Masonite International Corporation Reports 2018 First Quarter Financial Results

TAMPA, Fla.--()--Masonite International Corporation ("Masonite" or "the Company") (NYSE:DOOR) today announced results for the three months ended April 1, 2018.

Executive Summary - 1Q18 versus 1Q17

  • Net sales increased 6% to $518 million versus $487 million. Excluding foreign exchange, net sales increased 3%.
  • Net income attributable to Masonite of $21 million compared to $24 million. The first quarter of 2017 included $5 million of discrete tax benefit related to share based compensation.
  • Diluted earnings per share decreased to $0.73 from $0.77.
  • Adjusted EBITDA* increased 17% to $61 million versus $53 million.
  • Repurchased 691,783 shares of stock in the first quarter for approximately $44 million.

“We are pleased with the higher margins we delivered in the first quarter versus the first quarter last year as we offset higher raw material inflation through a combination of price and productivity actions. While harsh winter conditions in both North America and the UK created a slow start to the year, we experienced positive momentum through the quarter and into April,” said Fred Lynch, President and Chief Executive Officer.

First Quarter 2018 Discussion

Net sales increased 6% to $518 million in the first quarter of 2018, from $487 million in the comparable period of 2017. The increase in net sales was the result of a 3% increase in average unit price (AUP), and a 3% benefit from foreign exchange. Increased volume in our North American Residential segment and from recent acquisitions was essentially offset by lower volume in Architectural and the Europe base business.

  • North American Residential net sales were $360 million, a 6% increase over the first quarter of 2017, driven by a 3% increase in volume, a 2% increase in AUP, and a 1% benefit from foreign exchange.
  • Europe net sales were $87 million, a 24% increase from the first quarter of 2017. The sales increase was due to a 13% benefit from foreign exchange and an 8% increase in AUP. The acquisition of DW3 in January of 2018 added a 16% increase in net sales while base volume in Europe declined approximately 12% primarily due to unusually harsh winter conditions.
  • Architectural net sales were $67 million, a 7% decrease from the first quarter of 2017. The 2017 acquisition of A&F Wood Products contributed 4% of incremental net sales and an increase in AUP contributed 4%. Sales volume in the base business was down 15% on slower end market demand and order flow due to timing of major projects and inclement weather early in the quarter.

Total company gross profit increased 10% to $105 million in the first quarter of 2018 compared to $96 million in the first quarter of 2017. Gross profit margin increased 80 basis points to 20.4%, due primarily to higher AUP and improved factory productivity.

Selling, general and administrative expenses (SG&A) of $68 million increased $3 million, or 5%, compared to the first quarter of 2017. The increase in SG&A was driven by foreign exchange increases and additional costs from recent acquisitions. SG&A as a percentage of net sales was 13.2%, a 20 basis point improvement compared to the first quarter of 2017.

Net income attributable to Masonite decreased $3 million to $21 million in the first quarter of 2018. In the first quarter of 2017 we recognized $5 million of income tax benefit due to the exercise and delivery of share based awards. Adjusted EBITDA* increased 17% to $61 million in the first quarter of 2018 from $53 million in the first quarter of 2017.

Diluted earnings per share were $0.73 in the first quarter of 2018 compared to $0.77 in the comparable 2017 period. The $5 million of income tax benefit added approximately $0.17 to diluted earnings per share in the first quarter of 2017. Adjusted diluted earnings per share matched diluted earnings per share in the first quarter of 2017 and 2018.

Masonite repurchased 691,783 shares of stock in the first quarter for $44 million, at an average price of $63.88.

