GMS Inc (GMS) 2018 Q3 法說會逐字稿

Good day, and welcome to the GMS Inc. Fiscal Third Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Lynn Ross, Chief Accounting Officer and Corporate Controller. Please go ahead.

Good morning, and thank you for joining us this morning for GMS' earnings conference call for the third quarter of fiscal 2018. I'm joined today by Mike Callahan, President and CEO; and Doug Goforth, CFO. In addition to the press release issued this morning, we have posted presentation slides to accompany this call in the Investors section of our website at www.gms.com.

Turning to Slide 2. On today's call, management-prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties, many of which are beyond our control and may cause actual results to differ from those discussed today.

Examples of forward-looking statements include those related to net sales, gross profit, gross margins, capital expenditures and market share growth as well as non-GAAP financial measures such as adjusted EBITDA, the ratio of debt to adjusted EBITDA, adjusted net income and base business sales, including any management expectations or outlook for fiscal 2018 and beyond.

In addition, statements regarding potential acquisitions and future greenfield locations and statements regarding the expected impact of the recent tax legislation and anticipated adoption of the new lease accounting standards are forward-looking statements, as are statements regarding the markets in which the company operates and the potential for growth in the commercial, residential, and repair and remodeling or R&R market.

As a reminder, forward-looking statements represent management's current estimates and expectations. The company assumes no obligation to update any forward-looking statements in the future. Listeners are encouraged to review the more detailed discussion related to these forward-looking statements contained in the company's filings with the SEC, including the Risk Factors section in the company's 10-K and other periodic reports and the definition and reconciliation of non-GAAP measures.

Note that the references on this call to third quarter and fiscal 2018 relate to the quarter ended January 31, 2018, and the fiscal year ended April 30, 2018, respectively.

With that, I'll turn the call over to Mike Callahan. Mike?

Good morning, and thank you for joining us today. We'll begin today's call with the review of our operating highlights, and then Doug will cover our third quarter financial results in more detail. We will then open the line for your questions.

We had a record third quarter revenue and adjusted EBITDA performance, topping a very tough year-over-year comparison, as we discussed last quarter. These results are even more impressive, considering several unique challenges that we faced during the quarter, which is seasonally our slowest quarter, including inclement weather, and particularly, in the southern U.S.

Importantly, I'm pleased to report we captured approximately 3 points of growth in wallboard price during this third quarter. And while prices continue to trend higher so far, it's still early, and we don't have a complete picture on price realization and won't until late spring or early summer.

Gross profit during the third quarter increased mid-single digits and set another record. As we have talked about previously, we expect that our gross margins would expand in the back half of the year, and I'm pleased to report that during the third quarter, our performance met our expectations. Gross margin expanded 40 basis points to 33.4% this quarter from the prior year quarter and 60 basis points sequentially from the second quarter, which keeps us on track to achieve our previously announced guidance of gross margin in excess of 32.5% for the fiscal year 2018.

Let's now turn to Slide #3. As we have discussed on prior calls, GMS has been able to establish itself as the largest distributor of wallboard and suspended ceiling systems in the U.S. as we continue to profitably expand our geographic presence. As of this report, our share in wallboard and ceilings is approximately 14.4% and 17.9%, respectively.

Within wallboard, specifically, we have profitably grown our share by 580 basis points since 2010. However, during the quarter, we experienced a slight decline in our wallboard market share from 14.5% to 14.4% due to aggressive competitive behavior and weather-related dynamics in certain of our key markets. But what I can tell you is that GMS will continue to focus on profitably growing our market share and expanding our margins, both organically and through acquisitions.

Now moving on to Slide #4. We are confident that we can continue to drive profitable growth across our product categories by leveraging the scale advantages that come with our growing footprint, by harnessing our talented and dedicated personnel to continue delivering superior execution through our differentiated service model and by capitalizing on large diverse end markets through our multipronged expansion strategy.

Now on Slide #5. Let's look at an overview of our performance for the quarter. Third quarter net sales increased 4.1% year-over-year to $585.5 million. As I mentioned above, the impact of weather, coupled with a tough year-over-year comparison, resulted in a 1.9% decline in wallboard volume. However, our ability to realize nearly 3 points of growth from price in wallboard, coupled with the contribution of prior acquisitions, resulted in a modest increase in wallboard net sales versus the same period a year ago. Ceiling net sales rose 10.5%, and other product net sales climbed 7.4%, while steel framing net sales increased 3.5% versus the same period a year ago.

