Masonite International Corp (DOOR) 2015 Q4 法說會逐字稿

Welcome to Masonite's 2015 Fourth Quarter and Year End Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After management's prepared remarks, investors are invited to participate in a question-and-answer session. Please note that this conference call is being recorded.

I would now like to turn the call over to Joanne Freiberger, Vice President and Treasurer.

Thank you, Melissa, and good morning everyone. I'm joined in our Tampa office today by Fred Lynch, our President and Chief Executive Officer and Russ Tiejema, 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.

During this call, we'll be making forward-looking statements that are subject to risks and uncertainties, which are described in greater detail in Item 1A of our Annual Report on Form 10K, which is available on our website. Actual results may differ materially from those expected or implied. Forward-looking statements are out of the date that they're made and we undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law.

In addition, our discussion of operating performance will include non-GAPP financial measures within the meaning of SEC regulation G. A reconciliation of these measures with the most directly comparable GAPP measure is included in the press release and in the appendix of today's presentation, both of which are available on our website.

On today's call, Fred will begin with a company and industry update, Russ will provide a review of the Fourth Quarter and full year financial performance followed by our outlook. Fred will then summarize our prepared remarks before opening the call for a question-and answer session.

And with that, let me turn the call over to Fred.

Thanks, Joanne, and good morning everyone and welcome.

I want to start today's call by thanking our 10,000 employees across the world for dedication, hard work and focus on customer satisfaction. The impact of their efforts is evident in Masonite's solid 2015 financial results with net sales increasing 7%, excluding the impact of foreign exchange, and adjusted EBITDA increasing 49% percent to $204 million.

We are deeply grateful to our many customers and channel partners for their confidence in our products and services and their continued loyalty to Masonite. So thank you.

We finished the year strong, delivering our seventh consecutive quarter of adjusted EBITDA growth and marking the first fiscal year of returning to double-digit EBITDA margins since the housing downturn began.

Before we get further into the details of Masonite's 2015 results, let's take just a few minutes to discuss the relevant market data for Masonite in North America.

U.S. residential construction indicators ended 2015 on a relatively solid note with modest improvements in U.S. housing starts, completions and existing home sales. The overall pace of growth, however, particularly in the single-family market, remains (inaudible) the continued departure from the long-term mean.

Total starts in the U.S. increased 11 percent in 2015 versus 2014, and (inaudible) total U.S. housing completions were up 9.5%. Again, the growth was largely driven by multifamily completions, which were up 21%, while single-family completion grew a more modest 4-1/2%. And as we've discussed previously, this distinction is important because a multifamily unit has, on average, roughly half the number of doors as a single-family dwelling. Adjusting for this difference, equivalent completions increased 7-1/2% in 2015.

The Canadian housing market performance is even more mixed. Total housing starts increased 6%, but single family or detached, as they refer to them in Canada, actually decreased 7%.

Within Canada there were also significant differences by region, as areas of Canada that are more oil dependent, such as Alberta and the Prairies, experienced deep decline.

So while acknowledging that the recent volatility in global financial markets may cause some potential buyers to defer home-buying decisions in the short term, overall, we remain optimistic about the prospects for continued growth in the North American housing market.

The U.S. housing market has experienced five consecutive years of steady growth, and housing starts are still 25% below the 50-year average.

So with that as a backdrop, let's take a closer look at Masonite's performance on Slide 5.

2015 was an important and very successful year for Masonite for a number of reasons. First, the modest growth in the U.S. housing market contributed to North American volume growth. Our purposeful focus on mix improvement, combined with 2014 and 2015 pricing actions, resulted in an 11 consecutive quarter of averaging of price growth in the North American segment.

Second, we transformed our European (inaudible) to the disposition of our door business in France and two strategic acquisitions in the UK, PDF and National Hickman. And, as Russ will share with you shortly, the combination of these portfolio adjustments has had a very positive impact on our adjusted EBITDA margin in Europe, Asia and the Latin American segments.

Third, a sale process has been initiated for our subsidiary in South Africa, which is expected to largely complete the disposition activities of our portfolio (inaudible).

Fourth, our debt restructuring (inaudible) had a positive impact on our capital structure and cash flow as we reduced our overall leverage, upsized our ABL and decreased our cap interest by approximately $15 million per year.

These actions, combined with our ongoing focus on innovation, customer service, strategic acquisitions and a (inaudible) focus on margins across the business portfolio showed strong results during our second full year as a public company.

Net sales increased 7%, excluding the impact of foreign exchange. And, currency headwinds continued to impact the results within a favorable $93 million or 5% negative sales headwinds for the year.

Gross profits increased 32% and gross profit margins expanded by 430 basis points.

Adjusted EBITDA increased 49% and adjusted EBITDA margin increased 340 basis points, and we've generated $153 million of free cash flow in 2015.

So in Slide 6, we summarize the key initiatives that helped drive the great performance. First, our expansion in the UK. The UK business continues to exhibit solid fundamentals to the UK economy, which helped drive our decision to make additional investments in 2015.

U.S. housing starts in the UK or housing starts in the UK were up 8% in 2015, and the acquisitions of PDF and Hickman extended our capabilities, with our UK business now covering both residential and commercial, public and private sectors and both interior and entry doors.

