Masonite International Corp (DOOR) 2018 Q1 法說會逐字稿

Welcome to Masonite's first quarter earnings conference call. (Operator Instructions) 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, David, and good morning, everyone. We appreciate you joining us today. With me on the call today are: Fred Lynch, Masonite's President and Chief Executive Officer; and Russ Tiejema, Masonite's Executive Vice President and Chief Financial Officer. We issued our first quarter earnings release yesterday. The release and the information for the webcast presentation are available on our website at masonite.com.

Before we begin, I would like to remind you that this call will include forward-looking statements including statements about our outlook in 2018. Each forward-looking statement contained in this call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears in the section entitled forward-looking statements in the press release we issued yesterday.

More information about risks can be found under the heading, risk factors in Masonite's most recently filed annual report on Form 10-K and subsequent quarterly reports on Form 10-Q.

Our SEC filings are available at sec.gov and on our website at masonite.com. The forward-looking statements in this call speak only as of today, and we undertake no obligation to update or revise any of these statements. Our earnings releases and today's discussion include certain non-GAAP financial measures. Please refer to the reconciliation, which appear on the tables of the press release and in the appendix of the WebEx presentation. The agenda for this call will include: an overview of the first quarter from Fred, a review of our first quarter financial results from Russ, a question-and-answer session and then we'll conclude with closing comments from Fred. And with that, I'll turn the call over to Fred.

Thanks, Joanne. Good morning, and welcome, everyone. We had a solid first quarter in 2018. Our consolidated net sales grew 6%, with continued improvement in average unit price growth in all 3 reportable segments. The positive momentum demonstrated in the second half of 2017 continued in Q1, with a 10% increase in gross profit and 17% adjusted EBITDA growth compared to Q1 of the prior year. And importantly, both gross margin and adjusted EBITDA margin expanded in the first quarter.

Our team's accomplished this in spite of harsher winter conditions relative to last year that challenged plant operations in the early part of the quarter. In North America, we lost 69 production shifts due to the inclement weather, while in the U.K., we lost approximately 15 production shifts. Despite the challenges faced earlier in the quarter, we continue to see productivity metrics improving in our plants. We're keenly focused on achieving best-in-class productivity through 3 key pillars: employee engagement, our MVantage lean operating system and automation initiatives.

The MVantage operating system is the backbone of driving productivity improvements. By using the key tenets of lean operating principles, we are improving material flows and reducing cycle time. Productivity as measured by direct labor hours per unit and direct labor dollars per unit is improving across the organization.

Our plant employees are the key to our success. We know that a workforce that is engaged, committed and focused on being the best is the critical ingredient in the MVantage operating system.

That's why we're working hard to make sure Masonite offers competitive paying benefits, educational and development opportunities and community outreach to ensure that Masonite is an employer of choice in the communities in which we work and that our employees are invested in the success of their plant and the company.

Given that, we believe that low unemployment will constrain labor availability. We remain focused on targeted automation initiatives designed to increase productivity, improve quality and consistency, support future growth and make our operations even safer.

Improving productivity metrics in these 3 pillars is the recipe for our success as we manage through a rising cost environment, which I will discuss in further detail in a few minutes.

New product introductions also positively influenced by results, and we believe they continue to be a competitive advantage for Masonite. Our new product vitality index was close to 10% in the first quarter of 2018, led by our Heritage Series of interior and exterior doors and our VistaGrande series of exterior doors.

The rate of adoption of new products and new styles gives us further confidence that the market is recognizing the role that the doors can play in contributing to new design trends in a home.

Our disciplined capital deployment strategy is focused on delivering the best returns for our business and our shareholders. In January, as previously announced, we completed the acquisition of DW3, which bolsters our position in the U.K. remodel channel, with the market-leading tech-enabled manufacturer of premium composite doors. This is a great new business for Masonite and we're excited to welcome the DW3 employees.

We also believe that our own company is currently a great investment. And I purchased $60 million of Masonite stocks so far in 2018, as part of our share repurchase authorization.

To date, we have bought back over $289 million of our shares, representing nearly 15% of the shares that were outstanding when the Board approved our initial purchase -- repurchase program in February of 2016.