Moving down the income statement, we were able to expand our gross margin by 40 basis points to 33.4%. This reflects solid volumes and the continued success of our purchasing initiatives undertaken during Q1. And as I mentioned earlier, we are beginning to experience some inflation, which increased our adjusted SG&A expense as a percentage of net sales by 30 basis points during the third quarter. And lastly, adjusted EBITDA increased 3.8% to a record $42.2 million during the quarter, driven by higher net sales and improving gross margins. Our net income rose 139% to $19.7 million with earnings per share of $0.47.

Now turning to our acquisitions. Although our acquisition activity has been relatively quiet over the past few quarters, they absolutely remain core to our story. Last quarter, we discussed Southwest Building Materials, which closed on December 4, and we anticipate the announcement of additional bolt-on acquisitions over the next few quarters.

Our acquisition pipeline remains robust and includes many of the hundreds of fragmented local competitors still representing more than half of the overall market. Many of these smaller peers fit the GMS culture and would greatly benefit from our platform, as we look to expand our penetration into existing markets or enter into new ones. We have the capital resources to continue executing on our acquisition pipeline while maintaining prudent leverage ratios. And as such, we expect accretive acquisitions to continue to complement our organic growth moving forward.

And with that, I will turn the call over to Doug to further discuss our financial results and capital resources.

Thanks, Mike. Good morning, everyone. Beginning with the financial results on Slide 7, we delivered strong sales and adjusted EBITDA in the third quarter despite challenges in January associated with adverse weather conditions, particularly in the southern U.S. As Mike mentioned, we also faced very difficult year-over-year comparisons to our record third quarter 2017 results, which had organic sales growth of 15.5% with double-digit growth across all categories.

Starting on the top line, we grew net sales 4.1% to $585.5 million, with increases in each product category compared to the third quarter of fiscal 2017. We increased base business sales during the quarter by 2.9% year-over-year. Wallboard net sales increased slightly to $256.4 million in the third quarter compared to the same period last fiscal year. Wallboard volume decreased by 1.9%, primarily due to adverse weather conditions and aggressive competitive behavior. Wallboard price was up 2.9% year-over-year and up slightly on a sequential basis.

Our ceiling sales increased during the quarter by 10.5% year-over-year to $90.4 million, further expanding our ceilings market share to 17.9%. This includes a 7.4% increase in the base business, driven by continued strength in ceiling volumes, price gains, the benefit from acquisitions and share gains.

Steel framing increased during the quarter by 3.5% year-over-year to $96.7 million, including a 3.6% increase in base business, mainly driven by pricing improvement. Our other products net sales increased 7.4% during the quarter to $142 million, driven by base business sales up 7.2%, highlighting the success of our continued efforts to drive above-market growth in our complementary products. This product category demonstrates the breadth of our portfolio and highlights the strength of our customer relationships and pull-through effects of wallboard, ceilings and steel framing.

Gross margin improved 40 basis points to 33.4% for the quarter compared to the third quarter of 2017 and 60 basis points on a sequential basis. During the quarter, we saw further expansion of our gross margin, partially driven by price increases for 2018. We remain confident in our ability to deliver on our previously announced guidance of gross margin in excess of 32.5% for fiscal year 2018, which we continue to view as a near-term expectation rather than a long-term ceiling on our margin profile.

We also remain committed to investment in our talent, capital equipment and technology across our business. Adjusted SG&A as a percent of net sales of 26.3% was up approximately 30 basis points versus the third quarter of fiscal 2017, reflecting higher delivery cost. During the third quarter of fiscal 2018, adjusted EBITDA increased 3.8% to a record $42.2 million during the quarter, driven by higher net sales. Our adjusted EBITDA margin of 7.2% was flat compared to the prior year period, with a slight improvement in gross margin offset by a slight increase in SG&A.

Turning to Slide 8. As of January 31, our net debt to LTM pro forma adjusted EBITDA stood at 2.8x, down slightly from 2.9x in the prior quarter and down from 3.1x last year. Our balance sheet remains healthy with $28.9 million of cash on hand and $333.6 million available under our ABL facility.

