Core Natural Resources Inc (CNR) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Cornerstone Building Brands Fourth Quarter 2020 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Tina Beskid, Vice President of Finance and IR. You may begin.

Good morning, and thank you for your interest in Cornerstone Building Brands. Joining me today are Jim Metcalf, Chairman and Chief Executive Officer; and Jeff Lee, Executive Vice President and Chief Financial Officer.

Please be reminded that comments regarding the company's results and projections may include forward-looking statements that are subject to risks and uncertainties. These risks are described in detail in the company's SEC filings earnings release and our investor presentation. The company's actual results may differ materially from the anticipated performance or results expressed or implied by these forward-looking statements.

In addition, management will refer to certain non-GAAP financial measures. You will find a reconciliation of these non-GAAP financial measures and other related information in the earnings release and investor presentation located in the Investors section of our website. Please note, we will be referencing our investor presentation throughout today's call.

Today's call is copyrighted by Cornerstone Building Brands. We prohibit any use, recording or transmission of any portion of the call without our expressed advanced written consent. Throughout this presentation, management may also refer to pro forma financial results. Such pro forma results give effect to completed acquisitions as if such acquisitions were consummated prior to the periods presented.

With that, I would like to now turn the call over to Jim.

Thanks, Tina. Good morning, and thank you all for joining us. As I look at where Cornerstone is today, I'm incredibly proud of our team, the accomplishments, and what was truly an unprecedented year. Decisive actions that took place at the start of the pandemic not only allowed us to operate safely and serve our customers, they made Cornerstone a stronger company and well-positioned for 2021.

We delivered strong fourth quarter results, rounding out the year with record performance despite a very challenging market environment. We saw widespread improvement across the business. Fourth quarter net sales for the Windows and Siding segments combined were approximately 4% higher than the prior year. And average daily sales in our Commercial business were 3.5% higher as compared with the third quarter. Furthermore, we maintained cost discipline, which drove our seventh consecutive quarter of adjusted EBITDA margin expansion across all of our segments.

The fourth quarter performance demonstrates our team's ability to consistently deliver strong results despite difficult challenges. It shows our dedication towards a partner of choice for our customers, the importance of a strong portfolio of brands, a national footprint and, ultimately, why we continue to be a market leader. We have entered 2021, a leaner and more agile company, eager to serve our customers and capitalize on the recovery in our markets.

Moving on to Slide 4. The actions we took in 2020 have strengthened Cornerstone and are positioning us for growth. While we needed to act swiftly to address market challenges, we never wavered from our strategic roadmap, keeping a keen eye on the future. And we did this while maintaining the safety and well-being of our employees as our #1 priority. With innovation as a core value, we launched several new products during the year in both the residential and commercial markets. These included our laminated brand, the 1100 series in Windows, a new laminated color wrap vinyl window in Western Canada, our DuoPro gutter protection product in Siding. And as part of our IMP product offering Versawall H+ in Commercial.

These product additions enhance our already diverse product portfolio. Driving organic growth through innovation is an important part of our strategy as we continue to provide a value proposition for our customers. We strengthened our market presence in the fast-growing segment of residential cladding and stone market with the strategic acquisition of Kleary Masonry in Northern California. This acquisition expanded our turnkey stone veneer solution and brings new opportunities across the builder and contractor networks to cross-sell into the commercial buildings business.

We also took the opportunity to accelerate transformational actions that already were underway. These included delayering the management structure within the commercial business, getting the leadership team closer to the customers and improving our market leadership positions. For example, our team in Canada did a tremendous job in their transformational effort to improve market position and achieved record results in 2020, a complete turnaround.

Continuous improvement is a core competency throughout all of our segments at Cornerstone. In 2020, we delivered over $110 million of structural cost savings, exceeding our original targets. We made investments in talent, processes and equipment that are positioning us to be the cost advantage manufacturer in our markets and to achieve long-term growth. As a result of these investments, we have also increased production capacity and are better positioned to capture the growth and service our customers.

In our ongoing effort to reduce costs and position the company for growth, we've taken approximately $250 million of structural costs out of the company since the merger, contributing to the 260 basis point margin expansion. All of these actions stem from the commitment of our dedicated associates, a team comprised of many backgrounds, each adding a unique and valuable contribution to our success. To support the growth and opportunities in our organization, we have advanced our talent development efforts through many initiatives. Some examples are the launch of our talent success model and the creation of a diversity, equity and inclusion council, whose focus is on fostering a work environment that is inclusive and equitable for all of our employees.

Our purpose is to deliver building solutions that have a positive impact on the customers and the communities we serve. We are deeply committed to transparency and continued improvement of our policies and practices with a shared purpose in mind, contributing to the communities where we live, work and play. To increase our communication about our efforts in these areas, we have recently launched environmental, social and governance hub on our website, and I invite you to take a look at it.

