Masonite International Corp (DOOR) 2014 Q4 法說會逐字稿

Greetings, and welcome to Masonite's 2014 fourth quarter and full year earnings conference call. During the presentation, all participants will be in a listen only mode. After managements prepared remarks, investors are invited to participate in a question and answer session. This conference call is being recorded. The replay may be accessed until March 11th. To access the replay please dial (877)660-6853 in the US, or (201)612-7415 outside the US. Enter the conference ID 13599682. I will now introduce Joanne Freiberger, Masonite's Vice President and Treasurer. Please go ahead.

Thank you, Kevin, and good morning, everyone. I'm joined in our Tampa office today by Fred Lynch, our President and Chief Executive Officer, and Mark Erceg, our Executive Vice President and Chief Financial Officer. The information for the webcast presentation that will accompany today's call is available on our website at www.masonite.com under the heading Investors.

The earnings release and the presentations made by our executives include forward-looking statements that are based on the beliefs of the management team regarding the results of operations of the Company as well as industry and macroeconomic conditions. These beliefs, and the related forward-looking statements, are subject to risks and uncertainties which are described in greater detail in Item 1A of our annual report on Form 10-K, which is available on the Investors tab of our website.

Actual results may vary materially from those described in the forward-looking statements. Our management uses adjusted EBITDA to measure our operating performance. Accordingly, we supplement our GAAP reporting with the non-GAAP financial measure of adjusted EBITDA. Our definition of adjusted EBITDA and our reconciliation to the GAAP measure of net income is provided in the appendix of today's presentation which can also be found on our website.

On today's call, Fred will begin with a Company and independent update. Next, Mark will provide a financial review of the fourth quarter and full year results, after which, Fred will summarize our prepared remarks before opening the call up to a question-and-answer. With that, I'll turn the call over to Fred.

Thanks, Joanne. Good morning and welcome, everyone. 2014 was an important and a successful year for a number of reasons. First, the US housing market continued to recover, allowing North American unit volume to grow, despite a very difficult first quarter, for the fifth year in a row.

Second, pricing actions we took late in 2013 and throughout 2014 resulted in a seventh consecutive quarter of positive AUP growth within the North American segment. Third, we successfully acquired Door-Stop International in the UK, an innovative exterior fiberglass door company with a unique business model that has changed the game relative to manufacturing and delivering exterior doors in the United Kingdom. We remain very excited about Door-Stop's prospects going forward and the results it delivered in 2014.

Finally, these items combined with ongoing strategic investments and product line leadership, sales and marketing excellence, electronic enablement and automation, along with our ongoing focus on cost control drove strong financial results during the first full year as a public Company. Net sales increased 6.2%, and adjusted EBITDA increased by 29.5% to $137.1 million. In addition, adjusted EBITDA margin expanded 140 basis points, while working capital, as a percentage of sales, decreased by 110 basis points. That said, we also faced some headwinds and, frankly, there are several areas where we could have, and in some instances should have, performed better. So, for example, in our South African segment, an explosion at our Escort Mill during the second quarter caused significant interruption to the business.

The team there has done a remarkable job caring for the impact on employees and their families while repairing the site. While there is still work to be done on the forensic accounting side, we continue to believe the full adjusted EBITDA impact of that incident will be in the $6 million to $7 million range. In Israel, business fundamentals continue to deteriorate and in August we permanently exited the business which, in retrospect, was a decision we should have made sooner.

Meanwhile in France, the housing and construction market had another difficult year with housing starts down by double digits for the third consecutive year, which drove our decision to announce the closure of one of our production sites and take a non-cash impairment charge of $16.5 million in the fourth quarter. Finally, throughout the entire year, but more acutely during the third and fourth quarters, foreign exchange negatively impacted 2014 full year net sales and adjusted EBITDA by $23.6 million, and $1.6 million respectively.

Throughout the year our five strategic focus areas remain unchanged, with a commitment to again product line leadership, sales and marketing excellence, electronic enablement, automation and portfolio optimization guiding our approach. We believe that strong execution across these five strategic platforms will help us grow share and expand margins beyond the broader macroeconomic environment.

