CSWI - Earnings call transcript Q2 2020

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Operator

Greetings. Welcome to the CSW Industrials, Inc.

Second Quarter 2020 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to your host, Adrianne Griffin.

begin. may You

Adrianne Griffin

Good fiscal Daryl. and to welcome Thank quarter morning, XXXX Industrials second earnings CSW you, everyone, call.

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

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

forward-looking making subject report statements. statements the call this update other and during call, in this and comments We be During Risk and filings and with and differ the are will on Factors today's based statements. not that forward-looking made to uncertainties. materially expectations discussed to These Form current of could our duty on undertake any we are SEC. XX-K risks factors the release annual do because earnings any Actual assumptions results in section of various

also income performance. and share of earnings to a operating This call which a income income, should used measures share, in financial GAAP. net per as substitute include operating adjusted will with not be non-GAAP income, supplement are non-GAAP per and net measures These earnings and of analysis computed for an accordance

earnings For our release. of earnings operating adjusted complete per a discussion more share, income, net see and income

Joe Armes. turn over and call to Executive now the Officer, will Chairman I our Chief

Joseph Armes

Adrianne. Thank you,

Investor part a she progression listening to thank newly Treasurer. to Company's is And our pleased and in she Relations you natural and leadership know this meeting our this team second team want our created you to of of have start Vice We're her I morning Good Adrianne I joining of and call. role, President to our to our growth. conference welcoming which fiscal forward quarter those looks for by is in call. as is

results the of followed hand off segment by look discussion and numbers. a I up on then our year. I to end markets fiscal of wrapping a high then for remainder with consolidated of the level the call Gregg at outlook will closer a review level the and will begin an with

of Consolidated see and growth the XXXX the period. across organic healthy Both prior growth total $XXX.X second representing XX.X% industrial quarter with compared million, observed growth the revenue in was sales X.X% segment our Chemicals and some pressure end Products to to continued for when market. end markets year Specialty general Industrial

year of growth per operating earnings benefits been $X.XX ongoing diluted the over adjusted prior This efficiency year's quarter and XX.X% an initiatives. second were period. in per continued sales from increased increase driven Our which prior earnings leverage by share, marked from has share

continues allocation guide to strategy Our our capital actions.

organic and the repurchase and programs. of Our direct opportunities the highest growth, capital priority return is to within to risk-adjusted dividend cash through strategic shareholders categories bolt-on of M&A return to our share

of X% During serve, to we end prior which organic by growth in the over as new growth continuing period. the the important demonstrated our deliver rate been product in markets of period continued have invest excess we in year-to-date to year introductions,

that has acquisitions I'm of performance exceeded the our both Petersen forecasts. remain pleased the plan, report and MSD to M&A, Turning and to these integration internal on of

to opportunities return opportunities. continues pipeline And elevated from meet expectations. pursue many have team valuations required robust, to removed because M&A our consideration Our new while the fail is they

record annual third on quarterly cash XX dividend, second through to return XX. program our we declared to which our is - August. October on dividend we shareholders our shareholders to quarterly continued paid dividend payable quarterly our In October, have November in We quarterly and of

the on a the is X% yield. per shy just indicates full rate $X.XX share of year, quarterly dividend stock The for which

share Turning program. our repurchase to

active remains in shares any our the program opportunistic repurchase we fiscal and third While we repurchase early not quarter. did fiscal continued the in activity quarter, second

organic with the continue Moving of in beginning segment grew Industrial Higher HVAC/R, building by was as X.X% architecturally which our XX.X%, outperform volume stemmed specified products performance, we plumbing same Sales to and to organic the prior we growth sales compared markets Products. from to year quarter. serve.

products performing building bookings evidenced well, by outpace to Our our businesses revenue, increased backlog. to driving an are continue

in Industrial to we million year Continuation sales period. Products the level income period of strong $XX.X performance of of during operating as million of margin segment income performance $XX.X segment or reported compared volume. improving XX.X% the robust operating or delivered XX% operating sales reflects sales prior

segment. Turning to Chemicals Specialty our

year up and as architecturally quarter, $XX.X second the softening prior fiscal end of end driven into were specified X.X% partially by sales ongoing which These increased growth energy the compared products all by building sales in offset to During markets, period, the industrial market. general million, were volume organic. was

period of quarterly XX.X% or operating Adjustments during Adjusted the level increased $X.X a segment as $X.X reflect million of the on a of $XXX,XXX. income of sales. removal sales million gain in or sale the facility approximately period to XX.X% of to compared