We are pleased at the performance of a strengthened UK business and excited about the opportunity to capture further operational synergies as integration continues.

Second, in 2015, we had the largest launch of new products in nine years, including the Heritage Series of interior doors, which includes one, two and three panel Shaker designs, VistaGrande, which is an exciting new line of modern fiberglass entry doors and multiple new decorative glass designs.

These new products were launched at higher averaging of prices compared to similar existing products, helping to drive the positive (inaudible) experienced in 2015.

We also drove higher unit average price through value-added services and providing more fully-finished products.

Our most recent acquisition, USA Wood Door, provides the value-added services of resizing, machining and custom color matching architectural doors. The doors are offered in smaller lots and with quick ship options, which is important, as speed wins in today's markets. And we have found that customers recognize and willingly support the additional prices associated with those value-added services.

Third, our relationship to retail continues to evolve. There is a visible shift underway in retail, as we work with our customers to support an increased focus on style and aesthetics, supported by the strength and value of the Masonite brand. In fact, during the Fourth Quarter, we began transitioning Lowe's to Masonite-branded products as part of the previously disclosed product line review (inaudible).

Another popular new resale product in 2015 was the introduction of our Barn Door kit exclusively at Home Depot. The kit provides the necessary tools and hardware for a consumer to install in their own home at an affordable price. We believe the value is recognized by the consumer and the price point is considerably higher than our standard Masonite door.

And, finally, we continue to execute a (inaudible) strategy to reach influencers and end users to create demand. As an example, in 2015, we announced an exclusive relationship with Angie's List, the leading website to connect consumers with local businesses and installation services. Angie's List promotes Masonite products with members and has a dedicated team assigned to the Masonite Preferred Remodeler Program, providing remodelers with Masonite product information and linking them to Masonite distributors.

Tomorrow's consumers are expecting the same high-quality products, but with increased design options and aesthetics, more features and a more streamlined purposing and installation process. Our goal is to lead this transformation making the door category more relevant in the eyes of designers, builders, contractors and the end consumer. By making it easier and more attractive for consumers to undertake door renovations in upgrade projects, we believe that we can enable further share growth by increasing the overall size of the pot.

At Masonite, we strive to be the indispensable door provider for our customers, and by doing so, we build long-term sustainable value creation for you, our investors. This tenet underlies our product strategies, our channel strategies and our acquisition strategies as we continue to invest in a higher value, more complete product and service offering to meet our customers' ever-expanding expectations.

Not only is the effect of this strategy evident in our continuing improvements in AUP, but we believe the success of this strategy on our overall profitability is fully apparent on this graph. Since 2010, our adjusted EBITDA has grown by more than $120 million, an increase of 153%, while sales have increased by 35%. And during that same period, our adjusted EBITDA margin increased by more than 500 basis points.

Masonite is in the business of selling high-value products and services and delivering an unparalleled customer experience. We believe that complete door solutions, innovative products, superior service and simplified purchasing enable premium pricing and will drive future growth and continued success over the long term.

So, with that, I'll now turn the call over to Russ to discuss our 2015 financial performance in more detail and our outlook for 2016 and beyond. Russ.

Thanks, Fred, and good morning everyone.

As Fred previewed, overall, we had an extremely strong Fourth Quarter on both the top and bottom line (inaudible) our previous guidance and consensus due to a combination of strong market conditions and some specific Fourth Quarter items. In fact, this was the strongest Fourth Quarter we've had since 2009, the year we completed our restructuring.

Reported net sales in Q4 were up 8% compared to the Fourth Quarter of 2014. Excluding foreign currency headwinds, net sales increased 13%. Volume, on a dollar basis, increased 8-1/2% and average unit price increased over 3%.

The strong record net sales performance was fueled by a number of factors. First, overall volume increases from growth in the triple R markets, as well as the U.S. new-housing market, which may have been supported by mild winter conditions in the quarter.

Second, we benefitted from the additional load volume related to the scheduled (inaudible) from the product line review (inaudible).

Third, the decision by one of our large customers to reduce inventory early in Q4, which Fred mentioned during our Q3 earnings call, was reversed, with inventories replenished during the last few weeks in the quarter.

Finally, our fiscal quarter is on a 52- or 53-week basis and this year we had an extra week in the Fourth Quarter. Based on past years' experience during the last week of the year, we did not have high expectations for that extra week, so we were pleasantly surprised when it contributed approximately four extra percentage points of reported net sales to the quarter.

Adjusted EBITDA increased 51% to $56.8 million, compared to the Fourth Quarter of 2014. Including the negative impact of foreign exchange, adjusted EBITDA increased 60% versus the Fourth Quarter of 2014.

We did (inaudible) some tailwinds in the quarter that were generally one time in nature and (inaudible), including a $3.3 million utilities refund received by our largest manufacturing facility, a sales tax (inaudible) that had a benefit of approximately $1.7 million, and a fifty-third week of sales, which at our quarterly adjusted EBITDA margin equates to approximately 2 million of incremental adjusted EBITDA. Taken together, these items represent approximately $7 million of adjusted EBITDA that we would not expect to repeat in 2016.