When we talk about product line leadership, which you can see on Slide No. 6, we're referring to Masonite's commitment to provide our channel partners and end customers with a full range of product with the most innovative options, newest designs, highest quality, and best service in the industry. For those of you who were at the international builders show in Las Vegas in January and had a chance to visit our booth, you would have seen and heard that in 2015 we are planning our biggest product launch in nine years, including the Heritage series of interior doors, which include one, two, and three panel shaker design, Vista Grand which is an exciting new line of modern fiberglass entry doors and multiple new decorative glass designs.

At the same time we're investing in product line leadership, we're driving sales and marketing excellence. Sales and marketing excellence means we're taking a concerted effort to look down channel in order to influence key decision makers and educate consumers in order to create pull-through demand for our high quality products and services. For example, working directly with architects and builders helps ensure consumers get products designed to best suit their specific needs.

We also believe that increased customer education will help improve customer satisfaction and facilitate important product trade out. Electronic enablement is another key part of our balanced growth strategy. In order to ensure we have rapid access to data and highly efficient and controlled processes, we will be migrating all acquired and legacy businesses within Masonite's architectural door business onto a common ERP system. This multi year multi million dollar project will help connect and align our sales, operations, supply chain and customer needs onto a single Unified platform. And, of course, we continue to invest behind our proprietary max configurator. The Masonite express configurator continues to grow in use and acceptance and our most recent version, max 3.0, is expected to drive industry adoption rates across our dealer network even faster when it is released later this year.

Turning to Slide No. 8, we continue to pursue automation in the form of robotics, scanning RFID technology which scans for and locates materials and finished product for improved efficiency and integrated PLC's which allows computer systems and robotics to be operated more intuitively. In order to increase safety and lower healthcare costs by reducing the amount of manual manipulation required from manufacture of door, improved quality consistency and reduced handling defects by having a consistent repeatable process, and unable fast response time to changes in consumer preferences and market demand. Finally, in 2014 we remain focused on portfolio optimization.

As we discussed previously, we acquired Door-Stop International in the United Kingdom in February of 2014, and more recently we made a very small acquisition in Canada with the purchase of Herring Doors which operates in the wood style and rail category. Under this position size we continue to exit non strategic markets like Poland and Israel which we define as markets have a poor macroeconomic outlook, outdated facilities and equipment, and poor cash conversion metrics.

Turning to Slide 9, if housing and construction markets continue to improve and we are able to successfully monetize the strategic investments we're making in product line leadership, sales and marketing excellence, electronic enablement, automation and portfolio optimization, while we continue to capture price that is more reflective of the high quality of products and services we provide, we should be able to expand margins and increase earnings in the years ahead. Consistent with this approach, during 2015 we expect to continue to recognize benefits from our 2014 pricing actions as well as from a pending wholesale pricing action against interior and exterior products in the United States and Canada, scheduled to be effective on orders placed beginning in March.

As these additional pricing benefits begin to hit our P&L during the second quarter, they should provide us with additional flexibility to make the mid to long-term investments required to be the best provider of building products in the eyes of our customers, employees, shareholders, suppliers, and communities in the years ahead. So with that, I'll turn the call over to Mark to review our financial results. Mark?

Thanks, Fred and good morning, everybody. 2014 full year volume increased from 31.6 million to 32.7 million doors, which represents a fairly modest increase of 3.5%. However, purposeful pricing actions continued cost focus, and the acquisition of Door-Stop allowed us to post solid net sales growth and strong adjusted EBITDA growth. Specifically, net sales increased from $1.7 billion to $1.8 billion, or 6.2%, and adjusted EBITDA increased from $105.9 million to $137.1 million, or nearly 30% year-over-year.

Excluding foreign exchange headwinds, which became more pronounced during the second half of the year, net sales increased 7.5% and adjusted EBITDA increased 31%. On Slide 12 we present a summary income statement of our full year results. Beyond the net sales and adjusted EBITDA numbers already cited, it warrants mentioning that gross profit increased almost 18% to $265.4 million, or 14.4% of net sales, an increase of 140 basis points versus year ago. Moreover, while we continue to invest in new capabilities, SG&A growth on an operational basis was tightly constrained.

For example, personnel costs were actually down $4.2 million year-over-year. However, that was more than offset by, among other things, a $7.4 million increase due to the Door-Stop acquisition, $5.7 million of non-cash losses on disposals of property, plant and equipment, and a $3.1 million increase in professional fees driven primarily by costs associated with complying with the Sarbanes Oxley Act as a first year filer.

