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spk00: Ladies and gentlemen, thank you for standing by and welcome to the Jeldwyn Holding Inc. Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Chris Teachout. Thank you. Please go ahead, sir. Chris Teachout Thank you.
spk05: Good morning, everyone. We issued our earnings press release this morning and posted a slide presentation to the investor relations portion of our website, which we will be referencing during this call.
spk06: I'm joined today by Gary Michel, our CEO, and John Linker, our CFO.
spk05: Before we begin, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation and Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q file with the SEC. Jelderland does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results and statements regarding the expected outcome of pending litigation.
spk06: Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
spk03: The reconciliation of these non-GAAP measures to the most directly comparable financial measure calculated under GAAP can be found in our earnings release and in the appendix for this presentation. I would now like to turn the call over to Gary.
spk06: Gary Gensler. Thanks, Chris, and good morning, everyone. Thank you for joining our call today. Since we talked last quarter, improving housing fundamentals in the United States and Europe led to accelerating demand for our products and sequentially improved pricing. In addition to the pandemic, weather events, including hurricanes and wildfires, presented new challenges for us to manage. Because some of our facilities were in the wildfires' paths, we experienced limited short-term facility closure due to air quality. but suffered no physical damage. These facilities are back online and meeting customer demand. Unfortunately, some Gelwyn associates suffered extreme personal property damage and home loss due to the wildfires, but thankfully all are physically unharmed. I'm extremely proud of how so many of our people came together as one team to provide fellow associates much needed assistance to help them on the path to recovery. Our thoughts remain with everyone affected by the hurricanes and wildfires and globally the ongoing effects of the pandemic. Regarding the pandemic, we experienced some isolated operational disruptions in the third quarter. And despite the rise in the number of COVID-19 cases around the world, only a small number of GELWIN associates have been diagnosed with the virus and thankfully all have or are now recovering. I attribute this containment to the continued focus on safety and enforcement of protocols to protect our people and business partners. Our first value is safety and our associates embrace it. I am pleased to announce that we once again delivered quarterly financial performance ahead of expectations through disciplined execution of our strategy and actions taken to offset any market challenges. We delivered both revenue growth and margin expansion in the third quarter through profitable new customer acquisitions and sequentially improved price realization. Operational improvements continued to deliver benefits through the ongoing discipline deployment of the Gelwyn Excellence Model, or GEM, and the Footprint Rationalization and Modernization Program. On page five, you can see highlights of the third quarter, including a 200 basis point core margin expansion versus prior year, the result of delivering a 20% increase in adjusted EBITDA on 1.9% revenue growth. This strong operating performance is the result of productivity, price realization, and profitable share gain. Notably, we delivered sequential margin improvement across all business units and regions. In North America, Our customer segmentation work and improved operational capabilities are delivering results. You may recall from prior communications that a primary focus for us is increasing penetration with key customers and channels and profitably growing our business. In the quarter, we secured a significant commitment with a national home builder for both doors and windows in the southeast and south central U.S. We also secured additional share gain through our national channel partners across the country in both doors and windows. We expect these share gains to have an immediate impact on our top-line growth and profitability. We also realized higher price sequentially from Q2 to Q3, and the price changes deployed earlier this year are holding. During the third quarter, we implemented off-cycle price increases in certain products and regions due to strong demand and increased utilization of our assets. In addition, we have already communicated price increases across our product portfolio for the 2021 building season in North America. In Europe, we delivered the fifth consecutive quarter of year over year core EBITDA margin expansion. We saw markets reopen and stabilize, contributing to increased demand and sales growth across all of our major markets. We delivered the strongest revenue growth in Germany and the UK, supported by profitable share gains. Productivity savings for manufacturing efficiencies, sourcing initiatives, and pricing are delivering to the bottom line. The Australia housing market continues to be challenged by demand headwinds and the impact of COVID-19 restrictions. Despite these challenges, in the third quarter, our Australasia segment delivered market share gains and delivered positive productivity in the town market. COVID-19-related restrictions in Victoria were recently lifted, and we expect to see demand in that market return in the coming months. Our new Cirebon Indonesia plant is fully operational with joinery door production and painting operations that will support growth in markets around the world. Liquidity remains strong, giving us flexibility and allowing us to invest in our business for future growth. Page six shows the progress we're making through our rationalization and modernization programs. These projects are designed to lower costs and increase capacity while reducing total manufacturing square footage in every region. We have good visibility to achieving our commitment of $100 million savings from our footprint rationalization and modernization program. We continue to invest in this program and, as you can see on the chart, made additional progress identifying and initiating additional phases of the program. Coupled with the positive productivity realized from GEM initiatives, we have a pipeline that will deliver margin expansion into the foreseeable future. As these programs move forward, we are deploying equipment and processes that have been proven in earlier deployments. For example, we will begin executing the next phase of our North America door modernization program in early 2021. We have significantly adapted our businesses here across the board, always keeping our focus first on safety, safety of our associates and our partners, and working with channel partners and suppliers to adjust their businesses for mutual market success. Challenging times drive organizations to focus on key critical issues to assure sustainability and growth. I am so very proud of the engagement and the resiliency of our associates who have demonstrated their commitment to our values and to our business operating system to deliver innovative solutions and processes and continuous improvement in service to our customers, our partners, and each other. It is our associates who give me the confidence that Gelwynn will continue to grow and will emerge from the effects of the pandemic an even stronger, more resilient enterprise. And our history proves that out. We were so excited to celebrate our 60th anniversary in October. As many of you know, Gelwynn started as a small family business in Oregon, and through the vision of our founder, Dick Wendt, has grown into the global leader we are today. Through October, we commemorated key milestones in our history and highlighted long-tenured associates from around the world. Our company is built with the contributions of our associates, and I look forward to working with them to continue to deliver world-class products and unmatched service to profitably grow the company. It is truly an honor to carry on this legacy and lead such a dedicated team. I will now turn it over to John Linker to review our third quarter financial results in more detail. John Linker Thanks, Gary, and good morning, everyone.
