JELD-WEN Holding, Inc. Q4 FY2024 earnings call

• Acknowledged the hard work of the team and progress in transformation. - Fourth quarter faced pressure from weaker volume and mix in North America and Europe, but transformation initiatives provided some offset. - Implemented cost reduction initiatives, like idling a Windows plant in Iowa. - Discussed market challenges including continued consumer trading down, delayed remodeling, and impact of housing starts on certain segments. - Outlined network optimization program in North America to align with long-term strategy, including realigning footprint, accelerating automation, and enhancing customer service. - Identified near-term cost reduction initiatives like rightsizing factories and adjusting workforce. - Expect to deliver $100 million in annualized adjusted EBITDA improvements in 2025, with focus on reestablishing customer partnerships, optimizing network, and continuing cost and efficiency gains.

In the fourth quarter, North America segment generated $640 million in revenue, a 14% decline year-over-year, with adjusted EBITDA dropping to $42 million from $94 million prior year. Europe segment had revenue of $256 million in the fourth quarter with adjusted EBITDA of $17 million, a 6% decline in core revenues but a 1% improvement in adjusted EBITDA resulting in a 6.5% margin. For the full year, revenue declined 12% YOY, adjusted EBITDA declined 28% with margins contracting 150 basis points. Transformation efforts delivered approximately $115 million of benefits in 2024, but market conditions remained challenging with volume and mix pressures.

• Net revenues expected to range between $3.2 billion and $3.4 billion in 2025, a 4% to 9% decline in core revenues. - Adjusted EBITDA range forecasted at $215 million to $265 million. - Operating cash flow expected to be approximately $15 million, with capital expenditures at $150 million, resulting in projected use of free cash flow of ~$135 million. - Q1 sales expected to range between $750 million and $775 million, with adjusted EBITDA ~$20 million, expecting improvement in Q2 and beyond due to seasonality and transformation/cost management efforts. - Anticipate $100 million in annualized adjusted EBITDA improvements in 2025.

• Market volatility in North America with potential further declines due to factors like tariffs, high interest rates, inflation, and low new home inventory. - Continued softness in European market with moderate decline in residential construction and slight drop in commercial projects. - Uncertainty around tariffs, including potential impact on Canadian market.

Q: Hey guys, appreciate all the great color in terms of how you're tackling some of these dynamics. But I guess my first question was really around the step-up in your earnings progression even from 1Q to 2Q implicitly goes from $20 million to $64 million and certainly, first half versus back half, pretty noticeable pickup there. So I think, number one, it would be helpful to kind of give us a little more color on how that progresses, whether it's the $100 million transformation or the $50 million headwind mitigation, how does that get layered in? And then I guess in a more normal demand environment do some of these savings in the short term kind of reverse as well? Help us think through the progression would be really helpful.

A: Thanks, Phil. This is Samantha. So just think about the progression. As we talked about, we're going to be taking both some near-term actions, about $15 million this year as well as the transformation. Many of those actions will begin to take effect in Q2. So we have to adapt to the ongoing market dynamics by optimizing our factories, our support staff, and our SG&A and most of that takes effect beginning in the beginning of Q2.

Q: Hey guys, good morning. Maybe just the first one, can you just talk a little bit about your line of sight into really just how confident you are in achieving the $50 million of the mitigation savings and the $100 million transformation savings in this year, just given your market view here? And I guess on top of that, is the right way to think about it that the transformation you'll be doing anyway is the $50 million is just like how you would approach a more challenging market environment?

A: Yes, I think your last statement is fairly clear and spot on. On our transformation, this is our ongoing business to really improve the foundation and strengthen the future for JELD-WEN. So we have, I'd say, we have active projects that are already in flight, 80%, 85% of the $100 million, they're already running. So we have pretty good conviction on being able to deliver that. And I think our historical track record would suggest we're able to do what we say in this regard. The additional $50 million that is reacting to what we think will be another demand-challenged environment. And so we have to adapt our cost structure accordingly and make sure we're ready. Yes, we'd love the market to be turning up. But right now, we don't see any signals from any of our competitors, customers, or market research that would suggest a turn. So we're getting ready for a challenging year and making sure we're doing what we can control and doing that effectively.