Let's turn to Slide 6 and spend a few minutes looking at the overall housing market in our major geographies.

We saw steady growth in the U.S. housing markets throughout 2017 that was largely driven by single-family home starts.

Growth in housing starts continued in Q1, during which, multi-family starts grew faster than single-family and increased to approximately 33% of total housing starts.

Overall, it has been a gradual and steady growth trajectory for the U.S. housing market. And we anticipate that will continue in 2018.

As a reminder, a single-family house has historically had about twice the number of doors as a multi-family unit, so we also look at housing starts and completions on an equivalent basis to take that into consideration.

Growth in the Canadian market has been more mixed. Housing start increased double digits in 2017 after experiencing several years of growth between 1% and 3%.

Growth in starts in 2017 was heavily weighted towards multifamily in this region, a trend that has continued into 2018.

During the first quarter of 2018, the 1% growth in total starts was driven by 7% multi-family growth, while single-family starts were down almost 10%.

In the U.K., starts were actually down 13% in the first quarter. Extremely cold weather and snowfall, which is unusual for this region, negatively impacted the home building market.

However, the housing starts for 2018 remain positive, and we think that the long-term outlook for this market provides ample growth opportunities for our business.

Let's change gears and turn to Slide 7, where we will detail the rise in input cost environment that we and other building product companies are facing.

The charts on the left show that we began to experience increasing commodity inflation in the second half of 2017, and it accelerated further in early 2018. Steel and crude oil prices, in particular, have increased significantly since year-end.

Our global sourcing team is working aggressively on initiatives to mitigate these rising costs, such as continually qualifying new supplies in order to diversify our supplier base, and then managing our purchases across our supply base globally to achieve the best combination of lowest landed cost and quality.

Freight inflation is also something that many companies are dealing with and Masonite is no different.

Our logistics team is working to mitigate these higher costs where possible through strategically embedding and establishing new carrier contracts, as well as optimizing freight lane patterns.

While we made progress in offsetting some of this logistic inflation, we believe it's likely to remain a headwind throughout the year.

On Slide 8, you can see the improvement trend we have demonstrated over the past several quarters, as we manage costs, increase productivity in our plants, launch new products and pursue pricing actions to mitigate inflation and improve our profitability.

Operational challenges we faced in the early part of 2017 were reflected in the first and second quarters in particular last year.

Since that time, we have delivered steady improvements in our bottom line results.

On a trailing 12-month basis, adjusted EBITDA in the first quarter of 2018 is almost 7% higher than in the first quarter of 2017. And with that, I'm going to turn the call over to Russ to discuss our first quarter financial performance in more detail. Russ?

Thanks, Fred. Good morning, everyone. On Slide 10, we summarize our consolidated financial results for the first quarter of 2018 versus the first quarter of 2017.

Net sales of $518 million represented an increase of 6% over the first quarter of 2017. Average unit price or AUP and foreign exchange each contributed approximately 3% to the increase. Positive volume growth in the North American Residential segment and sales from recently acquired businesses were essentially offset by base volume weakness in Europe and architectural, due principally to extreme weather conditions in both markets and project timing in the architectural business segment. Gross profit increased 10% to $105 million, and gross margin increased 80 basis points to 20.4% of net sales, as we continue to achieve higher AUP and to make improvements in factory productivity. Adjusted EBITDA increased 17% and adjusted EBITDA margin expanded 110 basis points.

As Fred detailed earlier, we continue to experience commodities inflation, most notably in wood, resins and steel. In anticipation of higher inflation, we initiated price increases in the fourth quarter last year, which along with factory productivity gains, have driven higher gross margins in the first quarter.

Net income for the quarter was approximately $21 million, and diluted earnings per share for the first quarter was $0.73. While that's $0.04 lower than EPS in the first quarter of last year, this is more than explained by the impact of $5 million of discrete tax benefits, recognized in the prior year quarter from the exercise and delivery of share-based awards. Excluding that prior year tax benefit, first quarter net income and diluted EPS would have increased year-over-year by 12% and $0.12, respectively.