All of our actions in the fourth quarter and throughout 2020 have resulted in improved financial results and financial flexibility. We wrapped up 2020 with strong free cash flow, lower net debt and record liquidity. We are evolving as an organization, positioning for growth and looking forward to delivering strong performance in 2021 and beyond.

Let's look at Slide 5, and I'd like to share some thoughts on the markets we serve. Residential markets continued their strong recovery in the fourth quarter as U.S. housing starts averaged 1.6 million units, which is an 11% sequential improvement. Single-family starts improved by approximately 20% quarter-over-quarter. Single-family units represent approximately 80% of residential construction, which is up from 67% a year ago. Single-family housing is an important end-use market for us as it comprises about 30% of our net revenues.

The fundamentals are strong in this market. Housing permits are at the highest level in the post-COVID-19 preference for larger single-family homes, coupled with the consumer preference to shift away from the urban to suburban living, are favoring our business. We expect to benefit from the strong growth in housing for the first time in entry-level buyers as our products are well-suited for this segment of the market.

The repair and remodel market continues to show consistent growth, with tailwinds continuing into 2021. Fundamental drivers remain solid with increasing home equity, aging inventory and consumer access to capital spending. The repair and remodel market tends to be less cyclical than new construction, particularly for exterior building products that are exposed to the elements and where maintenance is less likely to be deferred. Our participation in this market also positions us well to capture growth.

In the first quarter, we are seeing a strong pace of incoming orders from the rapid residential recovery. The pace, coupled with industry-wide labor shortages, has led to extended lead times and growing backlogs. Our operation teams are focused on overcoming these challenges and solidifying our service position as the partner of choice for our customers. We've completed market studies and improved our recruiting and retention efforts by increasing employee wages and benefits at our manufacturing facilities. These actions are resulting in positive momentum. Since the third quarter, we've increased our hourly headcount by over 1,000 associates. We still require additional labor capacity, but we are also leveraging our national network, flexible manufacturing capabilities and our investments in automation to produce and deliver high-quality products more efficiently for our customers.

Maintaining price discipline to offset inflation impacts is another key competency for Cornerstone. This is important such, along with the positive market momentum, we are experiencing increasing commodity costs across the board. With careful consideration, we've announced price increases in both Windows and Siding as we expect inflation to continue throughout 2021.

Now let's turn to Slide 6. Private and public capital spend drives the demand in the commercial end markets. As I mentioned earlier, we saw sequential improvement in our Commercial business from the third to the fourth quarter. As we move into 2021, we anticipate the Commercial segment will remain steady, but there's still some uncertainty. The impact of COVID-19 is still very much present in this sector, and it continues to influence decisions about the type and the timing of projects. We also look at a number of indicators when formulating our sentiment, including Dodge and the Architectural Index. The first quarter incoming orders have been higher than last year, with a significant increase in metal components, which has a shorter order-to-delivery terms. We believe that the increase could be pull-forward in demand due to rising steel costs and we'll monitor as we move into the second quarter.

As I mentioned, price discipline is a core competency, and we've been increasing our prices within the Commercial business to offset the rapid impacts of rising steel costs. By comparison in 2018, we saw a 25% increase in steel costs in a 9-month period from trough to peak. For 2021, we currently expect steel costs to rise from the low point in the fourth quarter of 2020 to a peak that may be more severe over a shorter period of time. Through our price discipline, we have demonstrated that we can effectively manage this environment.

Looking forward, we believe we are positioning for growth in the Commercial segment. Our low-rise building applications are central to growing suburban areas and that demand typically lags new home construction starts by 18 to 24 months. So we continue to navigate this end market by remaining close to our customers and strengthening our relationships with our value proposition.

Now let's turn to Slide 7. We are excited about the growth opportunities ahead of us in 2021 and our key priorities: advancing our growth strategy, elevating the customer experience, operating with excellence and maintaining our financial discipline are positioning us for sustainable growth and success. We are continuing to advance our growth strategy by investing in innovation and targeted acquisition opportunities. We have a well-defined product innovation process. It is centered on reducing complexity, offering better performing products with a focus on labor savings. We remain focused on elevating the customer experience. We pride ourselves on maintaining strong customer relationships, delivering exceptional service and being the partner of choice.

In 2021, we remain committed to addressing lead time challenges and continuing our focus on operational excellence across our businesses. We are increasing efficiencies and product output, and we are making additional investments in automation and capacity-increasing projects with approximately 50% in U.S. Windows. Throughout all of our efforts, we are committed to maintaining financial discipline and reducing our net debt leverage ratio by 3/4 to 1 turn is paramount through higher earnings generation. By staying focused on our priorities, we expect to deliver long-term value to all of our stakeholders.