Slide 10, we present a summary income statement of our 2015 Fourth Quarter results. Beyond the net sales and adjusted EBITDA numbers already cited, gross profit increased 41% to $95 million or 19.6% of net sales in the quarter. That's an increase of 450 basis points versus a year ago.

SG&A increased approximately $14 million due primarily to higher personnel costs, driven by a new head count to support our growth and additional incentive compensation (inaudible).

Adjusted EBITDA margin increased 330 basis points in the quarter, from 8.4% last year to 11.7% this year.

Slide 11illustrates the trend of strong adjusted EBITDA growth throughout 2015. Our disciplined focus on improving margins across the business (inaudible) and our balanced approach of investing in innovation, customer service and strategic acquisitions has helped yield year-on-year growth rates of 92% in Q1, 34% in Q2, 42% in Q3 and 51% in Q4.

On Slide 12, we present a summary income statement of our 2015 full-year results. Reported net sales increased approximately 2%, and, excluding foreign exchange, would have increased 7%. Gross profit increased 32% to $351 million or 18.7% of net sales, an increase of 430 basis points versus a year ago.

SG&A increased $20 million, principally due to $25 million of increased personnel costs driven by a combination of wage inflation, investments in personnel and increased incentive compensation, $2 million of increased advertising expense and the non-repeat of business interruption insurance proceeds received in 2014 related to the South African mill explosion.

These increases were partially offset by favorable foreign exchange impacts of approximately $80 million and a net $3 million comparative benefit from our 2015 and 2014 acquisitions and divestitures.

The combination of significantly higher gross profits balanced with targeted SG&A investments resulted in a 340 basis point expansion in our adjusted EBITDA margin from 7.5% last year to 10.9% this year.

Turning to our largest segment's results on Slide 13, net sales in our North America segment increased 5% or $71 million. Excluding unfavorable currency exchange of $51 million, net sales increased 9%. Average unit price increased net sales by $78 million or almost 6%, while increased dollar volume contributed almost 3%.

Adjusted EBITDA was up over 36% year on year from $121 million last year to $165 million this year. North America adjusted EBITDA margin in 2015 was 11.3% compared to 8.7% in 2014, a 260 basis point (inaudible).

Net sales in our Europe, Asia and Latin America segment increased 7-1/2% or $29 million compared to 2014. However, excluding $34 million of unfavorable (inaudible), net sales increased 1%, with positive performance in the UK almost entirely offset by the disposition of the door business in France.

Average unit price increased net sales by approximately 20 million compared to the prior year, partially offset by lower dollar volumes, which decreased sales by approximately $(inaudible) million.

Adjusted EBITDA increased $24 million or 153% versus 2014, driven by double-digit adjusted EBITDA growth in the UK and the year-on-year comparative benefit realized from the disposition of our door business in France.

Adjusted EBITDA margin for the segment almost tripled from 4.1% in 2014 to 11.2% in 2015, a 710 basis point improvement.

So we're encouraged by these results and believe they represent clear evidence that our balanced-growth strategy and sharp focus on margin improvement and business execution are working.

Masonite's balance sheet and liquidity position also continued a strong positive trend as outlined on Slide 14. Total available liquidity at January 3, 2016, including unrestricted cash and undrawn ABL and an accounts receivable purchase agreement, total $234 million or 12.5% of Masonite's trailing 12-month sales.

Free cash flow has more than tripled in the past three years to $153 million for full year of 2015 as a result of our accelerating adjusted EBITDA.

Total debt and net debt to trailing 12-month adjusted EBITDA stood at 2.3 and 1.9 times respectively, compared to 3.7 and 2.3 times a year ago.

Our trailing 12-month adjusted EBITDA interest coverage ratio was 6.2 times compared to 3.3 times last year, and our trailing 12-month fixed charge coverage ratio was 4.7 times versus 2.1 times in 2014.

As we reflect on the strength of our 2015 results, we'll now discuss our 2016 outlook, and a high-level view of the financial trajectory we see for the business over the next three years.

First, (inaudible) let's frame up our outlook for 2016 by starting with key macro factors that have helped our business. Our 2016 annual outlook is built on an assumption of continued modest growth in the U.S. housing market, and we expect a pace of mid- to high-single-digit growth in new home completions and low to mid-single-digit growth in the triple R market.

The housing market in the UK is forecast to remain solid in 2016 with completions forecast to increase low double digits.

As consumers continue to demonstrate appetite for more innovative door designs, we continue to invest in expanding our product offerings. We believe the impact of these trends will continue to support improved mix and higher average unit prices.

Meanwhile, commodity markets remain favorable and we expect to see some cost benefits as a result, particularly in petroleum-based materials and (inaudible).

Counterbalancing these tailwinds to some degree is global economic uncertainty, partially fueled by the precipitous drop in oil prices, which could eventually impact housing markets. The drop in oil prices has significantly impacted the housing market in Canada and we believe that Canada will continue to experience weakness in 2016.

All this uncertainty will likely put further pressure on foreign currencies creating additional exchange headwinds.

