Doman Constructing Supplies Group Inc. (DBM), a number one provider within the building business, has reported its monetary outcomes for the second quarter of 2024. The corporate noticed a decline in gross sales by 2.9% year-over-year, incomes $689.8 million, with a gross margin share of 15.7%. Adjusted EBITDA additionally fell by 23.4% to $50.6 million.
The lower is attributed to a slowdown within the building supplies market, impacting gross sales quantity. Nevertheless, Doman Constructing Supplies is actively managing prices and dealing to optimize margins within the face of those headwinds. The corporate highlighted its latest acquisition within the Southeast and a partnership with AZEK, signaling a strategic deal with development by means of acquisitions and an enlargement into the composite supplies market.
Key Takeaways
- Doman Constructing Supplies reported a lower in gross sales and adjusted EBITDA in Q2 2024.
- The corporate is experiencing a slowdown within the building supplies market.
- Focus stays on price administration and margin optimization.
- The corporate accomplished an acquisition within the Southeast and is pursuing extra alternatives.
- Doman is partnering with AZEK to distribute composite supplies in Canada.
- Gross margins are anticipated to remain inside 14%-16%, with potential volatility.
- A typical working capital launch sample is anticipated for the second half of the yr.
Firm Outlook
- Doman Constructing Supplies expects flat to barely decrease quantity traits within the latter half of the yr.
- Handled lumber costs within the South are projected to enhance.
Bearish Highlights
- The corporate confronted a 2.9% decline in gross sales in comparison with the identical quarter within the earlier yr.
- Adjusted EBITDA decreased by 23.4% from the earlier yr.
Bullish Highlights
- Doman Constructing Supplies accomplished an acquisition within the Southeast and is extra alternatives.
- The partnership with AZEK is anticipated to bolster development within the composite supplies market.
Misses
- Gross sales and adjusted EBITDA fell wanting final yr’s figures resulting from market challenges.
Q&A highlights
- CEO Amar Doman mentioned the acquisition panorama post-pandemic, noting a rise in alternatives.
- Doman supplied updates on the corporate’s Hawaiian tasks, together with supplying a rebuilt faculty.
- The potential Canadian rail strike might positively impression lumber costs.
- Administration thanked individuals and opened the ground to questions.
Doman Constructing Supplies Group continues to navigate a difficult market surroundings with strategic initiatives aimed toward development and effectivity. The corporate’s partnership with AZEK and its deal with acquisitions exhibit a dedication to increasing its product choices and market presence. Regardless of the present market slowdown, Doman’s administration stays centered on leveraging alternatives and managing the enterprise to mitigate the impression of decrease gross sales volumes.
Full transcript – None (CWXZF) Q2 2024:
Operator: Greetings, and welcome to the Doman Constructing Supplies Group Second Quarter 2024 Monetary Outcomes Convention Name. Presently, all individuals are in a listen-only mode. [Operator Instructions] As a reminder, this convention is being recorded. It is now my pleasure to show the decision over to Ali Mahdavi, Investor Relations. Please go forward.
Ali Mahdavi: Thanks, operator. Good morning, everybody, and thanks for becoming a member of us for Doman Constructing Supplies’ second quarter 2024 monetary outcomes convention name. Becoming a member of me this morning are the corporate’s Chairman and Chief Government Officer, Amar Doman, and Chief Monetary Officer, James Code. In case you have not seen the information launch, which was issued after the shut of markets on Friday, it’s accessible on the corporate’s web site, in addition to on SEDAR, together with our MD&A and monetary statements. I’d additionally prefer to remind you {that a} replay of this name can be accessible till midnight on August 26. Following the presentation of the second quarter outcomes, we are going to conduct a Q&A session for analysts solely. Directions can be supplied at the moment so that you can be part of the queue for questions. Earlier than we start, we’re required to supply the next statements concerning forward-looking data, which is made on behalf of Doman Constructing Supplies Group Restricted and all of its representatives on this name. Remarks and solutions to your questions in the present day might comprise forward-looking details about future occasions or the corporate’s future efficiency. This data is topic to dangers and uncertainties which will trigger precise occasions or outcomes to vary materially. Any data concerning forward-looking statements is made as of the date of this name and the corporate doesn’t undertake to replace any forward-looking statements. Please learn the forward-looking statements and threat components within the MD&A as these define the fabric components which might trigger or would trigger precise outcomes to vary. The corporate is not going to present steerage concerning future earnings throughout in the present day’s name and administration doesn’t anticipate offering steerage in future quarterly or interim communications with traders. I’ll now flip the decision over to Amar.
