Resideo(US:REZI)2023-08-04 01:06Financial Data and Key Metrics Changes - Consolidated second quarter revenue was $1.6 billion, a decline of 5% compared to Q2 last year, but up 8% compared to Q2 2021, with a 7% compounded annual growth rate since Q2 2019 [1] - Operating income for the quarter was $153 million, down from $186 million last year, with fully diluted earnings per share at $0.34 compared to $0.63 last year [2] - Adjusted EBITDA was $149 million, down from $180 million a year earlier, while cash from operations was strong at $121 million compared to $35 million last Q2 [3][2] Business Line Data and Key Metrics Changes - Products & Solutions revenue was $677 million, down 11% compared to Q2 2022, but up 13% compared to Q2 2021, with a 6% compound growth rate over the past four years [52] - ADI's revenue was $925 million, essentially flat compared to the prior year, with growth in North America offset by declines in EMEA and the sale of India operations [57] - Products & Solutions gross margin improved to 38.3%, up 100 basis points from last year, while ADI's gross margin was 19.2%, down from 20% last year [55][58] Market Data and Key Metrics Changes - The residential market conditions remained challenging, with slower retail traffic and excess inventory in the HVAC distribution channel impacting volumes and mix [79] - Demand in the HVAC market was further impacted by cool spring weather across much of the US, with new construction activity down double-digits compared to 2022 [80][79] - The average product dollar content for new homes grew by over 15% year-over-year, driven by increased penetration of smoke and CO detector products into the homebuilder channel [81] Company Strategy and Development Direction - The company is focused on managing costs to preserve margins while continuing new product initiatives and overall transformation [13] - Plans include launching new products such as smoke and fire alarms compliant with upcoming regulations and expanding the First Alert product line [6][7] - The company aims to reduce inventory days from the current low 90s to a target of around 70 days, which could generate approximately $150 million in cash [51] Management's Comments on Operating Environment and Future Outlook - Management noted that the residential market conditions are expected to remain soft for the remainder of 2023, with continued year-on-year volume declines creating revenue and margin headwinds [60] - The company anticipates taking a restructuring charge of at least $25 million in Q3, with actions expected to generate additional annual savings of at least $45 million [61] - Management expressed confidence in the long-term vision of creating homes and buildings that are good for the planet, leveraging their unique position with professional contractors and a broad product range [38] Other Important Information - The Board of Directors approved a $150 million share repurchase authorization, viewing it as an important part of a balanced capital allocation plan [76] - The company expects consolidated gross margin for the full year to be in the range of 26.2% to 27.2%, with operating profit expected to be between $530 million and $570 million [62] Q&A Session Summary Question: How should we think about additional pricing power for the back half of the year? - Management indicated that pricing has held steady, but additional pricing actions will be limited due to soft volumes and abated inflationary pressures [44] Question: Can you provide more color on initiatives for deeper penetration of the builder channel? - Management noted that First Alert products have provided an entrée into the homebuilding community, with ongoing momentum expected [47] Question: What is the timing for channel inventory normalization? - Management stated that reaching the target inventory level of 70 days will take time, likely extending into 2024 due to commitments made during supply chain challenges [70]