Before I turn the call over to Jeff, I'd like to take a moment to recognize and thank our dedicated team. As I reflect on how we came together to support each other and our customers, I've never been as proud of a team as I've been over the last year. Our team remained flexible and focused on our customers, and our performance is a direct reflection of that commitment. I'm encouraged by the momentum we've seen at the start of 2021 and excited for the opportunities ahead.

Now I'd like to turn the call over to Jeff, who will walk through the financial results. Jeff?

Thanks, Jim, and good morning. We continue to deliver strong financial performance with another quarter of year-over-year margin expansion. The resiliency of our brand portfolio and the actions we have taken throughout 2020 demonstrate our relentless drive for exceptional results. We have strengthened Cornerstone's low-cost operating model and enhanced our financial flexibility, which are critical for our company's ability to grow over the long term.

Starting on Slide 9. We generated $1.191 billion of net sales during the fourth quarter, approximately 5% lower than pro forma prior year. The decrease in net sales was primarily driven by our company's 4-, 4-, 5-week fiscal calendar. There were 3 fewer ship days in the fourth quarter of 2020 as compared to 2019. Adjusting for those differences in days, net sales were about flat to last year. We delivered an adjusted EBITDA margin of 13.3%, an increase of 40 basis points from pro forma prior year. This improvement reflects our success in effectively managing through a volatile raw material environment.

Across all our segments, production constraints for commodities such as PVC resin, steel and aluminum, have driven steep cost increases. During the third quarter of 2020, we began announcing price increases across our product portfolio, which was earlier in the cycle than typical. We remain steadfast to our guiding principle of maintaining price discipline to more than offset inflationary impacts. Our quick actions resulted in positive price, net of inflation for the quarter, demonstrating the value of our unique business model, servicing both the residential and nonresidential end markets.

We were able to favorably impact manufacturing operating costs and lower SG&A, consistently delivering on our cost savings initiatives. We have generated year-over-year adjusted EBITDA margin expansion for 7 consecutive quarters. Our priorities to serve our customers, maximize our unique business model and protect the health and safety of our teammates resulted in strong operational and financial results.

For the year, pro forma net sales were $4.6 billion, down 6.5% from pro forma prior year, with most of the declines coming from softer addressable markets for low-rise commercial construction as a result of the uncertainties driven by the COVID-19 pandemic. On a full-year basis, the Commercial segment's net sales were down 14.2% as compared to 2019 and better than the 17% market decline. We participate in a diversified mix of low-rise nonresidential building applications and our flexible manufacturing footprint positions us well to service our customers.

Adjusted EBITDA was at all-time high of $609 million, an increase of 2.6% over prior year, and adjusted EBITDA margin was 13.2%, a 120 basis point improvement versus prior year. We delivered cost savings of approximately $113 million throughout 2020, which was $13 million more than target. We reduced cost in many areas of the businesses, including material sourcing, plant and back-office rationalizations, process and labor savings from automation and many others. We expect about $20 million of these savings initiatives to carry over into 2021.

Operational excellence is fundamental to our business model and market leadership position. The opportunities to transform our cost structure and improve the way we work are plentiful. So far, we have completed 21 automation transformations and believe there are over 90 more opportunities in the pipeline with payback periods of 2 years or less on average. As such, we expect to deliver $75 million to $80 million of operational improvements in 2021, with approximately 80% of those savings targeted in cost of goods sold. Additionally, we do expect that approximately $20 million to $30 million of near-term costs will return to support the improved market conditions.

Now let's look at our business segment results. Turning to Slide 10. Net sales to the residential end markets through our Windows and Siding segments were 66% of total pro forma 2020 net sales. The mix between new construction and repair and remodel is about equally split. We are proud of the leadership position Cornerstone holds in these markets and believe it is a testament to our national presence, the quality products we produce, the service we provide and the relationships we have with our customers. We are committed to investing in these businesses and further strengthening our leadership position.

Overall, financial performance from the segments were strong. Fourth quarter net sales were approximately 3.5% higher than prior year, with approximately 2% driven by price and 1.5% from demand. Adjusting for our fiscal calendar and average daily run rates, our volume was up approximately 7% versus prior year. Remaining focused and disciplined on consistent execution, these segments generated record earnings during a very challenging environment, delivering 7 consecutive quarters of year-over-year adjusted EBITDA margin expansion.

Positioning towards long-term growth, we have made significant new product and capital investments in these segments with the expected payback of less than 2 years, and we plan to continue investing. 71% of the allocated capital expenditures for these segments are focused on growth, continuous improvement in automation projects. Coupled with investment starts in 2018, machine capacities in our Windows segments will have increased by over 12% by the end of 2021. While we believe we have enough installed capacity to meet the needs of the recovering residential end markets, we are focused on the future and being the partner of choice for our customers.