The combination of higher he gross profit with only slightly higher SG&A as a percent of net sales also resulted in 140 basis point expansion in our adjusted EBITDA margin from 6.1% to 7.5%. Turning to Slide 13, we examined the change in net sales for each of our three reportable business segments and the primary drivers of the year-over-year changes.

Net sales in our North America segment increased 5.6%, or $74.4 million. This increase was driven by higher unit volumes which added $37.8 million and a $65.6 million increase in average unit price. Driven in large part by our previously communicated pricing actions. Partly offsetting the increase in net sales was $7.3 million of lower component sales and a $21.7 million negative impact due to foreign exchange. Net sales in our Europe, Asia and Latin American segment increased 13.3% or $45.2 million compared to 2013.

Higher unit volume increased net sales by $17.8 million as approximately $42.5 million of net sales from the Door-Stop acquisition was partly offset by lower unit volumes in France and our exits from Poland and Israel. Targeted price increases predominantly in the United Kingdom, and positive mix increased averaging of price and net sales by $20.6 million. Foreign exchange and component sales added $6.8 million in 2014 to our Europe, Asia and Latin American segments.

Net sales in our South Africa segment decreased 18.7%, or $13 million, due primarily to an explosion at our Escort Mill and the devaluation of the Rand, which was only partially offset by $17.1 million from higher average unit prices. On Slide 14 we present a summary income statement of our fourth quarter 2014 results which shows net sales increased 6.8% while gross profit increased 31.3% behind a 290 basis point expansion and gross profit margin to 15.1% of net sales.

Adjusted EBITDA grew at an even faster rate, more than doubling versus a year ago, increasing from $17.8 million to $37.7 million, which is an increase of nearly 112%. Adjusted EBITDA margin also doubled, expanding 420 basis points from 4.2% in the fourth quarter of 2013 to 8.4% in the fourth quarter of 2014. The full magnitude of the year-over-year increase in fourth quarter adjusted EBITDA can be seen on Slide 15.

Which shows adjusted EBITDA growth in 2014 versus 2013 by quarter. Aside from an unusually weak 2014 1st quarter, which was down 25% versus year ago due to unseasonably harsh winter conditions and residual impacts from the 2012 Loews business loss, our balanced approach, which combines pricing actions, disciplined cost control and investment across our five key focus areas, has translated into strong growth rates with adjusted EBITDA of approximately 30% in the second quarter, 25% in the third quarter and over 110% in the fourth quarter of 2014 versus the comparable 2013 periods.

As we reflect on our strong 2014 results and look ahead to 2015, we are struck by a number of similarities and a number of differences in the environment in which we are operating. As an example, we expect to once again see modest unit volume growth overall and steady improvements in average unit price driven by our targeted pricing actions and positive mix as consumers continue to trade up to higher value offerings.

We expect material inputs such as wood, metals, chemicals and glass, to be slightly higher, and we expect a tightening labor market and higher healthcare costs may put additional pressure on overall people-related expenditures. Finally, negative business trends in France and volatile foreign exchange rates add additional uncertainty. For example, within the North American segment, roughly 20% of total production comes from plants based in Canada.

As a result, we watched the US dollar, Canadian dollar exchange rate very closely, and the sharp drop we have seen in the Canadian dollar versus the US dollar since the start of this year is something we expect to negatively impact North American segment net sales and adjusted EBITDA throughout the year assuming current rates hold.

Against this backdrop, we are committed to making the necessary investments across our key focus areas to protect and strengthen Masonite's future. Specifically, we are increasing the number of material scientists on staff and bolstering our product management capabilities to ensure we maintain product line leadership. We are hiring and investing in down channel initiatives that are focused on influencing key decision makers and consumers in order to create pull through demand for our high quality products and services as part of our efforts to deliver sales and marketing excellence.

We are making a major investment in people and capital to install a new ERP system across Masonite's architectural door business in order to connect and align our sales, operations, supply chain, and customer needs, onto a single unified platform and we continue to invest in our proprietary max configurator as part of our efforts to electronically enable everything we and our channel partners do across the entire value chain.

Finally, we are hiring more mechanical and process engineers and quality control experts to further drive our automation efforts. Looking at all these elements holistically, we expect net sales and adjusted EBITDA growth in 2015 to be very similar to 2014. A year in which we grew net sales mid single digits and increased adjusted EBITDA by approximately 30%. While we expect similar levels of top-line growth and comparable adjusted EBITDA growth, we expect capital spending in 2015 to be higher than 2014. Historically, we have targeted capital spending to 3% or less of net sales.

