To go on the last question, wonder if you can provide a little color on any trends in May, and how sales have been going over the first month of the quarter?

We won't get all that specific on it, partly because, particularly on the remodel side, with promotional close-outs that have a tendency to drive volume, and then you get a peak/valley thing. So on a short-term basis, through two to four weeks, we don't draw a lot of conclusions. So I would just reiterate what we just said.

And that is that, on the remodel side, the season was consistent with our expectations. It was probably a little light on new construction. We'll go into a slower period here in June and July. Near the end of July, we have a tendency to have another -- on the remodel side, another promotional -- round of promotional close-outs, which help us. And then you're really looking at the fall selling season. So again, we're on track with, again, with the comments that Scott made about our expectations for next year, and nothing in May would have really changed that one way or another.

Okay. That's helpful. Thanks for that. Just lastly, here, I was wondering if you can break out price versus volume in the quarter, how to get to that 10% revenue growth you saw? Thank you.

Yes, we don't really break that out. There's a lot of moving parts in there, because you also have product mix in there, as well as volume and pricing. So we -- when you go through that, depending on what lines we've introduced or what lines we emphasize with promotional activity and those types of things, that it really doesn't give a lot of insight if you try to separate those out.

So what I would say is that all of those were a component of that. We were certainly able to get a little bit of price relief going back to last fall. The larger impact is volume and mix.

Okay. Thanks for your help.

Sure.

And next we'll hear from Scott Rednor with Zelman & Associates.

Hello, good morning, guys.

Scott.

Question on the builder side. Even with the headwinds, you guys outperformed the market, according to your flat analysis, by 25%. And next year, you obviously expect some of that to continue. Can you help us understand -- because that hasn't been a one quarter or two quarter phenomenon, that's been a multi-year phenomenon. And how you guys see that playing out in your 2015 guidance?

The similar impact -- and you're right, I think we've went into this a few -- several calls ago, but -- so just bring you up to date. We have consistently outperformed the market. The first two quarters, we were, call it 40, and the market was probably in the mid-20s, low to mid-20s. The market really flattened out on us. We've been on the single family side at the 600,000 plus or minus starts, really since October of 2012. So there hasn't really been a lot of growth there. And that's what really trimmed our rate under 30%, the mid to high 20%s.

But that gap is still there, and has been relatively consistent. And it really is -- we -- our customers, we've done two things on the customer side. One of them is, we have targeted to build partnerships with builders that are gaining shares of starts. Our builders are -- have a tendency to gain share. They do have a little bit of headwind behind them, because they're concentrated in markets that are over-indexing at this point versus the overall market.

A lot of our builders, with maybe the exception of the Mid-Atlantic. But when you get into Florida, Texas, over to Arizona, Vegas and even out into California, which is where a lot of our business is concentrated, those are markets that are doing better than the overall market. Our builder partners are gaining share in those markets, and we have gained share with those builders. And so when you roll all that up, even when the market's flat, we're still able to generate growth.

So is 25 the right number for next year, in terms of that spread? Or are you guys willing to quantify that in any way to help us think about if the market's up 20, what you guys are budgeting?

No (laughter). We obviously have a budget; we won't share that. What I would do is -- and you have it now, is just look at, historically, how we've done versus the marketplace. I think that is a relatively good guide. Over time, that number will have a tendency to moderate, because either you get 100% share of a builder, or you get to a point where they're just unwilling to give you more, because they do want to maintain, for a variety of reasons, more than one supplier.

So there is a maximum you can get to share, so I still think our builders will outgrow the market. I still think we'll gain share. But as you go forward through time, the amount of share that's available to you does diminish a little bit. It does go through that cycle, where either you get 100% of a builder, or you just get to the point where it's the maximum they feel comfortable with. So might trim a little bit, but I think that there -- probably the difference between our growth on the new construction side and the marketplace for the last couple years is probably -- that spread is probably a pretty good guide.

Got it. Had to try on that one, Kent. And I guess you guys are strategically walking away from business. Some of your other competitors have publicly commented that they're strategically walking away from business. Kent, is this cycle any different, a little bit more disciplined than prior cycles, in your opinion? Or is this just a natural progression of coming out of the downturn, in terms of what you're seeing from both yourselves and the competitive environment?

I think it's a little bit different. Certainly, the cycle was extreme. And at least in the previous cycles that I've been through, we didn't see as much -- near term is walking away from business. We -- Scott called it rationalizing of accounts. I think that's because historically, the cycle wasn't extreme enough to drive pricing in certain areas down to the point that just wasn't sustainable, when you're either at full capacity or having to put in new capacity. So the exiting of markets, I think, is a little bit different than we've seen in the past.

There is a little bit of a -- I think, a misnomer in there, in that the markets that a lot of people are exiting, they're not exiting the market; they're exiting the market on a direct basis. That's not entirely true. Some people, including ourselves, have exited markets. But there's also been just a shift of taking it to a distributor-based model, as opposed to doing it direct, to turn some of your costs into variable versus fixed. But having said that, yes, there has been, I think, a little bit of a difference in this cycle than previous cycles, in terms of, I think, maybe a little bit more rationalization of business. And again, I think it's driven by some of the price points that we all went to to just to keep the lights on during the bottom, the darkest of the dark down there at the bottom.