During the quarter, order momentum was strong as wholesale and retail demand outpaced prior year, driving higher ship volume. The pace of recovery within these segments has been strong from the positive fundamentals in the new construction and the repair and remodel markets. As mentioned, along with the positive market momentum, we have experienced increasing commodity costs. Maintaining price discipline to offset the inflationary impacts has been a key competency for Cornerstone. We have announced several price increases across our portfolio to stay ahead of the rising cost. We remain optimistic about the market recovery and positive momentum in the residential end markets and expect it to continue throughout 2021.

Moving on to our Commercial segment on Slide 11. Net sales in the fourth quarter of 2020 were $386 million or 19.2%, lower than same period last year. The decrease is primarily a result of the slowdown in commercial construction activity from the impacts of COVID-19. Low-rise nonresidential markets remained stable with slight improvements in some areas. Our bookings have been positive to prior year at the start of 2021, and backlogs are beginning to increase. Similar to our residential businesses, we are experiencing a rapid rise in commodity costs, namely steel. We have demonstrated our ability to navigate in similar environments over the years, most recently in 2018.

Within the Commercial segment, price is set at the time of order, enabling us to pass through higher costs. While passing through higher costs generally protects gross profit, it may have the effect of diluting margins in this segment. The Commercial segment has been able to deliver 7 consecutive quarters of year-over-year margin enhancement as a result of strong cost management and structural improvements to delayer the organization. Since 2018, the structural improvements achieved within the Commercial segment, effective spread management through price discipline, and quick and decisive actions resulted in 240 basis points of adjusted EBITDA margin expansion. These actions more than offset the negative mix impacts realized from the market shift towards smaller, less complex projects.

Turning to Slide 12. I'd like to make some comments about our balance sheet and liquidity. We generated free cash flow of $227 million during the year, a 109% improvement over prior year, primarily from lower interest expense, cash tax expense and capital spending, coupled with higher earnings generation. We expect to generate strong cash flow during 2021 as we remain focused on financial discipline and strong operational execution.

While maintaining costs and generating additional cash are important areas of focus, we have not lost sight to the need to continue to invest in our business for the long term. We remain committed to innovation and investing in new product offerings and process automation that will generate profitable growth in the future. We anticipate that full year 2021 capital spending will be approximately 2.5% of sales. As a result of our profitable growth, focus on operational excellence and targeted capital deployment towards balance sheet deleveraging, we have reduced net debt leverage by 0.5 turn over 2019 to 4.9x adjusted EBITDA. We remain committed to our capital allocation strategy, which includes investing organically in high-return projects, deleveraging to a target of 2x to 2.5x net debt and investing in strategic inorganic opportunities in key adjacencies.

During the year, we took actions to improve the company's financial flexibility. We ended the year with $1.3 billion of liquidity, including $674 million of unrestricted cash on hand. Our strong liquidity position provides a meaningful opportunity to advance our strategic priority for growth.

Turning to the first quarter of 2021 outlook on Slide 13. We expect consolidated net sales to be between $1.195 billion and $1.240 billion and adjusted EBITDA to be between $110 million and $125 million. I would like to remind you that our company's fiscal quarters are based on a 4-, 4-, 5-week calendar. As such, there are 3 fewer ship days in the first quarter 2021 as compared to 2020. We have included a schedule of our fiscal days in the appendix of this presentation, which will also be posted on our website. And now I'd like to open the call up for questions.

(Operator Instructions) Our first question comes from Lee Jagoda with CJS Securities.

So Jeff, just starting with the Q1 guidance, I assume that the guidance ranges were negatively impacted by the abnormal weather in parts of the country that typically wouldn't see that kind of weather. Can you speak to how much, if at all, that shifted those ranges to the downside? And how much of the headwind you would expect to make up in the balance of the quarter?

Yes. Lee, appreciate your question. So as we think about the weather impacts, mainly inside of the Texas area, we estimate it's probably a $15 million impact on revenue, and about a $5 million impact on EBITDA. Now just to elaborate on that just a little bit further, our manufacturing locations did see a couple of days of shutdown, in particular, inside those regions where we were impacted just from the freezing weather. But our supply chain probably got a little bit more impacted in the manufacturing locations themselves. We're working through that. But that $15 million to $5 million range is probably what we're estimating right now and that does include -- we have included that in our guide for Q1. So the guide that we put out there is reflective of those type of -- that situation. And it's still pretty fluid, but for the most part, all of our manufacturing operations are up and running, and we're working through some of the supply chain without disruption.

Got it. And then just looking at both the volume growth that you would expect, particularly on the residential side in 2021, and then layering on top of that, the increased raw material pricing, how should we think about the working capital use assumptions as part of the free cash flow outlook in '21?

