Fortune Brands Innovations, Inc. Q1 FY2021 Earnings Call

Good afternoon. My name is Jason and I will be your conference operator today. At this time I would like to welcome everyone to the Fortune Brands' First Quarter 2021 Earnings Conference Call. I would now like to turn the call over to Mr. Dave Barry, Senior Vice President of Finance and Investor Relations. You may begin our conference call.

Good afternoon everyone and welcome to the Fortune Brands Home & Security First Quarter 2021 Investor Conference Call and Webcast. I'm Dave Barry and I recently became Senior Vice President of Finance and Investor Relations at Fortune Brands after spending the prior six years in our Plumbing segment, most recently as Chief Financial Officer. I'm excited to be here and I look forward to working with you all in my new role.

Thank you and welcome and thank you to everyone for joining us on the call today. I hope that you and your loved ones are all staying safe as parts of the world begin to reopen. I couldn't be more proud of our first quarter results which reflect a broad-based acceleration of our remarkable 2020 performance. Our business performed very strongly across the board. For the quarter our total company sales increased by 26% over last year with each business delivering double-digit organic growth. Operating margin increased 270 basis points to 14.8% and earnings per share increased 68%. This performance is the result of exceptional execution by our teams in the housing market which we believe is in the early stages of a period of long-term sustainable growth. Our stellar first quarter results were meaningfully ahead of a strong market and lapped a very good Q1 in 2020. Importantly we continue to drive market-leading growth while advancing our strategic agenda including accelerating our margin improvement initiatives. Our focus on execution efficiency and safety drove share gains and favorable operational leverage. This focus allowed us to continue to service our customers and consumers with our industry-leading brands and innovation, while also increasing investment in the business.

