JELD-WEN Holding, Inc. Q3 FY2024 earnings call

Bill Christensen started by noting the transformation journey and challenges from softer demand, volume and mix issues in North America and Europe, quality/delivery problems, and loss of a Midwest customer. Actions taken include right-sizing SG&A spending, addressing quality issues (e.g., improved door skins quality), establishing wind rooms for customer acquisition, and footprint consolidation (e.g., closing facilities and optimizing production). Samantha Stoddard then walked through financials: Q3 revenues $935 million, down 13% y/y; adjusted EBITDA $82 million, down $24 million y/y; free cash flow a use of cash of $6 million; net debt leverage ratio at 3.1x above target range.

In the third quarter, North America segment generated $678 million in revenue, a decline of 14% from prior year. Its adjusted EBITDA decreased to $75 million from $100 million year-over-year. Europe segment generated $257 million in revenue and $16 million in adjusted EBITDA. Core revenues decreased by 12% year-over-year, and adjusted EBITDA declined by $8 million, leading to margins of 6.3%. North America's decline was driven by lower volume mix and negative price cost, partially offset by improved productivity and lower SG&A. Europe's decline was due to lower volume mix almost exclusively attributed to volume, partially mitigated by solid productivity improvements.

Revised 2024 net revenue guidance to $3.7 billion to $3.75 billion from $3.9 billion to $4.1 billion. Adjusted EBITDA guidance lowered to $265 million to $280 million from $340 million to $380 million. Expect $115 million in cost savings this year. Anticipate $100 million in additional EBITDA from transformation projects in 2025, with CapEx expected to remain elevated between $175 million and $200 million.

Softer demand environment impacting results; quality and delivery challenges across manufacturing units; loss of a Midwest retailer representing a near-term challenge; macroeconomic headwinds continuing to affect market outlook, including elevated interest rates, weak consumer confidence, and low existing home sales affecting repair and remodel activity.

Q: Can you give more color on the quality issues and their relation to the loss of the Midwest customer, and size the Midwest customer's impact?

A: Loss of Midwest customer not due to quality issues. Quality issues in doors and windows due to plant issues and deferred maintenance, with progress made on door skins quality but other areas still being worked on. Midwest loss is roughly $75 million to $100 million on a full year run rate, with 2024 impact on sales about $20 million to $25 million.

Q: How soon might the decrementals from challenges normalize?

A: Don't expect significant change in volume/mix reality in early 2025, expect '25 to be a turning point, with back half of '25 seeing leverage improvement as volume hopefully picks up.

Q: How did sales progress through the quarter and into October, and thoughts on margins being depressed?

A: Volume mix continued to deteriorate, R&R market remained soft, with no dramatic signals of improvement or worsening. Inventories stable for the softer environment. Back half of 2024 EBITDA guidance implies certain run rate, with $100 million incremental savings expected to be evenly balanced through 2025.

Q: Can you talk about capturing lost business and when it might impact?

A: Set up win rooms to react to market opportunities, focusing on customer acquisition. Impact expected in H2 '25 as initiatives are set up and ready to go.

Q: Thoughts on mix being a driver in 2025?

A: Safe assumption is mix will be flat, with significant upside if consumer confidence and market conditions improve, but not anticipating improvement in 2025.

Q: Capacity to handle more projects and alignment with quality metrics?

A: Over 350 live projects, re-sequencing based on challenges, accelerating cost initiatives, focusing on footprint optimization. Key levers are footprint automation and process improvements. Inventory balanced given market reality, with resale market reinvigoration needed for improvement.

Q: Unpacking the significant change in mix and its anniversary and flattening in 2025?

A: Mix change unprecedented, Q3 more mix than volume, Q4 more volume than mix. Sales guidance revision due to softer R&R, lower sales mix, loss of Midwest customer, Europe softness, and multifamily headwinds. Mix impact likely to flatten as market conditions improve but not immediately in 2025.

Q: Competitive dynamic with imported Windows and mix from production builders?

A: Loss of Midwest customer seen as a unique choice, not a trend. Production builders building lower-end homes driving mix down on doors business, underrepresented in windows for that sector.

Q: Capital allocation and buybacks?

A: Capital allocation focused on transformation investments, with buybacks on back burner due to leverage ratio above target and focus on improving EBITDA.

Q: 2025 CapEx and multifamily lag?

A: CapEx expected to continue at current rate as there's still work to do on footprint optimization. Multifamily start to revenue lag is 6-9 months, with portfolio building for harvest in back half of 2025 but moderate uptake currently.

Q: Mix dynamics and volume outlook for 2025?

A: Volume mix expected to be flat to down in 2025, with phasing of improvement in back half. Transformation includes both daily activities and tough decisions on capital allocation and portfolio management to drive long-term growth.