CSWI - Earnings call transcript Q3 2019

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Operator

Greetings. And welcome to the CSW Industrials Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. pleasure your my Tom now is to host, introduce Cook. It sir. you, Thank

may You begin.

Tom Cook

Good welcome everyone. fiscal you, morning, Thank Kristine. And XXXX call. third earnings to quarter Industrials’ CSW

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

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

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

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

Joseph Armes

joining conference And Tom. fiscal Good for third call. morning. you, Thank our you quarter thank

our results with today begin brief for quarter. the to of recap going are We a

per Chemicals a markets. for I am pleased provide the off margins and earnings HVAC healthy share. exceptionally our will in In stronger Then $XX.X products per our each end Products had products. Gregg XX% up to contribution million, of some of an both and of strong will I markets. review general building sales I and the to we was share building were XX.X%. financials. that report segment review hand strength leverage. call revenue share by by $X.XX highlights higher cost was industrial XX% Products HVAC, closer our a share in driven segment increased and a Next was to end architecturally-specified we a in architecturally-specified to which prior GAAP of growth period operating led strong earnings to continued by per consolidated Industrial and from organic of sales $X.XX, XX.X%, revenue, revenue compared experienced year our $X.XX increase of at Higher segment, third Industrial to operating per adjusted products, resulted quarter, a our from as and remained and demand over diluted which and highlighted growth effective level Segment all of controls Specialty for

Although, stronger XX that the an performance prior year, related and basis expense results upgrade. compared ERP higher points spending on result a on compensation was of to down as

pace in innovative a our very demonstrated bring X.X% looking result end basis. the of grow as to we a market incremental excess capture expect to and are by we We organic new continue growth this at our to rate by and as markets, on revenue share, forward pleased products year-to-date

patterns quarter-to-quarter As and a as of the we weather. experience we said in volatility have do past, result order customer

we immediate expect event, growth third our line the some quarter, Atlanta, the trade more growth launched attend is as moderation quarter. in we At Anecdotally, AHR global which experienced the XXXX. an pace we benefited year-to-date the the new generated opportunity I third exception, HVAC team during see the show. to our of comparison largest The in in that for weather and rate from is with well designed our guard, had to monitoring easier which of as our an units, to the in These water would home quarters, some We be Expo trend protector a rate over the two compared rate. future water lap from expect Therefore, growth was third system innovative products, heating and launches damage. protect quarter occurred as triple growth the quarter next as surge our included cooling interest. substantial would leak few which product to the to no fiscal growth as cold in

Turning Chemicals $XX.X building points as and leverage X% improved volume million, architecturally-specified segment, activities our markets general bolstered products. basis and with improved profitability. end stemming in Operating almost margins XX.X%, Specialty to restructuring to sales higher XXX sales industrial our our growth grew from to

to Turning markets outpace to and we with term. over plumbing, see expect products for continue will beginning the end demand robust we HVAC we now end growth long our our and and market that

New housing headwind starts are a which moderating, presents to modest us.

insulated repair well seen products the backlog in as strong. remains architecturally-specified to used and remind our our to-date replacement not products new we In have that relatively are slowdown we activity construction, in applications, commercial bidding and Although, cyclicality, our are construction. stakeholders building would a as as we and

calendar in products this we XXXX. good so the Our completion have are a visibility category of near installed typically project, through

of our Greco are our category the relative of legacy geographic effects combined believe still market. small of of execute the strengthened this we our in Guard and more a Balco, through and ability have factor, the reach this acquisition to impactful breadth we to trends a and as result, Smoke macro as businesses with and Importantly, products in end player

follows and digits the in line track which mid-single was quarter, lubricants of third consists during with volume. applicators primarily track overall up which business, generally and was Rail rail traffic Our side

growth we growth business have the this a based macro type past, modest noted in we is GDP As anticipate forecast throughout XXXX. and on would

experienced we particularly count, to flat and in increasing relatively incremental rig quarter, growth Turning volatility North commodity American during the despite with energy, prices, Canada.

ability to this serve market. on We effect our will to these monitor their dynamics continue end and

third end markets, general in very in useful Finally, extend particularly lubricants for life that the the heavy strong machinery. our industrial of was quarter, demand