Forward-looking Statements

This press release contains forward-looking information and other forward-looking statements within the meaning of applicable Canadian and/or U.S. securities laws, including our discussion of our 2018 outlook, housing and other markets, and the effects of our strategic initiatives. When used in this press release, such forward-looking statements may be identified by the use of such words as “may,” “might,” “could,” “will,” “would,” “should,” “expect,” “believes,” “outlook,” “predict,” “forecast,” “objective,” “remain,” “anticipate,” “estimate,” “potential,” “continue,” “plan,” “project,” “targeting,” or the negative of these terms or other similar terminology. Forward-looking statements involve significant known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Masonite, or industry results, to be materially different from any future plans, goals, targets, objectives, results, performance or achievements expressed or implied by such forward-looking statements. As a result, such forward-looking statements should not be read as guarantees of future performance or results, should not be unduly relied upon, and will not necessarily be accurate indications of whether or not such results will be achieved. Factors that could cause actual results to differ materially from the results discussed in the forward-looking statements include, but are not limited to, our ability to successfully implement our business strategy; general economic, market and business conditions, including foreign exchange rate fluctuation and inflation; levels of residential new construction; residential repair, renovation and remodeling; and non-residential building construction activity; the United Kingdom's formal trigger of the two year process for its exit from the European Union and related negotiations; competition; our ability to manage our operations including integrating our recent acquisitions and companies or assets we acquire in the future; our ability to generate sufficient cash flows to fund our capital expenditure requirements, to meet our pension obligations, and to meet our debt service obligations, including our obligations under our senior notes and our ABL Facility; labor relations (i.e., disruptions, strikes or work stoppages), labor costs and availability of labor; increases in the costs of raw materials or wages or any shortage in supplies or labor; our ability to keep pace with technological developments; cyber security threats and attacks; the actions taken by, and the continued success of, certain key customers; our ability to maintain relationships with certain customers; the ability to generate the benefits of our restructuring activities; retention of key management personnel; environmental and other government regulations; and limitations on operating our business as a result of covenant restrictions under our existing and future indebtedness, including our senior notes and our ABL Facility.

Non-GAAP Financial Measures and Related Information

Our management reviews net sales and Adjusted EBITDA (as defined below) to evaluate segment performance and allocate resources. Net assets are not allocated to the reportable segments. Adjusted EBITDA is a non-GAAP financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparable to similar measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or operating cash flows determined in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not include certain cash requirements such as interest payments, tax payments and debt service requirements. Adjusted EBITDA is defined as net income (loss) attributable to Masonite adjusted to exclude the following items: depreciation; amortization; share based compensation expense; loss (gain) on disposal of property, plant and equipment; registration and listing fees; restructuring costs; asset impairment; loss (gain) on disposal of subsidiaries; interest expense (income), net; loss on extinguishment of debt; other expense (income), net; income tax expense (benefit); loss (income) from discontinued operations, net of tax; and net income (loss) attributable to non-controlling interest. This definition of Adjusted EBITDA differs from the definitions of EBITDA contained in the indenture governing the 2023 Notes and the credit agreement governing the ABL Facility. Adjusted EBITDA, as calculated under our ABL Facility or senior notes would also include, among other things, additional add-backs for amounts related to: cost savings projected by us in good faith to be realized as a result of actions taken or expected to be taken prior to or during the relevant period; fees and expenses in connection with certain plant closures and layoffs; and the amount of any restructuring charges, integration costs or other business optimization expenses or reserve deducted in the relevant period in computing consolidated net income, including any one-time costs incurred in connection with acquisitions. Adjusted EBITDA is used to evaluate and compare the performance of the segments and it is one of the primary measures used to determine employee incentive compensation. Intersegment transfers are negotiated on an arm’s length basis, using market prices. We believe that Adjusted EBITDA, from an operations standpoint, provides an appropriate way to measure and assess segment performance. Our management team has established the practice of reviewing the performance of each segment based on the measures of net sales and Adjusted EBITDA. We believe that Adjusted EBITDA is useful to users of the consolidated financial statements because it provides the same information that we use internally to evaluate and compare the performance of the segments and it is one of the primary measures used to determine employee incentive compensation.

The tables below set forth a reconciliation of Adjusted EBITDA to net income (loss) attributable to Masonite for the periods indicated. We are not providing a quantitative reconciliation of our Adjusted EBITDA outlook to the corresponding GAAP information because the GAAP measures that we exclude from our Adjusted EBITDA outlook are difficult to predict and are primarily dependent on future uncertainties. Items with future uncertainties include restructuring costs, asset impairments, share based compensation expense and gains/losses on sales of subsidiaries and PP&E.

Adjusted EBITDA margin is defined as Adjusted EBITDA divided by Net Sales. Management believes this measure provides supplemental information on how successfully we operate our business.

