CSWI - Earnings call transcript Q2 2019

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Operator

Greetings, and welcome to the CSW Industrials Inc.

Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tom Cook with ICR. Please proceed.

Thomas Cook

LaTonya. you, Thank and XXXX everyone, CSW Fiscal Industrials' Good Call. welcome Quarter Earnings Second morning, to

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

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

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

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

Joseph Armes

conference second capital focus like remarks to on my I disclosed morning. you Thank formalized for you, thank would morning, Tom. joining call. policy this our our today earlier opening fiscal allocation Good quarter and

review believe Then formation investment shareholder Since of call the Industrials stated to recap value company of risk-adjusted brief to our with off length drive by conditions. communication the will and principles in we with balance through our outline opportunities. maximizing ample sheet transparency liquidity have process, this prioritized look to we taken planning for strategic and done strategic we XXXX, a by our connection deliver policy have of cash market. Gregg growth strategy, allocation end committed are within formalize we been strategy alternatives greatest we the have financials. decided of in of before the them keenly an to goal the the provide quarter results of capital shareholders. To increase the maximizing attractive our accountability will will the Board on our I we to both hand we that year, have was and ebb shareholder I closing available with to allocation shareholders. about the credit for our way a update Thereafter, our the CSW capital have market Throughout potential cash with maintaining returning at investment spoken pillars and Through allocation Directors flow have through that and while returns value community. our through at capital the to hard this to core have the our strong and years, a with through a In focused we

our growth continue as acquisitions through to strategic as well enhance organic product platform. growth will We complementary pursue to

investment. fluctuate, will We a is sound to that under and a sustained not debt-to-EBITDA this we support needed While - sometimes is is Xx. leverage it state a necessarily ratio static that investing as and meaningfully, will in needed target growth, number, recognizing strategic ratio

shareholders moment. are over from in more touch maintain an we combination I And a cash focused to will increase as of structure. with which efficient our priorities and share dividends, seek to will that detail expect levels current repurchases our capital leverage we opportunistic a time, Additionally, prudently on through on finally, allocation returning we capital

we As risk-adjusted following will based stated, us. capital our allocation to we returns risk-adjusted to returns have and continue highest basis initiatives often capital deploy available on a calibrate the strategy to the company on

First, we and capital organic product This growth deploy expect development. to sales includes improvements, force to operational opportunities. investments support new

we continue seek to Secondly, capital opportunities. through growth will to inorganic deploy

disciplined decisions. evaluate diligently to additional leverage we prioritize that our transactions. clarity, for which and team metrics, existing in operational has Development ability hurdle Corporate continue remained to disciplined we complete rates the To internal our remain footprint Our pace some to see while and channels acquisitions is to have bolt-on as cognizant will rich recent discussed ensuring accretive target tempered working we pursue acquisitions we our time, of have valuations and marketplace as market. investment Notably, return of the we provide

repurchase pleased Lastly, seek against through end, growth dividends. to completed we shareholders that to cash repurchase organic new program million share next opportunistic potentially of repurchase executed $XX our authorized put place we course million return of be XXXX. to and $XX Directors share am To that we a inorganic to the of benchmark report two opportunities years. previous our the which And program, the of have has in in and November Board I share over

results. our to moving Now

weather to quarter offset first quarter strong In million. Products with in increased we in with stronger and of with HVAC quarter, the Industrial growth quarter pleased revenue growth end markets. XX.X% X.X% driven Chemicals and saw compared second are the by second resulted segment, the cool spring, our revenue period had from the was both to tempered in we patterns. Industrial fiscal our and decline our from as saw In by $XX.X Products million business. Specialty a led our year-over-year normalized The our our sales year-ago of million. in segments, growth HVAC, Higher we plumbing which in volume. that relatively $XX.X solid resulted revenue strong We Consolidated observed $XX.X growth increasing results

at more growth is our full sales us forecasted ensure with and expect line even closely have to new expectations. continue coordinating normal third we in to for selling place ability and fair our in enjoy we products a architecturally Further, look positioning of and in to with who compared space in series backlog to best-in-class space nice customers curtains year, The integration leadership slated - across activity to products fair our year joints. are sales getting a our customers. Products sales shelf XXXX our specified of shelf is This specified that quarter, continue cross in our prior In our XX% share up of smoke we building project initiatives and our we are to existing products, in over nice including of to increased our order sales to wins the the expansion our As seasonality begin period. fruit. railings we prior architecturally with wins its with a as building our and businesses, business the We've and deliveries speaks and had offer team smaller million is fiscal bidding that's series a architectural in productivity. $X quarter the increasing Industrial bear

do slipping the market. driven see we in labor quarter, last projects right noted the shortages to As still by

to inputs side, On balance million reduce $X.X actively and expected leveraged to increase impact tariffs. of the managed inventory strategically cost cost sheet the we our by we upcoming have our also

volumes including million markets. X.X% was operating We in contributions driven compared increased to quarter the optimization margin plumbing and the year. XX.X%, driven our increased GAAP in-sourcing in orders revenue as compared our of the strong to enhancement fill the our observed product Chemicals. Jet-Lube programs, Specialty $XX.X mix Segment and distribution million and Turning margin $X.X segment operating $X.X XX% of small million margins prior products. prior by favorable year, by to the the $XX.X from income HVAC to GAAP in increased to end in million