spk04: I will start on page nine. Our third quarter financial results demonstrate continued execution in a challenging operating environment as we delivered meaningful improvements in revenue, earnings, margins, cash flow, and liquidity. This strong performance is a direct result of running our playbook consistently over multiple quarters, focusing on our strategy, and our continued investments in our business operating system. Third quarter net revenue increased 1.9% to $1.1 billion. The increase was driven by the favorable impact of foreign exchange, while core revenue was essentially unchanged. While we delivered core revenue growth in both Europe and North America, this was offset by continued Australasia housing market weakness and COVID lockdown restrictions. Adjusted EBITDA margin expanded 170 basis points in the quarter to 11.7%. While core adjusted EBITDA margin, which excludes the impact of foreign exchange and any recent acquisitions, expanded 200 basis points, a strong step up in sequential improvement compared to the second quarter. The combination of a favorable impact from price realization, execution of our structural cost reduction programs, and productivity tailwinds from GEM initiatives all contributed to the strong margin performance. The positive margin drivers were partially offset by ongoing volume mix headwinds in certain geographies and channels, such as volume in Australasia and mix in the North America retail channel. Page 10 provides detail of our revenue drivers for the third quarter. As I mentioned in the previous slide, our consolidated core revenue was flat, comprised of another strong benefit from price of 3%, offset by a 3% headwind from volume mix. Please move to page 11, where I'll take you through the segment detail performance. Net revenue in North America for third quarter increased 1%, driven by a 6% increase in pricing, partially offset by a 5% headwind from volume mix and certain products and channels. Note that both pricing and volume mix improved sequentially from the second quarter. As demand in North America has certainly improved for both residential new construction and repair and remodel, we did see different dynamics by product and distribution channel across the region as follows. In our U.S. retail, repair, and remodel channel, revenue increased low single digits with growth in both doors and windows. In this channel, while unit demand increased, overall revenue was impacted by continued unfavorable mixed shift towards greater activity and stock SKUs and lower activity and higher price special order SKUs. We attribute this mix shift primarily to contractors and builders pushing to complete open projects with available stocks used to avoid waiting on special order lead times in such an uncertain environment, as well as our retail customers working to restore inventories to target levels. In our U.S. traditional wholesale channel, which typically supports new construction, revenue declined mid-single digits, as low teams revenue growth indoors was offset by headwinds and windows. We believe that the traditional Doors revenue performance represents share gain in some of our key markets. In our U.S. Door distribution business, revenue was approximately flat in the quarter, where growth in certain markets was offset by lower special order demand through the retail customers that this channel also serves. And finally, all other channels in North America, including Canada and other products, netted to a low single-digit revenue growth rate. Europe revenue increased 8.1% overall and 3% excluding the impact of foreign exchange. Core revenue growth was comprised of 2% volume mix and 1% pricing. We believe our performance exceeded market growth in the quarter, demonstrated by mid single digit local currency revenue growth in both Germany and the UK. While COVID case growth has accelerated in Europe over recent months, we continue to see good demand for our products. Australasia revenue declined 4.5% overall and 8% in local currency versus prior year, although revenue did improve sequentially from the second quarter. The Australia housing market remains challenged and the impact of COVID has delayed the recovery we were expecting to see in the second half of 2020. Our largest market of Victoria faced COVID-related lockdown measures, creating headwinds for our businesses there that offer supply and install services. The Victoria lockdown was recently lifted and we will continue to monitor to their reopening progress. In June, the Australian government announced a stimulus package to incent new home sales and renovation projects. We anticipate the stimulus package will help slightly offset some of the housing