Regarding cash flow, during the third quarter of 2018, we generated $34.4 million in operating cash flow, which was largely influenced by higher earnings and improved working capital turns. CapEx in the third quarter increased to $5 million primarily related to fleet and equipment purchases as we shift to purchasing certain commercial vehicles versus utilizing operating leases for our fleet needs due to the new U.S. tax legislation that took effect in December. We now expect our fiscal 2018 CapEx to be $18 million to $20 million, which includes $8 million to $9 million of fleet purchases.

Turning to Page 9. We expect our effective tax rate in fiscal 2018 to be 34% to 35% and 23% to 25% in fiscal 2019. Had tax reform been in place for all of fiscal 2017, we would have had -- paid approximately $23 million less in income taxes. In addition, in order to take advantage of the Tax Act; accelerated depreciation provisions; facilitate the implementation of new lease accounting standards, which we will adopt in fiscal 2020; and improve the comparability of our financial statements with our publicly traded peers, who we believe purchase a greater percentage of their equipment than we do. Beginning in fiscal 2019, we intend to finance the purchase of new commercial vehicles under capital leases and to convert the majority of our legacy equipment operating leases into capital leases or purchase the equipment outright.

As we stated in the earnings release, we anticipate that this change will reduce our SG&A expense and increase our adjusted EBITDA by approximately $21 million to $24 million per year, beginning in fiscal 2019. The change is also expected to increase the property and equipment and debt accounts by approximately $75 million as of the first quarter of fiscal 2019.

Now with that, let me turn the call back over to Mike for closing comments.

In closing, we delivered solid organic revenue growth during the third quarter despite a very tough year-over-year comparison, while expanding our gross margins as we said we would. Our fourth quarter is off to a good start. As underlying demand remains strong, pricing is holding, and we continue to execute well against our growth and margin strategies, all of which should drive another year of record net sales and adjusted EBITDA.

Our fiscal year 2018 expectation fits within the context of our longer-term objectives for our company. We remain focused on growing our base business above market rate, which will be driven by organic share gains and the addition of roughly 3 to 5 greenfields per year. We recently opened 2 new branches in Florida and Connecticut, and anticipate opening a total of 5 new branches this fiscal year.

In terms of pricing, it is too early to predict how the pricing environment will unfold this calendar year, but we would expect that any price realization from the previously announced wallboard manufacturers price increases for 2018 will positively affect our 2019 results. We also plan to continue to supplement base business growth with acquisitions by executing on our strong deal pipeline at attractive multiples.

Our cash flow dynamics remain favorable, and we plan to generate additional cash by growing adjusted EBITDA while maintaining appropriate CapEx levels and working capital ratios. And finally, we are well positioned to continue to pursue our growth initiatives, including $333 million available under our ABL facility as of January 31, 2018. With these objectives in place, we are confident in the strength of our company and our ability to continue delivering profitable growth over time.

And operator, with that, we are now ready to open the call -- the lineup for questions.

(Operator Instructions) We'll take our first question from Michael Eisen with RBC Capital Markets.

Just had a quick question. You guys had -- you guys talked a lot about the weather constraints going on in the quarter, what we're seeing here, and in the past, you've talked to the idea of 2% above-market growth. Can you help us understand the amount of selling days that were lost in the Southeast and what you guys think the underlying market grew and how that compares to where you are today?

Michael, I don't have the exact number of sales staged for the Southeast. But in terms of revenue, it was approximately $4 million for that portion of it. I'll let Mike kind of talk about the growth expectations. Obviously, we've slowed somewhat particularly compared to wallboard shipments, so...

Yes. I mean, we still have the same goal of exceeding market rates of growth in terms of the weather setbacks we experienced. I mean, we really had adverse weather conditions and lost shipping days that stretched all the way from Texas to the panhandle of Florida. So it was very significant interruptions of service during the quarter. But we still remain focused on growing above market rates of growth, and that remains a target goal for us.

Michael, it was 60 days in the Southeast. It was actually over 100 for the whole company, but I'm not really counting other parts of the country. We had a lot of debate about that, particularly up in -- at the Pacific Northwest and the Northeast. To me, those markets, you have weather every year there, while sometimes it can be a little more severe than others. But what we saw particularly in the Southern U.S. was pretty unique.

Got it. That's really helpful color. And then just thinking of that $4 million and the loss of the 60 days down South, when we're looking into next quarter and kind of going into fiscal year '19, is it -- should we be thinking about that as more sort of deferred work, and you could see a nice rebound in volumes as -- if weather trends permit? And then -- what you guys are seeing year-to-date or since the quarter ended. Is it safe to assume that volume should rebound and you get back to a pace of both organic growth and market growth, moving forward?