Amar Doman: Nice. Thanks, Ali. Good morning, everyone, and thanks for becoming a member of us on in the present day’s name. On the again of the primary quarter, which was in keeping with our expectations, the second quarter was comparable when contemplating the pricing surroundings, will increase in rates of interest, and the slowing North American housing market. These components, mixed with the continued considerations of a attainable recession, have cooled shoppers demand, placing downward traits on supplies pricing for the second quarter of 2024. To notice, Southern Yellow (OTC:) Pine is off 30% year-over-year. In consequence, throughout the quarter, not dissimilar to our disciplined strategy on tight stock administration, our prospects additionally remained conservative and replenished solely when wanted, protecting inventories gentle. In the course of the quarter, we noticed extra worth stability in Canada throughout all wooden merchandise. Nevertheless, within the States, lumber costs which have risen barely within the first quarter resulting from provide tightness have since pushed again down as change — sorry, as altering expectations for the timing of federal financial coverage easing resulted in weaker lumber demand. General, regardless of the varied macro headwinds and headlines which have influenced on our markets and finally on client spending, we’re inspired with the continued degree of exercise we skilled throughout the quarter, leading to modestly decrease gross sales when in comparison with the identical interval in 2023. These traits live on in our everyday actions. Nevertheless, our focus stays on [indiscernible] management to make sure we maximize margins and free money move technology. Our workforce’s deal with optimizing gross margin efficiency mixed with our fixed efforts on general price administration had been key contributors to our second quarter outcomes. Nevertheless, the slowing within the building market was a key issue within the decrease gross sales on a year-over-year comparative foundation. Our monetary and operational efficiency within the second quarter is a testomony to our capacity to work by means of unstable markets and our workforce’s observe file on managing the enterprise by means of comparable cycles. Our ongoing price administration deal with operational efficiencies and profitable integration efforts will proceed to allow the corporate to optimize gross margin and EBITDA margin efficiency. Put all of this within the numbers, our revenues amounted to $690 million. Regardless of market circumstances, gross margin remained strong at 15.7% or $108 million, adjusted EBITDA of $50.6 million, and our web earnings got here in at $17 million, and we paid a quarterly dividend of $0.14 per share. Wanting forward, we’re cautiously optimistic as we navigate by means of what appears to resemble unstable markets, whereas we proceed to handle our prices and at all times search for development alternatives. Stability sheet optimization technique stays a key precedence as we look ahead to having a strong growth-friendly and fire-ready stability sheet for opportunistic acquisitions. In the course of the second quarter, we efficiently renewed and amended our present revolving mortgage facility, extending the maturity date from December 6, 2024 to April 30, 2028, whereas all different materials phrases, together with the utmost accessible credit score of $500 million, remained unchanged. As at all times, we stay assured in our capacity to work by means of unstable markets diligently whereas serving our buyer wants with the very best degree of service. We stay enthusiastic about our development profile and the general prospects of the enterprise. We’ve got constructed a strong, numerous, and resilient enterprise in North America with a broad and rising footprint, which we’re extraordinarily happy with. With that, I wish to have James Code, our CFO, to take over and supply a evaluation of the corporate’s second quarter monetary leads to better element, after which we will open up the decision for analyst questions.