Now team half high turning quarter, enjoyed to starts. some home HVAC, Beginning Broadly, the first choppiness during did is a the at the and in markets. of level. in growth end executing our we note new XXXX we modest with

growth. insulated sustained cycle. continues to demand products the commercial confident a construction from leadership the robust HVAC further our relatively our in not fundamental products, drive as a for our architecturally sales building growth, we are strong. and remain backdrop by In in do see sales of organic are and portion this to we specified replacement change Overall, large come a repair However,

delays across have industry tempered rates. However, our the project growth

And We our energy-related demand businesses. our integrated emphasize are at increased. a the continuing year-over-year rig bidding to Greco. we markets, up end during execute products and on have for basis, and and our are continue in project cross-selling experiencing strong on counts our our du Eau In we Soleil quarter as sales ticked bookings to force

as was rail rail are we energy trackside end lubricants. that market are actively we fully share seeing primarily participate continuation of some within a we products, monitoring growth In to our captured market share. in backdrop. our market specifically ensure we consumable that markets, our The the capture the improving We

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

Greggory Branning

sales revenue and earlier. segment. mentioned was second good Higher X.X% by Joe, revenue everyone. and Thanks Joe Industrial the quarter our $XX.X fiscal segment as XXXX Chemicals to during Products across million, morning, increased driven our Consolidated increased Specialty

million, Products at increased Looking to year. operating increase segment over income, revenue revenue a Industrial and prior $XX.X the segment-level our XX.X%

sales plumbing previously was increased mentioned, markets. revenue and higher Joe HVAC end by As driven in

cool the wet by quarter in first a of XXXX, were HVAC, within we Specifically negatively impacted spring.

was $XX.X a catch-up in basis the on basis, sales normalized, XX.X% eliminated As over fiscal operating year-to-date segment negative compared an income adjusted XXXX. million we prior segment weather in on for year. increase operating income $XX.X year. have to increased a that patterns prior GAAP impact the saw million a million, to And $XX.X any

over year, increased strong HVAC $X.X year, to revenue increased operating increased segment, XX% a in by Turning X.X% GAAP growth. segment prior plumbing volumes and markets. revenue end increase a prior the over segment higher $XX.X demonstrating the driven income to increase were our sales the million, Chemicals on leverage and million, to Specialty the

Consolidated of million consolidated profit our XX.X% $XX.X operating expenses prior year. the margin by and leverage. The the in more of increased or manufacturing million million decrease product as the or $XX.X to compared to operating income sales to $XX.X or XX.X% $XX in $XX.X year, Gross second sales for XX.X% to on or to the to the decreased to XX% costs, of increased increased million and quarter in sales gross percentage back $XX.X and leverage sales. prior freight by prior mix XX.X% of Turning Consolidated a million as offsetting increased year. a of than driven to was from sales results. negative the sales XX.X% compared XX.X% of prior driven sales million compared year, compared percentage sales were

which million on quarter our was in The effective for million. $XX.X $XX.X period was income rate ended to operating XX.X%, adjusted the XXXX, compared June tax XX, of operations prior with year line Our was expectations. the continuing

We the XX%. continue rate expect is expected our XXXX be fiscal to effective XX% to tax to of in range

XXXX normalized compared $X.XX share a Our rate, diluted quarter in year earnings million $X.X adjusted from per onetime of Adjusting the share share tax diluted or $X.XX share continuing to diluted consolidated the or $X.XX per the second $XX.X operations to in earnings $X.XX compared million applying $X.X in or period. per prior the were million exclude per prior $XX.X period. and or to fiscal period million expenses were prior diluted

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

Joseph Armes

quarter Gregg. the weather positive. year. expected are in where right normalization plan and to be closing, with the result, we full largely underlying on a led in trends we the serve Thanks we remain markets second for A In strong to end

supportive Looking our Specialty to expect operating and a basis. efficiency end serve year, to to of to the we have expect and revenue grow in a we to the leverage in the expect part of part due Chemicals continue normal due implemented the segment. to faster benefit outperform balance those markets operating we the programs benefits we And to income in from than on we markets in revenues, backdrop

to I would And opportunity capital this and our Now well to continue our our and by steward colleagues we ESOP a like I our of the at our serve we the of want our to customers take us of feel all thank entrusted my success. the employees note CSW to is shareholders. as X% there approximately employees meaningful own interest through now that company between alignment continued and plan, driver Industrials shareholders

Operator, Industrials. thank ready to take So CSW in you your interest with now that, for questions. we're

Operator

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

Jon Tanwanteng

to all the breakdowns? do is and you X/X your that Is As allocation there? going for terms you what the of where priorities M&A? investments, actual in plan, it see use X/X to rest ramp up in capital Or repurchases of new to allocation growth the

Joseph Armes

view Jon. we again, Again, rank that prioritize, it risk-adjusted we opportunities by Yes, kind our force don't in sense, of returns.