Due as to income now significant and margins the planned. operating we efficiency are projects, in most completion of the integration delivering our mid-teens range

see longer expansion for facilities incremental margin we the our in additional as focus operational and higher throughput on opportunity efficiency. Over we term, generate

markets. product HVAC/R expanding outlook serve. the excess And markets. see the new strong. plumbing, the end largest to In growth our end Next, with to of demand rates offerings I'd and of introductions like in product the continued continue remained well demand each of strong end drive coupled to We've on across breadth we markets review major our

repair less continues upon in repair are dependent activity discretionary primarily relatively from insulated As broad come it's grow or in less is to construction. cycles, new installed housing our market other focus, concerns our worth are broad base market and have than as remodel categories into the where is reiterating expenditures. that Therefore, we particularly and products many used activity

gain continued portfolio. momentum product building the specified Petersen end have the into particularly architecturally with We to in our products of addition market,

execution continue conditions. market view we to function as and quarter our rather ability second of than primarily grow the in strengthened backlog to Our internal a

remind approach or months, always is to everyone of timing in would labor be we've And weather, for affect shortages projects would risk that delay winter time that can construction that the these the of time. these there seen as these projects all from related to revenues. We then we

year-over-year, are Moving have Rig to we've for flattening and energy. see counts but decreased products. continued to stable demand our

follow of XXXX. are currently end that stable volume traffic fiscal expect We this market applicators lubricants monitoring business, throughout a sales our and full-year and primarily trackside to period. generally rail for remain rail In consist

as volume prior normalized year, changeover In we in resulting quarter, seasonal after from very the noted strong to which rail As at we distributors. first can and saw have compared a inventory the be lubricants. has based second modest previously, uptick sales weather quarterly on of volatile quarter a

GDP-like our For rail growth full-year business. continue XXXX, expect fiscal we in to

Finally, our post demand This weaker reports modestly aligns with to only CapEx digits. business. was widespread which in end general decline the quarter, industrial and a mid-single industrial the which of in are cycles, market shrinking our was affecting

industrial industrial our Most as of our will in within end-market And exposure general contained Specialty the we status investors segment. and warranted. greases trends our continue of general Chemicals lubes on update is the to

two sustained acquisitions. performance double-digit half margin top our with by of bolt-on pleased of healthy growth, successful demonstrated XXXX, integration are very a profile line first fiscal and the the in We

free success generation business. to are And realize shareholder fund we flow in well strategy the drive we strategic allocation our our this We positioned attribute across initiatives returns. to believe improvement continued cash volume capital and have profit we implemented maximize to to and

first extrapolate second As we the not it participants to year, appropriate the fiscal to remind the look be the would growth we to revenue half half's would of rate market half. the second total

growth second half year's we second strong the strong the reflecting tough revenue similar we first achieved full-year we expect revenue year, rate X% growth in second total half comparison fiscal excess will deliver half well And approximates expected of that fiscal the performance. prior to of We rate markets the to our a growth be believe serve. and half this in revenue XXXX, to of seasonality the growth

to numbers. turn closer the a at that, Gregg look With call I'll over for the

Gregg Branning

morning you, Joe, good Thank and everyone.

over during The a Specialty to organic Our the segments, increased in revenue. the consolidated higher second $XXX.X million, both by growth was Products period. primarily acquisition-related year due revenue was prior sales Industrial X.X% XXXX and revenue of our and driven XX.X% quarter increase Chemicals fiscal

By end-market softness industrial HVAC/R, a specified energy, architecturally plumbing, products mentioned. extent, and, sales the building Joe by organic increased lesser to by general market, offset that were driven which end was partially

period. In by increased revenue, volume architecturally was building Organic segment X.X% looking million, year segment Products accounted revenue operating products. over was in increase our sales at our quarterly income HVAC/R, growth and Industrial specified plumbing an for $XX.X the and driven of posted prior up the XX.X% of drivers, which revenue

the in the over $XX.X were Our GAAP a There this GAAP results to to period increase or income segment segment. million, within no operating increased year. prior year adjustments prior XX.X% current