There's one accounting housekeeping item that you will also see in our 10-Q. In the first quarter, we adopted a new pension accounting standard, which changes the classification of non-service pension costs from SG&A to other expense. Prior periods are required to be revised for the change also. While this is essentially just a geography change in the GAAP financial statements, the change in historical SG&A can impact the EBITDA metric. For Masonite, this lowered our adjusted EBITDA by $500,000 in the full year of 2016 and by $1.1 million in the full year of 2017.

You will see approximately $300,000 of reduction to each quarter in 2017 adjusted EBITDA in the year-over-year comparisons.

Now turning to each of our reportable segments. Beginning with North America residential where net sales increased 6% in the first quarter, while adjusted EBITDA increased 12%. Volume increased 3% over the first quarter of 2017, aided by incremental retail business in Florida. We also continue to see steady improvement in average unit prices, which were up 2% compared to last year.

Net sales also included a 1% benefit from foreign exchange. While much of the material and distribution cost headwinds we incurred in the first quarter were related to the North American residential business and implement weather also provided a challenge, the combination of higher average unit prices and factory productivity helped increase adjusted EBITDA margin in the segment to 14%, 70 basis points above the first quarter last year.

Turning to Slide 12 and our Europe segment. Net sales increased over 24% compared to the first quarter of 2017, more than explained by a 16% lift from the DW3 acquisition and approximately 13% of foreign exchange benefit. Volume in our base business in Europe was down 12% in the first quarter, largely due to the adverse weather conditions that plagued the U.K. impacting the housing market, as Fred noted earlier.

Strong average unit price growth in the first quarter was driven by pricing actions, which helped to offset this lower volume.

Compared to the prior year quarter, adjusted EBITDA in the Europe segment increased 28% in the first quarter and the adjusted EBITDA margin was 30 basis points higher, driven by higher AUP and adjusted EBITDA contribution from DW3.

Turning to Slide 13. Our architectural business continues to increase its bottom line and profitability margins. Adjusted EBITDA in the segment increased 47%, and adjusted EBITDA margin increased 420 basis points as compared to the first quarter of 2017, largely due to higher average unit prices and the benefits of a rationalized footprint.

Net sales for the segment decreased 7% compared to the first quarter of 2018, as AUP increases of 4% partially offset volume declines of 11%.

Our strategy for the architectural business was to treat 2017 as a transition year, and focus 2018 on improving the customer experience and resuming volume growth. While weather conditions in the early part of the quarter negatively impacted net sales, we are encouraged by the sequential monthly sales growth we saw across the quarter. The architectural team remains focused on continuing to improve service-level performance and building customer confidence in our ability to meet higher levels of demand, as the commercial construction season ramps up in the second quarter.

Moving to Slide 14. We summarize our liquidity profile. Total available liquidity, including unrestricted cash and accounts receivable purchase agreement and our undrawn ABL facility was a $198 million or approximately 10% of our trailing 12-month net sales at April 1, 2018.

In the first quarter, we used approximately $96 million of cash to fund the acquisition of DW3 in January and we repurchased $44 million of our stock during the first quarter.

And as Fred mentioned, including repurchase activity subsequent to the end of the first quarter, our year-to-date share repurchases have totaled $60 million.

At the end of the first quarter, total debt and net debt to trailing 12 months adjusted EBITDA were 2.4x and 2.2x, respectively. Pro forma taking the DW3 acquisition into account, total debt and net debt ratios would be 2.3x and 2.2x, respectively.

With that, I'll now turn the call back to Fred to summarize our discussion.

Great, thank you, Russ. So to summarize, we're pleased with our performance in the first quarter, in which we delivered net sales growth of 6% and adjusted EBITDA growth of 17%. We're also encouraged by the positive momentum we are seeing in response to actions we've taken to resume margin growth. Improvements in AUP across all 3 business segments and productivity improvements in the plants helped to increase gross margin by 80 basis points and adjusted EBITDA margin by 110 basis points.

Our MVantage operating system is delivering real results with improved productivity in the plants. Our renewed focus on core lean enterprise processes is showing up on our plant productivity and cost metrics.

