CSWI - Earnings call transcript Q4 2018

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Operator

Greetings, and welcome to the CSW Industrials' Fourth Quarter 2018 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. Tom Cook, Investor Relations for CSW Industrials. Thank you.

begin. may You

Thomas Cook

Good fiscal Mellissa. and to welcome Thank quarter morning investor Industrials' fourth call. CSW you, everyone

Joining me today CSW are Joseph Armes, Chief Gregg Chief Industrials; Executive Branning, Financial Officer. and Officer of

is earnings received to replay earnings www.cswindustrials.com. not access call recorded. will the today's being release. are replay is our details be you've If available This release, it and website available the at of call the A in on on how

current update per undertake materially accordance XX-K on and During and will and operating in These a not of of the we'll statements during call earnings duty annual used also any and are These this to per assumptions operating on factors of as are comments not release substitute income, the earnings be SEC. statements. other subject this section based call, our report and that forward-looking non-GAAP measures uncertainties. an GAAP. making and with supplement are in Actual differ performance. discussed for, do income, share expectations analysis include income call with should net filings a We forward-looking the adjusted be share, various financial non-GAAP risks of and in to factor Form made earnings results today's and could computed statements. because measures to, This income which net any risk

Joe and income, Chairman I income our the operating For Executive over would turn adjusted to earnings share, Chief a like call see and Joe? more discussion complete earnings Officer, now net per our release. of Armes. to

Joseph Armes

of of strong recent morning. to and which segments million restructuring continuing conference efforts $X We benefit that with our over and from XX.X% with taxes with benefit to fourth XXXX fiscal continuing And in had sales by our the organic both Good a in improvement improvement. Adjusted a our results, results growth compared you thank you, consolidated joining to from quarter level, two-thirds finish periods, reflects earnings everyone call. operations highlighted were across quarter At fiscal adjusted XXXX operating driving operations. our growth lower associated realignment solid a was fourth earnings Thank of for prior in legislation. and the million X.X% $XX.X and of grew million $X.X Tom.

opportunities, past. and well from has acquisition to Operationally this unique successfully broader team cross-selling architecturally expectations and XX.X% good Greco In business existing offering our been about study our force, for our our products, trailing which business products, leveraging their case be higher business, Moving $X volume to volumes by the year industrial covers, our the of our Greco note which a $XX.X from line driven demand set with cut-offs sales results as very to to million. HVAC on we very segment of overall acquired for growth organic continue which up the executed sales prior very above pumps, product exporting we've our products. lead of able condensate spoken in specified In strong included contributions X.X% beginning months and with building mini-split a is XX.X% We've deliver strong into higher in sales has finished million such been and integration to are our platform. through the successful sales XX as acquisition us. to

the project. Looking de Eau product Soleil on delivering ahead we are

remains new well. integration Smoke strong projects progressing pipeline with sales Our of the is efforts our Guard exceptionally and

two a we projects notable that I'm joint units. discrete geographies are projects our seeing pleased to uptick report and bidding in in complementary those teams are fact, In leveraging of business

plumbing were fourth Segment level products. million and driven negative that X.X% million energy compared or year. of quarter product XX.X% volume the products $X.X sales X.X% period prior to and chemical specialty which was segment, mix or we discrete in sales offset related our prior during of rail expect by the increase operating and lower of to repeat. mining million the related an Higher $XX.X were by of compared partially sales some Turning as to sales of year do margin $X.X costs to result primarily was not a adjusted in the higher

of We are to the energy operations improve our refining products. profitability related

been us manufacturing field we've quarter cost example in-house. These to from the cost at a fourth the operations strategic strike and products carry products XX to Jet-Lube a week and has package which bring higher Rockwall facility balance right during smaller commenced production our an Texas the day small pricing. working hour/seven As integration we reducing enabled typically between

