Huttig Building Products, Inc. (HBP) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the Huttig Building Products Second 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 second quarter of 2021 operating highlights and financial results. We will also provide commentary on the current business environment, including the impact of the pandemic and the continued progress we have made across our operations.
Jon Vrabely: Thank you, Phil. Good morning, and thank you for joining our second quarter 2021 earnings call. We are very pleased with the continued progress we made in the quarter and in the first half of the year in steering the company through a challenging environment. We are excited to see the positive of that to show that all the work we have done over the past several years to transform product into a more diversified company that possesses significant, sustainable market roles that materialize in our financial performance, as we deliver our second consecutive quarter of record net earnings as reported since becoming a public company in 1999. The balance of my opening comments today will primarily focus on the new residential construction market. I am focusing on the market because it has created a unique operating environment that in some ways has contributed to our growth and improved financial performance while on other way, significantly impaired our ability to meet current demand levels. I will explain in detail the data and trend analysis that shaped our current view of a new residential construction market. We believe the general state of the market today remains strong. We also believe that buying any meaningful macro-economic disruptions, in the underlying housing fundamentals are solid and will continue to support strong demand in the near to intermediate term. In the 48 years between 1959, the first year of the U.S. census bureau tracked new residential starts and 2007 total new starts never fell below 1 million in any given year, an average 1.5 million new housing starts per year.
Bob Furio: Thank you, John. Good morning, everyone. I will provide an update on our operational and sales initiatives and discuss specific factors that affected our second quarter operating limits. Phil we'll then discuss our second quarter financial performance. Business environment we are operating in today, is represented by strong demand, but also with limited supply across a number of key products we sell. We are not unique in this regard. The supply issues are prevalent in many industries across the country. This has created an inflationary aspect across most products affecting the residential construction market and has had a positive impact in our sales growth. So it was not as pronounced as many other companies that are in our industry based on our respected product offerings. Product availability constraints has had a meaningful mitigating the impact on our volume, especially across certain national strategic categories. Looking forward, based on market conditions today, which are somewhat fluid, we believe supply challenges could extend into 2022 for some products. And the pricing will moderate and normalize across certain key products with some level of additional price increases possible through the first quarter of next year. Whether we currently believe that pricing declines, if any, would be moderate with most of the clients being the modern related or targeted nature to individual product categories or markets, we remain focused on growing our national strategic product categories, disciplined pricing management and operational efficiency, which are critical factors in this environment. Turning to second quarter highlights sales of our national strategic categories, which was the most impacted category hit with supply chain disruption, route 21% and accounted for 37% 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, non-strategic categories. This plan intentional mix shift as resulted in our ability to successfully replace sales of lower margin non-strategic products with increased sales of strategic categories whose average shipping margin for the quarter is 320 basis points higher as compared to non-strategic categories without incurring meaningful, incremental, fixed operating costs. To illustrate while national strategic categories represented 47% of our sales in the quarter, they generated 54% of our shipping profit.
Philip Keipp: Thank you. Bob. The business, once again delivered solid results across virtually every key financial metric while generating record second quarter net earnings. Second quarter of 2021 net sales were $247.4 million, which was $55.4 million or 28.9% higher than the second quarter of 2020. The impact from supply chain disruption and labor shortages is difficult to quantify, but would be additive to our 2021 growth. For the first six months of 2021, our net sales were $462.1 million, which was $67.1 million or 17% higher in 2020.
Operator: and your first question comes from the line of Josh Chan with Baird.
Josh Chan: Hi, good morning, John, Bob and Phil. Thanks for taking my questions and congrats on a strong quarter. I guess my first question I wanted to ask about is sort of supply chain on, on the Millwork side of things you mentioned that -- that's one of the more challenge areas, so just maybe some more color on how the availability has trended through the quarter and what you're seeing into, into July with, with the supply chain side of things?
Bob Furio: Sure. So this is Bob we've been on allocation for the past few months and that's been a little bit choppy, but we have been getting a consistent supply of material. We are in constant communication with our, with our vendor and talking about the plans and the changes that they've been implementing, which had a positive impact to date. So we expect that to continue, to improve. But they are also faced with support with the raw material supply challenges as well. It's a global issue, so remains a challenge for everybody, but we are expecting things to slowly improve as we move forward here. John, I don't know if there's any color that you would want to provide?
Jon Vrabely: I think you, I think you've covered it.
Josh Chan: Okay, that's helpful. Thank you. And I guess my follow-up is it's on labor. How, how were you seeing labor availability at your facilities and how confident are you that you can find the labor that you need to, to serve the, the expected demand into, into the second half?
Bob Furio: Yeah. So this is Bob again. To be very Frank, John touched on it in his opening comments about things and challenges that we faced a year ago that are still prevalent today. Labor is certainly one of them. When you look at the amount of available workforce that's out there today if you scratch your head, try to understand why, and there's all kinds of reasons, political included as to potentially why that may be. But if there is a major challenge with finding and keeping labor in our employment, it's not isolated to Huttig. Every industry is, is facing the same issues. So it is a challenge, but we have we have addressed it in a number of ways, including wages and incentives to bring people on and to retain them. But for the near future our expectation is we will be faced with the same challenges that we've been faced that we've been facing over the last 12.
Josh Chan: That's great. Yeah. Thanks for your time. And I will come back in the second half
Operator: Again Okay. At this time there are no further questions.
Jon Vrabely: Thank you, waiting. In closing the market, we operate in today. Every number of unique variables create an unusual environment with many challenges. The confluence of the variables have gone in grid and detracted from our operating results, quantifying the impact of these variables to be highly subjective. However, in general, we believe the opportunities ahead outweigh the benefits derived from the market families, once supply chain challenges are resolved and market dynamics normalise. While managing through this environment, we successfully reduced our expense pressure in right side of our inventory levels to efficiently support our operations for establishing the solid foundation for future growth. At the same time, liquidity improved to $100.7 million, providing ample room for future investments in the business. Looking forward we will continue to focus on executing our plan, while anticipating and preparing for changes in the environment. Our performance in the second quarter and over the course of the past 18 months is the result of the commitment and dedication of our entire team of associates. I am so very proud of the entire organization as our collective efforts have positioned our company well for continued success. I want to thank our entire team for their hard work fortitude and dedication to providing exemplary service to our customers. I also want to thank our customers and supply partners for people to place their trust in us, to care for their business. Finally, I thank you for your ownership and interest in our company and your participation in our call today. But before speaking with you again, when quarter results,
Operator: Thanks everyone for joining today's conference call. You may now disconnect.
