Cornerstone Building Brands, Inc. (NYSE: CNR) (the “Company”), the largest manufacturer of exterior building products in North America, today reported financial results for the quarter ended September 28, 2019.
Financial and Operational Highlights for the Third Quarter:
- Net sales of $1,285.0 million
- Gross profit of $309.8 million, or 24.1% of net sales
- Net income of $25.2 million with basic and diluted earnings per share of $0.20
- Adjusted EBITDA of $180.8 million, or 14.1% of net sales
- Net debt leverage reduction from 6.2x to 5.9x in the quarter
Strategic Highlights for the Third Quarter:
- Realized 240 basis point expansion in gross profit margin to 24.1% compared to 21.7% in the pro forma prior year period
- Achieved the expected merger synergies and cost initiatives during the quarter bringing the 2019 year-to-date total to $72.0 million of realized savings
Commenting on the Company’s third quarter performance, Cornerstone Building Brands’ Chairman and Chief Executive Officer, James S. Metcalf said, “During the third quarter, our operational initiatives including procurement, continuous improvement, cost initiatives and merger savings drove significant margin expansion across our windows, siding and commercial businesses, despite lower year-over-year market volumes. With a concentration on pricing discipline and cost management, we were able to successfully deliver a strong quarter at the upper end of our Adjusted EBITDA guidance range.”
“We also generated $97.7 million in operating cash flows for the quarter, which allowed the Company to pay down a net $50.0 million on our ABL facility. By de-levering and strengthening the balance sheet, the improvements actioned and delivered by our cost savings programs are exceeding expectations. Operationally, we remain focused on providing a premier level of quality and service with a broad suite of building products solutions to all our customers,” Mr. Metcalf concluded.
Third Quarter 2019 Results
In December 2018, the Company announced a change to its fiscal year end from a 52/53 week year ending in October to a four-four-five week calendar year end reporting structure. As a result of this change and the merger with Ply Gem, which was completed on November 16, 2018 (the “Ply Gem Merger”), the financial results for the third quarter 2019 are not directly comparable to the third quarter of fiscal year 2018.
Consolidated net sales in the three months ended September 28, 2019 were $1,285.0 million, compared to $548.5 million in the three months ended July 29, 2018. The year-over-year improvement was primarily driven by the additional net sales from PlyGem and Environmental StoneWorks (“ESW”), which was acquired on February 20, 2019.
Gross profit was $309.8 million in the three months ended September 28, 2019, compared to $133.4 million in the three months ended July 29, 2018. Gross profit margins were 24.1% in the three months ended September 28, 2019, compared to 24.3% in the three months ended July 29, 2018.
Selling, general and administrative (“SG&A”) expenses were $154.0 million in the three months ended September 28, 2019 compared to $79.0 million in the three months ended July 29, 2018. The increase in SG&A expense reflects the additions of PlyGem and ESW. As a percentage of net sales, SG&A expenses were 12.0% in the three months ended September 28, 2019 compared to 14.4% in the three months ended July 29, 2018.
Operating income in the three months ended September 28, 2019 was $95.6 million, compared to operating income of $54.5 million in the three months ended July 29, 2018. Operating income in the 2019 period reflects the additions of Ply Gem and ESW in the three months ended September 28, 2019 offset by $42.3 million in increased amortization expense associated with the intangibles from the Ply Gem Merger and the ESW acquisition, $10.5 million of additional strategic development and acquisition related costs, and $5.0 million of additional restructuring and impairment charges. Adjusted Operating Income, a non-GAAP financial measure which excludes certain items, was $112.9 million in three months ended September 28, 2019, compared to $52.0 million in the three months ended July 29, 2018.
Net income applicable to common shares in the three months ended September 28, 2019 was $24.8 million, or $0.20 per diluted common share, compared to $35.8 million, or $0.54 per diluted common share in the three months ended July 29, 2018. Net income was impacted by the special items mentioned above for operating income, partially offset by the $4.8 million tax effect associated with these items. Excluding the impact of these special items, Adjusted Net Income, a non-GAAP measure, was $38.0 million, or $0.30 per diluted common share in the three months ended September 28, 2019, compared to $34.1 million, or
$0.51 per diluted common share, in the three months ended July 29, 2018.