market challenges. However, the latest housing forecasts show a further decline in new housing starts through 2021. Moving to earnings in the third quarter, Overall margin expansion was driven by continued strong price realization, benefits from cost actions, savings from the deployment of gen tools, and continued execution on our footprint rationalization and modernization program. These factors more than offset margin headwinds from volume and mix. Looking into Q4, we have good visibility for these positive margin drivers to continue driving year-over-year margin expansion. In North America, adjusted EBITDA margin expanded 380 basis points year over year with improved profitability in all major business lines, including doors, windows, and Canada, and a nice improvement sequentially as well. Europe delivered a fifth consecutive quarter of core margin improvement with an increase of 230 basis points year over year due to strong productivity, cost reduction actions, and improving volume. Our Australasia segment delivered solid productivity and cost controls, to offset volume weakness. While year-over-year margins declined, the sequential trend improved. SG&A increased $20.5 million compared to year, primarily due to charges taken for legacy litigation matters partially offset by cost reduction actions. Please turn to page 12, where you'll see a current snapshot of our balance sheet and free cash flow performance. We ended the third quarter with total debt and cash equivalents of $1.8 billion and $605.8 million, respectively, up from $1.5 billion of debt and $226 million of cash at year-end 2019. These movements reflect good cash flow performance and the proceeds of our notes issuance in the second quarter. Our net leverage ratio decreased to 2.8 times, down from 3.1 times, tracking closer to our midterm target of 2.5 times or less. Year-to-date free cash flow improved $83.4 million compared to the first nine months of 2019 to $143.7 million. demonstrating the power of Jim. We invested 66.9 million of capital expenditures in the first nine months of 2020, down 37.7 million from the same period a year ago. While we took a pause on CapEx in the second quarter during the height of COVID uncertainty, we are now investing at a normalized rate in attractive, high-return projects. Turning to page 13. Our global liquidity currently stands at $953 million and consists of $605.8 million in cash and $347 million in undrawn credit facilities. This level of liquidity is the highest ever for the company. With that, I'll turn it back over to Gary, who will provide closing comments. Gary?
spk06: Thank you, John. I'll comment briefly on our business outlook and then open the line for Q&A. While uncertainty remains elevated around COVID-19 and overall macroeconomic conditions, in the fourth quarter, we expect to build on our solid operational performance and improving visibility to deliver both revenue growth and margin expansion. In North America and Europe, we expect fourth quarter core revenue growth of low to mid single digits, which is also consistent with our preliminary October results. In Australasia, we expect continued core revenue headwinds in the fourth quarter. However, with Victoria reopening, demand should improve sequentially. Fourth quarter margin expansion will be supported by pricing and productivity, partially offset by NICs and the restoration of targeted SG&A investments. Given these factors and assuming no new significant COVID-19 lockdown restrictions, We now expect full-year 2020 adjusted EBITDA in the range of $435 million to $450 million. Gelwyn, through our associates in commercial and financial performance, has proven our agility, and we believe that our strong fundamentals and business strategy will continue to deliver results. As we manage our business through the current market disruptions, we are also preparing for the longer term. and making strategic investments that position us for future growth. As I reflect on the year, I want to acknowledge and thank every Jeltwin associate for their adaptability and focus on customer needs that have delivered results this year and will assure a successful close to 2020 and set us up for continued growth into the future. Before we wrap up and open the lines for questions, I'd like to note, as all of you are aware, that today is election day in the United States. I hope that everyone on the call who is a registered voter has the opportunity to cast your vote. With that, we'll open the line for questions. Operator?
spk00: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. And your first question here comes from the line of Truman Patterson with Wells Fargo. Please go ahead. Your line is now open.