And set highest returns to so opportunity that risk-adjusted whatever our capital. where is going push the present in opportunities the we're

we'd just we're policy will, of going and in to like approach, risk-adjusted our the highest we by And so opportunities while capital DNA, a have to front by allocate to returns us. balanced

Greggory Branning

to that, it this is Jon, The Gregg, other thing timing. I is would add

Some things not. will at times present whereas themselves others will

Jon Tanwanteng

as most you risk-adjusted today do now? returns the where see sit And you

Joseph Armes

types be think - I those we all we with new repurchase opportunities what organic and respect do said, capital are alternatives efficiencies, is is And as products, we're the to rewarded all us. to we Well, markets, projects in Acquisitions going need the the attractive. to we'll to allocate approach opportunities Valuations sales obviously But highest expansion, but just I operational we're continue the first, I of prioritized future. absolutely think growth above. for I with development, prepared to. high, our is disciplined don't to mean, think good and committed are are risk those of of product there, that today something have I new in shares for think that. respect return-rated the to to attractive, we're disclose

Jon Tanwanteng

may it the learned And before. then acquisitions come acquisitions, been do such lessons Strathmore approach up strategic in guess, new I something hasn't that you, that hasn't be or noticed that, I the as How past? given with

Joseph Armes

going accretive, distribution platform. we're leverage that to leverage again, acquisitions our prioritize and our Listen, bolt-on Yes. channel product

priority some writing But you line to yourself accretive our something find when However, channels. flexibility is leave make want our this, going product no bolt-on commit acquisitions and forward. like leverage to our you complement the to mistake, distribution that

Jon Tanwanteng

any sure not markets, And October? in just this what and end and in so, if if construction but from did and September you you hurricanes impact I'm notice? see HVAC you before, addressed and weather the cold rains did

Greggory Branning

we does I the outperform And the for the is perspective the at look to continue happened, QX. would that trying really to markets is and this the in clearly, the I general, play. for QX, as and half that way cooler will Jon, expect balance been Gregg. I has say probably that to QX. of the QX, we back prior QX, make in we made to in the in in the come quarters, that in think the so fall, into QX is best the to to see understanding It use strong us normal growth soft first at get think growth comment what and that seasonality but made at then half, we up a and seasonality essentially up given you're look expected We what a shortfall year. QX from

Jon Tanwanteng

your that of prices Just prices, field products? just on crude import the the How for there. may businesses a oil the some be other impacts and volatility recent comment

Joseph Armes

is colder the really, in and there, expected. some weather, or than we come hot related a need earlier, little so was little there that's the a up guess, not far we Canada good. really impacted this count would follow, what to earlier in-between you good be felt expect down Well, I much fall - the question. but that would dry more frozen, is your a Canada, there. have to us to up weather really of question say Prices wet I and in it haven't weather bit rig bit, so And

energy-related the demand, products not an there's and specific and rig in products follow did but for it by good we products, mitigated Jet-Lube energy count oil commodity can keep we and is impact question, their this our and is will see decrease we've we're on other no terribly our But that So so in Jet-Lube business, of point, prices eye at matters. concern. part the - price not huge industries, some the impact but it's there a it,

Greggory Branning

again, seen - be U.S. drive isn't us. on a had Freight driver costs and as across headwind, by part hitting we've that's have trend continues prepared seen to tariffs remarks. to in much so as and the your has And to go on Gregg continued place - with have input up shortages, is that shortages, There, put they this much biggest we that's And regulations the all materials us that in the very raw your can in mentioned of minor other truck seen drivers input cost. Jon, we've second question freight. been effect how as being to companies a on so our that

then present on be of monitor they and the that to through stay in and increases relief and X% various than costs even a in of tariffs get will from codes, businesses less have sense them are offset obviously Joe to continue leverage will that And we increased by of sheet other and that being things and on price come we likely our done in we've change tariffs it. and and - through our did and ahead think seeing we our remarks, to get that government did we As requires other help mentioned and we will tariffs, mention to codes and as us. try of offset applying things that inventory balance the All the in we freight doing costs. particular, input prepared the ultimately wrong, pushed will if try But were the our protect is us. standpoint no said, some tariffs that our that just going And that. we're that

Operator

would over comments. Armes Mr. to to back time, like I call this turn Joe for the closing At

Joseph Armes

us in we call. to appreciate And today's interest again, joining on CSWI doing next again your Great. quarter. and look this your forward Once

So thank much. very you

Operator

Thank you, today's teleconference. everyone. This conclude does

you disconnect your You this for participation. thank and lines at your may time,

CSW Industrials (CSWI) 10 Nov 182019 Q2 Earnings call transcript