Well, it's definitely deferred work, but what you see in a lot of markets -- Atlanta is a really good example is they don't -- they're not necessarily able to get right back out there right away because it causes delays further down the chain. So I mean, we haven't lost that business. It will come, but it gets pushed out. I mean, some of this weather, particularly, we've had a lot of wet weather in February that's further delayed the start of some work, so it's kind of pushing into spring, which I would say is more normal than what we've experienced over the last few years.

Got it. And last one from me, just thinking about the strategy and where you guys are and what we've seen as growth drivers in the past. It's been very much driven by volume strength, and you guys talked a little about changing competitive dynamics in the industry. As we -- moving forward, is there -- is it -- should we be thinking about this as a price-driven story for the coming months to be able to maintain that margin growth expectation?

Well, from our vantage point, I mean, as we've said before, we are continuing to push gross margin growth. Our 32.5% is not a ceiling, and frankly, we've always dealt with strong competition. That's just a reality, but we will continue to push to grow price, to grow margin and to grow the business going forward. So that's really not changed regardless of changing competitive dynamics.

Michael, I would also add to that. We've talked about this before. We have a number of initiatives going on in the SG&A side to gain more efficiencies and reduce our cost there and improve our leverage. And I believe that I said that I expect that the bulk of those to really start hitting towards the latter part of the second half of the year. Some of those projects have been a little bit delayed, but we feel -- we still feel pretty good about them, particularly, going into 2019. In the end, it really comes down to what we've always said is in terms of incremental revenue growth, it's our expectation that we're going to put up double -- low-double-digits incremental EBITDA for that incremental revenue, and we're going to get there one way or another. So it's a combination of both sales and gross margin improvement as well as SG&A leverage. So that's really our goal to get to that number. We're a little bit short of that this year. I think we'll make up some ground in the fourth quarter. I'm not going to give a target on that, but we'll definitely make up some ground as to where we're at now. But if you think about that too, I mean, with the fourth quarter, with the gross margin compression that we saw, had we not experienced that, we'd be right -- we'd be over that low double-digit target.

Got it. Really helpful information. And to reiterate kind of the gross margin guidance in the long-term double-digit incrementals is encouraging, especially in the input cost inflation that is -- we're seeing across the industry, not just to you guys. Appreciate it.

(Operator Instructions) We'll take our next question from Michael Dahl with Barclays.

Mike, on one hand, you're talking about how you always deal with strong competition in your markets, but on the other hand, both you and Doug are calling out particularly aggressive competitor behavior as a contributing factor to the weakness in volume this quarter. Can you just give us more color on what you were seeing that was different competitively throughout the quarter? And has that changed as you look at how February has progressed?

Well, I mean, I guess, generally speaking, we saw some pretty aggressive job quotes and from some of our competitors, particularly in the face of the announced price increases, but frankly, some of that is already kind of normalizing. You talked a little bit about the prebuy in the fourth quarter and how much that was. I think that had a bit of an impact on perhaps some of the competitive behavior that we saw. But finally, this is a service business, and I think the reality is that you have to be able to not just quote to work, but you have to be able to deliver it effectively and get it there on time and go to order, and I think we're beginning to see some stabilization relative to that. But again, these competitors are out there looking for their businesses just like we're looking for ours, and I consider it to be kind of the normal chain of events. There's not anything really dramatically different, and I think we will see, as the year goes forward, that we will see continued share gains as we talked about before. It's kind of standard procedure frankly.

Got it. And if I think about those kind of the dynamics around the prebuy and then the quotes and I tie that into the inventory picture in the channel. It looks like your inventory per branch was up about 7% year-on-year. Presumably, some of that's just due to price inflation, but what can you tell us about inventory positions, both for yourselves and in the channel relative to where your expectations would be?

Yes, Michael, our inventory was up. We did do a little bit of prebuy. I mean, we're still turning wallboard right now. We're at about 13x, so it's difficult for us to get too much. So we wouldn't say that we were a full participant in the prebuy, but we did get some and even some other product categories, too. Steel is a good example of that we were also buying ahead of anticipated price increases there as well. The other product categories, there's some products there that we also did a little bit of buying ahead of expected price increases going into January because prices have been going up for all of our products.