Now, with these factors as a backdrop, on Slide 17, we summarize our financial outlook for 2016. Overall, we expect continued solid sales growth in 2016 and estimate our net sales will be up 6% to 8% versus 2015 or approximately 7% to 9% excluding an expected currency headwind of approximately 1%.

We expect to see an adjusted EBITDA (inaudible) through in excess of 30% on net sales growth, and our forecast for adjusted EBITDA for 2016 is between $235 million and $255 million for the full year.

Taking into account an effective tax rate in the high 20% range and based on our current share count, we expect adjusted earnings per share to be between $2.70 and $3.00 for 2016.

Our 2016 outlook is simply year one of an expected longer-term growth (inaudible). The investments we've been making in the business -- in people, technology, new products, portfolio optimization -- are part of our longer-term strategic plan, and the return on these strategic initiatives is expected to happen over a multiyear period.

With that in mind, today, we are introducing a long-term growth (inaudible) that includes a high-level look at our expectations for net sales and margin growth through 2018, as shown on Slide 18. We believe that a continued housing market recovery should support a compound annual growth rate of 7% to 10% for net sales, which, when combined with expected operating leverage and our continued focus on improving both margin and cost performance translates to expected adjusted EBITDA margins between 14% and 15% by 2018.

Now, turning to Slide 19, this viewpoint on longer-term growth underpins our disciplined framework for deploying cash back into the business and to our shareholders to maximize returns to our investors over the long term.

The highest priority for our cash is to fund continued growth of the existing business, be it both working capital and capital projects. We target networking capital needs of approximately 12% to 15% of net sales and we plan to continue our pace of capital investments into new products, manufacturing capabilities and technology enablers at a rate of approximately 3% of net sales.

Next, we intend to maintain a disciplined acquisition criteria and valuation framework in order to continue to fund strategic acquisitions to extend both product and value-added services offerings. And, given our increased free cash flow generation, we also plan to return cash to shareholders through the $150 million share repurchase program announced yesterday.

We believe that our strong balance sheet and liquidity position will provide us with the resources to continue to invest in the business, execute strategic (inaudible) acquisitions and (inaudible) shares on an opportunistic basis.

And, with that, I'll now turn the call back to Fred to summarize today's discussion.

Thank you, Russ. The strategies we're pursuing at Masonite are delivering strong finance performance. The Fourth Quarter of 2015 was the seventh consecutive quarter of adjusted EBITDA growth in excess of 25%. For the full year, net sales increased 7%, excluding foreign exchange. Growth profit increased 32% and growth margin expanded 430 basis points. Adjusted EBITDA increased 49% to $204 million, and it was our first full year of returning to double-digit adjusted EBITDA margins since the housing downturn.

The acquisitions of PDF, National Hickman and USA Wood Door broaden our product portfolio and expand our service capabilities across multiple channels.

The disposition of our door business in France was another positive step in transforming our business to focus on improved financial performance.

We continue to be an innovator in new product development, and in 2016 we have already released the Logan Two-Panel Door as part of the (inaudible) Heritage Door Series. Additional styles and options in our VistaGrande exterior line are planned to be released later this year, as well as new opaque glass designs including Pearl and Quill.

We're committed to driving operational efficiencies incorporating a lean enterprise operating system throughout our organization. We expect that these initiatives will translate in net sales growth of 6% to 8% in 2016 with an adjusted EBITDA pass through rate in excess of 30%.

And given our expectation for steady growth in the construction industry, we believe, over the long term, our net sales should grow at 7% to 10% (inaudible) and we should deliver adjusted EBITDA margins between 14% and 15% by 2018.

We believe (inaudible) a strong balance sheet and expect the cash flows will enable us to return value to shareholders through share repurchases while, at the same time, allowing us to continue to invest in internal and external opportunities designed to further strengthen our business and drive long-term growth.

And, importantly, we believe the steps we have taken are transforming the business and will deliver an unparalleled customer experience for years to come.

Again, I want to thank all of our hard-working employees for their dedication, hard work and continued focus on our customers. Together, we're committed to making Masonite the best provider of building products in the eyes of our customers, employees, shareholders, suppliers and in our communities.

And so with that, I'll now turn the call back to the operator to open up the line for any questions that you might have.

Thank you, Mr. Lynch. (Operator Instructions) Our first question comes from the line of William Wong with J.P. Morgan. Please proceed with your question.

Good morning, guys. How are you?

Good morning.

Good morning.

My first question is with regards to your 2016 outlook for sales, 7% to 9%, excluding FX. Can you just talk about, you know, what role you expect volume, price and mix to play within that sales growth? Do you expect it to be somewhat evenly driven or is one expected to be maybe a bigger component of that growth? And this is specific to North America.

So, you know, obviously all of those tenets have an impact on how we drive our net sales. You know, as I think about the business and think about where we are today, a lot of where we are today is a result of the acts and strategies that we developed two and three years ago.

And so when we think about our business, we're constantly thinking about -- the decisions we're making every day are about how do we drive our business for the long term. And it's across a multiple of strategies that make that happen, and so when we think on a year-to-year basis, this is just the first year as Russ said, of our plan for a multiyear strategic framework, and so all of those aspects. It's about how do we drive new products. It's how do we take our product and deliver a more fully finished product with additional services.