On the margin. improves improves asset products cost product side, utilization and in-sourcing these

like plans that I’d will enable the to initiatives. available allocation minimal touch We're Next strong capital shareholder value. cash growth our organic and having envious flow fund debt on position of to and to in inorganic maximize us

pay bolsters to acquisitions. During us of the we million our debt and it reserves in bolt-on active under $XX.X revolver the strategic allowed cash pursuing quarter our as which we in our down remain outstanding majority cash repatriated

valuations As return our the past over limited disciplined elevated we've activity quarters. few past, our has the remain and parameters stated in risk-adjusted approach to

resources point growth. redeployment to additional and efficiency targeted product R&D production included activities development coupled additions volume enhancement drive returns. refocused in While we've to reviewed. enhance margin With personnel backdrop, utilization of internally our asset and a expansion our increase higher organic sales the international international has fund as sales by future remain and we’ve to projects investments, This have will efforts of bringing we as M&A, resources opportunities key added favorable that our internal and to with on efforts in-house that of force, been disciplined for the to more we locations

executing to-date the in share on and our program purchasing In activity addition been we've in XXXX. shares we've quarter XX,XXX increased fiscal this repurchase fourth

additional We to generation return anticipating. ways given evaluate strong shareholders cash are that continue cash the to to we

we've with Next, enjoyed I strong Beginning growth update would like on HVAC, XXXX. markets. to throughout our give fiscal an end

as new home residential robust cut-off the to we've growth well condensate the seen Our compared year. HVAC switches have throughout prior year performed

Importantly, peak in strong of the demand from systems to early construction installed XXXXs. we are continuing at by systems driven housing the of see replacement aging the

of the aging this HVAC acceleration continued building our an result expected In have enjoy mid-single-digit construction for to strong of commercial to architecturally be products, expect products. demand we a sustained a backdrop growth an to specified installed we our base, through XXXX. non-residential As and with construction area

project end fiscal additional outlook health the head points of is XXXX. this the to for the Beyond our growth which upon as broader into dependent we business pipeline market,

our markets, rig to distribution products broad-based demand Turning Jet-Lube has for grow to plumbing, led count related of we're driven to our and products. channels. unique energy portfolio which end continues In robust for our offerings growth by our seeing improving strong

be where Finally portion strong offset we've sales with has very of mining, served that in market mix to pleased are international to total added growth very positions domestic weakness to resume which but we us market to markets resources which the our a end we decline growth or in overall XXXX. domestically. small end international small able Mining continued is have observed offset growing represents business in rapidly

these the I'm look prospective to multiple this information have leading leverage also long-term we process, to over update divesture. a we’ve to pleased I this business quarter, of discontinued appropriate interest working strategic to Before business business from operations which our identify provide report diligently and on would Gregg, moment as brands, been to to Since last as we've coatings the providing while early relatively can and we buyers turning additional owner soon an moved forward in industry the are call still we take practical.

Our results for driving XXXX fiscal value. our commitment to underscore long-term shareholder

improve as to while proprietary the - expand and new Our our we sales value-add high-end products. high in offerings through continue revenue also geographic diversifying profitability areas, our product and

pleased strong the growth organic our growth, by identifying drive ahead. in and which we value fund driving throughout We flow our continue to fiscal we've and free I optimizing turn done production are strategy. in with well-positioned the inorganic to that cash year XXXX, facilities, work to increased believe allow us synergies am generate

take the Gregg I'll our that, over financials. with Now closer to look call at turn to a

Gregg Branning

of during good Thanks fourth the XXXX quarter increased Joe, X.X% everyone. revenue $XX.X to and morning million. Consolidated

total sales and result organic legacy mainly acquired the growth volumes from and which in was of $X business HVAC building our and business was X.X% plumbing The end our from markets strong architecturally revenue the Greco contributed million partially products. by the growth. X.X% was sales Our decreased of in acquisitions specified Greco higher offset

of our that of by XX months fiscal increased operating February income as remind strong and points two Reported at million, XX.X% Greco The by percentage I sales operating products. business segment everyone were income by increased were sales driven the rail driven for higher volumes Specialty partially level increased so volume plumbing sales primarily partially offset segment $XX.X for income, building result HVAC related was lower the products products revenue our quarter on XX.X% income the was XX, our up from to was previously specified offset segment adjusted we revenue million. Looking basis primarily revenue acquired industrial to by on which in XXXX. operating sales to and of markets legacy and energy XX.X% $XX.X sales the increased segment million. and acquired the adjusted architecturally products. inorganic sales X.X% $XX.X a The the while increased mainly in of Greco I’ll increased mining volume. Segment $XX.X the comparison segment call of and XXXX chemicals end plumbing fourth improved revenue to operating mentioned XX.X%. that decreased Greco million

