Huttig Building Products, Inc.
Q4 2020 Earnings Call Transcript

Published: 2 Mar 2021

[Company Representatives:]

Jon Vrabely - President, Chief Executive Officer Philip Keipp - Vice President, Chief Financial Officer Bob Furio - Executive Vice President, Chief Operating Officer

[Operator:]

Good morning, and welcome to the Huttig Building Products Fourth Quarter 2020 Earnings Call. Participants will be in a listen-only mode until the end of the call when the company will have a question-and-answer session. . Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Philip Keipp, Vice President, and Chief Financial Officer. Sir, you may begin.

[Philip Keipp:]

Thank you, and welcome to Huttig’s fourth quarter 2020 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 fourth quarter and full year 2020 operating highlights and financial results. We will also provide commentary on the current business environment, including the impact from the pandemic and the progress we have made across a number of facets of our business in 2020. Following our prepared remarks the operator will open up the line for questions.

[Jon Vrabely:]

Thank you, Phil. Good morning and thank you for joining our fourth quarter and full year 2020 earnings call. After my initial comments, I will turn the call over to Bob and Phil to discuss operating highlights and our financial performance, after which I will share final remarks before opening the call for questions. Moving into 2020, we are confident that the disruption from the implementation of our growth strategy was behind us, and that we would generate meaningful financial improvement throughout the course of the year. Then in mid-February, while still generally viewed in the U.S. as nothing more than a common flu like virus, we recognize that COVID-19 would likely pose a significant threat to the U.S. economy and ultimately to our business. While we continue to execute our 2020 business plan, the senior management team immediately began developing a comprehensive COVID-19 readiness and response plan. By the end of February we implemented the initial priorities of the first version of that plan across the entire organization. Over the course of the next 30 days we developed financial models and contingency plans to mitigate the risk of the pandemic and began executing the most critical and highest prioritized components of our plan. While the pandemic had no impact on the business until late March, our first quarter results were solid with year-over-year sales growth and a significant improvement in profitability.

[Bob Furio:]

Thank you, John. Good morning everyone. I will provide an update on our operational and sales initiatives, discuss specific factors that affected our fourth quarter operating performance. Phil will then discuss our fourth quarter and full year financial performance. Despite the ongoing challenges and fluidity created by the pandemic, we were able to achieve efficiencies in our operating platform that will serve us well into the future. While we took early and aggressive actions to reset our cost structure and working capital requirements, we progressively and conservatively added resources necessary to support the increased sales momentum as the market stabilized in the second half of the year.

[Philip Keipp:]

Thank you, Bob. As anticipated, the COVID-19 pandemic along with other factors discussed on this call, have negatively affect our sales. However, through early and aggressive actions taken at the outset of the pandemic we were able to drive an overall improvement in our operating results and liquidity relative to the prior year across virtually every key financial metric. Fourth quarter 2020 sales were at $184.6 million which is $4.2 million or 2.3% higher than the fourth quarter of 2019. Adjusted for the impact of restructuring and product rationalization activities, we estimate the sales increase was 8.3%. For the full year of 2020, net sales were $792.3 million, which is $19.7 million or a 2.4% lower in 2019. Adjusted for restructuring and product rationalization activities, we estimate sales increased approximately 1.1% as compared to 2019. The pandemic most affected our second quarter sales, which were down 12.1%, with some trailing impact as we move through the second half of the year. As Bob stated earlier, our sales were also affected by supply chain disruption across several key suppliers and by labor shortages, which lengthened lead time to our customers. The impact from supply disruption and labor shortages is difficult to quantify, but will be added to the 2020 adjusted growth. As we look to 2021, our year-over-year sales run-rate were higher in January; however, its severe weather throughout much of the country did impact us in February.

[Jon Vrabely:]

Thank you, Phil. As difficult and challenging as the pandemic has been on all of our lives, managing the company through the rapidly changing business environment has been equally challenging. In light of the threat and challenges COVID-19 posted to business, its focused, motivated and galvanized the entire management team to plan and execute the actions that provided the best opportunity to achieve our pre-COVID goals for the year. Throughout the second quarter, as we consistently reassess the market and analyze our performance under our response plan, it became clear that many of the actions we took in March and into the second quarter would drive sustainable benefits capable of supporting moderate levels of future growth, while strengthening our balance sheet. By the end of the second quarter, the majority of the actions we executed as part of our readiness and response plans late in the first quarter and early in the second quarter, were reflected in our income statement and balance sheet results. In addition, the housing market outperformed our original projections in the second quarter and appeared to be trending towards activity levels that would exceed 2019. Entering the third quarter, we were confident that the results of our actions to-date were sustainable and our efforts shifted from executing the COVID-19 plan to constant monitoring of our performance and control. The results of our two date actions, combined with the better than expected housing market activity created the opportunity and capacity to refocus on executing our strategic product category sales growth plan. For many reasons our strategic product category growth plan is a cornerstone of our entire strategy. Our strategic product categories are complex and require scale and value-add fabrication services. They possess the greatest market growth potential, the most meaningful opportunity to differentiate Huttig in the channel, and the most expedient way to expand our margins. Despite supply chain challenges and labor shortages that negatively impacted all three of our strategic categories and hampered our ability to grow in the second half of the year, on a same store basis, in total we grew sales and expanded margins of our strategic categories in 2020. For the full year our strategic product categories accounted for slightly more than 48% of our total revenue and generated nearly 55% of our total shipping margin. In 2019 our strategic categories accounted for slightly more than 45% of total revenue and nearly 52% of total shipping margin. In 2021 we will continue to closely monitor and adjust to the rapidly changing environment and will continue to execute our strategy. Our operating priorities are to continue to focus on our service levels and total customer experience, growing our strategic product categories and expanding our margins and working towards creating a high performing accountable culture with the most empowered and engaged associates. Operator, we will now take questions.

[Operator:]

Thank you.

[Jon Vrabely:]

Operator, as there appears to be no questions, we will proceed with my closing comments.

[Operator:]

Thank you. There are no questions in the queue.

[Jon Vrabely:]

In the fourth quarter and for the full year, on a year-over-year basis we successfully achieved meaningful improvements in virtually every aspect of our operating results. Our expense ratio, profitability and liquidity position are at the best levels in several years. Looking forward, combining the continued momentum from our strategic initiatives, improvements we have made in the business as a cautiously optimistic, near term housing market projections, the future for Huttig and all of our shareholders is bright. I cannot be more proud of our associates and I want to thank them again 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 continuing to place their trust in us to care for their business. Finally, I thank you for your ownership and interest in our company and for your participation in our call today. We look forward to speaking with you again in about 60 days when we report our first quarter results.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.