spk06: Hey, good morning, guys. Nice results. First, it seems like every North American window and door manufacturer running at elevated capacity, but it doesn't seem like there were any manufacturing inefficiencies during the quarter that have kind of come up in the past. Can you just walk us through what you've done, you know, over the past six months, some of the processes you've put in place as you've ramped your capacity from, you know, essentially zero at the start of COVID to almost full capacity today? And I'm really thinking, I mean, there are just a lot of moving parts in there, right? You're doing gym initiatives, the global footprint rationalization. You know, I'm just hoping you can help us get comfortable that maybe some of the one-off window manufacturing headwinds over the past several years just won't occur going forward. Thanks, Truman, and great question. Obviously, through the last six or seven months, there have been various issues here and there that we've had to deal with, mostly related to COVID-19 and, quite frankly, mostly related to post-any governmental or municipality shutdowns, which are kind of behind us, mostly related to absenteeism and the ability to get labor into the plants. which is an area that we've been working on. But what we've been seeing, and you can see it certainly in the margin expansion and the consistency of our performance, is the work that we've done on our modernization and rationalization, as well as the deployment of GEM further into the organization with deeper take-up and better use of the tools, We're seeing consistently sequential improvement in our operations. We've talked about it certainly in the North America Door business quite a bit where we talked about some of the moves we've made on modernization. But really, we've been sequentially improving the performance in our Windows business in North America for a while. Over here at this point, we've seen that improvement. We just continue to get better and better with our ability to meet demand And, you know, avoid the things that, quite frankly, are past history in our mind. Okay. Okay. Thanks for that. And in North America, pricing was up 6%. I believe you said that you actually realized some sequential improvement as well. Is that true? Is that just realizing, you know, the prior price hikes from earlier in the year? And then, you know, going forward in North America, you all have announced, you know, a handful of pricing initiatives.
spk05: I think, you know, some competitors have followed suit.
spk06: Could you just discuss what some of those are, the timeline for implementing, and, you know, whether or not, you know, some of your largest competitors have really followed you all?
spk04: Sir, true minutes. John, pricing in North America in the second quarter was effectively 5%, and we reported 6% in the third quarter. I attribute that just to good realization and just everything sort of sticking. Nothing really new incremental went into place in the third quarter that would have benefited third quarter results. As it relates to going forward, certainly we're always looking at all aspects of our business where we need price to offset tariffs or inflation or expected inflation, and certainly looking at the balance of supply-demand and the utilization of our assets. As Gary mentioned in the prepared remarks, we did have some you know, off-cycle price increases that went into place in a couple of business lines in the quarter that we really, again, didn't see any benefit of in the third quarter. And then we've also announced the price increases really around the world, not just in the U.S., but looking ahead to 2021 building season, trying to get ahead of, you know, ahead of any anticipated, you know, inflation or tariffs or any supply chain disruptions. So, yeah, in terms of where we are with that it's still pretty early in the process um i don't i don't think we really want to give forward-looking guidance around price other than to say you know at this point we we would anticipate in 2021 to be another you know favorable year of price cost tailwind um but it's probably a little too early in the process you know to kind of give you a clear visibility in terms of um you know what's sticking in which channels at this place but we're actively working on that process around the globe at this point
spk06: Yeah, no, that's absolutely fair enough. Just one follow-up on that.
spk04: Competitors have largely followed suit with your all's actions. For the most part, yeah, I'm not aware of anything where we're seeing competitors not taking price up for next year. Okay, thanks, and good luck in the upcoming quarter. Thanks.
spk00: Thanks. Your next question comes from the line of John Lovallo from Bank of America. Please go ahead. Your line is now open.
spk06: Hey, guys. Thank you for taking my questions as well. The first one, you know, I know this is challenging, but when do you anticipate that volume and mix could turn positive again in North America? I mean, it seems like the stock versus made-to-order headwind could improve. But I guess, you know, how are you thinking about the wholesale channel and that, you know, getting back up to speed? Yeah, we're starting to see some improvement in the channel, and that's really where we're talking about the mixed situation, which is, as you said, John, the move to higher stock versus special orders in the retail channel. We've seen some movement there, but there continues to be a very strong sell-through of the stock units. So, you know, there's kind of a double – a double trigger there. Number one, as stock continues to flow through, building up those inventories and keeping those solid plays to the mixed game as well. So even as special orders continue or start to improve, we still have the restocking of shelves, which is a benefit to us, but it still plays out in mixed. So I think as the season starts to take off into next year, we'll start to, you know, I think stabilize a little bit more. People are more comfortable with, you know, projects taking a little bit longer, getting exactly what they need rather than contractors providing only what's available in stock. I think we're going to see that mixed number change.
spk04: Yeah, I'll just add on that, you know, certainly looking very near term, sort of fourth quarter and even in the first quarter, I would anticipate, still having some mixed headwinds just given the magnitude of sort of where retail inventories are and relative to where our retail customers want them to be. But certainly, as you think about 2021 as a whole, we would be thinking about North America in a positive volume mix as a tailwind to our results and not being a headwind overall for the year, for sure.
spk06: Okay, that's good news. And then, you know, I think in 2Q, you guys successfully pulled out about $20 million of SG&A, and I think the outlook was for about $5 million per quarter in the second half of the year. Can you just, if I may have missed this, but can you just tell me what the pullout was in 3Q, what you're expecting in 4Q? And as we progress into 2021, I mean, are you anticipating some of this SG&A spending to come back on as you guys invest in growth?