Adjusted EBITDA, a non-GAAP financial measure, defined in accordance with the Company's credit agreement as earnings before interest, taxes, depreciation and amortization, and certain other cash and non-cash items, was $180.8 million in the three months ended September 28, 2019, compared to $63.5 million in the three months ended July 29, 2018. Please see the reconciliations of Adjusted Operating Income, Adjusted Net Income and Adjusted EBITDA to the nearest financial measures prepared in accordance with GAAP in the accompanying financial tables.
Cash and cash equivalents as of September 28, 2019 were $105.2 million. As of September 28, 2019, the Company had $170.0 million drawn on its $611.0 million asset-based lending (“ABL”) facility reflecting $50.0 million in net payments made during the three months ended September 28, 2019.
Third Quarter 2019 Segment Performance
Net sales in the Windows segment were $504.3 million during the three months ended September 28, 2019, which included $108.8 million attributable to Silver Line. Ply Gem’s acquisition of a portfolio of products sold under the Silver Line and American Craftsman brands, certain manufacturing plants and associated distribution and support services was completed on October 14, 2018. Gross profit in the three months ended September 28, 2019 was $98.3 million. As a percent of net sales, the Windows segment’s gross profit was 19.5%. Operating income was $34.4 million in the three months ended September 28,
2019.
The Siding segment generated $315.8 million in net sales during the three months ended September 28, 2019, which included $45.4 million from ESW. Gross profit in the three months ended September 28, 2019 was $90.6 million and 28.7% as a percent of net sales. Operating income was $37.1 million in the three months ended September 28, 2019.
Net sales in the Commercial segment were $464.9 million in the three months ended September 28, 2019 compared to $548.5 million in the three months ended July 29, 2018. The year-over-year decrease was primarily a result of lower industry volumes. Gross profit was $120.9 million in the three months ended September 28, 2019, compared to $133.4 million in the three months ended July 29, 2018. As a percent of net sales, gross profit was 26.0%, an increase of 170 basis points, compared to 24.3% in the three months ended July 29, 2018. The increase was driven by pricing discipline combined with benefits from cost reduction initiatives and merger synergies. Operating income was $59.3 million during the three months ended September 28, 2019, compared to $80.0 million in the three months ended July 29, 2018. Operating income in the current three months ended September 28, 2019 was impacted by a change to the allocation of costs that had previously been in Corporate to the Commercial segment.
Guidance
The Company’s key economic indicators are tracking toward low growth in the residential new construction and repair & remodel markets and a moderate contraction in the commercial construction markets. Based on these market indicators and the synergies and cost initiatives, the Company expects Adjusted EBITDA to be in the range of $135 to $150 million for the fourth quarter of fiscal 2019.
The Company has provided additional detailed financial guidance in the quarterly investor presentation that can be found at www.cornerstonebuildingbrands.com under the “Investors” section.
Conference Call Information
The Company’s third quarter fiscal 2019 conference call is scheduled for Wednesday, November 6, 2019 at 9:00am ET. Please dial 1-412-902-0003 or 1-877-407-0672 (toll-free) to participate in the call. To listen to a live broadcast of the call over the Internet or to review the archived call, please visit the Company's website at www.cornerstonebuildingbrands.com. To access the taped telephone replay, please dial 1-201-612-7415 or 1-877-660-6853 (toll-free) and the passcode of 13695073# when prompted. The taped replay will be available two hours after the call through November 20, 2019. A replay of the webcast will be available on the Company’s website under the Event Calendar, Calls & Webcast section of the Investor Relations page of the website for approximately 90 days.