But could see 2015 capital spending as a percentage of net sales in the 3.0% to 3.3% range, or approximately $60 million to $65 million in order to support our investments in new products, electronic enablement tools, including a new ERP system for our architectural business, and our automation programs. Finally, turning to liquidity, cash flow and balance sheet metrics, available liquidity at December 28, 2014, including unrestricted cash and undrawn ABL in an accounts receivable purchase agreement totaled $327.7 million, or approximately 18% of Masonite's trailing 12-month net sales.

You may recall that our target is to have a liquidity cushion which represents approximately 15% of net sales, so we are ending the year admittedly with a bit more cash than we feel is needed to operate the business. Total debt and net debt to trailing 12-month adjusted EBITDA stood at 3.7 and 2.3 times, respectively. Our trailing 12-month adjusted EBITDA interest coverage ratio was 3.3 times and our trailing 12-month fixed charge coverage ratio was 2.1 times.

Cash flow from operations was $77.4 million in 2014 compared to $47.5 million last year. The increase in cash flow from operations was earned primarily by the improved North American housing market and higher average unit prices for our high quality products and services. And with that, I'll now turn the call back to Fred to summarize today's discussion.

Thanks, Mark. In summary, we experienced some positive momentum in the US housing market towards the end of 2014, which helped overcome a difficult first quarter and increased average unit pricing throughout the entire year which allowed us to post strong full year results with net sales increasing 6.2%, adjusted EBITDA increasing 29.5%, and adjusted EBITDA margin expanding to 7.5%, which is 140 basis points over the prior year.

For the fourth quarter net sales increased 6.8%, adjusted EBITDA increased roughly 112%, and adjusted EBITDA margin doubled to 8.4% on a 420 basis points increase over the comparable quarter. Going forward, we remain focused on executing against our five key strategic platforms to deliver above market performance, product line leadership, sales and marketing excellence, electronic enablement, automation, and portfolio optimization, via strategic acquisitions as well as market exits or dispositions.

We believe that these five focus areas and the commitment and dedication of our talented employees will allow us to deliver another strong year in 2015, which importantly balances our expectation for modest unit volume growth and average higher unit prices against anticipated inflation pressure and the uncertainty of macroeconomic conditions in France and global exchange rates, with the strategic investments we're making to protect and strengthen Masonite's future as we strive to become the best provider of building products in the eyes of our customers, employees, shareholders, suppliers, and communities.

So with that, I'll now turn the call back to Kevin to open the line for questions.

Thank you, Mr. Lynch. (Operator Instructions). Our first question is coming from Scott Levine from Imperial Capital. Please proceed with your question.

Hey, good morning, guys.

Morning, Scott.

I did see a pretty descent sized step-up in average unit price, actually, in Europe, Asia, and Latin America. You mentioned the UK as an area of strength. I was hoping for a little bit more color there and maybe a little bit more color regarding the demand out looking overseas, your mix in markets. In general, are you becoming any more optimistic for the entire category either from a price or from a volume standpoint?

Yes, I'll just speak to our larger markets in Europe to start with. Maybe Mark can talking about Africa following that. We like what we're seeing in the UK. Our position is strong in the UK. The acquisition of Door-Stop, we think, has bolstered our position even further. Not only are we seeing improved volumes but we continue to believe we will see an improved pricing and market conditions, quite frankly, are positive. France is probably on the opposite side of the equation.

Market conditions continue to be extremely poor. While we believe they're starting to flatten out a little bit, the degradation in the markets over the last three years has made it very difficult on the industry. I think of France being in the position that North America was in back in 2009, is how I would kind of make that analogy.

So we don't have very high expectations for France and our focus on, at least for the French market, and our focus on France is strictly around cost control and making sure that we're right sizing that business in connection with what we expect to see with the demand in that market. And, Mark, you want to talk about Africa?

South of the Africa obviously had a challenged 2014 with the incident that occurred. As we sit here today, the site has been fully remediated and we would expect unit volumes to progress going forward, although year-over-year, taking the incident aside, there hasn't been a lot of unit volume progression coming out of the mill. The mill is largely running at max capacity rates. You will have seen in the commentary we provided earlier we did increase average unit price about $17 million in South Africa that past year so we are taking pricing but that's largely simply offsetting the devaluation in the Rand and so we're not really make a lot of US dollar progression as it relates to it.