$XX.X was organic. specified products, prior Specialty over end by the which market. Moving a and X.X% Increased were partially energy primarily the year to was general driven volumes revenue into by sales architecturally offset increase million, Chemicals industrial building of the period, increased segment, all the

in segment compared million. million including operating the the period, non-recurring million Adjusted year facility compared fiscal year operating $X.X million was items, sale to income $X.X GAAP the $X.X in current a of period. $X.X segment prior prior to increased the to X.X% of income exclude a period on to gain

percentage period. approximately gross sale increased profit compared to of in $XX.X year period. the to a as in in $XX.X quarter. from non-recurring leverage XX to to the year and consolidated of Moving prior the Consolidated Gross year primarily points prior on of for XX.X% million $XXX,XXX compared of of gain result The basis margin sales increase improved sales a was the period. current the facility a our a to the XX.X% results fiscal second increased million XX.X% impact

XX.X% current XX the million. prior and by with offset was expenses a by personnel-related year or points operating driven Consolidated sales percentage increased sales improvement in basis leverage of $XX.X sales, $XX as level of partially acquisitions. or improved associated costs expenses were of was and million, over This and quarter XX.X% the

$XX.X second Consolidated in from GAAP The compared year's by million, prior for margin $XX.X prior was benefits initiatives. XX.X% leverage and was on sales sales, operating million, driven sales, the to increase or or from of the of income operating year. quarter XX.X% efficiency

The September XX.X%, it foreign due cash. was and effective was second ended some XX, the tax of repatriation than quarter higher continuing to on taxes XXXX rate on for normal operations

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

from operations compared income diluted diluted period, per primarily net or or one-time $X.XX to decreased the charge year prior million in to $X.XX share a continuing $XX.X qualified million to was cash. per charge, diluted only share $X.X with to $X.X Reported virtually being terminate share all plan pension non-cash million after of or pension which $X Of million tax. the Company's million US $X $X.XX the plan per due of

step rate next by based natural The our termination the US years of pension the couple risk and volatility we plan ago. of plan, froze terminating And along volatility. expenses market qualified with we've the interest as the associated was plan plan a future removed on with

Adjusted and million XXXX or of continuing increased to to a exclude per $X.XX one-time share tax diluted fiscal diluted share the income $X.XX net in year years, items in rate adjusted quarter both prior or the compared from operations net per adjusted million in continuing income second operations from XX.X% $XX.X $XX period. normalized to applying of

cash Moving sheet. to generation and our balance

cash $XX.X second the fiscal of period. million compared year prior from to the XX.X% flow Our continuing increased to XXXX in operating operations in $XX.X million quarter

remaining $XXX net which ended million our strategy, million and full a us in fund flexibility our cash $XX.X revolving including on of We position credit capacity facility, ample provides the acquisitions. to growth quarter allocation we capital and of borrowing the have

will Joe. call With that, over back turn to I the

Joseph Armes

Gregg. Thanks

balance into fiscal of our the first of results us position and XXXX. foundation half solid XXXX well The for

to We best-in-class steward will and their capital initiatives drive and shareholders. continue the to to us customers our grow efficiency business well and entrusted serve by offer to our integration help products to

our X% and I take CSW our colleagues collectively to of through all ownership opportunity want you own thank great this Industrials job stock employee Company to of this for over a at plan. remind my quarter they that

in interest want also of shareholders Company. continued all other our our We support for of and thank to their

With take that, ready operator, questions. now we're to

Operator

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

Jon Tanwanteng

and now a Can Yes. that general you worse decline getting me on remind what in of see QX? industrial you percent sales is year-over-year basis if

Joseph Armes

Yes.

is year-to-date big - headline of that is start the about revenues. Let's industrial number yes, XX%

over think about HVAC, plumbing revenues. specified magnitude, if order you XX% products so, of architecturally are And well and building our an of together

So is there there. limited exposure

Gregg Branning

from pie thing see I would year percent the the investor out day the And prior when year-to-date charts the deck of XX% slightly. coupled as acquisitions we obviously you'll Jon, it pie, that due expansion the of of say, other in well here or the as so, the with the fact was our well, decreased year-over-year, next decrease put larger to naturally XX%. Part down as to the down to going was be

Jon Tanwanteng

do into quarter? December trending how that see And the you

Joseph Armes

data We this don't quarter what have any gave than better us.