Adjusted EPS is diluted earnings per common share attributable to Masonite (EPS) less asset impairment charges, loss (gain) on disposal of subsidiaries, and other items, if any, that do not relate to Masonite’s underlying business performance (each net of related tax expense (benefit)). Beginning in the fourth quarter of 2017, we revised our calculation of Adjusted EPS to exclude the beneficial impact of the deferred tax revaluation recognized as a result of The Tax Cuts and Jobs Act of 2017 and the release of a valuation allowance in Canada as such tax assets are likely to be realized in future periods. The revision to this definition had no impact on our reported Adjusted EPS for the three months ended April 1, 2018 or April 2, 2017. Management uses this measure to evaluate the overall performance of the Company and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the Company from period to period. This measure may be inconsistent with similar measures presented by other companies.

* See "Non-GAAP Financial Measures and Related Information" for definition and reconciliation of non-GAAP measures.

MASONITE INTERNATIONAL CORPORATION
SALES RECONCILIATION AND ADJUSTED EBITDA BY REPORTABLE SEGMENT
(In millions of U.S. dollars)
(Unaudited)
 
 

North

American

Residential

  Europe   Architectural  

Corporate &

Other

  Total   % Change
Year to date 2017 net sales $ 338.0 $ 70.0 $ 71.8 $ 7.3 $ 487.2
Acquisition volume 11.2 2.9 14.1 2.9 %
Base volume 11.4 (8.6 ) (11.1 ) (1.3 ) (9.7 ) (2.0 )%
Average unit price 6.4 5.6 3.2 15.2 3.1 %
Components and other (0.1 ) (0.1 ) (0.5 ) (1.7 ) (2.4 ) (0.5 )%
Foreign exchange 4.0   9.0   0.4   0.1   13.5   2.8 %
Year to date 2018 net sales $ 359.7   $ 87.1   $ 66.7   $ 4.4   $ 517.9  
Year over year growth, net sales 6.4 % 24.4 % (7.1 )% (39.7 )% 6.3 %
 
Year to date 2017 Adjusted EBITDA $ 44.9 $ 7.7 $ 5.2 $ (5.3 ) $ 52.6
Year to date 2018 Adjusted EBITDA 50.4 9.9 7.7 (6.6 ) 61.4
Year over year growth, Adjusted EBITDA 12.2 % 28.6 % 48.1 % nm 16.7 %
 
MASONITE INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 
  Three Months Ended
April 1,
2018
  April 2,
2017
Net sales $ 517,879 $ 487,181
Cost of goods sold 412,450   391,624  
Gross profit 105,429 95,557
Gross profit as a % of net sales 20.4 % 19.6 %
 
Selling, general and administration expenses 68,211 65,110
Selling, general and administration expenses as a % of net sales 13.2 % 13.4 %
 
Restructuring costs, net   293  
Operating income (loss) 37,218 30,154
Interest expense (income), net 8,756 7,024
Other expense (income), net (272 ) (514 )
Income (loss) from continuing operations before income tax expense (benefit) 28,734 23,644
Income tax expense (benefit) 6,701   (1,679 )
Income (loss) from continuing operations 22,033 25,323
Income (loss) from discontinued operations, net of tax (250 ) (245 )
Net income (loss) 21,783 25,078
Less: net income (loss) attributable to non-controlling interest 957   1,513  
Net income (loss) attributable to Masonite $ 20,826   $ 23,565  
 
Earnings (loss) per common share attributable to Masonite:
Basic $ 0.74 $ 0.79
Diluted $ 0.73 $ 0.77
 
Earnings (loss) per common share from continuing operations attributable to
Masonite:
Basic $ 0.75 $ 0.80
Diluted $ 0.74 $ 0.78
 
Shares used in computing basic earnings per share 28,189,790 29,861,099
Shares used in computing diluted earnings per share 28,672,262 30,454,988
 
MASONITE INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share amounts)
(Unaudited)
 