We have a normal price improvement that occurs in the business. Importantly, we also have, you know, normal -- an ongoing focus on our (inaudible) and operating cost structure to make sure we're constantly improving that. So that's how we look at the business.

You know, as far as giving specifics around, you know, what -- that's going to happen, those are all included in our outlook.

Okay. Fair enough. With regards to price improvement, you know, historically, you guys have had maybe one or two price increases every year. Within -- You know, including in your guidance -- looking at your guidance, are you guys expecting price increases in 2016? And, if so, you know, what kind of gives you the confidence you'll be able to, you know, get that price increase if you decide to put one forward?

So, as we've always said in the past, we don't talk about price increases looking forward. We only talk about price increases in retrospect. Again, I'll tell you that, you know, price increases for (inaudible) products will always be part of our strategy, because we always know we're going to have an inflationary cost associated with the business.

We have had some price increases that we have announced that have taken place in the First Quarter, and those price increases are reflected in our guidance.

Okay. Great. And just a last one, if I could. Can you just talk about imports and if you're seeing any additional activity there?

For the most part, if you think about our product offerings, as we all like to say, it's large and bulky. We do a fair amount of imports for raw materials. That's part of our strategy for the components of our products, but when it comes to the actual finished product, it's not something that we tend to see as a major concern in our business.

Thank you, guys.

Thank you.

Thank you. Our next question comes from the line of Bob Wetenhall with RBC. Please proceed with your question.

Hey, congrats on a really very strong year. You guys did a great job, particularly in Europe, and the outlook's very encouraging.

I was hoping, Russell, maybe you could just walk us through how we get from 2015 EBITDA to 2016. What are your assumptions around that EBITDA guidance?

Thanks for the question, Bob. We're not going to be walking through a specific framework of puts and takes that take us from 2015 to 2016 today. You know, what I would say is that, you know, we gather with the analysts generally once a year and we give you a little bit deeper look at the business. And we're putting together our plans for an investor day sometime in 2016, and it's probably fair that we talk in a little bit more detail about some of the drivers in the business that we see driving toward that guidance number for 2016 at that time.

But I would just go back and reiterate the points that Fred made a moment ago, that as we think about the multiyear plan for our business we think about this around three legs of the stool. One is obviously getting the additional operational leverage that we should see in our businesses, the top line growth, based on continued recovery in the U.S. and North American housing markets.

We obviously still continue our focus on our product development efforts, and you're starting to see that improvement in mix in average unit price this year from a multiyear effort in investment in new product programs. We're going to continue that pace, and, as we've said before, we think we're still in relatively early innings of experiencing continued tailwinds in mix and average unit price from those product investments.

And then, thirdly, we're still very focused on maintaining productivity and cost reductions across our manufacturing facilities and in our material costs wherever possible.

So we look at all three branches of the business or legs of the stool, if you will, and all three of them sit underneath the guidance that we've provided today for 2016.

That's helpful, and just to kind of try to get a little bit more granular, Fred, I think you said that the current guidance does include the announced price increases that came out in the first quarter of 2016 for 3% to 5%, and I was just looking for confirmation that is in your guidance.

There was also trying to understand is that also -- what are you assuming for your mid-cycle long-term targets? Does that also include pricing?

Yes, the way that we think about the business, again, Bob, is if you think about the 2018 framework that we laid out, in order to achieve those numbers, we need to deliver somewhere between $40 million and $55 million a year of additional EBITDA over those next three years in order to hit kind of the midpoint of that range.

And that we think of, again, this as year one of achieving that plan, because the decisions we make on a day-to-day basis, whether it has to do with price alike for like, whether it has to do with new products crowding our mix are all associated with that longer-term plan.

So, you know, as we look at -- We didn't having price increases, as you mentioned, in the First Quarter. You know, many of products we don't provide specifics on what the amount of that price increase is for competitive reasons, but that's part of the guidance as we drive to our long-term multiyear plan.

Okay. That's helpful. And just one final housekeeping question. I think, Russell, you said 4% of the growth was due to the addition of an extra week in the -- and if you strip that out and wanted to get a view on underlying trends from a price volume standpoint (inaudible) year over year, how would they have performed if you exclude that week, and if you exclude acquisitions?

Thanks and good luck.

Thank you, Bob.

Thanks, Bob. Well, what I would say is that we recognized on the order of about $19 million of additional revenue in that fifty-third week.

I understand that, but I was saying excluding the week would you have had, in the Fourth Quarter, on a like for like basis growth in both price and volume?

Yes. Yes. Okay. Understand the question. Yes, we saw performance improvements from a volume perspective and a price perspective, you know, largely across the board. You know, I would tell you that we are particularly pleased with the performance that we saw in our interior store business and even in the (inaudible) category to some degree. So (inaudible) performance.

Terrific.

The way -- I would just reinforce that, Bob. We had it in all components. We had buying growth. We had AUP growth. We had like for like price, yeah, improvement. So it was across the board. And the fourth week was a third of the total growth on an FX adjusted basis.

That's right.

Thanks.