Thanks Nick. As a reminder, the majority of my comments will focus on income before charges and gains in order to best reflect ongoing business performance. Let me start with our first quarter results. Sales were $1.77 billion, up 26% from a year ago. Organic sales growth, excluding the LARSON acquisition was up 19%. Consolidated operating income for the quarter was $262 million, up 54% or $92 million compared to the same quarter last year. Total company operating margin was 14.8%, up 270 basis points over the same quarter last year. EPS were $1.36 for the quarter up 68% versus $0.81, the same quarter last year. Our associates focus on safety and outperforming a strong market drove these outstanding results. The momentum of activity in our markets was strong throughout the quarter and remained strong. While we are working hard to service the robust demand across the portfolio, we are also taking action against material and freight inflation and supply chain imbalances. We expect to offset these challenges fully, to deliver higher growth and greater profitability than we planned. Our high-performing business model of leading brands and channel positions, combined with further deployment of our Fortune Brands Advantage drives both incremental investments and increased value to the bottom line for our stakeholders. Now let me provide more color on our segment results, beginning with Plumbing. Sales for the first quarter were $622 million, up $153 million or 33% or up 30% adjusting for FX. First quarter growth was up very strong double-digits across all major brands, channels and geographies. Plumbing operating income increased 43% to $149 million for the first quarter. Operating margin for the quarter was 24%, reflecting strong volume leverage, despite significant investment during the quarter in our brands, strategic priorities and to maintain service levels. We expect 2021 margins to be at or above 22% for the full year. Turning to Outdoors & Securities, sales for the first quarter were $462 million, up $148 million or 47% driven by the addition of LARSON as well as strong double-digit growth in doors and decking and continued growth in security. On an organic basis, sales were up 15%. We expect all product categories to drive 2021 growth. Door sales were up double-digits in the first quarter, driven by consistently strong retail sales and an accelerating new construction market. Decking sales were up strong double-digits in the quarter, as our distribution gains achieved new performance levels. Demand in retail and wholesale channels remained strong. We are selling every board we can make. We are on pace to bring additional capacity online in the middle of this year and are looking for options to pull forward capacity plans from 2022 and beyond. Security sales continued single-digit growth in the quarter, with strength in retail and international markets. Commercial markets showed improvement throughout the quarter and are poised to continue to perform better throughout the remainder of the year. Outdoors & Securities segment operating income was $62 million during the quarter, up 91% over the same quarter last year, driven by the addition of LARSON and performance improvement in doors, decking and security. Segment operating margin increased 310 basis points versus the same quarter last year to 13.5%. Turning to Cabinets, sales for the first quarter were $688 million, an increase of 11% over the same quarter in 2020. We continue to experience strong growth of value-priced products and sales of higher-priced, make-to-order products returned to double-digit growth in the quarter. This positive signal for big-ticket R&R reflects consumers' increased desire and ability to invest in their homes. Operating income in the first quarter was $75 million, up 34% or $19 million versus the prior year. Operating margin for the quarter was 10.8%, up 180 basis points versus the same period a year ago. We expect Cabinets to deliver an average second half operating margin of 13% or greater, as we benefit from our efforts to streamline operations and invest to capture additional share gain. Before turning to the balance sheet, I want to take a moment to provide perspective on material and cost inflation in the face of elevated demand and amid a backdrop of an accelerating housing market. We continue to deploy a multitude of tools to mitigate or offset inflation within our businesses. We do this through continuous cost improvement throughout our operations. We enacted major programs during the past year and are furthering those initiatives in 2021. We also employ cost sharing with suppliers where appropriate. Finally, when necessary we act via pricing. Through this combination of actions we plan to offset fully all inflationary headwinds this year and expect to deliver 2021 margin improvement and remain on an increasing margin trajectory over the next several years. Turning to the balance sheet. Our balance sheet remains strong, with cash of $356 million, net debt of $2.3 billion and our net debt-to-EBITDA leverage is now 2.1 times. We ended the first quarter with approximately $755 million of total available liquidity. We have made and will continue to make significant investments. We are continuously assessing opportunities to deploy capital strategically to accelerate growth and stakeholder value creation. We will also look to continue to return capital to shareholders through opportunistic buybacks and our dividend building on the over $1 billion of capital deployed during 2020. I would now like to address our updated market and financial outlook. Given our continued outperformance and strengthening home products market, we are raising our market and financial outlook for the full year of 2021. Based on the expectation that the global market for our products will grow 9% to 11%, with the US housing market growing 10% to 12%. And within this market forecast, we now expect US new construction growth of 11% to 14%, and US R&R growth of 10% to 12%. Based on these assumptions, our revised 2021 full year sales growth is expected to be 20% to 22%, or 13% to 15% on an organic basis. Our full year operating margin is expected to be around or above 15%. We now expect full year EPS within the range of $5.45 to $5.65 on a before charge gain basis of which the implied midpoint equates to earnings growth in excess of 30% over a record year in 2020. Specifically our outlook for each business as it relates to our updated guidance includes: Plumbing net sales growth of 15% to 17% with operating margins at or above 22%; Outdoors & Security net sales growth of 43% to 47%, or 11% to 13% excluding LARSON with segment operating margins of 15% to 16%, or approximately 16% to 17% adjusted for purchase accounting and one-time integration expenses; Cabinet net sales growth of 11% to 13%, with operating margins at or above 12%. We expect 2021 free cash flow of approximately $650 million to $700 million, which includes the accelerated investments in capacity and inventory to drive growth across all of our segments. We anticipate a cash conversion rate between 85% and 95%. The revised full year EPS outlook includes the following assumptions: corporate expenses of about $104 million to $106 million, interest expense of approximately $82 million to $86 million, a tax rate of between 23% and 24% and average fully diluted shares of approximately $140 million to $141 million. We expect a long runway of fundamental housing growth to result in prolonged market strength for our products. We expect our sales to continue outperforming the market which will accelerate our margin progression. Our strong balance sheet allows for us to continue to assess further opportunities to deploy capital strategically. We see multiple paths of future value creation to pursue for our stakeholders. Our company has never been better positioned to capture these opportunities. Our teams remain committed to driving market-beating sales performance and continued operating margin improvement. Our revised 2021 guidance is solidly on the trajectory of the three-year outlook reflected in our updated investor presentation. This outlook contains a compound annual sales growth rate of 8% to 11%, and a 2023 operating margin target of 16% to 17% relative to a global market growth CAGR expectation of 6% to 8%. I will now pass the call back to Dave to open the call up for questions. Dave?