During the third quarter we made commentary to the effect that we received about $800,000 US dollars as a partial payment on the business interruption insurance claim. We also did receive in the fourth quarter an additional $2.7 million. We said we would keep you guys apprised of the remittances we received. So, for the full year there was about $3.5 million US dollars recovered as part of the partial payment on the BI claim.

Got it. Thank you. And then as a follow-up, I think, Mark, you had indicated that you had a little bit of excess cash from a liquidity standpoint, looking good at the end of the year to a small acquisition in Canada in the fourth quarter. Maybe a little bit of elaboration regarding your thoughts on capital deployment as a focus here, acquisitions, a little bit more focused now, or is the focus internally and then any thought on capital returns program at any point in time?

We have talked openly about our investment priorities as it relates to our cash balances. We have said first and foremost we need to support business growth through working capital expansion. You will see that in the print that we just had for the full year, we actually did a very nice job with respect to net working capital and we actually reduced that in the absolute, so that area is one that we will continue to focus on and we'll make sure that we obviously support the business first and foremost. Second, what we've said is that we want to continue to support our strategic acquisition program, including Herring which was only about a $4 million acquisition which we effected in December, we've now done 13 acquisitions since 2010.

We do believe that there are additional targets that are out there that are of interest to us and we will pursue those as we deem appropriate. Beyond that, we have talked about the fact that we don't believe a special dividend or a reoccurring dividend is a logical thing for us because we are in a cyclical industry, but obviously since the listing event of September 9, 2013, we probably do have the opportunity to explore as appropriate potential cash deployment through some type of share repurchase.

Our financial policy has been consistent in that we look to keep total debt not to exceed four times, and as you see, we've ended the year in pretty good regard as it relates to that.

Thank you.

Thank you. (Operator Instructions). Our next question is coming from Robert Wetenhall from RBC Capital Markets. Please proceed with your question.

Hi, this is actually Nat (inaudible) in for Bob. Thanks for taking my questions. I'm just wondering if you could provide some additional color on the first quarter wholesale pricing action, so specifically if you could give out the size of the price increase range, and how you would expect that to flow to EBITDA?

So as we've talked about in the past, we typically don't talk about price actions and price increases until they're retrospective; however, based on the close timing of the impending price action, we did feel it was prudent to acknowledge that we do have a letter out there that will begin to impact prices in the second quarter. Mark, you might want to talk a little bit what we believe that impact could be. Obviously it will be determined in retrospect when we talk about it at the end of next quarter.

Right. As Fred indicated, this is a pricing action across wholesale interior and exterior products, US and Canada, we will start to realize benefits from that or at least we expect to start realizing benefits from that with the Q2 release. Similar to the Q3 2014 pricing action which we said was about $5 million per quarter on a net basis, we would estimate this pricing action would be somewhat similar to that.

Great. That's very helpful. Thank you. And just on the ERP implementation, I'm wondering if you could just elaborate a little bit on that and if you could quantify some of the spending that you expect on that implementation and how you would expect that to flow by quarter? Thank you.

Okay. I'll talk a little bit about the overall process around ERP and then Mark can talk to the spending. Through our acquisitions of Marshfield, Algoma, (inaudible), Birchwood over the last several years, as we bought those companies together, we felt that the opportunity to put them on a common ERP system would make that supply chain work considerably more effectively and really broaden our flexibility with responding to customer needs as well as the opportunity to continue to invest in next generation configuration. So all of those aspects are being handled through this ERP migration and we're pretty excited about what this will do for the business.

With regards to spending, what I would say is, with most ERP systems, what you try and do is capitalize as much of it as is practical and as much as accounting guidelines will allow. So, really, what I think you'll see the manifestation of higher CapEx spending in 2015 as opposed to direct pressure on SG&A. As we think about the number we provided of $60 million to $65 million in CapEx, I would expect to see a burn rate of a couple million dollars per quarter related directly to the capitalization of the ERP efforts.

There will additionally be some pressure on SG&A because, as you can imagine, with an ERP system implementation, a lot of our best folks across the organization are the folks that we have earmarked to go and work against that incremental project and so we have had to backfill some of those positions as we go through this process. But I would expect to see it come through principally in the CapEx arena.

That's very helpful. Thank you and good luck.

Thank you.

Our next question today is coming from Jim Barrett from C.L. King. Please proceed with your question.