James Code: Thanks, Amar, and good morning, everybody. Gross sales for the three-month interval ended June 30, 2024 had been $689.8 million versus $710.7 million in 2023, representing a lower of $20.9 million or 2.9%, largely as a result of impression of the beforehand mentioned slowing within the building supplies market, which was partially offset by contributions from the Southeast Forest Merchandise acquisition, which closed in March of 2024. Our gross sales within the quarter had been made up of 76% building supplies, in line with Q2 final yr, with the remaining stability ensuing from specialty and allied merchandise of 20% and different sources of 4%. Gross margin {dollars} had been $108.1 million within the quarter versus $121.2 million in 2023, a lower of $13.1 million. Gross margin share was 15.7% within the quarter in comparison with 17% final yr. Bills for Q2 had been $75.1 million in comparison with $72.5 million in ’23, a rise of $2.6 million or 3.6%. As a share of gross sales, bills had been 10.9% in comparison with 10.2% within the prior yr. Distribution, promoting and admin bills elevated by $2.3 million or 4.2% to $57.5 million from $55.2 million in ’23, primarily resulting from broad inflationary pressures and the addition of Southeast associated prices. As a share of gross sales, DS&A was 8.3% in comparison with 7.8% final yr. Depreciation and amortization bills elevated barely by $312,000 or 1.8% from $17.3 million to $17.6 million, pushed primarily by purchases of property, plant and gear associated to the Southeast acquisition. Finance prices for Q2 had been $12.6 million in comparison with $10.5 million for a similar interval in ’23, a rise of $2.1 million or 19.8%, largely resulting from common web — larger common web debt versus the comparative quarter and barely larger rates of interest on the corporate’s variable fee who owned amenities. This quarter’s EBITDA was $50.2 million in comparison with $66 million final yr. A lower of $15.8 million or 24%. EBITDA for the second quarter of ’24 was impacted by non-recurring acquisition-related prices of $371,000. Adjusted EBITDA earlier than these non-recurring prices was $50.6 million in comparison with $66 million in the identical interval in ’23, a lower of $15.4 million or 23.4%. The lower in adjusted EBITDA was primarily as a result of beforehand mentioned general diminished gross margins within the quarter and a rise in bills as a result of broad inflationary pressures. Web earnings for the quarter had been $17 million in comparison with $29.2 million in ’23, a lower of $12.2 million or 41.8%. Web earnings for Q2 ’24 had been impacted by the beforehand mentioned acquisition-related prices of $371,000. Adjusted web earnings earlier than these non-recurring prices had been $17.3 million, a lower of $11.9 million or 40.9% as a result of foregoing components. Turning now to the assertion of money flows. The next actions accounted for modifications in money within the first six months of 2024: Working actions earlier than non-cash working capital modifications generated $68.9 million in money in comparison with $85.8 million within the first half of ’23. The lower in working money generated was largely a results of the beforehand mentioned decrease web earnings as a result of slowing within the building supplies market. Adjustments in working capital consumed $127.8 million versus $92.5 million within the first half of final yr. General financing actions generated web money of $93.9 million from fairness and debt stakeholders in comparison with $8.8 million within the comparative six-month interval in 2023. Shares issued web of transaction prices generated $701,000 of money in comparison with $609,000 final yr, and the corporate returned $24.4 million to shareholders by means of dividends paid throughout the interval, largely in keeping with the identical interval in 2023. Cost of lease liabilities, together with curiosity, consumed $13.5 million of money, in line with final yr. The corporate’s lease obligations usually require month-to-month installments, and these funds are all present. The corporate borrowed $132.2 million from its revolving mortgage facility throughout the first half of ’24 in comparison with $120.5 million in the identical interval in 2023. The year-over-year improve in web advances from the revolving mortgage facility is basically as a result of beforehand mentioned working capital modifications ensuing within the firm’s elevated facility utilization. We be aware that the acquisition worth consideration for the Southeast acquisition in March of ’24 was funded by the corporate’s money available, and subsequently, had no impression on our mortgage facility utilization. We additionally be aware the corporate was not in breach of any of its lending covenants throughout the six months ended June 30, 2024. Lastly, we invested a complete of $67.5 million of money within the first half of ’24, which included the Southeast acquisition in addition to ongoing upkeep CapEx, web of proceeds from inclinations. This concludes our formal commentary, and now — and we would now be glad to reply to any questions that you will have. Thanks. Operator?