spk04: Sure. So there's certainly a couple of moving pieces in the SG&A line this quarter. In the GAAP results, we do have a fairly significant charge for the legacy litigation-related matters, which has been adjusted out of the non-GAAP results. Underlying that, we did continue to see some good cost saves and some of the discretionary items around T&E and travel and entertainment and discretionary spend that we can defer until we got good visibility around where the market is heading. in in the specific quarter there were some year-over-year uh headwinds from variable compensation items that were a tailwind in the third quarter of last year so like i said a number of moving pieces that we're trying to control you know sdna as tightly as we can uh thinking forward to next year um certainly you know as you think about some of these scna expenses that we took out next year um i'm sorry we took out this year in terms of you know covid related uh items from furloughs and salary um reductions and things like that that we did early on in the second quarter to look out for what might happen with COVID. There's probably a base of about $40 million that before we even think about sort of discretionary spend and which projects we want to invest in next year, there's about $40 million that's going to come back in that it'll be just not lapping what we took out in 2020. So you certainly expect to see SG&A go up next year. And in addition to that, we're planning to make some target investments to grow the top line of the business as well. Great. Thanks, guys.
spk00: Your next question comes from the line of Matthew Ballou with Barclays. Please go ahead. Your line is now open.
spk07: Good morning. Thank you for taking the questions.
spk06: So back on the North America volume mix down five, John, you gave some great details about the channels there. I guess, number one, are you able to quantify how much those mix issues actually did impact that volume mix number?
spk07: And also, sorry to hear about the impacts of the wild virus to your team, but are you able to quantify the impact of operational disruptions within that as well?
spk06: Thank you.
spk04: Sure. The North American NICS headland... In the third quarter, we would attribute approximately $10 million of EBITDA headwind from that, so mostly related to that stock special dynamic as well as just, you know, some of the overall other channel mix dynamics compared to the third quarter of last year. The wildfires headwind was pretty minor. You know, I'd say maybe a couple million dollars of sales in the quarter just, you know, towards the end of the quarter as we had some temporary shutdowns. We also had a little bit of downtime in some other facilities related to the hurricanes, but, you know, maybe a couple million of revenue, nothing significant, and nothing ongoing, as Gary mentioned in his remarks. Okay. Thank you for that.
spk06: Secondly, a higher level one on the footprint rationalization. Just with this level of demand and recovery, you know, you've seen this with some other companies, but does it make any sense sort of um or is there any impact to the timing around rationalizing the footprint i guess so basically are you positioned to still deliver on this type of market growth while rationalizing capacity in parallel yeah so as we talked about this uh you know the rationalization modernization program over time you know certainly in the earlier stages we did a lot to de-risk the timing and de-risk the activities we were learning about the new equipment new processes you know really deploying um deploying our best practices but designing what our standard work would be and what the deployment would look like so we kept on um you know redundant capacity through you know through the changes you know we continue to be able to do that um the benefit of our modernization particularly north american doors is adding capacity, really changing from a batch mentality of manufacturing to single piece flow, which gives us a lot more flexibility, gives us a better cost position, and increases our overall capacity. So the faster we can get there, the better. And now that we're using proven processes and proven equipment, things that we've had time to learn about, it really de-risks that capability. And we kind of know how to turn it on and off But again, we can keep the redundant capacity, the facilities that we would otherwise close, up and running until we have the new facilities ready to roll. So that's kind of how we've taken a look at that, and that's how we've been modeling it out. We really wait until we have a proven line or proven lines in place before we take that out. I don't anticipate that demand in and of itself would delay the programs. They're pretty well laid out, and we kind of know how to get after it. It would just be when we take redundant capacity out. Got it. Thank you, Gary. Thanks, John.
spk00: Your next question comes from the line of Susan McClary with Goldman Sachs. Please go ahead. Your line is now open. Thank you.
spk01: Good morning, everyone.
spk05: Morning.
spk01: My first question is just, you know, can you give some color on what you're seeing in terms of input costs? You know, especially maybe we're hearing about inflation in transportation and some of those areas. How are you thinking about that going forward? And perhaps how is it reflected in the guidance that you're giving us for EBITDA?