Further, our disciplined capital allocation strategy is focused on improving returns. We're investing internally to support further improvements in operational performance and productivity. We continue to pursue strategic M&A opportunities that we believe will add value to our business and the strategy that we are pursuing. And we continue to execute on our opportunistic share repurchase program to buy shares at prices we believe offer good return profiles.

Given the results of the first quarter, the momentum that we have continued to see in April and the overall macroeconomic outlook for our 3 business segments, we believe we are on track to achieve our 2018 outlook discussed on our fourth quarter and year-ending earning calls back in February. And so with that, we'd like to open the call to your questions. Operator?

(Operator Instructions) Our first question is from Michael Wood from Nomura Instinet.

The charts that you had on cost inflation, wondering if you could just give some color in terms of given the fact there was some inflation that's happened here in 2018, if you've seen that kind of in the spot market, as you purchase materials or directionally, does price cost become a greater headwind in the second quarter and as you go through the year or does it begin to ease?

Yes, Mike, it's Russ, let me respond to that. I would say that in our case, the inflationary environment is playing out largely as we anticipated. We saw an accelerating ramp of inflation in the back half of last year. And just for historical context, we called it, we came into 2017 expecting commodity inflation to be in the 1% to 2% range. It gradually increased through the year, such that we exited 2017 right at the top end of that range. And we expect that ramp to continue across 2018.

Now in Q1 specifically, we saw commodity inflation in 2.5% zip code, but we're still anticipating that the 3% to 3.5% range across the full year given that inflationary trajectory.

Got it. And you've talked about momentum in April, curious how -- if you recovered the weather-related volume issues in first quarter, and if you are now tracking for the full year-to-date within your targeted sales growth range?

Yes, that's great question, Mike. This is Fred. As we progress to the month -- the months in the first quarter, our sales on a year-over-year basis continue to get better. Our strongest month actually so far this year has been April. So we feel at this point that we've been able to recover much of the miss that occurred in the early part of the year. And then we anticipate that the remainder of the year will play out as we said in our initial outlook.

Our next question is from Mike Rehaut from JP Morgan.

First question. Just, I guess, following up on the price raw material backdrop and, obviously, a big point of interest to my investors and appreciate all the detail so far. You confirmed that so far, the inflation is tracking in line with your expectation so that 3% to 3.5% net inflation is, I guess, in line with your overall guidance. From a pricing perspective, are there -- what's baked into guidance, has that all been implemented in the market? Or is your guidance also dependent on any future pricing increases to the extent that you have any planned to continue to offset the expected inflation for this year?

This is Fred. We are all careful about commenting on perspective -- so the specifics of prospective price increases. As you are aware, we said at the end of the last quarter's call that we have taken price increases between the fourth quarter in that call in all of the channels. We did recently communicate additional price increases into the marketplace that we expect will take effect in the third quarter, in response to some of this inflationary pressure that we see continuing to increase.

And just to be clear, those price increases that you've communicated that will be effective in 3Q, is that part of your overall guidance? In other words, does your guidance incorporate that or would that be potential upside to the guidance?

Yes, we still think we're on track for our outlook for the year.

Okay. But, I guess, my question is, is the pricing in 3Q part of that guidance or incremental to that guidance?

Yes, again, I think, we want to be careful about providing any specifics on what the pricing looks like. But it's -- we feel, again, comfortable that we're in an environment where inflation is increasing. And we're responding to that with our -- with pricing as necessary, you should assume it's part of our outlook.

Okay, that's helpful, I appreciate that, Fred. I guess, just secondly in terms of the sales outlook, maybe you can kind of give us a sense of -- as you think about the full year, obviously, weather. I'm thinking specifically in terms of North American Residential here, you got some help from the Florida retail win in volume, obviously, weather also impacted that. Can you just kind of remind us how you're thinking about the full year in North American Residential from a volume perspective? Which channels might be contributing which amounts of growth? And if there are any things on top of that from a share gain perspective or new product perspective that would be driving any differences in your results versus the market?