So healthy, capture pleased we business largely seeing the end in we cost are our that to markets from incremental tangible with very the reduction year. remain conclude, last to share our we and across continue are activities the third we our performance implemented benefits quarter,

we $XX.X strategic and To bringing plan, to focus We our designed which growth on $X.X capital to of shareholders during is initiatives, value. return investing continue that through organic the deployment includes acquisitions share in to maximize million. to the total to million plan cash strategic shareholder bolt-on This year-to-date end, repurchases, quarter, returned shareholders. the

return the of the providing and this direct the updates forward execution to continue providing to look opportunities on will to We capital strategy. additional we risk highest adjusted

Now, for call look at a will the over the I turn Gregg? to numbers. Gregg closer

Gregg Branning

during primarily quarter HVAC, and the building million. of and good XXXX in our end Higher to was architecturally-specified by driven both $XX.X Joe, Consolidated XX.X% products morning, general increased the Thanks, across revenue segments, increased revenue markets. third everyone. industrial sales

Looking over and HVAC, volumes to prior at operating increased markets. XX.X% increase the year. $XX.X driven and segment a our was by This level segment end industrial revenue the in increase general Products sales million, plumbing based by upgrading expenses, increased The income, XX.X% higher increase Industrial operating revenue to year. performance ERP compensation and segment increase systems. driven operating and by prior the increased income was income sales, in a spending over higher partially our offset million, $X.X GAAP

the XX end points basis increased of industrial sales by were and markets revenue higher year operating general lesser architecturally-specified XX.X% an margin on to GAAP segment the to spending a driven period Chemicals prior percentage decreased to the upgrade. $XX.X due third volumes sales, a prior compared increase building extent our in To X.X% As XX.X%, quarter ERP over million, Specialty year. of products. Increased to to

increased prior from The activities, was prior $X.X expenses. a and restructuring and to from sales, compensation savings offset million, due Our increase by GAAP segment over operating income the leverage increased increase to performance-based partially year. XX.X% realignment

GAAP quarter As compared to sales, XX.X%. a basis year the increased XXX points of to XX.X%, percentage of operating margin our period prior third

to turning million, Now results, to back gross in profit the $XX.X compared million our year consolidated prior to increased period. our $XX.X

due prior operating from driven in Industrial XX.X% increase based Consolidated of related our the the incurred increased in due to and cost Product segment. prior compared a decrease increased $XXX,XXX sales, was XX.X% million points were million XX.X%, from operating Consolidated operating for performance expense $XX.X results, by we margin gross of million quarter in in leverage. to to upgrade addition, ERP XX% XX-basis-point sales compensation expenses basis or percentage of XX% the sales Our or compared XX.X% year prior the approximately or sales income to year. year of of the in decrease The as increased $X.X a XX.X% million a to operating The XX operating of stronger result in the was $XX.X or representing period to third an expense quarter the sales. in sales, sales. of level to $X.X the increased

rate the XXXX the tax our was continuing the tax on filing following enacted effective adjustment for XXXX related to ended December to to XX.X%, to was law fiscal our accruals a due than higher Our return normal, which in XX, XXXX of third tax operations provision quarter return.

million continuing range million $X or shareholders earnings Adjusted and $XX.X diluted million our through $XX.X in share, provides expect share a end to the of strong closed our of balance on facility be third or to capacity revolving cash period. prior We share to Finishing position million in ample in XX%. the zero. from acquisition facility million pay in from even the XXXX an debt diluted return diluted of growth compared continuing or $X net $X generation year down the revolving share a $XXX in of We third on we continue -- strategy. $X.XX to million. adjusted of quarter XX% generate per through apply our normalized compared year million cash our cash credit $X.XX $X.X share our of flexibility repurchases This from yielded operations and million This effective driven as net our Consolidated the our with million million to $X.XX at the credit to rate to and income continuing ample quarter rate, to to $XX.X increased to by total was of accordion end $XX.X per of income cash quarter per per $XX of to the balance had fiscal was with sheet. operations additional fund quarter period. $X.XX XXXX share, diluted $X.X tax we the million borrowing adjusted prior quarter per the or operations

Now to turn the I Joe. call will back

Joseph Armes

successful a have quarter, in operating we also pleased are units XXXX. momentum to we Thanks, believe are in months fiscal two business. we with very left fiscal across third in with execution pleased are the I well-positioned We our conclude only strong year, Gregg. our but the our

progress We are ahead. incremental the year creation poised for in and value

the this our continue you at me and my thank to who such to are a of opportunity entrusted us shareholders. to Let are Operator, as customers questions. take our now steward we fantastic interest serve well all Industrials. capital doing Thank CSW colleagues CSW we your in job to take for ready by Industrials,

Operator

[Operator Instructions] you. Thank Thank you.