About Cornerstone Building Brands
Cornerstone Building Brands is the largest manufacturer of exterior building products in North America. Headquartered in Cary, North Carolina, the organization serves residential and commercial customers across new construction and the repair & remodel markets. As the #1 manufacturer of windows, vinyl siding, insulated metal panels, metal roofing and wall systems and metal accessories, Cornerstone Building Brands combines a comprehensive portfolio of products with an expansive national footprint that includes more than 22,000 employees at manufacturing, distribution and office locations throughout North
America. For more information, visit us at www.cornerstonebuildingbrands.com.
Contact:
K. Darcey Matthews
Vice President, Investor Relations
281-897-7785
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “anticipate," “guidance,” “plan,” “potential,” “expect,” “should,” “will,” “forecast” and similar expressions are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations, assumptions and/or beliefs
concerning future events. As a result, these forward-looking statements rely on a number of assumptions, forecasts, and estimates and, therefore, these forward-looking statements are subject to a number of risks and uncertainties that may cause the Company's actual performance to differ materially from that projected in such statements. Such forward-looking statements may include, but are not limited to, statements concerning our market commentary and performance expectations, including our expectations with respect to the Company’s estimated cost savings initiatives following the Ply Gem Merger. Among the
factors that could cause actual results to differ materially include, but are not limited to, risks and uncertainties relating to industry cyclicality and seasonality and adverse weather conditions; challenging economic conditions affecting the nonresidential construction industry; downturns in the residential new construction and repair and remodeling end markets, or the economy or the availability of consumer credit; volatility in the United States (“U.S.”) economy and abroad, generally, and in the credit markets; inability to successfully develop new products or improve existing products; the effects of manufacturing or assembly realignments; changes in laws or regulations; the effects of certain external domestic or international factors that we may not be able to control, including war, civil conflict, terrorism, natural disasters and public health issues; our ability to obtain financing on acceptable terms; recognition of goodwill or other asset impairment charges; commodity price volatility and/or limited availability of raw materials, including steel, PVC resin and aluminum; retention and replacement of key personnel; increases in union organizing activity and work stoppages at our facilities or the facilities of our suppliers; our ability to employ, train and retain qualified personnel at a competitive cost; enforcement and obsolescence of our intellectual property rights; changes in foreign currency exchange rates; costs and liabilities related to compliance with environmental laws and environmental clean-ups; changes in building codes and standards; potential product liability claims, including class action claims and warranties, relating to products we manufacture; competitive activity and pricing pressure in our industry; the credit risk of our customers; the dependence on a core group of significant customers in our Windows and Siding segments; operational problems or disruptions at any of our facilities, including natural disasters; volatility of the Company’s stock price; our ability to make strategic acquisitions accretive to earnings; to fully realize expected cost savings and synergies, including those identified as a result of the Ply Gem Merger; significant changes in factors and assumptions used to measure certain of Ply Gem Parent LLC’s defined benefit plan obligations and the effect of actual investment returns on pension assets; volatility in transportation, energy and freight prices; the adoption of climate change legislation; limitations on our net operating losses, interest deductibility and payments under the tax receivable agreement; breaches of our information system security measures; damage to our major information management systems; necessary maintenance or replacements to our enterprise resource planning technologies; potential personal injury, property damage or product liability claims or other types of litigation; compliance with certain laws related to our international business operations; the effect of tariffs on steel and other imports; the cost and difficulty associated with integrating and combining acquired businesses; potential write-downs or write-offs, restructuring and impairment or other charges required in connection with the Ply Gem merger; potential claims arising from the operations of our various businesses arising from periods prior to the dates they were acquired; substantial governance and other rights held by our sponsor investors; the effect on our common stock price caused by transactions engaged in by our sponsor investors, our directors or executives; our substantial indebtedness and our ability to incur substantially more indebtedness; limitations that our debt agreements place on our ability to engage in certain business and financial transactions; the effect of increased interest rates on our ability to service our debt and downgrades of our credit ratings. See also the “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2018, our Transition Report on Form 10-QT for the transition period from October 29, 2018 to December 31, 2018 and other risks described in documents subsequently filed by the Company from time to time with the SEC, which identify other important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forwardlooking statements, whether as a result of new information, future events, or otherwise.
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