Good morning, everyone.

Good morning.

When we look out three-plus years, can you talk about the relative importance of pricing versus mix and improving your profitability in North America if you execute on your plans?

Three-plus years is a long time out. I would tell you that where we are today is, we continue to believe that the pricing and the value that we're getting paid for our products, even in today's market, does not reflect the investment nor the value that we have made in manufacturing, nor the value that we offer to our customers. So we believe that pricing will continue to be part of our strategy moving forward.

We believe that as we continue to deploy these strategic initiatives, the customers that we work with and deal with every day are seeing how that value redeployed and reinvested back into sales and marketing excellence, product line leadership, electronic enablement, will actually help them grow their business and solidify their business position, and importantly, we believe those tools will allow us to continue to see mix upgrade.

So I will tell you that both mix upgrade and pricing are things that we expect to benefit greatly from the strategic initiatives we're deploying.

On a separate topic, could you give us your outlook for your commercial business in 2015 in terms of both volume and pricing?

So we don't specifically designate out. What I will tell you is the commercial business overall had a pretty difficult environment in 2014, not unexpected given what was happening in the marketplace. We're encouraged as we come into the early parts of 2015. As the market data is coming in and as the forecast from the various pundits are coming to fruition, we are seeing a pretty substantial improvement in at least the quoting activity.

We have a pretty long lead time. Our lag time in the commercial industry from the time that projects are originally conceived to the time that doors are installed, it could be anywhere from 18 to 24 months. From the time they're actually started to the time we install doors is probably more typically closer to 12 to 18 months.

The prognosis for that business, we think, is good. We believe that getting our ERP systems and our house in order through this year is going to be very helpful in putting us in a great position as we get into the end of 2015 and into 2016 where we expect that segment of the market to continue to improve.

Thank you very much.

You're welcome.

Our next question today is coming from Alex trying L from FBR. Please proceed with your question.

Good morning, and congratulations on a nice year.

Thank you, Alex.

First question, Fred, can you talk a little bit about the new product successes to date and how important that is to your guidance and your view towards 2015?

Yes. So if you think about where we've been with new products in the industry in general, I will tell you that during the housing recession and the downturn, we did not see great acceptance of new products from our customer base as people were trying to survive. We made the decision a year and a half ago, to begin increasing our investments in R&D, and in new product development. I think if you read our release, you'll see in the details that we increased spending in R&D by $2 million in 2014.

We think that $2 million is well spent and we'll really start to deliver results in 2015 and 2016 and beyond, so the new products that we mentioned today on the call are products that were just releasing now, so we don't have data to tell you how well they're performing. What I can tell you is that the customer excitement around those products exceeded our expectations so, we're very hopeful that those will deliver great results in 2015, but to be perfectly honest, we're just releasing them now so it's a little too early to tell.

And then, Mark, just for clarification purposes, as it relates to the EBITDA directional guidance for 2015, does that directional guidance include the price actions in 2Q that you think preliminarily could incrementally add $5 million per quarter to EBITDA?

It did and what I would say in that regard, if you think about 2014, we saw our adjusted EBITDA grow about 30%, and that was partly driven by the fact that we have been able to start restoring a more normalized pricing environment. We took two broad-based pricing actions in 2013, we took two broad-based pricing actions in 2014. As we sit here today, we have obviously announced that there will be a wholesale pricing action that will start to benefit us in Q2 of 2015. We are also sitting here in an environment that actually has, I think, a fair bit more uncertainty associated with it.

If you think about what's been happening with the Canadian dollar versus the US dollar, you would have seen that from the start of the year it went from .86 down to .81. That was a very sizable movement. I had in my prepared remarks the comment that 20% of our North American production actually comes from Canada, so the Canadian dollar situation is something that we're watching very closely throughout the year but could be a fairly sizable restraint on net sales growth. The other thing I would simply point out is last year, in 2014, unit volume growth, as you saw on our slides was about 3.5%. Fred talked about-in bound quoting activity on the commercial business starting to pick up but that won't necessarily equate into additional unit volume shipments.

If it does, until very late in 2015. And we do have ongoing pressures in places like France. So, at the end of the day we think 2015 will look fairly similar to what we saw in 2014, maybe a little bit more inflation on the commodities side because inflation was still relatively benign in 2014. I would expect another point or so in 2015. And, obviously, with the Canadian dollar situation, we think that what we've provided makes a lot of sense.