the $XXX,XXX. exclude decreased adjusted non-recurring to the sales some the to the income million of of segment fourth to million not reported $X.X prior operating compared repeat. this compared unfavorable was and Our income $X.X of operating the percent a year. due mix to quarter costs the operating compared segment that that as to X.X% in prior we've and was The seen year expected year costs, XX.X% primarily Adjusted throughout in are year to to decrease period $X.X segment operating income was discrete million income period product prior

our results, million restructuring sales to compared in The increased million. increased mix business sales. to sales operating gross year-over-year. leverage lower or expenses unfavorable reflected Gross prior consolidated XX.X% year year costs our business. and the Greco to was partially million compared Consolidated expenses expenses level of increased quarter year the lower expenses XX.X% by in gross the percentage discrete to to primarily in operating profit period. margin higher to operating consolidated realignment to $XX.X grew our to one-time prior of on the XXXX XX.X% prior and chemicals specialty increase fourth acquired or by due from in margin compared offset offset the of and XX.X% Turning sales a Higher XX.X% of revenue was as partially $XX.X of $XX.X

improvement on was operating point quarter was fourth operations Consolidated reform basis tax tax operating U.S. continuing XX or benefit year. the with the of accumulated the a for compared foreign net for for in to pleased X.X%. sales expenses tax negative of effective income were rate one-time XX.X% fourth we cash year-over-year. increase the and our in $XX.X X.X% income the compared due earnings The quarter of mandatory passed the on subsidiaries The refinement prior XX, of million a The sales, prior legislation of adjusted profits March to the tax million. repatriation quarter. result of percentage $X.X based $XX.X and million XXXX period from a was ended the million, X.X% the transition year was sales a As operating $XX or to of

fiscal share million XXXX rate, million to $X earnings or XXXX. expected was XX.X% share quarter expenses in stated Adjusted is up per $X.X or XX% normalized $XX.X $X.X in to Our on a million and the range of applying $X.XX diluted fiscal diluted share exclude $X.XX $X.XX as to per adjusted previous the earnings in compared fiscal XXXX in XX% to continuing one-time was fourth or the of compared share tax tax or Consolidated million we've period. to prior be from $X.XX diluted diluted per operations to calls. per effective rate

to XX.X% working improved The million capital primarily Our increased operating profits, in increase taxes. fiscal increased XXXX. and driven by $XX.X lower flow from cash continuing management operations was

lower expect management. operations to continuing We and to of as and we in tax continue fiscal working domestic result cash operational rates from efficiency further be drive enhanced XXXX flow capital a as

back capacity quarter at million $XX.X of with had and balance revolving our closed credit and quarter us acquisition million flexibility growth on $XX.X million turn provides which end net $XXX on call Our Joe. ample sheet borrowing cash of our the the strategy. we to to our With fund I'll debt that, was and facility

Joseph Armes

how with pleased In finished we’re closing, Gregg. Thanks we the very year.

We’re of both highly and XXXX. growth focused segments on profitability fiscal business driving in our in

to shareholders. in and also also as such to look a colleagues us CSW expect a continue my capital year ahead, Industrials the long-term want who and company our our to our everyday sustainable our progress to well expect to thank as we great customers by all the great building you deliver to - opportunity continue this to value I we to entrusted we at As we do job we shareholders. serve steward for take

So interest your today. thank take now for CSW you ready Operator, in Industrials to we’re questions.

Operator

Securities. first comes Instructions] Please of [Operator Jon CJS Our proceed line question. with question the your Tanwanteng from with

Jon Tanwanteng

energy? growth, for are rail gentlemen. about And back taking the in my you Nice the comment you markets quarter. end near morning, heading? future Good What pretty come HVAC. you How quick may do if on It's on questions. that for And is, at a or guys. sustainable one organic good all? maybe given Thanks consistently mining gave Joe, where X%. think been