spk04: Certainly there's pockets of inflation and it really varies quite a bit depending on which category and which region in the world you're talking about. As it relates to You mentioned freight. In North America, we're largely under contract at this point, and so at least for the next couple of quarters, assuming those contracts hold, would not anticipate a significant hit from any freight inflation. But in terms of looking forward into 2021, things that we are working to mitigate at this point would be metals. So I think aluminum hit sort of pretty much an all-time low here recently. So metals in general are coming back. Logs, we don't buy a lot of lumber, but we do buy logs and process them in our sawmills. That's an area of inflation of concern. Millwork as a whole, particularly not only the inflation, but we are seeing some anti-dumping, countervailing duties, impact from some of the impact of the government decision around millwork coming out of China. So there's certainly some pockets that we are watching. I'd say at this point it's manageable, and that's why we've tried to get ahead of things with our pricing actions. So I would think about inflation in 2021 certainly being more than it was in 2020, But we believe if we're successful with our pricing strategy, we should be able to offset that completely.
spk01: Okay, that's helpful. Thanks. And then my next question is just, you know, Gary, you mentioned in your comments that you are thinking about the next phase of your restructuring program as we look to 2021. Can you perhaps give us some early color on what to be expecting from those efforts, how we should think about them flowing through and, you know, just where we are in this process and what moving to this next stage represents?
spk06: So we've been giving progress reports every quarter on kind of where we are in terms of the deployment. We've done quite a bit. Well, we've done some in every region of the world. Obviously with, you know, what's going on in Australia, we've probably pulled some programs sooner than we might have otherwise done to offset the the market conditions there. We've got smaller projects in Europe, and we had some real focus that we talked about before in our North American business, particularly in the modernization of portions of the door business. Where we are, as I said in the earlier comments and we showed in the presentation, is we're taking what we've learned in the early first phases of the North American door modernization, and we're now deploying that further into North America. So we expect to commence kind of the next phase of that in early part of 2021, and we'll start to see probably benefits from that, you know, later, you know, late in the year. But we feel pretty good about that. We have identified really kind of that next, you know, that next group of projects, and those are kind of teed up, and we're in various stages of planning them so that about, I'd say two-thirds or so of all of the $100 million that we've committed is pretty well understood and laid out in a project plan so that we're kind of just really now looking at the last piece of that funnel. And we expect to see kind of that fill out over the next 12 months as we're working through the deployment of what we've already identified.
spk01: Okay, great. Thank you. Good luck with everything.
spk06: Thank you.
spk00: Your next question comes from the line of Tim Lowndes with Baird. Please go ahead. Your line is now open.
spk07: Hey, everybody. Good morning. Nice job on the margins.
spk00: All right.
spk07: Thank you. Maybe just first on channel inventories, is there a way to frame for us maybe what the channel inventory positions look like relative to normal? I'm not sure if you want to think of weeks of inventory or things like that, just trying to understand how much some of the inventory restocking could help here over the next couple of quarters.
spk04: Yeah, I mean, we have the best visibility into our channel inventories with our retail partners. And it varies by product line and by customer. But I would say right now, compared to a same position as last year, those retail inventories of stock views are down in the 5% to up to 20% in some cases, down versus prior year. So, you know, certainly... still quite a bit of room to go to resolve all that. We do have less visibility into where channel inventories might be and traditional wholesale distribution channel. But my gut is there's probably not a lot there right now, just given the demand that we're seeing from that channel.
spk07: Okay. Okay. That's helpful. Thanks. And then as you look at Europe, just on the quarter, I mean, any particular regions that were stronger, you know, than the rest of the continent? And have you seen any impact, you know, just in your term from any of the shutdowns that have happened, you know, over there?
spk06: Yeah, so we saw it. So in the third quarter, you know, stabilization really opened up really of all markets. And where we saw strength was particularly in kind of Germany, Central Europe, a little bit in the north, and then obviously as the U.K. and France opened back up. You know, where we are today, you know, kind of the second piece of the question is, you know, with new COVID-19 activities going on, we don't expect them to, you know, if they're short-lived as they've been announced, you know, we're not expecting, you know, too much effect on our business, you know, as manufacturing and certainly construction continues to be, you know, to be open, and we're able to support that. We will continue to monitor that, and if it goes on for a longer period of time, it could have different effects. But today, we're seeing that our industries and certainly our operations are in a good position to stay open and to continue to produce.
spk07: Okay. Okay, that's good to hear. Good luck on that. See you, guys. Thanks for the questions. Thank you, Tim.
spk00: Your next question comes from the line of Phil Ng with Jefferies. Please go ahead. Your line is now open.
spk03: Hey, guys. Your 4Q guidance implies, you know, some modest slowdown in the momentum you saw in 3Q. Can you expand on some puts and takes? Since it sounds like you're expecting a little more growth now in North America and all the productivity pricing still seems very sustainable. Hey, Phil.