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

Pete Lukas

Hi. morning. Lukas Pete Good It’s for Jon.

comments. just in input just You Industrials, with the else were sure for to mixed despite that in ERP your was costs do to anything I there? or touched upgrade down make margins was why that something higher on revenue want or it

Gregg Branning

way performance the higher We compensation due ERP on the Gregg. you the But clarity is I further a have period if expense, ignore were one onetime. performance front expect businesses take compensation are this was a this we to of actually we the it general also based majority This our based work upgrade. CapEx as have there to basis all ERP, the and which up to call expense the to of out ERP based Yes. did compensation, four-year through compensation in roll It And the of why an rules be the our don’t we so ongoing mentioned, accounting out primarily -- being the it midst will points. Industrial didn’t would have, is and we based, some and XX just front-end, as our -- on are you costs move then normal platform the into end, the been expense. to

Pete Lukas

price products? for update any the And metals Thanks. of Helpful. architectural on

Gregg Branning

in seen This Yeah. have but Gregg see we metals we importantly, that place put that, for did say early again. more we tariffs in increases it, moderate is and general. increases in where would year, I the the price

in able and have And to general. cover been of were so profit as with we the you price our saw commodities gross up margin year-over-year so

Pete Lukas

last valuations one there, me, tone general are as seeing environment then, just of number of the of And market? looks from in you just the what deals, out M&A like far as terms

Joseph Armes

tone The strong. of pretty remains Yeah. the market

seeing are smaller high. but be acquisitions to product large But are still extension, important very interesting would say we some However, line us, opportunities in would on I some valuations not size. that strategically

to some have seeing product continue are interesting a We but opportunities line extension small disciplined in approach, we opportunities.

Pete Lukas

I Very will back helpful. in Thanks. queue. jump

Gregg Branning

you. Thank

Joseph Armes

Pete. Thanks,

Operator

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

Joe Mondillo

Good Hi. morning, guys.

Joseph Armes

Joe. Hi,

Joe Mondillo

below around But XX% historically, based of incremental plays follow-up So of how incentive the costs Industrial maybe We think have I the XX%. I quarter. just of of think forward ERP sort sure margins sort do you on sort and question a out. not am what segment, of this I comp talked margin this margins at think, kind about sort about you were going considering incremental

do how should -- that forward? how going of about sort you we sort think So of

Gregg Branning

this Joe, is Yeah. Gregg.

we going based again… mix fall in quarter we see it we fall been some in looking Certainly, you then a information think, been as so proxies been above the as fall XX%, the of honestly XX%. from directions so And performance you be ERP through below effect underperforming if the thing But compensation of other the normal hadn’t should through. have then mentioned the year-to-year, well an that, this the on bolstered are and better on the believe is past. you in at for have would that. again, importantly a past, both through -- and we still drove I we based that the year, the more if impact this of that’s result and recall, And quite doing XX% margins

Joe Mondillo

Okay.

So…

Gregg Branning

underlying number. to a still … your the question, XX% good is

Joe Mondillo

that ERP, three quarters this And have ongoing so this is going seen expense, the to we that sort next be would if -- Okay. $XXX,XXX that a right? quarter on expense that’s Is weigh on another an headwind to related words, that, of is first the that margins?

Gregg Branning

the accounting project beginning comments lot capitalized, so is, put end the that we get top gets will. then a No. will rules about earlier technical if capital my getting that us But way more Where that. And of will without you the the a is, technicalities the at the -- does the in forward, majority into -- There’s not aspects, more than of in of the past. which end expenses. talked be up going range our cost capital, have work

any be nothing So might we quarter. ongoing don’t from large perspective, expect headwind expense this but moderation, like to here first small saw be we the an in

Joe Mondillo

And of of this the should the performance next a is maybe of going incremental a to said, where sort inflection of in that headwind back comp, forward so or terms based just be this quarters sort bit to little of Okay. an normal? reset quarter, you sort is after like then of couple

Gregg Branning

Yeah. Yeah.