Yes. Working capital for us is a focus as a company. It's been something that's been a guiding principle for us. You might recall, early in 2021 and late 2019, we talked about $100 million reduction of working capital as a goal for the company. We suspended that guidance as we kind of got into the COVID Q2 time frame of 2020. But for 2020, we actually were able to take down as a percentage of sales our primary working capital from 16.3% down to about 15.9%. So improvement inside of 2020 and we expect to continue that into 2021 as an organization, and we're still committed to getting that $100 million reduction.

Got you. So all else equal, working capital should come down as a percentage of sales, but in absolute dollars, I assume it goes up?

It does, Lee. We do anticipate growth inside of 2021 and with that comes the normal expectation from receivables and inventories to service our customers. But that reduction, that percentage is probably the best way to think about how we're thinking through the working capital itself. We will -- as you anticipate, the revenues for 2021 and apply that percentage on working capital, the primary working capital, we think that's a good way to think about it. And do expect that to improve inside of 2021.

Our next question comes from Julio Romero with Sidoti.

I was hoping to ask about lead times in the residential segment. Do they continue to be relatively longer than usual? And when do you see that reverting to the mean?

Yes. Thank you, Julio. This is Jim. Yes, we have -- obviously, we said we have extended lead times in our residential business backlog as well. And some of the things we're doing on the lead times, it's really the consistency of delivery and the communication to our customers. As we've said in the last couple of calls, we've invested in '18 and '19 -- 2018 and 2019 in capacity. In fact, in our Windows business, we've had about a 12% increase in capacity. We talked about automation, but a lot of that is really capturing the recovery.

We've also realigned our footprint. As you know, we have a national footprint of our windows facilities. We've realigned and revitalized our -- reevaluated our footprint so we can ship out of area to take care of a couple of lead times. So we stay close to our customers. We're -- we think it's very important to have consistent lead times even though they are long. We have a very focused, as Jeff said, 2.5% of our CapEx, half of that is going to be into our Windows business. We're continuing to put in new lines. Our 1500 series is our most popular window line. We put that in numerous plants to get additional capacity out to our customers. So lead times are extended, but it's the consistency of the lead times and the communication to our customers. And the key is we believe we're investing into our business over the last couple of years, but we're going to continue to invest to capture the recovery. And that's going to be really the key as we really want to capture this residential recovery, and we're putting investments behind that.

Okay. I wanted to dig a little deeper on the impact of steel, specifically to your Commercial segment. I think you talked about in the prepared remarks about setting price at the time of order and aiming to keep gross profit dollars generally steady. Just trying to think about how does steel affect your shorter turn businesses in Commercial? Can you give us a sense of those 2 (inaudible)?

Yes. That's a great question. Thank you. We started to announce price increases in steel in the fourth quarter. In our Buildings business, as we said, it's priced at order, but some of those are longer lead times. So we implemented price increases in the fourth quarter to be effective into the first quarter. We'll start seeing those late in the first quarter.

But our quicker turn business, we talked about our components business, that gets priced on a weekly basis and sometimes on an order basis.

So that order rate is very strong. We are pricing -- we put out numerous price increases in some parts of our Commercial business. We've implemented 3 or 4 increases in the quarter, and our guiding principle has been and will continue to be is to offset inflationary on steel. We look ahead a few months on steel costs. And we anticipate where steel costs are going, we want to price ahead of that. So we feel that we have really the processes in place. We have a centralized pricing desk.

We use analytics on different types of customers, on shorter-term on our components business versus our longer lead time building business. And we feel that we have a good process, as Jeff said, through 2018, we went through a very rising market with the tariffs. And this is a very different market because in 2018, the steel industry was ahead of other commodities. So a lot of our business, our metal building business went to alternative suppliers, either alternative construction practices, i.e., lumber, tilt-up concrete. And we really follow where the steel metal building industry is now. And if you look at where commodity prices have gone in other areas, we feel as an industry and as a metal building business, we are also competitive with other types of construction, which is really important as we price our -- as we price our business going forward.

Okay. I guess just last one for just on capital allocation, you ended the year with a pretty solid cash balance. And I think your slide deck alluded to debt paydown. I don't know if you could help us with the cadence of debt paydown. When should we expect to see some deployment towards debt paydown?

Yes. I'll take that question. So we did have a strong cash flow generation in 2020, $227 million worth of free cash flow which was an improvement of 109% over 2019. So strong cash flow generation in the year. And a lot of that was some of the COVID-related activities as we reduced our CapEx. From the first guide of 2% to 2.5%, we dropped that down to $85 million to make sure we understood what was happening within liquidity and just the uncertainties inside of COVID-19 pandemic. As we look at 2021, we are expecting to have that 3/4 to 1 turn reduction inside of our net debt leverage ratio, and we've been successful with that.