Thank you. Our next question comes from the line of Mike Wood with Macquarie. Please proceed with your question.

Hi. Congratulations on a continued good job on mixing up.

Question is how does the number of product launches in 2016 and 2017 compare to what you released in 2015? And does the benefit from new product launches typically accrue to you right away or does it take time for customers to adopt and transition to those new products?

Yeah, so I would say they -- As you mentioned, we had the (inaudible) new products in 2015 in the last nine years. Most of those launches occurred mid- to late year, so the impact of those launches will -- We'll see, you know, obviously, continued impact from those launches on a year over year basis going into 2016 as well.

And, of course, as you mentioned, we also have a number of new product plan -- launch planned for 2016. So, you know, we have been investing more money in R&D for the last several years. Actually started this investment in new products back in 2012 and 2013 in driving additional (inaudible) into our organization. We've continued to increase that every single year since. And so, you know, part of that 6% to 7% growth over the -- sorry -- that 7% to 10% growth over the longer period is based on that new product strategy being part of that growth.

So I'm not sure if I'm answering your question, Mike, but I think that's what you were trying to get at.

Yeah, and I understand what you're saying about the second half (inaudible) product launches, but just typically when you do launch a new product is that typically going at its full run rate right away or --

Okay.

-- not kind of build gradually?

We normally -- We talk about what we call the product peak period typically being around three years from launch is when it kind of either hits its peak and starts to plateau.

Okay. Understood.

And then I was familiar -- (inaudible) the competitive pricing dynamic in the UK and European region. Can you just give us some color in terms of how much of the average unit price increase there is mixed versus like-for-like price and, you know, what the competitive environment there is like compared to the U.S.?

Yeah, I don't know that we have the specifics on mixes or are prepared to provide specifics on mix versus like-for-like pricing. You know, listen, it's a competitive environment. It's just like it's a very competitive environment here in the U.S.

You know, we focus again on the capability that we bring to market. We recognize that our customers are always looking for ultimately value. We think price is part of that value, but there's so many other aspects of that value that they're willing to pay for. It's economic utility, right? And it's about service. It's about delivery. It's about quality. It's about the professionalism of our people that are dealing with this. It's about our investments in new products and willingness to get out in front with technology in how we interface with our customers from a digital aspect.

So we think it's across the board, and that's why we have so many of these strategies, you know, that -- so many of these -- Actually, we've been working on our strategy all the time to make sure that we give a full value product and service offering to our customers.

So, listen, it's competitive. We do really well in that market because our team there does a great job from a quality product delivery perspective. We have excellent relationships with our customers, and, you know, day in and day out we tend to win business because of what we bring to the marketplace.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Alex Rygiel with FBR & Company. Please proceed with your question.

Thanks. Good morning, gentlemen. Very nice quarter.

Thank you.

Fred, if you could touch upon a little bit about or just give us an update on your acquisitions in Europe over the last sort of 12 months, Hickman and Door Stop and how that's integrating. And it's a little bit hard to tell from the results other than looking at the margin, and the margin's outstanding, but if you could talk a little bit about price volume and integration and all that, I'd appreciate it.

It's relatively early -- early date for the Hickman and PDF integration. What I can tell you is, you know, both of those businesses had very good margin profiles when we purchased them. We believe it'll take us, you know, 12 to 18 months to start to really begin to benefit from the synergies that we think those businesses will bring us.

I think importantly what that's done for us in the UK is positioned us with a full product offering across all of the channels, and, again, makes us a very powerful supplier to those customers who are looking for someone who can meet all of their needs. And so we're excited about the ability for us to be able to bring that to the customer base in the UK.

I can give you maybe more specifics on DSI, because DSI we've had for about two years. I think the last time we spoke in a quarter we mentioned that DSI had grown 35 percent over the first 18 months that we owned it. We're really excited about that growth potential. Again, it's a business based on a unique service offering as well as unique product offering, very innovative business, and innovation and investment innovation continue to be an important part of that business.

So we like the business profile that we have in the UK right now. Again, that makes up about two-thirds to three-quarters of that segment, of that reported segment as we reported today, and, likewise, the profitability of that segment is being driven by that change.

So, you know, we have a lot of work to do on getting the integration right, but we think there's only up side to the performance of that business as we continue to integrate it.

And I'm not going to ask you specifically about price and volume, but from a geographic standpoint, you know, if my assumptions in the U.S. are for price of X and volume of Y, is there any reason that my assumption for price and volume to be any different than the UK? And if so why?

Other than the UK has slightly different macroeconomic, you know, having drivers, but the reality is for 2016, they're about the same as they are in -- we believe -- in North America. So I guess the answer is I wouldn't -- and I don't want to get into helping you build your model at your shop, but I don't see a big difference.

That's helpful. And then, Russ, any chance you could quantify the cost benefits in 2016 or go into a little bit more detail on it?

Cost benefits for which, Alex?

Input cost.

(Inaudible) cost?

Yes.

What I would say is that we did experience some, as I mentioned during the prepared remarks, we did experience some cost tailwinds on the commodity side. And so when we look at our overall input costs, you know, as you know or as I think we disclosed in the past, our material costs represent, you know, about half, a little over half of our total cost to goods sold, and we would estimate that we probably picked up about a percentage point of a cost tailwind there related to materials and cost. And a lot of that happened in the second half.