Yes, so I think from the new product perspective, we're encouraged by our vitality index. Now, I think it's important to recognize that some of that does cannibalize our existing product line, so it's not automatically net incremental. But it would be very detrimental if you didn't have it. So I think that's a positive for us. I think the one thing just to take into account, we expect to grow at market levels. We do have the loss of business at Lowe's that we discussed last year, in one of our large retailers I should say, and that will take effect towards the later part of the year. It's actually taking effect now, so the last 3 quarters of the year.

Our next question is from Tim Wojs with Robert W. Baird.

So maybe just on the Architectural business, I know that you did some of the restructuring of the facilities there, and my guess is you seeded some market share, so -- and that's kind of come into the numbers right now. But is there any way to think about what backlog looks like? Because I know that the timing on those orders and kind of when they actually hit revenue is a little bit elongated. So is the backlog up in that business on a volume basis on a year-over-year basis?

Yes, maybe I can help provide some color around how to think about that business, which is different than our residential business because almost all of the Architectural business is project-based business. And so as opposed to just an ongoing flow of products, for instance, at a large retailer. And when we went through our reset of the Architectural business in 2017, we had a number of changes that were going on, and at that time, because of the lag in this business, you're typically bidding on projects that will occur 6 to 18 months out. And so at that point in time, we were less -- we knew that we would have some decline in volumes in that 6 to 9 months out as we are going through that process and we're seeing that. But help to put this in perspective, if we look at the month of January on a year-over-year basis, our -- we were down in the high teens on a year-over-year basis. By March, we were flat on a year-over-year basis. In April, we were up on a year-over-year basis. So I think what we're seeing is, in the marketplace, there's some good backlog at our customers. And we feel like we're largely through the impacts of that reset that we went through last year by the time we come out of the first quarter.

Okay, okay, great. Now I appreciate that color, that's helpful. And then maybe over on the North American residential business. Any sense for how inventory in the channels looks from your eyes, maybe relative to normal seasonality or maybe relative to what it looked like at the beginning of the year?

Yes, we feel good about the where -- our view of where inventories are in the marketplace. Obviously, we got caught with that a little bit early last year and so we've taken more of a focus on making sure we understand where inventories are. And we think they are pretty normalized at this point in time.

Our next question is from Dillard Watt with Stifel.

I want to talk a little bit on the other side of the ocean. Can you maybe give us a little color on what the drivers are of your pricing growth in Europe? I'm not sure how much of the first quarter was impacted by the acquisition, and then, I guess, mix of interior versus exterior or brands or what's maybe like-for-like pricing?

Yes, this is Russ, I will take that one. Again, I'll back up and provide a little bit of context for what we've seen in Europe segment and recall that's specifically the U.K. business, which represents over 90% of the revenue in that segment. We had a situation last year where there was a lot of inflation starting to come into the market from many of the materials providers to the U.K, and they were trying to fallback some of the FX related losses they've seen on the transactional side. So we've seen a lot of inflationary pressure in that market, particularly in wood, since a lot of the wood basket comes into the U.K. from outside of that market. As we announced last quarter, we have put some price increases into play in the fourth quarter in the U.K. business also, which would be fully in place by the beginning of the year. And that is our means to try to recover against that inflation, which clearly impacted our margins last year. So that pricing action or those pricing actions are now fully in place in the market. And we would anticipate that to help support that business.

Turning to the DW3 business that we acquired in -- at the end of January. If you look at the disclosures we made on DW3 at the time that we announced Q4 earnings and that acquisition, clearly, that's a really healthy margin business. Based on historical numbers we disclosed, it applies a high teens EBITDA margin business. And you can assume that, that trend has continued. So we're very happy with the contribution that, that business is making to the overall margin profile for the U.K. thus far.

Okay, great. And then maybe if you could give us kind of some similar color on the volume picture that you gave on -- in North America now that we've got past the snowy weather in London?