Q: Thank you, good morning everyone. My first question is, can you talk a bit about organic efforts to regain share, especially given the environment that we're in, any progress that you're seeing there or projects that we should be looking for as we move through this year?

A: Yes. So there's a couple of things that we're doing on the growth side. Susan, clearly, this is a challenging demand environment, but there are always growth opportunities for us, both on doors and in windows. So there's two buckets that we're focused on. Number one is being more effective on the sales side. So we set up a pretty strenuous pipeline review processes in both our doors and windows organizations, have weekly stand-ups. We're building project pipeline and we're creating conversion models that will allow us to better predict where we think we're going to end the year. We're not ready to disclose details around that, but I'm very pleased with the pipeline progression. So that would be the organic piece. Second, would be really driving service improvements. Clearly, there are certain areas where we have to improve from a service level. I'm talking about quality and delivery because there are some pockets in this market that are still going and demand is strong, such as interior doors in the Southeast market. Unfortunately, there was many hurricanes last year and that's really pushed demand from some of our key partners in the region. So we need to make sure we can fulfill that effectively. So quality, delivery, and organic pipeline growth in the sales organization are the three levers that we're working on. And feel pretty confident that we're going to be able to gain back some of the share that we elected to step away from last year just based on profit pool, weakness, or the Midwest retailer that elected to go offshore.

Q: Good morning. You have Anika Dholakia on for Matt today. Thanks for taking my questions. First off, within your $150 million CAPEX guide for the full year, I'm wondering if you can give more detail on what this is being allocated to, is it more on the productivity side, or it's the growth, or it’s the maintenance, any details on that would be helpful? Thanks.

A: Sure. So it's -- I would say it's balanced right now between network optimization and improving automation in our facilities and with some portion also being towards our growth. So if you think about our special order project that we announced on the previous earnings call, there's a lot of work going into that around the updating of displays, making sure that we have the right systems in place to facilitate better special order process in our retail partner stores. When you think about the overall $150 million, you got to think a little less than $100 million is tied to maintaining the asset base for our overall network. So the $50 million of, let's call it, incremental to that is really the transformational CAPEX around network optimization, automation, and then some growth initiatives.

Q: Hi, thanks for taking my questions. First one, just go back to Phil's questions on tariffs, $50 million is not an insignificant amount, if that's not inclusive of Canada. So can you just help us understand if that's the incremental cost, what specifically is it related to in terms of the spend that you're bringing in?

A: Yeah, hey Mike, good morning. So the $50 million that's not tariff related, that's just inflation cost on our sourcing stack. So there's -- I mean, there's freight, there's labor inflation, there's material inflation. Those are the big buckets that fill the $50 million. So it's separate and distinct to potential tariff headwinds, which are currently not baked into that number. And our expectation is that we're going to be price cost neutral on that in the market for 2025.

Q: Thank you. You're talking about price costs flat with $50 million of traditional inflation headwind. There's so much mix pressure in your industry, what areas do you think you can get price, it just seems like this would just get mixed down whatever you raise prices on, where are you going to get that?

A: Yes. Well, good morning Keith. I do believe that, as we said before, the mix down that was occurring last year, we feel we're kind of at a run rate that's predictable on the mix. So we don't think there's going to be a significant amount of changes. On the mix, when we look at kind of our stack for expectations on volume around the builder side, on the new construction, and then on the retail and R&R side. So this is just us working extremely hard with our partners to make sure that we're doing what we can to control our costs, but if there is inflation and there still is inflation in the system, then we need to pass it through.

Q: The big customer loss in the Midwest, when will you anniversary that and can you give us any idea of what kind of revenue loss over 12 months that is?

A: Yes. So it's going to be kind of Q3-ish September around September end of Q3.

Q: And one final question, the previous comment on the corporate cost of $15 million to $20 million headwind, is this just normal compensation expense coming back or was there something that [Multiple Speakers]?

A: Yes. It's essentially normal essential variable compensation coming back in 2025. It's nothing out of the ordinary other than that.