All right. I guess, just to put a finer point on that though, is this -- I guess the level of prebuy seem to be a bit higher on the wallboard side for the industry this year versus last year. What is your sense of how long it takes to clear through that inventory?

I actually think the prebuy inventory's already clear at this juncture. And if you talk to the manufacturers based on current lead times and current shipment levels, I think that inventory's been cycled through. So that was -- it was a little bit higher. The number I heard was like 500 million feet was kind of an estimate in total prebuy. But given the quick -- the manner in which that turns, I think it's already cycled through.

Yes. And it's -- in terms of wallboard, the price increase this year was the first week of the year whereas, last year, it really started in mid-January and kind of cycled through the back half of the month. So it was a little later in the -- in the calendar year cycle.

We'll take our next question from Truman Patterson with Wells Fargo.

Just wanted to continue touching on the wallboard aspect. Your all's wallboard pricing was up about 3% year-over-year. I was hoping you could talk about the manufacturers' pricing trends throughout the quarter and so far into February. And then last quarter, you all discussed that there had been some controlled distribution from the manufacturers or inventory allocations in several of the markets. What have you been seeing more recently, particularly kind of March and late February?

Well, the manufacturers right now are remaining pretty firm on their price. I will say from our perspective, our price, we went up in January -- our January price went up close to 4%, our average selling price. And in February, it's up again. So as Mike said, we're probably -- you're talking early summer before you really know how things are going to settle out. But there's real cost inflation pressures that those guys are getting. Last year, the story was around paper. This year, the story's more around freight costs, particularly, as it comes to getting in the synthetic gypsum. So there's real pressure there. So we expect them to be firm, and we expect their prices and our prices to be up for the year.

Okay, okay. Jumping over to the M&A environment, you all stated that it was likely going to be accelerating. Could you give us an update on the purchase price multiples? Has there been any change since tax reform occurred? And I was just hoping, you've seen it slow down a bit, the activity over the past 12 months or at least your own deal flow. What gives you the confidence of this accelerating again? And can we kind of think of this as a 6 to 8 deals per year going forward?

Well, the fact is, is when you're working in the M&A environment that we're working in, the transactions really can come in waves. If I look at the number of active discussions that we're currently having versus a year ago and the year prior, there really hasn't been any change there. We still have a very active number of opportunities that our team is working with day to day. It just so happens that as Doug says, sometimes, they get a little lumpy and they come in clusters. But as I look at the business and the consolidation of the industry the last couple of years, and then looking forward to where we believe the industry is going to head, these opportunities are going to continue to be there. We've got some great dialogue with some wonderful companies. And I'm very, very optimistic that we will be announcing some significant acquisitions in the coming months. It's just you can't predict quarter by quarter whether you're going to do 2 or 3 or 1. There are varying amounts of dialogue and time that it takes to get these things closed, but I'm still very optimistic on the M&A pipeline.

In terms of the multiple, we still haven't seen any movement there. We're still running at, let's call it, 6.5, a little lower than that times post synergies. There are some opportunities out there that could -- some people that maybe were a little reluctant to do something before the tax reform act, who may be looking to transact something now that they're going to have a little bit more favorable impact on their side of the transaction. So we think that could accelerate some opportunities.

We'll take our next question from David Manthey with Baird.

First off, you outlined wallboard pricing in the slides, and I think you said steel framing was about 3%. Could you give us an idea of roughly what level of price increases you're seeing in ceilings as well as other products?

The ceilings growth was about half and half, half volume, half price. Steel was -- volume was up about 1% and the rest of that was price. Other products, there's so many items in there that we can't -- we don't really have a good number to share on that, although I will say that a lot of the products in there, insulation, joint compound, et cetera, are all experiencing price increases. And with what's going on in steel, we would expect to see that in some products like tools and fasteners as well.

And as it relates to steel framing, maybe thinking about your supply chain and the tariffs, any expectation on what that might mean in the coming couple of years?