Thanks Pat. That concludes our prepared remarks on the first quarter. We will now begin taking a limited number of questions. Since there may be a number of you who would like to ask questions, I will ask that you limit your initial questions to two and then reenter the queue to ask additional questions. I will now turn the call back over to the operator to begin the question-and-answer session. Operator, will you please open the line for questions? Thank you.

Certainly. Your first question comes from the line of Phil Ng from Jefferies. Your line is open.

Hey, guys, congratulations on really impressive results and just broad-based strength across your portfolio. Last quarter I believe Pat you may have mentioned that by spring you should have better line of sight in the back half of this year in terms of growth. I think previously you were baking flattish sales just given the tougher comps. So can you expand on your thinking now and essentially what your customers are saying in terms of outlook?

Yes. So we definitely expect growth in the back half and we expect to outperform that growth. If I put the market into context by half of the year, you heard our updated market guidance, which is, call it roughly 10% for the full year, I'd characterize the first half as kind of mid-teens or better and the back half as kind of mid-single digits or better from a market growth perspective. And then, when you think about what that means for our sales across the halves of the year, we're thinking about reported sales growth in the first half averaging around 30% and reported sales growth in the back half averaging around 10%. So both the first half and the back half strength versus the market. And then, even on an organic basis a first half organic growth around 20% and a back half organic growth around high single-digit versus a mid-single-digit market. So we are expecting back half growth. We just see the strength in the housing market continuing. We expect to continue to outperform it. I'd probably further clarify LARSON is probably $450-ish million in there, with about $250 million of that coming in the first half, just to kind of give you the way we see the year unfolding right now. And I do think at least, it seems like it's tracking this way for the first half, but it seems also likely to track this way for the back half of the year where, on a quarter-by-quarter basis looking at it in stacked margin versus those averages are helpful ways to look at these.

Yes, that's really helpful, Pat. Good to see demand really bounce back in your made-to-order Cabinets business. Curious to get your thoughts on how you're positioned with some of the reshuffling you've done on the capacity side. And then appreciating, from a dollar margin perspective, value is higher. But on an EBITDA dollar contribution, I think, semi-custom is probably pretty additive. But just wanted to help us think about what this bounce back in big ticket, what that means for you and then, obviously, on the value side as well.

We're also encouraged by what we're seeing. Your observations about Cabinet are accurate and apply to our entire portfolio. The strength across all products, channels, and geographies was impressive. It's great to see this in the made-to-order Cabinets segment, particularly driven by premium offerings, which indicates consumer confidence in their home investments and overall market conditions. We've put significant effort into refining our supply chain to create a competitive global presence and simplifying the made-to-order process to eliminate unnecessary complexity. This work is already enhancing our margins, and we're continuing to find additional opportunities for improvement. As volume increases in made-to-order, we anticipate seeing positive impacts on dollar margins and further margin enhancement plans. Pat, would you like to add anything?

Yes. I think the thing I'd add, Phil, is I think it's a great sign for housing in general and for our business right? When people are buying more premium-priced cabinetry, it just shows the confidence they have in their home, in their home values and their willingness to invest in their homes. So I think it's a great overall kind of market strength signal. I think, when you talk about percentages, the Cabinets team is trying to drive both the make-to-order and the stock business to the mid-teens margin of the whole Cabinet portfolio. As you point out though, in the make-to-order side you sell in the boxes at 2 to 3 times, sometimes even more than 3 times the cost of the stock boxes. So the dollar profit is quite substantially higher, which allows you to leverage SG&A much more significantly. So to the extent the level of strength we're seeing continues, that will be a powerful SG&A leverage and kind of upside to the next couple of years.

And does some of the streamlining you guys have done on the made-to-order side of things, just lead times just really extended for everything, does that kind of give you an advantage to service your customer better and that it helps you potentially gain share?