And so in 2019, we're able to take that down about 3/4 of a turn. In 2020, we're able to take that down about 1/2 turn. And then right now, our guide is there 3/4 to 1 turn inside of 2021. And it's going to be a combination, as Jim said inside of his comments, a lot of that comes on our earnings generation that we expect inside of 2021, combined with the working capital initiative that we just talked about as well as a company. And so it's delivering on all of those objectives that we have and the strategies that we have in place for the company. And we should see that come down throughout the year, very consistently with what we've seen in prior years as EBITDA on a quarter-over-quarter basis continues to improve.

Okay. So the leverage ratio ticked down throughout the year, but should be a combination of earnings growth along with debt reduction?

That is correct.

Our next question comes from Matthew Bouley with Barclays.

I wanted to ask about the cost savings, the $75 million to $80 million you've got planned this year. What I'm really curious about is kind of the mechanics of a year where you're planning to take this much cost out, but you're -- on the other side, you're talking about investing for growth and wanting to be in the right places, particularly to capture this residential demand. So if you can get into maybe some of the elaboration, the details, like what level of cost, where are you taking out costs? And how do you kind of balance that with needing to reinvest in certain areas?

Yes, Matt, let me address that one. So we do have a guide of $75 million to $80 million worth of cost out for 2021. And just as a reminder, if you go back to the merger, we were able to take out approximately $250 million worth of cost over the last couple of years. And so it's a core competency. It's a real process-driven organization right now that is focused around cost out without jeopardizing service, without jeopardizing quality to our customers. In fact, just the opposite as we think about cost out, we think about how do we improve our service levels by doing things such as automation.

And the speed that we are able to produce some of the products through automation, the quality that comes out from those, those things are helping us with our service levels. They're helping us with our capacity. They're helping us to make sure that we're keeping our customer first and foremost in our mind as we're thinking through these. We are excited about the opportunities. These are detailed projects. They are across all of our different facilities within Cornerstone. And their project owners have been identified and they're running these individual projects. And they're a combination. Some are labor-focused when it comes to automation, some material-focused, making sure that we're getting the right value for our proposition as a national provider and as one of the largest purchasers of different commodities. We get benefits from that.

And some are just continued structural cost-out when it comes to looking at our manufacturing sites through safety and just efficiencies and the footprint that's out there as well. And we've done a combination of all of those over the last couple of years. But again, we don't look at in a vacuum. We really look at our customers first to make sure that we can service them appropriately and the cost-out then is additive to that, not something we would take away.

Got it, Jeff. Second one back on the Commercial side. Just given it's such an unusual scenario where steel is inflating, but it's in the backdrop of choppy nonresidential demand. And I heard you mention that there could be some potential for pull-forward going on in the shorter cycle businesses. And you talk about being competitive with other types of construction. So my question is, should we think that there's risk for any sort of further impacts to volume as a result of all this inflation? Do you find that your dealer network and customers on the engineered building side, are they willing to accept the type of necessary price increases in this environment when you have such a choppy demand backdrop?

Yes, thank you for the question. Great question. First, as we said, the market is steady, but we still have this COVID-19 impact. And that will be really the catalyst getting that behind us for spending. Really, the backdrop that we really look at is the lag with residentials, 18 to 24 months. So that is really central to the commercial business. Follow the new -- go into new suburban areas, but again, it's 18 to 24 months. So you're looking at the back half of the year for that lag. We did see the order intake strong, as we said, but we do believe some of that is the pull-forward on -- with steel costs going up, but also with our pricing.

Our customers are trying to get ahead of our price increases, so we think that also could be some risk on the back half of the year. So we are cautiously optimistic. It's steady. It's not where it was last year. We're going to have better comps as you get into the back half of this year. But again, you're still looking, we will not be at 2019 levels. I mean, even if the market and our business is up low single-digits, you're still down 15% from 2019. So the comps may look better, but it's still a very choppy market.

We're also getting conflicting information. The Architectural Index is still weak. Dodge is showing some positive signs. So it's still a choppy market. From a customer standpoint, we really track job cancellations. We follow that on a weekly basis. Right now, our first quarter intake is ahead of last year. And if you recall, the first quarter last year was a pretty strong quarter. So again, we don't want this to be a false positive. We think it could be some pull-through, and we're still very cautiously optimistic. It can be better than last year, but it's still -- we're still focused on that lag of 18 to 24 months is really when the market will start showing some health.

Our next question comes from Richard Kus with Jefferies.

Just to focus on the steel piece of this commercial business, maybe just one more time coming at it maybe a little differently. The price increases, I appreciate that you guys are pushing them out there. And the last question was basically things in non-res are a little bit soft. So are you having success getting that stuff through? I guess to kind of go a little bit further on that, do you expect your pricing to be able to fully offset the steel cost that your -- increases that you're seeing in 2021?