Joseph Armes

Jon over our bad we and our and product the news portfolio but say in good over it news is and markets. diversified broadly in we the are end that here

to rig typically is back There markets it. to leveled construction in cycle XXXXs early that’s a installed that’s up in to off current repair think end and hot, for repair, is the two respect and just number bit done the one that sale like that feel little are that struggling or products. residential through going things end And sustainable. remains and two of strong. our base. replacement was job it are an our or have two Energy going three somewhere our HVAC coming I the rate count so, that replacement we now are really markets or one middle important that organic Huge to here growth this with of cycle has drive manage but the we’re on HVAC

our in given markets drive a to small our certainly can organic well penetration and commitment. and that our goal market that growth think continue I number above GDP we that's of

Gregg Branning

Jon this is Gregg.

have cycle I driving as coming where due. the growth we've to The HVAC Joe to expect future growth that units to is that and so continue early XXXXs, to are those that that that strong we’ve the Joe other see those a talked last business the continues thing add sustained always that in XX XX the growth mentioned. and cycle about Joe would said mentioned that had units on typically replacement That And of all come as we service strong MRO replaced. be out and get years

Jon Tanwanteng

Gregg, specialty think margin the the to drivers bit just how going But And taking on are little we I'm were down specific should segment, the are these you on and what improve wondering, margins. chemical forward? sequentially? a went both of steps took you in it? them that year-over-year What operating the

Gregg Branning

call We them and had out quarter. for them benefit write-offs they believe we in didn’t We one-time. were we so had costs or receivables employee some some some fourth also but out that Yes, then mentioned we we had discrete costs. some the adjust

I of and were the total was So biggest that around in those quarter think impact. grand XXX the so

We continue mix strong to as that see the the to we’ve throughout product we negative seen sales. energy-related continue product year have

work to remarks in and We’re asset mentioned working our Chemicals. in improve that, Specialty to our to continue increase as utilization efficient more prepared there Joe hard become

Jon Tanwanteng

mentioned increasing national your And then Joe, finally, you effort. sales

to forward, or think being How that How Some those items? things are through you flow should assets and the does SG&A? we R&D or about given to costs accelerated, the going is corporate adding also resources M&A.

Joseph Armes

at that forward. right the of all not in working sales, with sales the sales and we’re focus lot a is adding own through won't have and we be the sometimes highest that run money our probably reps. and value there right projects really these human The It's in and of and changing that to will lot cost and attention, the a lot spend Again having segment level time, then a there. sure be a significant P&L. not resource effort, R&D employees their R&D, M&A geographies, spent to will we’re they’re on adding need the of we And increase piece focus just sometimes process people commercial we’re a driving some are the of money distributors, process again that respect are making real on other it are

hit to all I so any but a bag wouldn't investments those the how mixed income might a it's to will result. respect We And bit think expect pay of of see diminution margins those for as statement, themselves. a with

Gregg Branning

bit I is fiscal to would at look little we to for color, the of them expenses of this Jon due XXXX, Gregg. operating do tick we Joe a expect cost mentioned. add our some And that when up

think range XX% in going the going our $X in price. there between will somewhere I and higher our cost be OpEx tick million company. million be that's of XX% to and where of up The results between and XX%, of primarily we’re to driver a that the as corporate some somewhere share is actually $X biggest

effectively. You for may but and stock the that so awards discussions will up, the goes as price cost share base prior of to uptick, we price manage so some in create recall share that our where up continue performance that goes the cost drives very

Jon Tanwanteng

a just could on buyers potential business. multiple coatings quick announce transaction that happen mentioned there? something you could any soonest the Finally, is the you think When thoughts that for and - or there's suitors you

Joseph Armes

limited in hard have obviously but and December than really on to working XX we’re date what we’re that and it. we’ll say, just earlier we well going be can we’re Yes, be drop-dead careful that Jon, that we a think about obviously we beyond

very the and attention list progress it’s strategic showing an pleased and the very interest, a with pleased. with high of with of the and and very pleased pleased quality group parties very interest buyers we’re the We’re

Operator

Riley Liam Please next Our proceed Instructions] from Burke B. of line Company. with question comes and your with [Operator the question.

