MasterBrand(MBC) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Fourth quarter net sales were $784.4 million, an increase of 5.3% year-over-year, primarily driven by previously implemented price increases, partially offset by volume declines due to higher interest rates and economic uncertainty [43][162] - Adjusted diluted earnings per share were $0.52 in the fourth quarter, a 62.5% year-over-year increase compared to $0.32 in the fourth quarter of 2021 [15] - Adjusted EBITDA was $97.8 million in the fourth quarter, a 46.6% increase compared to $66.7 million in the same period last year [172] - Full year net sales reached approximately $3.3 billion, representing year-on-year growth of roughly 14.7% [46][155] - Gross profit margin expanded 120 basis points year-over-year from 27.5% to 28.7% [16] Business Line Data and Key Metrics Changes - The mantra brand, an affordably priced full plywood construction product, grew double digits year-over-year in the fourth quarter, outperforming other parts of the business [5] - R&R (repair and remodel) through both dealer and retail channels has been consistent since the end of the third quarter, albeit at a lower level than the prior year [37] - The company has seen a shift towards lower-priced products, impacting overall average selling prices (ASP) [156] Market Data and Key Metrics Changes - The new construction market in the Southeast U.S. has held up better than other regions, although builder channel orders slowed more than anticipated as the year ended [6] - Market conditions have softened further since the Investor Day, with expectations for end markets to be down low double digits in 2023 [20] - The backlog has returned to a more normalized level, presenting a headwind of nearly $200 million in 2023, impacting net sales year-over-year [21] Company Strategy and Development Direction - The company aims to leverage its industry-leading dealer network, unmatched product portfolio, and operational excellence to maintain its position as the number one North American residential cabinet business [8] - Strategic initiatives include "Align to Grow," "Lead Through Lean," and "Tech-Enabled," focusing on continuous improvement and operational efficiency [165] - The company plans to continue investing in strategic initiatives, particularly in high-return areas such as tech-enabled efforts, despite a challenging market environment [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledges a softer environment in 2023 but believes long-term trends for the housing market remain favorable [7] - The company expects adjusted EBITDA in the range of $305 million to $335 million for 2023, with related adjusted EBITDA margins roughly 11% to 12% [54] - Management emphasizes the importance of maintaining cash flow and controlling costs while navigating market challenges [114] Other Important Information - Capital expenditures in 2022 were $55.9 million, with free cash flow of $179.7 million compared to $96.6 million the previous year [19] - The company achieved an OSHA recordable rate of 1.04 in 2022, a year-on-year improvement of 5% from 2021, reflecting a strong commitment to safety [136] Q&A Session Summary Question: Update on the company's strategy since the Investor Day - The company has made significant progress on its strategic initiatives, including "Align to Grow," which focuses on identifying growth opportunities [58] Question: Outlook on the R&R side of the market - Management believes the R&R market has been steady, with good visibility on its pace, although influenced by interest rates [139] Question: Drivers behind better than expected decremental margin guidance - The company has proactively managed fixed costs and improved operational efficiency, leading to better decremental margins [78] Question: Sustainability of initiatives driving better decrementals - The company believes that tech-enabled initiatives will enhance the stickiness of changes made, contributing to sustainable improvements [86] Question: Components of inventory growth year-over-year - The majority of inventory increases were related to raw materials, with efforts underway to reduce inventory to normal levels [89][104]