Huttig Building Products, Inc. (HBP) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the Huttig Building Products First Quarter 2021 Earnings Call. I would now like to hand the call over to Philip Keipp, Vice President and Chief Financial Officer. Please go ahead, sir.
Philip Keipp: Thank you, and welcome to Huttig's First Quarter 2021 Earnings Call. With me this morning is Jon Vrabely, President and Chief Executive Officer; and Bob Furio, Executive Vice President and Chief Operating Officer. During the call today, we will discuss our first quarter 2021 operating highlights and financial results. We also provide commentary on the current business environment, including the impact from the pandemic and the continued progress we have made across a number of facets of our business.
Jon Vrabely: Thank you, Phil. Good morning, and thank you for joining our first quarter 2021 earnings call. It has been just over 60 days since we reported our fourth quarter and full year 2020 results. So our call today will primarily focus on our first quarter financial results. Before I turn the call over to Bob and Phil, I will provide some initial comments on our first quarter performance and the market. We meaningfully improved every key financial metric in the first quarter as compared to 2020. The sales of our company-wide strategic product categories grew approximately 14% and 17% on a same-store sales basis. Gross margins increased 120 basis points to 21.3%. Our expense ratio decreased 200 basis points to 17.2%, operating income margin increased 320 basis points to 4.1%, and our adjusted EBITDA margin increased 320 basis points to 4.9%. Aided by strong demand in the residential construction market, along with a disciplined approach to pricing and expense management, we generated record first quarter results since first being publicly traded in 1999. For the quarter, total housing starts grew approximately 10% to 360,000 units. The negative impact that COVID-19 has had on the residential construction market, pales in comparison to many other industries. That said, the pandemic has thrown the global supply chain into unchartered waters, creating severe shortages of products across a multitude of industries, including the U.S. residential construction market.
Bob Furio: Thank you, Jon. Good morning, everyone. I will provide an update on our operational and sales initiatives and discuss specific factors that affected our first quarter operating performance. Phil will then discuss our first quarter financial performance. We remain focused on growing our strategic product categories. Pricing management, which is critical in this environment, and improving our operations to reduce and create capacity to continue to leverage our leaner cost structure. Sales of our strategic categories grew 14% and accounted for 107% of our total growth for the quarter. We have previously discussed the importance of our strategic product categories as well as our plan to rationalize lower margin nonstrategic categories. During the quarter, sales of our nonstrategic categories declined nearly 12%, in part due to product rationalization. As a percent of total sales, company strategic categories grew from approximately 45% to 49% and nonstrategic categories declined from nearly 22% to 18% on a year-over-year basis. This planned intentional mix shift has resulted in our ability to successfully replace sales of lower-margin nonstrategic products with increased sales of strategic categories, whose average shipping margin is 510 basis points higher without incurring meaningful incremental operating costs. Considering restructuring and rationalized product sales in 2020, same-store sales were nearly $8 million higher than our reported sales growth, increasing our total same-store adjusted sales growth to 10% on a year-over-year basis. Our strategic building products categories significantly outperformed lower categories in the quarter. Historically, the first quarter is our strongest quarter for direct sales, particularly in composite deck, rail and trim products, and we grew our direct business in the quarter. In addition, the fastener market has been especially strong as supply has tightened due to the lack of ocean freight capacity. Lastly, for the past 3 quarters, we, like many other companies and many other industries, have not been successful in filling open scale labor positions and has strengthened our ability to grow beyond supply shortages. For the quarter, composite deck, rail and trim sales increased over 29%.
Philip Keipp: Thank you, Bob. We are pleased with our first quarter financial performance, which has yielded solid results across virtually every key financial metric. As we are not a commodity-driven sales organization, our top line performance has not benefited by some of the strong tailwinds realized by some of our competition in today's market. Rather, we face strong supply chain headwinds, as discussed earlier on the call.
Operator:
Jon Vrabely: Peter, as it appears that there are no questions in the queue. I am going to proceed. Our focus on driving profitable sales growth of our strategic product categories, improved variance management and disciplined management of the expense structure contributed to record first quarter operating results as a public company. We have been successful in making sustainable improvements in the execution of our sales growth and margin expansion initiatives. These improvements have resulted in our ability to leverage higher sales volumes of our highest margin product categories across an improved expense structure. When the strategy and plan works, new levels of financial performance can be achieved. And 1 of the highest margin categories also possess the greatest opportunity for future growth, new levels of financial performance can be achieved for many years into the future.
Operator: Thank you, speakers. This concludes today's conference call. Thank you for participating. You may now disconnect.