Liam Burke

Joe, you down for was quarter. mentioned architectural the project-based. It organically business the is

You've as It's be up. touched the confidence in end your expect both? you markets just or your markets or got to XXXX end on and function would you business that strong of a visibility

Joseph Armes

have did that we solved. that couple projects have there out big I that both have we We didn’t say a would did XXXX do gotten repeat. we issues of think there execution Really with we If many some visibility with and to. bid around get. we of and analytics respect respect number amount we X projects that bookings to done bids of fair been to has expect should a And how

And feel next a like good of are we and building day. That’s so business a pretty clearly, we ship on got product our visibility. call and does unlike it which we specified architecturally our customers lead just handle products business longer have that the other The buy more some XXXX. time

in together from between sells Guard seeing all it's of news part the that products that’s and good. visibility and benefit marketed still The market to we’re last thing yes projects there, and So a the synergies seems lot at those that. the and would really lesser looking even the I above. now the particular say is stopping and are Greco the we’re then RectorSeal is being fire good of all some that strong, cross-selling Balco of but our Smoke a is extent of again some little And and that

Gregg Branning

backlog I ticked Gregg, has that which is And precursor the is for add up would Liam a legacy is XXXX. business thing this that other our in

very we fiscal So mentioned analytics there. a done for job and we feel that have bookings watch Joe had backlog and the good on to nice the a as can has what’s issues going happen mentioned we execution while in Joe some so team the closely XXXX,

Liam Burke

it? in you of year-over-year or the those strong the driven mix capital, metrics and however a working function terms has to of side. of out Gregg, have define improved was it, performance Or at Is what both turns? liability you that Strathmore the asset pulling actively current want managed very current

Gregg Branning

at you clearly look I Strathmore of year-over-year working think of a little it’s when out number. of both is both the sets capital

to standpoint. ops, for But issue on from Strathmore. business our working on working number in as that’s working us we and clean capital capital it's to an focused continuing flow because balance capital a sheet into said base statement now, disc So in clean very a both the was putting prior focus we over on Obviously is ops the a on that everything will and Strathmore for a it. heavily year cash and continue

annual incentive In fiscal become XXXX, fact a program our operating flow for everyone. cash will in metric in

be drive on flow going that. it's interest further so based it everyone's align cash properly be And not and to also the on earnings, operating just to

Liam Burke

now? I rate apologize you if or you And expect running at that mention it would there tax is change. be to if mentioned the no you Did

Gregg Branning

In the Yes, now driven fourth new XX.X% various that's exist. that by taxes and we to and between the prior would previously bill I’ve had expect such on as as tax basis on perspective discrete we an shield tax from our the tax of continued effective aspects tax lower and the rate federal adjusted on said a foreign - compensation, calls quarter the rate didn’t earnings XX%. XX%

Operator

Our question the from line with proceed Sidoti Joe of Company. question. with & your Mondillo next comes Please

Joe Mondillo

little I at was ask, apologize the that stronger the I that given industrial primarily So of missed just to But business suffered want maybe have anticipating, the and revenue weather a in I just bit. anything so little repeat, would if my I call, growth than in segment a expectation I I beginning advance. the very the ask was apologize, HVAC

am just actually just that that that the numbers a weigh that. to even even I on business you And if of could tell, is comment given little maybe than indicate stronger on bit? sort weather So that wondering did does growth us maybe

Joseph Armes

Joe. is this Joe,

firmly was distributors. strong - in quarter preseason because of the products the fourth sales that to the that very we believe HVAC up industrial think that I stock

ends big for as And now along years a up. month huge the we March our is driver year for way so several of all said the

particular. from we very customers preseason in And very, strong orders large so what stocking customers, saw our was

some spring And and in weather - we pleasantly, cool kind was that of the with we're result. of the but very we pleased were - face very so pretty agree

those got a Now selling the reorders since our eye how factor shelves. on to time, an keep are fast that we’ve customer because from it's

the forward. so Dallas too HVAC so. the I But good degrees wouldn’t get effect away have next for little the lag is, or still standpoint least could a carried news in at we expected And from here weather over week of there, bit so extrapolating is XXX the

And so the in, be these heat strong, summer as not going the numbers should really extrapolate linear customers strong sets reorders March sell our are mild through forward items into distributor, see we necessarily plus those and on at to in but numbers again I basis. would going winter a

Joe Mondillo

guess, And at And maybe in margins material They increase than or the little or your lighter price were Anything just sort of thoughts terms eight incrementals the there, I going that what weighing is incrementals the anticipated. quarters. seven a weakest, of product-mix-related were forward? that? least on incremental in there are