What's going to come, I don't know. Whether that business comes back into the sweet spot, because the pricing will come back up to something that's tolerable, or whether there's some people out there that are willing to continue to support that business at the lower pricing, I don't know. We've pretty much -- again, as Scott mentioned, we've pretty much rationalized everything we plan to rationalize at this point. We'll still have one or two quarters where we comp it. But by the time we get into back half of this year, I think we'll be pretty steady state in terms of apples versus apples comparison on our growth.

Great. Thanks for that. And just one last one. Any update on the CapEx?

Yes. We were -- we've got it ready to go, which is the next round of investment for us in capacity. And we -- but we continue to watch the tea leaves in the market. And I'm sure you saw that they just revised it downward. The first quarter of the calendar year, GDP actually was negative growth; it was down about 1%. I think the first look was zero, but it's been revised to -- actually the economy shrank a little bit.

And so we have -- I think we mentioned on last call, we had originally, if you go back a year or so, talked about needing meaningful capacity in the spring of 2015. We've moved that out to having to need that capacity in the fall of 2015, which means we would seek approval from the Board for a capital project probably at the end of the summer -- this summer. It's about, probably, 10 to 12 months lead time to get that capacity in place, and able to actually provide meaningful increment to production.

So with what we see now, again, being encouraged by the trend line coming out of the winter into the spring is, we would right now anticipate that we would get approval to do a project. Which we would then share with you, probably at the end of the summer, maybe our first-quarter conference call.

Great. Thanks for taking my questions.

(Operator Instructions)

We'll take our next question from Morris Ajzenman from Griffin Securities.

Hello, guys.

Hello.

For the full year, top line grew approximately 15%, 10% in the most recent quarter. And you're giving us guidance out to next year, gross margins and net income to rise. And that's put together by remodeling being, again, as you say, challenged and subdued, new construction continued to perform better.

Put that all together, can you give us some sort of feedback or guidance on how we should look at the top line? Should the top line grow mid single digits better than that? I know you don't give guidance from the perspective of where you'd be comfortable seeing us looking at next year, based on what you've given us, what can you comment on that for the top line growth?

I think, go back to answer a couple questions ago. And that is, I would lock -- I would -- as far as guidance, I would suggest that you follow single family starts, again, as Scott mentioned, on that 60 to 90 day lag for us. Because that's the difference between the start and when the kitchen goes in.

I would expect the growth, as we mentioned on the remodel side, to be pretty pedestrian. I think the industry will grow, but I don't expect it to do anything significant on that side. I think the market will be pretty stable, again, with dealers over-indexing versus the market.

Really, I think for our growth next year, from our perspective, it's really about new construction. So whatever your forecast is for single family starts for the rest of this year and into the first couple months of next year, that's probably what's going to drive our top line.

And for modeling purposes, SG&A as a percent of sales for the full year was 12.3%. I think that's right. I'm sorry, for the quarter, 12.5% for the year. How will that play out into next year?

I think our SG&A line, primarily because of our pay for performance program, has a tendency to be a little bit lumpy. But if you look at it in terms of percentage of sales, we're pretty consistent on that line; we have been pretty consistent on that line. So I would expect that you might get just a tad bit of leverage. But where we've been running, we're pretty happy with where we've been running. It allows us to really move the business forward and maintain those costs. So we would expect that we would continue to manage those costs in a fashion that's pretty similar to what we have historically.

Thank you.

Next we'll hear a follow-up question from Josh Chan with Robert W. Baird.

Hi, guys. Just one follow-up question. Given what you see out there in terms of competitive dynamics and raw materials, how long do you think it will take the industry to recover the cost gap, in terms of the recovering pricing over the material inflation?

In the -- talked about this a little bit in the last several calls, or really last year, maybe year and a half since we've seen this inflation is, we're not -- we don't operate in an industry that has historically been able to get prospective inflation. We basically recover inflation after it's hit. That's just the industry, how it's operated for a lot of reasons.

And once you're at the point where you've had enough inflation where it makes sense, I think where it makes sense for the industry to go to recover from the marketplace versus when you actually get it can be six to nine months, depending on the timing. And it's a little longer in new construction. On the remodel side, it depends on when you go to market, because there's certain windows of opportunity to get pricing. So it's probably about nine months to recover what's happened.

I think that the issue we have is two-fold. One is that; it's the delay. And Scott talked about the $17 million last year and the $6 million in the fourth quarter. One is the delay of recovering, on a six- to nine-month basis, the inflation that's already occurred. The other thing we're experiencing is inflation has continued to ratchet up. It hasn't stopped, and in some cases, it hasn't slowed down on certain inputs and materials.

So we're going to be chasing this thing. We're going to be behind it and chasing it until that inflation flattens out. And then six to nine months later, you do, in essence, the last round, and you catch up and you recover your costs. So we'll continue. I think the industry will continue to try to recover those, again, on that six to nine month lag. But as inflation continues, we're going to continue to be behind that inflation curve. And to Scott's remarks, I would expect that we would continue to see the raw material cost partially offset improvements in margin that we're able to make in other areas.

Great. Really appreciate the color, Kent.

Sure.

That does conclude today's Q&A session. I'll turn the call back over to our presenters for any additional or closing remarks.

Since there are no additional questions, this concludes our call. Again, thank you for taking time to participate. And speaking on behalf of the Management of American Woodmark, we appreciate your continuing support. Thank you. Have a good day.

That does conclude today's presentation. Thank you for your participation.