Yes. So if you look at the volume trends that we've seen in the U.K., Fred talked about the progression that we saw in the Architectural business in particular. Frankly, we've seen a similar progression in the U.K. Clearly impacted by very extreme weather, which particularly in the case of snowfall, is very unusual in the U.K. And it impacted not only our operations, but in particular, our customers. In some cases, we had situations where our customer branches were actually closed due to weather and that drove not only an impact on our top line business, but frankly, it also drove some inefficiency back into our operations and distributions operations because in some cases, we had to ship product twice in order to get it to the customers when they were able to accept it. As Fred mentioned, housing starts were down 13% in the quarter in the U.K., we attribute that largely to weather. But if you look at the monthly progression over the course of the quarter, it has improved and in particular, April has shown a nice recovery. So again, we step back and we look at that and we believe that the overall thesis for the year in the U.K. is unchanged, but we did have a period of dislocation early in the quarter due to weather that we now recovered in the March/April time frame.

Our next question is from Kathryn Thompson with Thompson Research Group.

This is Steven Ramsey on for Kathryn. Thinking about North America home construction, are you seeing the shift to lower-priced homes have a negative impact to your mix? Or does that growing trend impact your ability to get pricing?

Yes, I don't think it has much of the impact on pricing because pricing is much more around what people are looking for from a design perspective. Ultimately, it just is the number of doors. So as the homes get smaller or they're at the beginning or the lower price point, we're going to see fewer doors in those marketplaces -- or I'm sorry, in those homes.

All right. And then for expanding DW3 over time, is there much margin expansion to get in that segment? Or if the ambitions are more on the sales and volume side, will that require any margin pullback in the near term?

Steven, it's Russ. The way I think about that is, there is probably more opportunity in how we're able to integrate that business over the longer term with our existing U.K. operations. So remember, DW3 is very, very similar to our Door-Stop business that we acquired in early 2014. They sell principally direct to the trades and the contractors via a web-enabled product configurator, very much like DSI. Although, their product portfolio is a little bit different and it's actually more upmarket. Their specialty really is in the solid timber core doors, whereas the bread-and-butter of our Door-Stop product portfolio is the foam-filled GRP doors that play more at the middle range of the market. I think over time, as we look at how we can better integrate those businesses, there is opportunities to combine the product lines for those businesses and cross sell into the customer channels that they both support. That in combination with the fact that, again, as you've heard us say before, we think that there's still plenty of legs in the overall U.K. housing market, not only on the new construction side given the low level of housing starts over the last several years, but there's also a very aged stock of homes in the U.K. market that has the opportunity for considerable reinvestment on the renovation side. And if you take a look at the growth that we've seen in our Door-Stop business in particular over the last several years, it has been in excess of mid-to-high teens growth. And so we would expect that there could be continued growth on the renovation side because that clearly indicates there's some latent demand in the entry door market and these businesses just by virtue of their route-to-market strategy, are best served to service that market.

Our next question is from Michael Eisen with RBC Capital Markets.

I just wanted a quick question on the U.S. residential side of the business. You guys made a comment that you expect this business to kind of stay in line volume trends of the market, I'm just trying to more so understand are you talking to your product market? Or more so the broader construction market and kind of the differences between your growth rates and what we're seeing in housing?

I' would say that we think about it, obviously, as our product market. So the number of doors and utilization of doors in homes is what's going to drive our business.

Understood. And then kind of changing gears a little. Thinking of the CapEx guidance you guys have given in your commentary around increasing investments in internal projects of automation and things like that. Can you guys maybe talk a little bit about how much of that CapEx is going towards that? And what the timing of returns in higher margin performance from those investments is expected to be?

Yes, this is Russ, let me take that one. First of all, just to remind everyone, our guide for CapEx this year is in the $75 million to $80 million range. We had a little bit heavier capital spending in the first quarter this year than the first quarter last year. That's largely due to timing, and the fact that we had launched some more significant projects late last year that have now triggered higher levels of spend early this year.

Historically, we have spent on the order of 60% to 65% of our capital on what we consider strategic projects, that would include things like automation initiatives that you've mentioned, product, programs, other types of cost and quality initiatives in our plants, as well as some of the digital investments that we've made over the last couple of years. That trend is likely going to continue. It's just a matter of where we focus the automation investments in our plants. As we commented before, we have some work underway in some of our interior door plants in North America, specifically, to change the layouts of those operations to improve material flow. And as part of those plant layout changes, we're augmenting with specific automation around some of our paint lines, improving the throughput on some of our Trim Saw operations and flowing of material movement from receiving all the way through the door lay up and trussing operations. So it's not a meaningful change, necessarily, or significant step up and huge investments in automation, it's more of a surgical approach to ensure that we're inserting that automation in the right places of material movement, in line with how we lay out some of these plans for improved efficiency.