Yes, we expect prices -- well, near term, we expect prices to go up. They're already going up. The -- all of our major suppliers have already rolled out -- announced price increases to take effect April 1. Some of them have price increases after the April 1, going up May 1. So I mean, we can spend an hour talking about steel. The good thing is, first of all, our people -- our procurement teams here in Atlanta and throughout all of our markets, they work very closely with the suppliers ahead of these increases. So we had a pretty good feel for what's going on in the market, so we weren't surprised by what happened. And the guys make sure that they've covered work either through inventory buys, as we talked about previously, fixed pricing or price escalators in the work that they're quoting. The good news is -- so we've got our people that help us navigate this, but also the handful of suppliers we work with who provide about 80% of our product. That's really important. We've worked with those guys for decades. One thing that we think is going to happen if this steel tariff does take effect, I mean, we've already seen it, that a lot of regional and smaller local competitors have already canceled their imports, and they're looking to try to switch to domestic sources for their raw material. That's going to create product shortages.

Yes. And we've already seen lead times. Lead are already -- they're going to stretch out right now.

Yes. Lead times are pushing out, and so the good thing again with our relationship, relatively small base of suppliers that handle the bulk of our needs, that we're going to be in the front of the line. That doesn't mean we're not going to experience lead time issues as well, but no one's going to be getting in front of us. So that's really helpful. That's -- again, that plays into having -- our people and our national scale really helps us in times like these.

That was a great answer to an obvious question, sorry about that. And then, the final question, just broadly when you think about residential and nonresidential market growth in the coming year, anything you can give us in terms of just general thoughts?

The one theme I guess I've heard more frequently in a couple of meetings that I've been to recently is that there appears to be more of a focus, and frankly, more activity on the entry-level house, which has been kind of, I guess, a shortfall in the market the last couple of years. So I think on the residential front, that's a positive, certainly, is a positive for us, given our residential business. So generally speaking, I think the residential side is very positive. And I actually told our VPs yesterday, just in terms of general backlog, and I would say the commercial backlog, as we sit today, is still very, very strong. I mean, very optimistic on that. And multifamily, obviously, has slowed up some, but it's -- but frankly, it's still strong in a lot of our markets. It's not as active as it was maybe 2 years ago, but there's still a fair amount of multifamily work out there. But I would say resi and commercial. Single-family res and commercial is definitely 2 bright spots for us, going forward.

(Operator Instructions) And we'll go to our next question from Kevin Hocevar with Northcoast Research.

Wondering if you could comment on -- incremental margins, it sounds like this year might be a little bit below the numbers you've looked for in the past, that low double-digit. But as we look to 2019, I was -- you talked about the $21 million to $24 million of savings from the change in leases. And then also, it sounds like some of those other SG&A initiatives that you have are really very -- sounds like very back-end loaded in terms of this year starting to get realized. So as we go into 2019, I wondered if you can give us some type of thoughts around how we should think about that incremental margin next year because it sounds like it should be, all else equal, above that low double-digit type rate.

Well, that's a good question, Kevin, and when I was talking about double digits, I wasn't suggesting for the change in our lease accounting, which if you look at that on a LTM basis, that would have expanded our EBITDA by about 90 basis points, so we'd be at around 9% or so in that regard. So that's a pretty good -- that dollar amount range, $21 million to $24 million reduction last year -- next year in SG&A, that's a pretty good range to use. So and then -- so you're right. So you would add that, that would be on top of the, call it, a 10% expectation that we have for ourselves.

Got you, okay. That's very helpful. And then not to beat a dead horse on the wallboard competition, but wondering, obviously, there's been 2 of the big 4 distributors have been -- have different owners over the past 1.5 years or so, and so I guess I just wanted to understand. It sounded like you believe that the competition was more around prebuy, and some distributors were sitting on more inventory that they needed to unload, and maybe that caused the competition. Or are you seeing any difference in behavior from some of these other players as they have new owners? And also just curious if the competition was broad-based? Or did you see more on the residential, the half inch side or on the commercial side?

No, I would say that -- I mean, certainly, there have been changing dynamics in terms of ownership. But I would say the competition has been broader than that certainly. I mean, I think of just broad competition within the market. You've had some shifting demand relative to multifamily versus some of the other segments. And if it's just -- you throw the prebuy mix into that, and there are perhaps some folks out there that were a little more skeptical about the price increase holding the wallboard, and therefore, they might have been a little bit more aggressive on some of the work. But as we sit here today, everybody's having to quote work based on replacement cost, which is higher. And so I just -- I really consider it to be normal competitive dynamics. And you throw the prebuy into the mix, and it might have confused it a little bit. But from where we sit today, I think it's, like I said, it's kind of standard operating procedure around a price increase frankly.