That has been our guiding principle to offset inflation as we have processes in place since 2018. We have a central pricing desk. We have a look ahead of where steel costs are going. So pricing now on where we anticipate steel costs, rising steel costs. As I mentioned earlier, we started announcing in the fourth quarter as we saw steel prices coming from the trough at really rapid rates. We have really a great procurement supply chain group. We have subject matter experts in not only steel, but PVC resin that are very close to our steel suppliers.

We look at the CRU on a daily basis, seeing where the costs are going, and we want to stay ahead of the rising steel costs on our pricing. We've been there before, and we've been successful. And as Jeff said, we have processes and subject matter experts on this. And so our guiding principle is, yes, offsetting inflation is our objective.

And Rich, just to add to that a little bit as well. When you look at the guide that we put together for Q1, on a year-over-year basis, our EBITDA margins and our gross profit margins are both favorable, which is the estimate and forecast that we have in place right now for Q1. And we are in that inflationary environment, right? So it is showing -- the guide that we put together is showing that we are able to pass those through to our customers and get that value proposition that we offer.

Yes. It was impressive given the input cost increases we're seeing. I guess my follow-up is, how long before those higher steel costs that you saw trough in Q4 and then really start to move up rapidly? Do those really start to impact you in Q1? Or is that something where you're really seeing that more in Q2?

It really depends on the commercial business and our components business, it's a quick-turning business. So that is in a -- in Q1 where buildings is a longer range, which could be a late Q1, early 2Q impact.

Got it. Okay. That's very helpful. And then maybe lastly for me. I know you guys got some CARES Act benefit on taxes in 2020. How do you think about that changing from a cash standpoint as we look at 2021?

Yes, I appreciate the question on that, and it's a good question. We did get a benefit in 2020 of about $20 million just from the delayed payments on some of the payroll tax. Half of that will return in 2021 and the other half of that returns in 2022.

(Operator Instructions) Our next question comes from Kurt Yinger with D.A. Davidson.

Great. I just wanted to start on the growth side, and I was hoping maybe you could put a little more color behind what you're focused on from a go-to-market or innovation perspective here in 2021? And kind of specifically within Siding new product opportunities to maybe help slow some share leakage away from vinyl?

That's a great question. And as we said, we're really pivoting to grow the business, and we're very excited about the growth initiatives. We have growth initiatives in each one of our businesses. As you mentioned, Siding, which I'll address in a second; Windows, I mentioned in my prepared comments as well as in our Commercial business, we think there's some great opportunities there as well. We have a very robust new product development pipeline. We have an innovation center that looks at products that will be introduced in the next year or so. As Jeff said, a lot of those have 2-year or less paybacks. And we're really excited about our go-to-market strategy. We've introduced some products this year or in 2020.

And I'll turn to our Siding business. We are really -- we believe we're the only manufacturer really investing back into the Siding business. We're investing in additional capacity. We talked a little bit about Windows, but we're addressing capacity increases and efficiencies in our Siding business. We're really excited about that, and we're also excited about new products. We have some test markets that are being held right now for 2 of our new products that we aren't prepared to elaborate today on, but we're really excited to talk about them in the future. We're getting some wonderful feedback from our contractors, from our distributors.

It is -- we have a -- we've invested in a new plant in Rocky Mountain, North Carolina, which is just starting to run test products. So we're pretty excited about that, and we'll be able to elaborate a little more when we're ready to have an official product launch. But we're excited about the Siding business. It's -- it had a record year last year. My hats off to the entire Siding group. They had record performance. They have a strong backlog now. We're taking care of our customers. And what's great about our Siding business, we do business with every customer, every large customer that you know. We're really excited about reinvesting back in our Siding business, and it is a growth business. And we feel that there's a good, better, best in this business, and we want to be all 3 of those. So we're very excited about what we're doing in Siding.

On Windows, we're continuing to grow our capacity there. We want to capture the recovery and we think that we're putting investments, as we said, half of our investments are going to the U.S. windows. Along with that, we're looking at brand -- we've consolidated brands in Siding. We're very focused on brand consolidation. Also in our Commercial, in our stone business, we've consolidated brands. And we're also putting together things to make it easier to do business with customer portals, e-commerce. So it isn't just the product introduction. It's also -- we've learned in this COVID environment that technology is going to be extremely important as we go forward and this is what our customers expect. So our customers are excited about the Siding business. We're really excited, and we truly think it's a growth business.

Great. That's great. And then on the 12% capacity increase in Windows, you talked about, I'm curious how you think about kind of your effective capacity utilization right now and the potential to improve that as hopefully COVID moves into the rearview and perhaps you're able to add some bodies on the labor side? I mean, what would you -- is there -- would you kind of reference as a capacity utilization number and where you think that could go or where it would normally be?