segments, both this saw minor a that nothing for think see headwind quarter. will but I we we like

Joe Mondillo

that -- little of the the I the it HVAC a am that of strong. and I business. so about part business, was is talk piece At you Could Okay. surprised

I given of doesn’t data, that would Specifically, it kind continue market bit, think rates little of would existing sales sort performance affect the in like your it weaken. but to mean, a growth has. that seem housing home I

trends growth strong you good and weather, that a overall are maybe why talk just terms of about such quarter in seeing So you mentioned there? you did see this but sort I could think seeing that are could talk about, you of you you know the comp

Joseph Armes

years, weather I due in this said we is part replacement, easier good installed dependent of would and dramatically got last This I housing installed as the remarks, the important the few repair our it my upon an a have I year. has and totally really But mean, business we then business. as We starts. and for comp Joe. really is is -- last large Yeah. prepared for to is think the did it’s quarter that’s that have grown our base us not over for base say

to here U.S., have or products, just if of product other or a solution unable been finish problem. addict add is the mini-split not parts is people, ductless to an world, kind out primarily it the popular properly getting isn’t perfect something also -- that but balanced be of that, remodel system a you has refurb or mini-split just innovation it’s kind you innovative the the of an it’s that the if a and central room that’s in ductless like getting We your in airflow that needs,

this market then opportunities it’s the as efficiency, think those of driver, and -- all not an I a new safety, so a but adoption again, number that as big end creating of in of concerns and innovation factors, product really innovation this and for environmental just is And as issue. categories industry, an kind an product lines are creating we provide new industry, us, new it’s categories product really

surge show. one we every introduced in home the theoretically, one know oftentimes yeah, each or trade building I unit, least, the have new and have homes, as instance, should have the protectors units. air unit we mean, in that conditioning world America multiple at of every at and or those and commercial For every furnace

share, we It’s an existing going for innovation adoption there be for just big not opportunity us there. effort that an us, an growth a greenfield So the market there X% for each to killing that’s fight -- is effort is industry. are in and in other

Joe Mondillo

few quarters just could projects about or of on what the the seen of sort outlook does Great. to and next sort of the last architectural compare year And then over you backlog there so? have the Okay. how you have side, product that talk building for you the

Gregg Branning

is Gregg, This again, Yeah. Joe.

strong. Our backlog remains

us. well-positioned, really and that are by nice shape, from quarter, if at you recall, fiscal then -- out we business And last labor -- and fiscal certain extent may the fiscal so weather know, a of of next that last are the that of it bodes revenue, down year in significantly to a of for -- start good projects then a so we this of are will will, you comes in end in you We recognizing to QX we and we couple will backlog we mentioned based execution. so start is and more year trades, ship well as end but and of availability the that won year, or up

Joe Mondillo

overall, does about just, bit some could And you the back all, little quarters that’s Okay. a Industrial trended over little that a few talk cost. versus segment, looking so of commodity come at like spread pricing prices talk bit, and pricing about forward, or Is a I affect last volume kind that benefit how that have and pricing thing? you and between know does that just

Joseph Armes

Joe, And price costs a the I we and in have think situation. this Gregg the the is of go raw speaking generally our pretty up, been I aggressive and margins. Well, have Joe. start in increases But up. protect can have material to tariffs tariffs, been some our will follow as have on moved competitors -- similar

we where the need raise on how that’s in we it curve operating a teams we be with everybody have they disciplined feel made the we like are have that regard. prices, that that. of we So effectively But and and pleased ahead to just stayed done situation could

to for and costs so raw not maintain next of level fall, of we these important margins do diligent the us be and Gregg? and some that in of material for necessarily back it’s will think all be do. to trying kind that, will give work these that have to I us as

Gregg Branning

it your up we Gregg. on also is lot have price, tick at more too, When we add. to Yeah. seen you certainly margin would I Joe, otherwise the this our did. and volume all saw it than volume wasn’t it would question was look price than gross a

in sure we of protect to primarily of investors price committed cases, put through it’s price some year the form we our margins. our year as job through, margins So we put earlier -- one than the have seen to that those but that our protect our the and more through cost is in we increase we to tariffs have increases end come as we last at make our this

in our to trying within strategic our fairly markets, et value been demand cetera. increases and looking happening have selling for to we our pay So general the at the price products, product attention what’s

that point as so, as said, of when and opportunity And go pushing and bridge Joe been very margins some will point -- But we to at try the and will have come job capture higher cross mitigate cost in are we in we tariffs our hopeful decrease in that through it’s will any and price our face effective more to but I think, price it. that we tariffs. away then at increased

Joe Mondillo

XX% Okay. say segment, good at at the of portion Would the Industrial price? least you on is over a growth

Joseph Armes

I no. wouldn’t,

Joe Mondillo

Okay.