spk04: Volume mixed in the fourth quarter, yes, will still be a headwind to prior year, less of a headwind than it was in Q3, so kind of getting better. Australia still down year over year, but I think Gary gave sort of the projected sales outlook sales by region and prepared remarks in terms of sort of low single-digit type of growth in North America and Europe and then down in Australia. So we feel pretty good that we're seeing some sequential improvement, but as I noted, we're not yet to the point where we can say volume mix is going to be a tailwind in 4Q, particularly North America. And price costs should be a tailwind in the fourth quarter, but, you know, a little bit less than it was in the third quarter, partially because we lapped the November implementation last year of some of the wholesale price increases that went in. And then also we're seeing a couple million dollars of inflation from the no-work, anti-dumping, countervailing duties issues. productivity to be better in 4Q than it was in 3Q. And then SCNA is slightly up as well, as Gary mentioned. So at this point, we've got really solid visibility to margin expansion, nice margin expansion like we had in the third quarter. So, you know, I wouldn't call it a deceleration or anything like that. It's more than anything, it's sequentially everything's moving in the right direction.
spk03: Okay. That's helpful, Colin. And I guess from a door skin capacity, when we look at next year, how are you set up there? Do you have enough supply there to meet demand? And assuming trends that we're seeing in resi broadly in North America is sustained, should we expect volume growth in North America and for that segment to track more in line with some of the end markets? Because when we look at volumes for the last few years, it's kind of been down for obviously different reasons. So just trying to get a better handle, you play a little catch-up next year.
spk06: Yeah, we won't, you know, we're not giving guidance yet for 2021, but certainly we would expect that, you know, the favorable news that we're seeing in R&C residential new construction, you can see strength in the R&R markets. And, you know, as we talked about earlier, the mix just back towards more, you know, more special order type business in the retail space. And we would expect those to move favorably. and provide a tailwind for growth for us into 2021. We think we're well structured for that, not only on our components piece of the business, you know, door skins and the like, but also our ability with our improved capacity and throughput, our ability to meet customer demand in our operations, both in North America, doors and windows, as well as what we would expect to see sequential improvements in Europe and Australasia as well.
spk03: Got it. That's really helpful. And here's one last one for me. Gary, in your prepared remarks, you talked about some recent wins with a large builder and I think a channel partner as well. Can you help us size up that opportunity and the timing of how that kind of ramps up?
spk06: Yeah, so I don't really want to give a lot of specifics on a particular customer, but I would tell you that what's really exciting about that is that again, exclusivity in markets with builders for both windows and doors is pretty exciting for us as the story is playing out. We've got the ability to serve all the needs, meet not only you know, from an operational standpoint, but also, you know, kind of design and product line standpoint throughout what we offer. So we're pretty excited about that. We think that, you know, we're catching it at the right time as well. We're seeing an upswing in new home sales and starts. You know, this is going to play well for us. On the other side, on our traditional wholesale side, you know, it's not just not just one channel partner. You know, we're seeing share wallet improvements. We're seeing some expansion. So we've talked about our customer segmentation work that we've been doing, you know, really selectively choosing the customers that we feel are growing, that we feel we can grow with, that value the Gell-Win proposition, our products, et cetera. We've gotten very, very close with them. and we believe that these gains in full share but also in share of wallet of existing customers is really an advantage for us, and we'll see that play out as we go into certainly this quarter but more so into next year and beyond.
spk05: Okay. Thanks a lot, Gary.
spk03: Appreciate the call.
spk00: Your next question comes from the line of Michael Rio with J.P. Morgan. Please go ahead. Your line is now open.
spk02: Hi, this is a lot home in on for Mike. Thanks for taking my question. So first, I just want to clarify a bit on some of the sales trend. I think for Windows, you mentioned that you saw Windows growth in the retail channel, but then revenue decline in the wholesale channel. So just wondering the dynamics you're seeing in Windows and any of the progress you're seeing there and into October.
spk04: Yeah, I think the dynamic there is some of this comes back to the story around where channel inventories are right now. We've got in certain product lines for vinyl windows, for example, in North America, we've got limited capacity in certain parts of the country. And so as we're working hard to support our retail customers and get them to the stock levels that they want to be at on vinyl, In the very near term, that takes away from potential growth areas and the traditional wholesale distribution channel. So there's a little bit of tradeoff between using our capacity here in the short term to support the retail customers, which shows up as that whole single-digit sort of revenue growth and windows that we talked about earlier. The flip side is, you know, between sort of – Using that capacity for retail, that means it shows up as a headwind on the other channels. And also, I just say that we're still seeing a lag on the new construction activity. Our wholesale window business typically supports new construction. And while we're seeing a lot of great activity and announcements from home builders around orders, That has not yet manifested into revenue for us in terms of increased demand on the window side and new construction. So I think as we look into next year, we would expect to see growth in all of our window channels, wood, vinyl, retail, traditional. But here in the very short term, it has continued to be a headwind on the traditional wholesale channel.