ASSETS   April 1,
2018
 

December 31,

2017

Current assets:
Cash and cash equivalents $ 37,651 $ 176,669
Restricted cash 11,220 11,895
Accounts receivable, net 296,306 269,235
Inventories, net 241,414 234,042
Prepaid expenses 29,032 27,665
Income taxes receivable 1,859   2,364  
Total current assets 617,482 721,870
Property, plant and equipment, net 585,225 573,559
Investment in equity investees 11,621 11,310
Goodwill 175,870 138,449
Intangible assets, net 239,862 182,484
Long-term deferred income taxes 27,715 29,899
Other assets, net 25,789   22,687  
Total assets $ 1,683,564   $ 1,680,258  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 110,956 $ 94,497
Accrued expenses 114,454 126,759
Income taxes payable 1,790   869  
Total current liabilities 227,200 222,125
Long-term debt 625,694 625,657
Long-term deferred income taxes 75,682 60,820
Other liabilities 35,415   35,754  
Total liabilities 963,991 944,356
Commitments and Contingencies
Equity:
Share capital: unlimited shares authorized, no par value, 27,851,728 and
28,369,877 shares issued and outstanding as of April 1, 2018, and December 31,
2017, respectively 619,554 624,403
Additional paid-in capital 217,228 226,528
Accumulated deficit (26,286 ) (18,150 )
Accumulated other comprehensive income (loss) (103,935 ) (110,152 )
Total equity attributable to Masonite 706,561 722,629
Equity attributable to non-controlling interests 13,012   13,273  
Total equity 719,573   735,902  
Total liabilities and equity $ 1,683,564   $ 1,680,258  
MASONITE INTERNATIONAL CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 
  Three Months Ended
(In thousands) April 1,
2018
  April 2,
2017
Net income (loss) attributable to Masonite $ 20,826 $ 23,565
 
Add: Asset impairment
Add: Loss (gain) on disposal of subsidiaries
Tax impact of adjustments  
Adjusted net income (loss) attributable to Masonite $ 20,826   $ 23,565
 
Diluted earnings (loss) per common share attributable to Masonite ("EPS") $ 0.73 $ 0.77
Diluted adjusted earnings (loss) per common share attributable to Masonite
("Adjusted EPS") $ 0.73 $ 0.77
 
Shares used in computing diluted EPS 28,672,262 30,454,988
 

The weighted average number of shares outstanding utilized for the diluted EPS and diluted Adjusted EPS

calculation contemplates the exercise of all currently outstanding SARs and the conversion of all RSUs. The dilutive

effect of such equity awards is calculated based on the weighted average share price for each fiscal period using the

treasury stock method.

 

 

    Three Months Ended April 1, 2018

(In thousands)

North

American

Residential

  Europe   Architectural  

Corporate &

Other

  Total
Adjusted EBITDA $ 50,398 $ 9,930 $ 7,660 $ (6,574 ) $ 61,414
Less (plus):
Depreciation 7,344 2,303 2,030 2,257 13,934
Amortization 481 3,239 2,254 611 6,585
Share based compensation expense 3,065 3,065
Loss (gain) on disposal of property,
plant and equipment 533 79 612
Interest expense (income), net 8,756 8,756
Other expense (income), net 35 (307 ) (272 )
Income tax expense (benefit) 6,701 6,701
Loss (income) from discontinued
operations, net of tax 250 250
Net income (loss) attributable to non-
controlling interest 970       (13 ) 957  
Net income (loss) attributable to
Masonite $ 41,070   $ 4,353   $ 3,297   $ (27,894 ) $ 20,826  
 
  Three Months Ended April 2, 2017
(In thousands)

North

American

Residential

  Europe   Architectural  

Corporate &

Other

  Total
Adjusted EBITDA $ 44,937 $ 7,738 $ 5,214 $ (5,295 ) $ 52,594
Less (plus):
Depreciation 7,484 1,810 2,370 2,360 14,024
Amortization 993 1,667 2,161 1,149 5,970
Share based compensation expense 2,427 2,427
Loss (gain) on disposal of property,
plant and equipment (399 ) 140 (27 ) 12 (274 )
Restructuring costs 271 22 293
Interest expense (income), net 7,024 7,024
Other expense (income), net 157 (671 ) (514 )
Income tax expense (benefit) (1,679 ) (1,679 )
Loss (income) from discontinued
operations, net of tax 245 245
Net income (loss) attributable to non-
controlling interest 917       596   1,513  
Net income (loss) attributable to
Masonite $ 35,942   $ 3,964   $ 439   $ (16,780 ) $ 23,565  
 

Contacts

Masonite International Corporation
joanne freiberger, CPA, CTP, 813-739-1808
VP, TREASURER
jfreiberger@masonite.com
or
brian prenoveau, CFA, 813-371-5839
DIRECTOR, INVESTOR RELATIONS
bprenoveau@masonite.com

Contacts

Masonite International Corporation
joanne freiberger, CPA, CTP, 813-739-1808
VP, TREASURER
jfreiberger@masonite.com
or
brian prenoveau, CFA, 813-371-5839
DIRECTOR, INVESTOR RELATIONS
bprenoveau@masonite.com