Joseph Armes

Again product than if it’s I cases push some on the would we then is through projects is, as it say -- other say XX% advance affect is in backlog that conversations, and the that those really price and back that reason pricing is think bidding, we strategic and it’s building projects other the because more future price to price bid able so thing, that’s I until have based well believe related. doesn’t prior would their are so I over been some the you those business not so others. have in And a side,

Joe Mondillo

issues changes to and an was that consolidated did and at fourth correct wanted made wanted Is quarter you to since after Chem been of the on couple this just there the sort in about on quarter least the just saw a margin relative how some rest that the I plans of of verify to sort and then. ask sure so basis fourth year you Europe I I there I in believe you seasonality year, XXXX, fairly to has the last of to that quarter but side weak comp certain, want think there anomaly were Specialty about make mean, a last I some of Okay. segment. year.

fourth how So rest going quarter I forward? to think sort of the relative of do about the year

Gregg Branning

Gregg, is Yeah. again, This Joe.

right. There are some You anomalies. were

We have some in consolidated facilities Europe.

We -- the finished effectively small line. have finished fill

recall see may believe fiscal as in do end QX of we to QX what talked you so and more as up call the our we will, our this we seasonality a have fiscal are in it as a we we segments. was products go last that seasonal trend HVAC that segment and and a makes that You we our the segment, Industrial that sequential from Products low where we and is with down in in through and does exited would year, plumbing fiscal margin, margins QX, to the in which watermark, both difference standpoint mid-teens big from that XX.X% there have said, had were that just in business about fiscal QX margins at if we year XX.X% for volume been Clearly the doing.

Joe Mondillo

I and inventory increase have next sort of I have question working year your to last for are that? and of just what Okay. I then thoughts -- are any if and returns, been you capital, update if of working your also know in comments could sort remarks. wondering on on -- anything then this for sort year you am your ways you what me Perfect. and us on about CapEx mentioned And this this you you thinking for for prepared But don’t know

Joseph Armes

X% the range finish to of sales continue and year that Yeah. to we somewhere in be CapEx, to that. near X.X% expect this we

fiscal ERP as and go better we tick over, finish ERP As range will I as complete we fiscal a little second that give end project. And be into beyond I a we of we bit and the forward with range will budgeting part up the a would of project, say we tick on and the question. more because forgot cycle. the XXXX the we of But probably year your our general go we maybe higher will

Gregg Branning

Cash.

Joe Mondillo

thinking how like you are about So cash just capital, use of working that? for

Joseph Armes

Yeah.

in you capital a for see working in us. will a We to continues the So flows, -- be see improvement receivables. did nice cash our focus

the effort our receivables made roughly a down of down so from last XXXX fiscal there. and -- are days have five end Our DSO fiscal we concerted about year, is

protect remained flat of our in has of did the inventory have flat. take on DPO the additional is end and comments build ourselves inventory QX that our of here as reason the on some is we fiscal of then that but remains we recall returns of tariffs, QX still seasonality fiscal inventory may coming low of at and up, our for remain two-fold. try QX our returns from inventory CSWI. One, flat it for Our out us priority inventory remained a that drives Part high some have you all hand. And very at to

Joe Mondillo

Okay. Great. appreciate Thanks it. lot. I a

Joseph Armes

Joe. you, Thank

Operator

you. Thank

to question-and-answer floor turn reached to comments. back now management the the have would for like session. over the I of We closing end

Joseph Armes

of to you everyone your Great. CSWI to Appreciate to speaking year to interest end We in at we and thank XXXX us. end. forward for look our fiscal say you support, joining just want your the

you. thank So

Operator

teleconference. this Ladies does today’s and gentlemen, conclude

time. this for you and may participation Thank a at wonderful day. have lines your You your disconnect

CSW Industrials (CSWI) 5 Feb 192019 Q3 Earnings call transcript