Operator: Thanks. [Operator Instructions] Our first query is coming from Matthew McKellar from RBC Capital Markets. Your line is now stay.
Matthew McKellar: Hello, good morning. Thanks for taking my questions. First, are you able to perhaps simply speak about what you are seeing by way of the panorama for acquisitions and perhaps what your sense is of how vendor expectations could be trending?
Amar Doman: Yeah, for positive, and thanks for the query. We’re seeing extra alternatives within the acquisition market as issues have normalized popping out of COVID, and we have had some runway now behind us put up pandemic. So, we’re beginning to get again into the strike zone. After all, we consummated the Southeast acquisition this yr and we’re engaged on others on a regular basis. So, the surroundings is wholesome now, I imagine, for additional M&A exercise for our firm.
Matthew McKellar: Nice. Thanks very a lot. After which perhaps subsequent, it has been a few yr for the reason that tragic hearth in Hawaii, I believe. May you perhaps present some colour on how what you are promoting there has developed over the previous yr? And perhaps simply discuss round your expectations for a way enterprise traits by means of the stability of the yr given the tempo of rebuilding exercise you are seeing?
Amar Doman: Yeah. Doman is slowly coming again. We have equipped the primary faculty that was rebuilt instantly beneath type of a hustle order, if you’ll, to get accomplished. There are some building developing with some small condominium buildings that we’re contracting to produce, however no growth in Hawaii, so issues do transfer slowly down there. Very tragic, however we’ll have quite a lot of years of rebuild popping out of that, once more by means of tragedy sadly, however Lahaina can be a great spot for us, each on {the electrical} facet and the wooden facet because the years and allowing begins to unfold.
Matthew McKellar: Okay. Thanks very a lot. After which, final one for me. May you perhaps simply converse to what you assume the implications to what you are promoting could be if we see a Canadian rail strike?
Amar Doman: Yeah. I believe on our facet, we have got fairly good provide even through truck if that occurs, however that would definitely give lumber a heroin shot in Canada. So, if that occurs and we’re beginning to see SPF creep up, if I do know you observe it, so that you’re seeing a creep up within the money markets, everyone is beneath purchased. That appears like a professional strike, might occur right here. So, that may definitely impression the SPF market instantly. And I believe we will be okay on the availability facet, however heading into fall, it’d stability slightly bit relying on how lengthy it goes, however definitely it would not harm the lumber market in any respect.
Matthew McKellar: Thanks very a lot. I will flip it again.
Amar Doman: Thanks.
Operator: Thanks. Our subsequent query is coming from Yuri Zoreda from Canaccord Genuity. Your line is now stay.
Yuri Zoreda: Hey, good morning, and thanks for taking my questions. So general, I do know that pricing has been an enormous headwind, however simply curious as to how volumes are faring and your expectations for the second half primarily based on what you are seeing to this point?
Amar Doman: Yeah, I believe the quantity traits can be proceed — sorry, proceed to observe Q2, flat to off a number of %. It is just a bit sluggish. We had some pickup down in Texas with the hurricane that hit Houston actually exhausting within the related areas. So, we did have a quantity pickup there, clearly, in our fencing objects and a few decking objects for positive. However actually we see this type of flat boring tempo for the remainder of the yr, on tempo with Q2, with some pricing appreciation on the lumber facet is what we’re forecasting internally, type of got here off the underside a number of weeks in the past.