spk02: Got it. Again, just following up there in the wholesale channel on doors, you mentioned you had sales growth up low teens. I was wondering how that, is that starting to reflect some of the improved order trends at the home builders? And do you see that improving further in 4Q? And is that kind of what you have baked into your guidance for the low single-digit revenue expected in 4Q for North America?
spk04: Yeah, I'd attribute it more to some of the, you know, the targeted share gains that Gary mentioned. You know, we really decided to, in that traditional wholesale channel, align ourselves with customers that want to grow at Zeldman. And so, you know, we're seeing... You know, with our customers who are in that sort of top tier of segmentation, we're seeing growth rates well above that low teens level in traditional wholesale doors. So I don't think that's market growth. I think that's just Gelbin aligning with customers who, you know, want to grow with us in targeted parts of the country. So, you know, in terms of, you know, when do we see the homebuilder? sort of tailwind in that channel. Again, I think, you know, the more time that goes on from these orders and when that manifests into revenue for us, it's still a little bit of time to go. But here in the short term and what we've got baked in the fourth quarter is more of the same of growing with that, you know, kind of growing what we believe is above market levels with the top tier of customers in the wholesale channel. Great. Thank you.
spk00: Your next question comes from the line of Adam Baumgarten with Credit Suisse. Please go ahead. Your line is now open.
spk06: Hey, good morning. Thanks for taking my questions. Just on the potential for restocking, do you expect maybe seasonally it could help to see some benefits starting in the fourth quarter of some of your customers maybe restocking and that being a slight tailwind for you guys in North America? Yeah, well, certainly. I mean, the – We're being encouraged to get there. You know, we're doing well to meet point of sale. And, you know, I think there's an advantage both to channel partners as well to us. to ensure that we get those units up. Typically, when point of sale starts to decline in the winter months is when we're building those stock units normally for delivery, you know, in the first quarter prior to next season. I think what we're going to see now is, you know, first fill the shelves, and then, you know, as we continue to build, you know, we'll be in a position to serve, you know, the building season and the higher season as it comes in the spring. So, yeah, I do think that that's part of the growth that we'll see in the fourth.
spk04: And just to clarify, from a profitability standpoint, though, it'll certainly help revenue as we stock, but from a profitability standpoint, we do expect to see that stock special mix headwind persist in the fourth quarter.
spk03: Got it. Thanks. And then just As your leverage starts to tick down into next year, should we expect a return to acquisitions and or share repurchase sometime in 2021?
spk06: Yeah, I think we've been pretty disciplined in our capital allocation. We have a lot of really good projects internally, high returns. You know, we've talked about our modernization, rationalization programs, and we'll continue to invest in those. And we have through this year with, you know, just a small pause maybe, you know, during the second quarter when there was some uncertainty. As we look into next year, we'll continue to fund those programs. And, you know, we continue to look for opportunistic, both on kind of acquisitions that make sense for, you know, building out our strategy, accelerating our strategy for growth and, you you know, we'll continue to look at those. So, yeah, I think you're spot on. Great. Thanks, guys.
spk00: Your next question comes from the line of Ruben Garner from the Benchmark. Please go ahead. Your line is now open.
spk05: Thank you. Good morning, everyone. Good morning, everyone. one uh question most of my questions have been answered but just one quick one on uh the potential for for pre-buy i don't think i heard this discussed and she already did i apologize but Given the success that you had with the pricing increases this year, is there any pre-buy embedded in your outlook, or is capacity so tight right now that that's not able to take place? And maybe, you know, it'll be even stronger first half of 2021 because you'll be selling into the housing strength with the higher price increases that you put out there.
spk06: Yeah, I think that's correct. I mean, I think where we are today is demand has been – you know, production and demand have kind of matched. As I said earlier, particularly on the retail side, you know, we're meeting point of sale and, you know, slowly rebuilding inventories there on the stock side. And then as we see the demand, you know, continuing to increase in residential reconstruction, we'll continue to meet that. So I don't think that we've modeled in a pre-buy to go around because I just don't think it's there. People are using what they're buying. Perfect. Thank you, guys.
spk00: and I'm not showing any further questions that are in the queue at this time. I will turn the call back over to Gary and Michelle for any closing comments.
spk06: Well, thank you very much, and thank you all again for joining us this morning and your interest in GELWIN. Our associates are committed to meeting the needs of our customers and partners, even in the face of the challenging market conditions that we've seen. They've demonstrated the ability to perform and deliver commercial and financial results while ensuring a healthy and safe workplace. As we've done over our 60-year history, we will continue to innovate and grow Gelwind, and we look forward to sharing this exciting future with you. Thanks for joining us. Please be safe.
spk00: And, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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