I'm trying to sort of create a bridge from 2014 EBITDA of $137 million to the 30% growth, which is, let's round, being $40 million. And I believe you've got about $25 million of positive 2014 price actions that should roll over and help EBITDA growth this coming year. And the 2Q price actions seemed to add another possible $15 million and volume would probably add $15 million, and you probably have a year-over-year pickup from South Africa of $7 million or so. So, I guess the offset I'm missing is foreign currency and, labor and cost inflation. Any chance you could help us to quantify those?

What I would say, if you look at our P&L, roughly half the P&L in totality is consumed by costs of good sold, a lot of that is wood, a lot of that is steel, a lot of that is chemicals, a lot of that is glass. Our purchase basket for 2015 is probably in the $900 million range roughly. Even one extra point of inflation against that equates to roughly $10 million of inflationary pressure. If you look across the SG&A line, Fred talked about a lot of areas that we want to invest in so that the mid and long-term future of Masonite is secure.

There's also healthcare inflation and other things coming into play. So you put very small percentages against fairly large purchase pools, be it personnel costs or commodities, and I think you'll find the bridge largely will square.

Thank you.

Our next question today is coming from Al Kaschalk from Wedbush Securities. Please proceed with your question.

Good morning. And congrats on the first year here through the process. I want to focus, Mark, on just the volume comments that you made, in particular modest volume growth. And then secondly if you could dovetail any updates, on particular, home center reviews that you may want to share? But I was struck by the comment of modest unit volume growth despite the backdrop in the marketplace.

You know, I think from a unit growth perspective in the marketplace, it's early in the year. Every year since the downturn we've come into the year with expectations of things being very robust. Mark mentioned we were at 3.5% last year on volume growth. We spoke about the fact that we think this year will be similar to last year.

We're not, at this point in time, anticipating a very robust recovery in 2015. To the extent that happens, we'll be ready for it, that'll be great. With regards to the retail line reviews, I think we've talked in the past about the Lowe's line review that we participated in towards the end of last year. At this point in time we have not received a final answer on that line review, although we anticipate that answer will be coming forth relatively shortly and we hope we will be able to talk about that with you in the next quarterly update.

Okay. That's great. Just to clarify, the unit volume growth, though, don't read that as an expectation that it's decelerating?

No, no, not at all.

Excellent.

Last year we did 3.5% all in year-over-year, and as Fred indicated, every year the industry has seemed to get ahead of itself and we've been, I think, appropriately cautious as it relates to it in our 2015 thinking.

I think it's just important that we continue to believe that our focus on capturing value for our products is the right focus.

Great. Okay. Appreciate that, guys. Good luck.

Thank you.

Thank you. (Operator Instructions). Our next question today is coming from Robert Wetenhall from RBC Capital Markets.

Hi, it's Nat (inaudible) again. Just a question again on the volume in North America. You had that 2% growth or so in the quarter. I'm just wondering if you could slice that up a different way, just if you could elaborate onto how that broke out between the different channels, retail, wholesale, and then what you saw on the commercial side?

Let me just give you just some macro backdrop. When we talk to the North American segment, that's obviously Canada, US and Mexico. If you look at the housing environment in Canada over 2014, you would have seen that it more or less moved sideways, effectively. The non-residential business, the architectural business, which is now over 20% of our consolidated sales on a global basis and within the North American segment a slightly higher percentage, we've talked about the fact there hasn't been a lot of unit volume progression as of yet.

We think that's a market that will come on strong but we think that's probably a later 2015 early 2016 story. If you take Canada out and you take out the architectural business and Mexico hasn't done really a whole lot recently, there has been a limited subset that is growing reasonably nicely but within the segment confines, obviously the overall rate is diluted for those reasons.

We continue to believe that our wholesale business and retail business are pacing well versus US housing completions on an equivalent basis and with triple R spending in growth within that.

Okay. Thank you.

Thank you.

Thank you. We've reached the end of our question-and-answer session. Let's turn the 34 back over to Mr. Rich.

Great. Thank you again everyone for participating in our update call and we look forward to seeing you at the end of our next quarter call. Operator?

Thank you for joining the Masonite International fourth quarter earnings call. This conference call has been rerecorded. Replay may be accessed until March 11th. To access the replay please dial (877)660-6853 if in the US, or (201)612-7415 if outside the US and enter conference ID number 13599682. Once again, that's 13599682. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.