So, hear anything think immediate I turnaround. for but dramatic us in that gives the also - marketplace we But any wouldn't anticipate don't action. we dramatic cause

Jon Tanwanteng

energy. same counts, And volumes be what gives given declining you that confidence will question for And rig the there stable? the your

Joseph Armes

Yes, I now - mean, and have obviously seems stabilized. counts or to two three year-over-year volatile rig the counts down it's rig been quarters to have they but seem for

energy. And so for we quarter pretty good had a

there, kind a we're And dramatic again, not decline. of we're just so a of kind moderation - seeing

Jon Tanwanteng

what the at increase of was architectural And then you point year-over-year? or break kind much did the in how you sequentially have and this business out backlog

Gregg Branning

is that eight and has grown book-to-build over it's break I this up so our Jon, right direction. We it's in it tell positive, continues Gregg. to to it the last trend didn't the out, but and Yes. and you be will quarters continuing

That issue us, the coupled continues typically here quarter. months, as can despite affect said, will shortages with where delays an head I'll fact due nice winter delays Joe's delays weather we or be had the you prepared see we to remind of obviously, see a comments can to being and, labor earlier into we

Jon Tanwanteng

actually now those of on? a than And it are a something you - seeing or that's just risk is labor more issues going

Joseph Armes

to always about that part cautious. has it's I delays lumpy and it's that mean is But a tend hard quarters throughout or repeated that just concerned something bottom delay We the get be to the we that's we're from. very that to so sometimes those it but why reports. hear of that's of few and our been control, scattered one last outside - that and been occurring, get

Jon Tanwanteng

the Joe, you're just the for second to clarify, that or mentioned Was to that X% expecting you're half or seeing, a you growth see? rate. year full

Joseph Armes

Second half.

Jon Tanwanteng

X% year-over-year XH? for So

Joseph Armes

growth. Total

Gregg Branning

Yes.

Jon Tanwanteng

Gregg, And then, one for you.

pension what there of termination, an - item? the or impacts the cost flow P&L was Just cash ongoing

Gregg Branning

volatility the Yes. of It just was it P&L, then and the having of market. expenses more the

that down with we two our more as particularly fortuitous started change, But have cost to that seen So into year given the out - because about and had a fixed on while positioned interest a ago, as us. somewhat better it goes so and move of of timing income equities rates fact Fed we being the interest ticks the up rate decrease.

was simply why it It of and over-funded out us million is it. And so cost gets the terminate volatility cash to only which noise. $X.X for it plan, an us

And was other was was the assets unamortized our so with that the that coupled comprehensive asset other of and in on that part hit, cost to due balance sitting sheet the P&L income.

Jon Tanwanteng

to going going this? there impact ongoing benefit Is be or an forward from

Gregg Branning

provider. a people it, lump then part qualified into No, did with went insurance annuities and - because part other of the we took sums

out. of And very it fiscal completed say right so we at end that I quarter. the of all risk that the has will moved

be from as may the pension meaningful to we a that could of don't plan actuarial by we means. provider, final get through our there be any little it but so expect things And information anything bit sprinkle

Jon Tanwanteng

Joe, point? out the then any pipeline, cash, this what use and at And specifically just the seeing there on you're of M&A update

Joseph Armes

I'm meetings. personally involved We're number with good We're of having pipeline. Yes. pleased a those. the in

pipeline. with Valuations so going But very to to of And continue opportunities so, lots seeing very challenge I'm disciplined. pleased and I'm with that. the continue be to we're we're pleased a be and

little some kind be And it extension product a acquisitions, of in other more moderate the would size. line then both on and

very the with robust pipeline. so, And pleased again,

the right for that for opportunity us. sense where Just valuation makes looking

Jon Tanwanteng

to year - some new took mentioned up products. this Have expenditures your yet? earlier you you Joe, hit capital market launch this the

Joseph Armes

build primary really up summer. that have the next not of The piece be for in

in not that yet. to So there year. we see QX - the that you'd QX intended come invested that either or has market that next to of was project that in But specific

Operator

the Lau question. of question comes from proceed Sidoti. next Please Brian Our with from your line

Brian Lau

Brian solid this It's Congrats Mondillo morning. on Joe quarter. another on for

missed forgive was segment, the of in down me behind I see and this you it quick, Chemicals if points. that remarks. sale, the walk ex playing the of beginning just the Just looked prepared margin XX Specialty out in me on like But facility the kind how about basis Can that the through just reasoning kind you rest of of that the real year?