Very helpful Thank you very much. Great quarter.

Thank you.

Thank you. Our next question comes from the line of Al Kaschalk with Wedbush Securities. Please proceed with your question.

Thank you. Morning, everybody. Most of the questions have been hammering away, I guess, on price and volume, but I want to focus a little on the UK. If I recall rightly, the two acquisitions, Hickman and PDF, were early 2015. So how much of the growth benefit there is the rollover effect of those acquisitions?

Actually, they were late 2015. So, you know, I wouldn't say they were early 2015 those acquisitions, but we can talk quickly, Russ, if you want to give some feedback on that?

Well, I think we're clearly seeing some margin benefits from those businesses as they roll on, but as Fred mentioned a moment ago, we've got to continue to see some integration before we really see a glide path for those businesses.

I won't quote specific margin numbers for you now, but I would say that on a pro forma basis, we're seeing adjusted EBITDA margins there that are very encouraging and, you know, slightly ahead of what you saw for the reported numbers in the quarter.

Okay. And then just taking a step back about the market, I believe there's some tax laws that are changing on the housing front, and to what extent -- this is UPA related come April -- do you see any pull forward of activity? I know you gave a I think a 10% or 11% type completion (inaudible) for the UK, but have any thoughts around that potential?

Yeah, the one thing I would say in the UK is you have the same situation that we're seeing here in the U.S., that while I think there's an underlying latent demand for more housing, there are, you know, issues that are obstructing the ability for housing to grow faster.

And even if tax -- the tax law changes would drive, you know, people to want to buy sooner, the ability to construct homes sooner is just as difficult in the UK as it is in the U.S. Right? We have material input constraints and you have considerable labor constraints. You know, the UK economy is -- continues to do well in the European landscape overall. Unemployment is low, and so we hear the same exact issues from builders in the UK that we hear in the U.S., hard to find labor, hard to find qualified labor, tightness on input supplies. I mean, for a period there last year, they couldn't get brick for building homes.

So we think the underlying demand is there. Whether or not that can be accelerated because of these other constraints holding it back is a question yet to be resolved.

Great. And then my follow up would be on the SG&A front, obviously growth requires some investment in personnel. Would you characterize those major investments are now made and you should start to then, you know, see those rewards in 2016 or 2017 or, you know, more consistent with the plan that you laid out for the midterm?

Yeah, Al, it's rough. The way I think about it is that you should be 2015 and 2016 both as years of investment for the company on the SG&A side. I think we're going to continue to see some headcount growth to support some of the growth initiatives that we have in place. You'll continue to see some investments in some of the IT systems that we use as we integrate some of our businesses and improve our ERP system platforms. We talked about that in the past.

So you're still going to see probably some leverage in SG&A, you know, going into 2016, just as a result of revenue growth, but it's still largely a year of investment for us on the administrative side of the business as well.

That's great. Thank you and thanks for the midterm framework. Appreciate that.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Trey Grooms with Stephens Inc. Please proceed with your question.

Good morning, and, yes, congrats on a really nice quarter.

Thank you.

Thanks, Trey.

I hopped off the call for just a minute during Q&A, so forgive me if this has already been addressed, but, Fred, you talked about your outlook for kind of new res and R&R for 2016. Can you guys talk about what you're seeing or expecting for the commercial side of your business or the non-res side of your business? And then just an update on kind of what that is, that non-res mix is for you guys now?

Yes, so R&R and res mix, start with that first. Right now, that's about 20% of our business in North America. As far as the markets that we serve or the categories that we serve, whether it's hospitality, you know, building -- office building, government buildings, schools -- we are pretty well aligned with the general market. Because of our product offering being so broad, we pretty much are able to equally contribute to each of those segments.

You know, right now, as we look at the North American commercial market, we're forecasting that for the door side of that business to be in the mid-single digits in our 2016 outlook. And just as a reminder, there's a significantly longer lag in that business as compared with the residential business. So, oftentimes, when we're working on a construction start on a major office building, it could be two years before the doors are finally put into the building. So that lag is reflected in our outlook of, you know, mid-single digits.

Okay. That's helpful, and, then, you know, mix has been a nice positive for you guys on the res side. Has that been also playing a role in your non-res business as well? And as far as like new products and things like that are you also targeting that side of your business?

Yes, it hasn't been to the same extent. It's an area that we are beginning to invest or have been investing in, I should say. So we are adding additional cost into that business, particularly in the new product development side, to try to replicate the same focus that we've had in the (inaudible) side.

I will tell you, though, that, you know, we started that focus on the (inaudible) side several years ago, and we're seeing the benefits coming forward today. You know, what you're seeing in the non-(inaudible) business will be an investment in that today versus actually getting the results of that. We'll be seeing the results of that in 2017 and 2018.

And I think that's, you know, the way we think about the business all the time, you know, I've said this to investors on a number of occasions, we are always asked about what we're going to do next quarter in this year, and, you know, every time I'm thinking about a decision or making a business decision with our team, it's about investments, we're all thinking about the impact on it three years from now. So there's always that interesting disconnect.