Yes, that's a great question. And really, the key right now is the staffing. As we talked about, we've now added over 1,000 positions in our Windows business. We've invested in our 1500 line in different parts of the country. So we put in the nameplate capacity, but we still need to have additional staffing, and that's really the key. We have -- we've increased our wages. We have a very focused -- we have a third-party that's assisting us of getting additional labor. We are very focused. We brought in talent from the outside. We have a gentleman by the name of Jim Kepler, who's leading our operations from an overall standpoint, and he is working with the individual business unit leaders to really accelerate the staffing so we can capture the recovery. So it's all -- it is the -- automation is one side, but also, we still have some work to do on the staffing.

And Kurt, just to add a couple of comments to that as well. We continue to invest inside of our capacity. Now what's interesting about these programs and these initiatives, they are not only adding capacity, but they're taking cost out. And so when you look at some of the things like the automated glass lines and you look at the assembly lines and things like that, that we're putting in place, it really is an opportunity for us to make product more efficiently and better quality for our customers. And at the same time, it's adding some of the capacity in.

But specifically around your question, as we think about 2021, we don't really have a machine capacity issue, and it goes back to what Jim says, it's us getting the ability to get our labor into the manufacturing sites and to produce it, and we've got a lot of great actions that we're moving forward on that. Every region, every business is a little different. And as we get signals from our different customers, we continue to invest in those regions, specifically, to meet the anticipated demand that's coming up. When you look at our national presence, when you look at our national footprint, we really have the ability to service the demand that we see coming at us right now for 2021.

And we've even looked beyond that to say, if we -- if demand continues to be stronger, inside of 2021, can we service that demand and our machine capacity is there. So again, regional, we have to be very specific by product and by region, but we feel good about where we're at. And as we see those signals coming in from customers, we're going to be investing appropriately to make sure that we have the regional capacity as well for those customers.

Got it. Okay. That's helpful. And just my last one on the Q1 outlook. I think here in Q4, on the residential side, you talked about kind of 2 points of price and 1.5 points of volume. As we look at the expectations for double-digit growth there, is there a good way to think about that split between volume and price?

So Kurt, we've incorporated that in our guide. And just to kind of go back a little bit to the fourth quarter. I want to remind you of the fiscal days. And so when you look at on a daily run rate, it was higher than that. It's about 5% higher on the daily run rate in the fourth quarter. So the demand -- the 8.5% growth on a year-over-year basis that we're talking about right now is a combination between residential and commercial, with this more stable environment inside of commercial and a stronger environment inside of residential. But our guide incorporates right now the combination between volume and price and inflation. And we feel good about the guidance that we have in place. The midpoint that's out there right now does, again, have margin expansion for us as a company. It is up 8.5% on the midpoint on the revenue side. So we're excited about the growth that we're seeing.

Got it. Okay. And I guess, is it fair to say that price will probably be a little bit more than a 2% benefit as some of the announcements you made in Q3 and additional actions start to flow through early in the year? Or is that something that's more kind of back-half weighted?

Yes. So 2 things on that: One, we have the same fiscal days in Q1 as we did in Q4, 3 less days, right? And it's a little bit ironic that, that's the way that it shakes out. And so when you look at just the volume itself on a year-over-year basis, you have to take that 3 -- those 3 days into consideration, and our guide incorporates that. So our 8.5% growth on a daily rate is actually much higher from a volume perspective because of that -- the days component. And so yes, if you go back and look at the price announcements that we've made and the steel prices or steel costs that are going -- that are rising right now, we are pricing out in front of that.

Now keep in mind a couple of things: One, we have backlog inside of our Residential businesses and our Commercial businesses, and so those backlogs were priced at a different price point. And so those will come into the first quarter, and then our pricing starts to catch up inside of the end of the first quarter and the beginning of the second quarter. But again, as Jim mentioned, we got out in front of that, and out of our typical cycle.

So typically, inside of our residential businesses, we would have price increases in the first quarter and because of the inflation that we saw coming out as we got in front of those and got our price announcements out early, but that backlog is going to continue to bleed into our business in the first quarter until we get that -- the prices up from that. So hopefully, that answers your question around that, but we feel really good about our positioning of what we've been able to do as a company with price and the inflation that's coming at us.

(Operator Instructions) And there are no further questions in queue at this time. I'll now turn the call over to Tina Beskid for closing comments.

Thank you, everyone, for joining us here this morning. We really appreciate your interest in Cornerstone Building Brands. We are excited about what 2021 has to offer us this year. And if you have any questions, please feel free to reach out to me. Hope you have a great day, and thanks again.

This concludes today's conference call. You may now disconnect.