Yuri Zoreda: Thanks. That is very useful. And simply briefly, trying on the SG&A line, you have been delivering on the price containment entrance. It was only a bit larger this time round, and I perceive that partly displays Southeast, if not principally. So, simply curious as as to if there was the rest there that was one-time in nature or is {that a} good fee — good run fee for the enterprise going ahead.
James Code: Yeah, that is — yeah, it is Jay right here. Yuri, that is appropriate. That was nearly a 100% pushed by the acquisition of Southeast Forest Merchandise within the quarter. So, you could possibly count on to see an analogous quantity going ahead, in fact, protecting in thoughts that there’s some seasonality to SG&A with us. We are inclined to ramp up some prices in the summertime months after which again off slightly bit within the slower colder months of the yr.
Yuri Zoreda: Okay. That is all very useful. Thanks, guys. I will flip it over.
Operator: Thanks. [Operator Instructions] Our subsequent query is coming from Ariana Milin from CIBC Capital Markets. Your line is now stay.
Ariana Milin: Whats up, good morning. So, final quarter, you had talked about that regional volumes had been a bit weaker in Canada. Did you see this persist within the quarter?
Amar Doman: Sure, we did. All throughout Canada, volumes had been slightly bit weaker. We’ve got seen within the third quarter a pickup type of mid-July into now within the East and within the West. So, it was a little bit of a late begin for no matter cause, however the volumes have picked up once more in Canada. We do not see a runaway robust quantity third quarter, however definitely it is healed and recovered from that sluggishness of Q2 right here in Canada.
Ariana Milin: Okay. Thanks. That is useful. After which, how do you see handled lumber costs faring within the South throughout the second half of 2024?
Amar Doman: Yeah, I believe higher than the primary half. We’re seeing that uptick slowly come now, however no runaway market. No crystal ball right here, however we definitely bottomed, I imagine, three weeks in the past, and it is type of simply relying on the merchandise or dimension that you are looking at whether or not it is 4×4 or sure totally different objects have extra power than others, however it’s nonetheless only a — it is not an excellent lumber market as everyone knows. It is simply — it is oversupplied. And if we hear of some extra curtailments, I believe that is what is going on to regular to up the market even slightly bit extra. However proper now, it is simply — it is firmed up from the place it was and it is higher. It is not good, however it’s higher.
Ariana Milin: Okay, truthful sufficient. Thanks. That is all I’ve for now. I will get again within the queue.
Amar Doman: Thanks.
Operator: Thanks. Subsequent query is coming from Zachary Evershed from Nationwide Financial institution Monetary. Your line is now stay.
Zachary Evershed: Good morning. Thanks for taking my query. Amar, following up in your curtailment remark, might I get your ideas round sawmill price curve versus present pricing ranges? The place do you assume the ground is?
Amar Doman: Yeah, I believe proper now Southern Yellow Pine is simply worthwhile and SPF remains to be trying prefer it’s printing within the purple for the main noticed millers. So, there’s nonetheless, I believe, some ache there. However I believe it is getting nearer to breakeven prices, which is sweet and dangerous. The excellent news is that is good for these nice suppliers of ours, however the dangerous information is it might permit them to maintain reducing which can type of put a lid again on the value. So, a double-edged sword slightly bit there, however we’re pondering that we nonetheless need larger lumber costs and more healthy lumber costs and more healthy sawmills. So, the pattern remains to be higher for all of us concerned and I believe they’re round these breakeven ranges to reply your query.
Zachary Evershed: Bought you. Thanks. And so, it is actually that distinction in price to supply that is driving the bifurcation between SPF and SYP?
Amar Doman: Sure.
Zachary Evershed: And I am undecided when you’re going to have the ability to disclose, however with Southeast, what’s your tough cut up throughout commodities within the portfolio now?