Gregg Branning

it’s performance not we’ve the the that and tracking in backlog past. that and looking upwards. why in incremental But to talked definitely on legacy of quarter our that strong quarter drag put being about as incremental the important were some the tend specified seen is Joe. see Gregg, ticking quite that the that very we’re not margins did in the so in impact that’s is be profitable down to They on architecturally due and sales sales which improvement having This we their side the We forward products. it's so a the building

footprint on the incremental increase to overall in don't still fall volumes. mid our we low see in from as there as an to need those we headroom that normal operating mix through to volumes, a margin standpoint ample increased continue for are we XXs cycle. And that business believe We

Joe Mondillo

a last in timing had on announced going want say how I project but that of Greco in and it believe overall this What this year. is somewhere project Toronto, to coming I think. the to was the is segment performance significant be that to I year? the then, And big Canada,

Joseph Armes

total in is is award shipping should is project, a Toronto. XXXX. So Du of just $X under the through was talking specified Soleil. you’re all project one is project million products. large ship The fiscal architecturally It Eau It mostly building in its now. about that It

at expect our wouldn’t that necessarily what that's uptick look say So fiscal solidify would in and to there, businesses. helps in us just our total I it we sales XXXX an for

Joe Mondillo

just for And questions The just chemicals. margins been a how fiscal have to I'm weak margins think had wondering XXXX. about then I quite recently. couple specialty on

Gregg Branning

as impacted and by expect receivable we some business so sales So the out adjust remarks, we of those the to energy our continued that have were expect around margins related prepared discrete were as mentioned then fourth negative on don't in in quarter QX mix And some I the costs products. did $XXX,XXX related totaled benefit to some repeat didn't to those as and write-offs, well still employee improve. We cost. that we

fill products margins, which those our working utilization particularly related to energy is margins. working small the the hard improving on asset on very We’re on improve

on It see I our then we'll would and move mentioned previously in lastly said think I think as say I the we has products which we’ve margins have on been Joe focusing prior higher domestic why decline. international we've calls, in legacy that's our so benefit to been And as And a there. mining to is which forward. margins continues the offset we’ve of mining more that focusing help

Now not addressable us very market clearly it's of total we the that large a which number, is an for internationally mining but and market market mining is focus a area big in pretty base our so but it’s some we’re as coming why we’re will - benefit time focused going small that we to margins, grow help also further again take there. is to And there. serve

Joe Mondillo

me. And then last one for

talk how and fiscal doing trending XXXX? the chemicals, the how about mining specialty, and is at you rest could looking Just and ex-energy business in of that's

Gregg Branning

that and fact continue that and plumbing. that the are to Those trend are been chemicals. moved that going into So The would plumbing industrial and like sales within specialty S&A be products. trend to in just those would products the HVAC CS&A have effectively HVAC basically and has of former part

chem XXXX So in us seasonality for have. it didn't some that will fiscal spec previously create

a a uptick. of products like to for there weakness And and but plumbing they’re in in going so QX pretty in and will our rest QX - fiscal we’ll be the see our HVAC QX But those just fiscal in much just slight industrial QX fiscal like businesses. trend

Joe Mondillo

So count below I given I think Is segment. that revenue well is that the growth saw sort just plumbing of HVAC I would quarter? and levels. right production in X% mean, would be the I And leading doing we and energy really now, saw rig thought the -

Gregg Branning

at rig our the QX, energy I piece energy, increase the much segment. Well in a HVAC piece look is and far that by is count smaller it think and see you fiscal don't when is saw largest segment, but of a still plumbing total ton you but there. has it's in of so we the leading energy stabilized in as

Joseph Armes

also And so a down weighing it’s some Joe little be to as going and got more it growth general industrial bit like GDP there we have you’ve well. that

Gregg Branning

And used decline like railroads rail not the is down, the still on still - lubricants to because continued they putting has rail class too. I are

Operator

this for no Armes floor the Thank comments. back final any are you further questions there time. turn I'll you. at Mr. to

Joseph Armes

quarter. speaking interest look and for us to CSW in joining Appreciate you. early Industrials you and Well, next Great. Thank forward thank you bright again this everyone's to once again morning.

Operator

Thank teleconference. concludes you. This today's

you may for disconnect time. Thank lines your at participation. this You your

CSW Industrials (CSWI) 30 May 182018 Q4 Earnings call transcript