Gregg Branning

Brian, is Yes. Gregg. this

primarily it So was mix.

just mid-teens the number ago basis expectation. out. a down the was was be XX it was right, simply But had with pleased you it pull mix continuing quarters indicated that You're products. it when of of We're we - our to points

our so And year, ultimately, be I'll down remind But leverage the as growing about and, those as to sales relative higher. the top the industrial tends drive spec us there. seasonality half give our only margins products back which particular, to us be we of weakest line quarter, cautious due to chem, to up well in and I come will move as key so QX margins forward, is for to thing think is the you even that Joe

Brian Lau

end-market And end the Is think mix? whole then - with as little or kind the just the as can energy is - far about I stronger. I that is of Industrial specific of a can being specific think a product and down or it being that just market kind mix, how of as kind

Gregg Branning

points, or Yes. due say over to will. and you end if dealing product, board. it was was it market this hard given the exactly all you're it's When XX basis It with pinpoint this to

Brian Lau

quarter it's granted that coming industrial look a on organic do of at you off bit like might a growth it And How quarter. then just looks products, forward? strong going pretty sequentially, last kind little the slowing be

Joseph Armes

growth just very have mean, all it execution own that make at your We're victim Yes. to with with is our pleased In the on business concern past effect, you're harder but our have and robust. business. don't a of prospects, rates very that mathematically I success. that of pleased side the not very any

Gregg Branning

Yes.

was if is add QX posting pretty low, a was that, - really ago thing really which fiscal The - is again, and in a Brian that of a number major QX and in and a that fiscal way you to with last of other to the because one issue our comp and look had Gregg order year were resulted of the fiscal fiscal on year, our all ago, us 'XX. this I'll growth QX back customers going this back an year high a nice that QX then we - year year go

it just - into kind us so half our weird QX first it creating of choppy, comps somewhat for made And year-over-year.

would lower some typically because quarter you while some - So in then QX strongest than naturally growth see QX, then always is sequentially QX. QX QX, our lower

Brian Lau

a Just pace bit, guys little into quarter, of maybe you of lastly, slowing stronger, kind touched maybe think I the or all? bookings it architectural-specified at building products this strong just on in kind just going the still of

Gregg Branning

Yes. of The really is strong. still pace bookings

are positive be to for in quarters the a continue eight last book-to-build the We quarter, in row.

As I our XXX%. mentioned earlier, exceeds book-to-build

so given a pleased of it's backlog-based we're it business. very where And sits and business that with more

in we're good think we So shape.

Brian Lau

like general the for of what's timing kind And backlog? look that

Gregg Branning

anywhere. XX depending of the last to backlog to an can revenue the you project project. a So that short-term on on in XX three can months way months, book up there timing the all be can It

Brian Lau

kind or And way all over place. again the it's or is right now, it another leaning one

Gregg Branning

us because and this as all the is had - earlier, over. see that consistent It's is sets consistent. so good and that Joe that what we had we've weather well year. go comments It's builds, our seasonality And next finish manpower reiterate as I shortages. up seen, year to Again, pretty backlog pretty and with with into which cautionary it

group be that it feeling lumpy, can but very So and of strength we're businesses the good the about backlog. of

Joseph Armes

up. rarely get rarely slip get in will time, moved but those And moved projects up. They ever they

that. that's So caution we why it's on -

Operator

back the the the of call We closing CEO, session. to have over end for any reached Armes now I will question-and-answer Joe turn remarks.

Joseph Armes

and conference to call. I participating once for Thank your in our you forward again you We Thank speaking interest in Great. quarter. to quarterly next appreciate our look again you. Company

Operator

today's concludes This conference.

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

CSW Industrials (CSWI) 9 Nov 192020 Q2 Earnings call transcript