Amar Doman: Yeah, I imply, Southeast is solely handled lumber within the two new markets, in fact, Indiana and Arkansas. And for us, we talked about shopping for this enterprise type of halfway by means of right here within the season. So, we have no forecast to reveal actually on these on that acquisition, however we are able to inform you that is actually a 2025 technique as we begin to reset and go after an entire bunch of various prospects that we have already been speaking to for subsequent yr and beginning to herald our quantity shopping for methods earlier than we introduced in our chemical pricing to get the synergies that we have talked about. We have built-in the pc techniques in beneath 60 days and the workforce did a fantastic job at Doman Lumber to do this. And now we’re trying ahead to increasing the margins and rising the enterprise into, once more, a pile of latest markets for us, which we’re very enthusiastic about, however quite a lot of that is going to come back subsequent yr.
Zachary Evershed: That is useful colour. Thanks. After which, only one final one for me on AZEK. Did that new contract change something, herald new enterprise or exclusivity?
Amar Doman: Yeah. So, AZEK for Canada, we’re partnered with AZEK down the US West Coast, and we’ve got a fantastic partnership. And up in Canada now, we’re adjusting to the AZEK model for our composite supplies. It may be a powerful model for our Doman Constructing Supplies division right here in Canada and we’re very excited to be partnered with, name it, 1 and 1A, Trex is 1, AZEK is 1A, rising quickly. And we’re very enthusiastic about 2025 within the composite supplies we will be distributing throughout the nation right here.
Zachary Evershed: Thanks very a lot. I will flip it over.
Amar Doman: Thanks, Zach.
Operator: Thanks. Subsequent query is coming from Ian Gillies from Stifel. Your line is now stay.
Ian Gillies: Good morning, everybody.
Amar Doman: Good morning, Ian.
Ian Gillies: I believe it was precisely a yr in the past this quarter the place you talked about gross margins being in that 14% to 16% vary. We have clearly gone by means of a really unstable commodity worth marker. Do you see any cause perhaps to replace that view or change it as a result of they’ve usually been fairly robust?
Amar Doman: Yeah, we expect that is the neighborhood, and it simply is dependent upon the severity of the volatility of the lumber markets that is going to maneuver that round slightly bit. Now that we’re by means of that COVID gyration stuff, that is our neighborhood. And once more, the bottom worth clearly being stronger advantages Doman. And if it is weaker, it weakens our gross margin {dollars} as evidenced right here in Q2. We’re beginning to see the market decide up. However once more, that’s the neighborhood. I do not assume we might modify that. Jay, would you agree?
James Code: I’d say so. And protecting in thoughts the 17% within the comparative for final yr that was type of a excessive watermark for us the place every thing type of lined up completely from a gross margin perspective final yr. So, at 15.7% for this quarter, we’re very glad with that efficiency and we must be fairly typical going ahead.
Ian Gillies: That is useful. After which, as we take into consideration the rest of the yr and the working capital launch, do you assume it is much like prior what I’d name regular years, or is there going to be something uncommon due to a number of the commodity fluctuations by means of the primary half of the yr?
James Code: No, Ian, we expect that — it must be a fairly typical sample that we’ll see within the second half of ’24, nothing uncommon there. You get slightly little bit of timing distinction on when it releases, however we count on that trough on working capital to, because it at all times does, come about within the November-December timeframe, and no cause to not assume it will likely be a typical sample.
Ian Gillies: Okay. Thanks very a lot. I will flip the decision again over.
Amar Doman: Thanks, Ian.
Operator: Thanks. We have reached the tip of our question-and-answer session. I would like to show the ground again over to administration for any additional or closing feedback.
Amar Doman: Thanks…
Ali Mahdavi: Thanks, operator, and thanks everybody once more for becoming a member of us in the present day. Ought to you have got every other follow-up questions, please be at liberty to achieve out to us. That concludes in the present day’s name and we look ahead to chatting with you once more on our third quarter convention name.
Operator: Thanks. That does conclude in the present day’s teleconference. Chances are you’ll disconnect your line right now and have a beautiful day. We thanks on your participation in the present day.
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