We'll take our next question from Matt McCall with Seaport Global Securities.

So maybe one clarification. I think a second ago, you said January price was up about 4%, February up more than that. So is that sequential from December? I'm just making sure I'm using the right comp period when I'm thinking about the trajectory of pricing.

The January, about 4%, that was year-over-year. That was versus January of last year. And I didn't -- now last year, as we've talked about, the price increases from the manufacturers came in, in the latter part of January, so our sales prices last year didn't really start to ramp up until February. So our year-over-year price for February is up. I don't want to give specifics at this time because we haven't reported those numbers. But year-over-year, it is up, and it's a little bit compressed from what we saw in January, but it's up.

Got it, okay. No, that's helpful, perfect. You talked about SG&A inflation. Can you talk a little bit more about the components of that pressure, maybe the magnitude of some of the buckets? And then how do you expect that to progress, specifically, on the inflation side and some of that pressure in Q4 and as we move out into '19?

It's really in 2 areas, wages, particularly with our drivers. It's extremely competitive out there. I actually heard some other public companies saying that they hadn't really experienced that much wage inflation, which was very surprising to me because we have. I don't want to share specifics particularly around our drivers because everybody, all the competitors, everybody looking for drivers are coming to us. And maybe we're experiencing more of it because our crews are at the top of the list of who people want to go after if they're in the interior business. I guess if they're going after drivers, they're not going to go to UPS, they're going to go to GMS. So that's an item. Equipment is another item, particularly our rolling stock. We have always invested in our equipment. We're going to continue to do that because that differentiates us. It allows us to provide what we believe is the best service in the industry. So that we're not going to miss deliveries or not be able to fulfill things because our trucks are -- we don't have enough trucks or our trucks are broken down. And it also allows our delivery crews to be efficient, enjoy the equipment they're using. So that was up actually more than wages for us...

Any (inaudible) yes, go ahead.

And I was going to say, and that's partly because of running through operating leases. So that will -- a big chunk of that will go away next year or will shift to interest and depreciation.

Okay. So that will go away, the wages from -- the wage pressure won't. So is the -- in quantification of what the total pressure was there on the SG&A off from those inflationary buckets?

Nothing specific I don't want to share there, other than, again, to go back to we're doing other things to offset those cost increases.

Those costs, right.

Yes. Fuel was another item that we -- we saw an increase in fuel. But when it comes to like, delivery labor as well as fuel, that's one of the reasons that we have to be so disciplined on pricing because, I mean, at the end of the day, it's -- what are you getting paid and how much margin are you generating to cover your cost to serve? So it's those variable costs with higher delivery wages, if fuel goes up. We have to cover that. We either have to have a higher sales prices or we have to -- and the guys billed in fuel into how they price in quote jobs. And also, if it gets really bad, and they put on stock charges, surcharges, et cetera, to help cover that cost. They're -- our guys are keenly aware of what fuel is costing them and how that's impacting their bottom line.

Okay, okay. Very helpful. And one more, Mike, I think you -- this seems to be normal operating procedure around price increases, at least, what you've experienced in the past. How do we look at -- is that to say that the volume outlook is improved as we move forward because you talked about the impact on your volume as you held price. Do you expect that to stabilize, I guess, is my point? I think you're positive on price to the year, but do you expect the volume trends to kind of improve sequentially?

Yes, I would anticipate volume trends to improve. And fundamentally, the -- it gets lost sometimes in the translation, but we are in a service business. And our ability for the crews that Doug was referencing, the product mix that we've talked about, I mean, this is a service business. And we will continue to win because we feel very, very strongly that we have the best service offering in the industry. And given the tenure of our people, given the knowledge of product and the like, and ultimately, as wise men who founded the company once told me, we deliver drywall, but we sell service, and that ultimately is what gives us the edge. And so that -- I'm very optimistic we'll continue to grow and grow volumes, and frankly given some of the opportunities on the greenfield and M&A side, that's going to help the future amount of growth as well.

That concludes today's question-and-answer session. At this time, I will turn the conference back to Mr. Mike Callahan for any additional or closing remarks.

Well, I just want to thank everybody for joining us on the call today. As you can tell, we are very excited about where we are today, and we're looking forward to updating you on our progress in the coming quarters. Take care, and thank you.

This concludes today's conference. We appreciate your participation. You may now disconnect.