Understood, that's helpful. And then if I can sneak in one more. On the Architectural business, the margin expansion was very impressive in the quarter especially in the context of lower volumes. As we're thinking about progress towards your longer-term targets, as volume returns to grow positive year-over-year, is it -- does the progression continue to be at a very healthy pace as we saw in this quarter? Or are there any kind of timing issues that benefited the first quarter?

I would say there was nothing that benefited the first quarter and our expectation in the Architectural segment as we said all along is that, that should be better than our average EBITDA for the company. And our long-term financial framework is to be in the high teens, so we would expect Architectural to eventually get there.

Our next question is from Kevin Hocevar with Northcoast Research.

Wondering, if you could comment on how you manage your staffing levels during the quarter, because I know, at this time last year in the first quarter of '17, volumes didn't go necessarily according to plan and there was big headwinds from direct labor. And then this year, volumes didn't go according to plan because of weather and it seemed like -- you were able to weather that just fine and actually on your EBITDA bridge, you showed the factory was a positive. So wondering if you just comment on how you managed your staffing level this quarter versus this time last year and what was different.

Sure, thanks for the question, Kevin, it's Russ. We did indeed see pretty significant reductions in our North American Plant headcount over the course of the year. And just to remind everyone at the fourth quarter earnings release, we indicated that we had taken out over 400 heads over the course of 2017 from beginning of year to the end. Obviously, we entered 2017 with headcount that was too high in certain of our plants for the volume that actually materialized. We've seen that addressed. If you take a look across our North American operations in total, from the end of March in 2017 to the end of March this year, our total headcount is down on the order of 500 heads, across North America both residential and in architectural. So we've continued to manage headcount very carefully in light of the current demand environment. And you can see that in the efficiency metrics, as Fred mentioned earlier, we're continuing to see productivity improvement in terms of the hours per door and dollars per door metric that we track closely across our plants.

And it's important to note that decline is ex our new acquisitions, of course.

That's true. Thank you.

Okay, and then as a follow up on freight, you talked about that continued to be a headwind, which is obviously a common theme that we're hearing out there. And distribution was on the EBITDA bridge that you provide a $3 million headwind for the quarter, is that a good way to think about it going forward kind of that magnitude on a quarterly basis? Or based on what you're seeing in freight cost, will that get any worse? Or, again, is that kind of a good way to think about it, that $3 million per quarter?

So the way I think about freight and logistics right now is it is principally an inflationary story. Last year, we did have some inefficiencies in our distribution operations, those are largely addressed at this point. So we're going to see or we saw inflation in the first quarter. We expect that we're going to continue to see inflation as we go forward on both the fuel side and on carrier rates. I think, as Fred mentioned during his prepared remarks in the call, we're actively working on ways that we can mitigate that inflationary pressure but to the extent that it increases over the course of the year, that's a headwind that we'll have to deal with.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I'd like to turn the call back to Fred Lynch for closing remarks.

Great. Thank you, David. And thank you, all of you, for joining us today. As we say, we believe, we're well-positioned for the future success of our business segments and that there are still significant opportunities to improve the performance of our business, as we remain committed to being the best provider of building products in the eyes of our customers, our employees, our shareholders, our suppliers and our communities. I want to take this time to thank the Masonite team of nearly 10,000 employees that work tirelessly to deliver on our 8 -- 2018 targets, as we continue to help people walk through walls. Thank you to each and every one of you. I look forward to updating on our next quarterly earnings call. We appreciate your interest and your continued support. And this concludes our call. Operator, will you please provide the replay instructions?

Thank you for joining the Masonite International First Quarter Earnings Call. This conference call has been recorded. The replay may be accessed until May 17. To access the replay, please dial (877) 660-6853 in the U.S. or (201) 612-7415 outside the U.S. Enter conference ID 13678716. Thank you. This concludes today's conference.