Got you. And then last for me -- and, again, forgive me if this has been addressed -- but, you know, now with this buy-back in place, can you guys talk about the priorities of use of task and how you balance M&A in buy-backs now with this in place?

Yeah, Trey, it's Russ. I would characterize it as being, you know, consistent with how we discussed it before and really consistent with how we outlined the priorities on the slide in our earnings deck.

First and foremost, we're going to be investing in the business itself. We want to make sure that we have the right platform to continue that underlying revenue growth that we project over the next three years. So that means some thoughtful investments on the working-capital side where we think that there's a good return for that investment of working capital and inventory.

Second priority is going to be on the capital-investment side. We think we still have a lot of opportunity to invest in our manufacturing capabilities, our IT and distribution capabilities, and, clearly, on the product side, including the entire product portfolio to include architectural, as Fred just mentioned.

Third in priority, we're still going to be looking for those opportunities to tuck in strategic acquisitions, businesses that we think align well with us from a product perspective, from a distribution perspective and that help us better serve our customer base with product and value-added services. And then after that we get to the priority of repurchasing shares on an opportunistic basis.

Now, that being the priority list, we're still very, you know, positive on the fact that the EBITDA trajectory that we see for the business and the cash-flow generation that we see for the business, we believe that we can successfully execute on all four of those cash priority pillars simultaneously.

That's it for me. Thanks a lot.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Nick Coppola with Thompson Research Group. Please proceed with your question.

Good morning.

Good morning.

Good morning.

I have a question. You talked about the (inaudible) between single family and multifamily and how that impacts you. Are you looking for any shift back for single family this year and how are you (inaudible) in your forecast?

Yeah, you know, I think as we think about this year, the way that we've thought through it is that it's going to be very similar to 2015. I mean, it's not something that, you know, we have any more insight into than anyone else that's out there trying to figure this out, and so when we do our analysis, we assume it's going to be similar.

Okay. That's fair. And then can you just talk about the (inaudible) Africa business? You know, (inaudible) more of a real-estate play, and so, you know, what's your thinking there?

Yeah. I think that's right. I mean, we've always said that, you know, that product, that plant made a cardboard which is a, you know, a product that really is not used nearly as much in other parts of the world. Our market there is largely or our products are largely sold into (inaudible) market.

We have always been investing on improving the value of the forestry assets, and that's been the focus of the last several years. Following -- And, in part, knowing that over time, the value of the product that was coming out of the plant was being challenged. And so as we look forward, you know, we look at this as an opportunity to maximize our investment.

Okay. (Inaudible.) My last question here. You know, you've been pretty active in terms of (inaudible), so any call on what -- what (inaudible) looks like or, you know, where you'd be interested in adding geographically or by product category. Anything you want to share there?

Sorry. Could you repeat the question?

You know, what are you looking at in terms of M&A?

Oh. I don't think our M&A strategy has changed whatsoever. It's along the same exact line we've been doing so far.

Okay. Thanks. (Inaudible.)

Thank you.

Our next question comes from the line of Jim Barrett with C.L. King. Please proceed with your question.

Good morning, everyone. Fred, given the company's expectations for 7% to 10% growth over the next three years on the top line, under that scenario, would you expect to expand your automation investments beyond the Denmark plant?

Well, I would say that we continue to invest in automation across the entire system. So when we think about our operating strategy, we really have two major focuses in that strategy. One is continue to drive the -- what we call our (inaudible) enterprise operating system, which is all around the people processes.

The other aspect is in automation. The Denmark plant was a major single plant automation, but I can tell you that a significant portion of the capital that Russ mentioned earlier goes into automating -- we call smart automation of unit operation throughout our system.

So a good example we talked about last time was the automation of one of our architectural plants in putting a brand new machining center in place that dramatically reduces the number of employees required to machine architectural doors and dramatically speeds the process. We have the ability today in that process to take a process in the past that took sometimes two to three days to machine a very complex door, you know, we do it now in single flow basically in minutes. So we're pretty excited about that. That came on line just recently, and that's the type of automation that we would continue to invest in going forward.

Okay. And, broadly speaking, are automation initiatives such as what you just described is that a critical part of achieving the 14% to 15% EBITDA targets you have for 2018?

I would say it's just one part. It's no more critical than anything else, really. It's a combination of our -- we call it our holistic strategy.

Yeah. Okay. Well, thank you very much.

Well, thank you.

Thank you. Thank you, ladies and --

And, operator -- Okay --

We have come to the end of our time allowed for questions. I'll now turn the floor back to Mr. Lynch for final remarks.

Great. Thank you very much. We appreciate all your questions today and your support of Masonite and we look forward to speaking to you again next quarter. Thank you.

Thank you. Thank you for joining the Masonite International Fourth Quarter and Year End Earnings Call.

This conference call has been recorded. The replay may be accessed until March 10th. To access the replay, please dial 877-660-6853 within the U.S. or 201-612-7415 outside the U.S. Enter the conference ID number 13628426.

Once again, this concludes today's call. Thank you for your participation.