Yes. Over time, for sure. Because you're just removing unnecessary complexity. And at the end of the day, you have a network that allows you to move things through the network and put it in different places. I mean, today, as we speak today, the whole system is pretty strained. It's a high-quality problem. And so you have seen lead times for the whole industry extend out. We work very hard to keep our lead times inside of competitors' lead times, so that we can continue to gain share. But as we were to build out the system, you're absolutely right, it becomes a very powerful business system, where you're leveraging a whole network, not one facility at a time.

Super helpful, guys. Thanks a lot.

Sure. Thank you.

Your next question comes from the line of Stephen Kim from Evercore ISI. Your line is open.

Hi, guys. This is Joe Ahlersmeyer on for Stephen Kim. Thanks for taking my questions.

Sure. Hi, Joe. How are you?

Good. So great quarter. Just wanted to further discuss your prepared remarks on capacity within composite decking. You're saying, you're selling everything you can make today which is great and probably supportive of positive pricing, which the industry traditionally hasn't seen. And certainly, the investments you've previously made in distribution are helping you out with that. But how much additional breathing room do the investments that you expect to come online mid-year give you this year, given that it sounds like you're already sort of eyeing additional investments? Could you just go into a little more detail on the runway you have and the plans to support multi-year growth in a category that doesn't seem to be showing any signs of slowing down?

Yes, I'll start off by sharing a few perspectives on this, and Pat can provide additional details on the timing. First and foremost, we are working diligently to get everything out the door. You're correct about pricing; as we develop the fiber brand, we aim to lead with our pricing strategy. This is crucial because this offering represents a high-value proposition for consumers, driven by both brand reputation and innovation. We're transitioning from a commoditized, unbranded product to one with a significantly higher value proposition, which justifies a premium price. Maintaining that value relationship is important to ensure it favors the consumer. I believe there is an opportunity for pricing improvement and expect us to build a strong track record in this area. Regarding capacity, we have more resources coming online, and we're planning to pull some capacity from 2022 into 2021 and from 2023 into 2022. Our approach has been incremental, focusing on investing to enhance capacity and efficiency within our existing assets. Under Fortune Brands' ownership, we've achieved greater efficiency levels and intend to keep improving that. When we add capacity, it's done gradually, one extruder at a time, making it manageable rather than taking large leaps. In the future, we might consider a larger footprint, but we have the expertise to do that efficiently, as we frequently open new facilities. We're optimistic about our additions this year and do not foresee any overcapacity issues in the near term. Our plans aim to meet market demand, and as we capture more market share, we will continue to operate within our existing capacity. Pat, do you have any additional insights on the timing?

I share your thoughts. First, we've committed to reaching $400 million for this business by 2023, and we're on track to achieve that, if not ahead. Nick's comment suggests that we would actually like to increase our capacity faster. Last year, our business grew about 25%, selling every unit we produced, and we expect a similar growth of 20% to 25% this year while continuing to sell everything we have. We'll continually strive to maximize our current assets and bring new ones into play. As Nick mentioned, most of our additions are modest and manageable, allowing us to adjust the pace if necessary. However, it doesn't look like we will need to do that, and at this point, we're not anticipating an oversupply situation in the industry.

Yes, it's an excellent business with strong potential. I have a quick question regarding the acquisition of LARSON. The positive momentum this quarter suggests that the sales from this acquisition were slightly over 25% of the expected run rate. I understand there was an accrual for the last few weeks of 2020, but that doesn't quite explain the sales figures for this quarter. Was it simply a more successful spring selling season in the Doors category, or how should we view the ongoing impact of this momentum throughout the year?

Yeah. I think as I said in my remarks to Phil just before this. I think it will be a business that's at about $450 million or more for the full year. It was a bit under $400 million last year. And it's probably going to be about $250 million or thereabouts for the first half and then about $200 million for the back half. And it's about people just kind of recovering on inventory and a busy first half of the year across the industry.

It fits perfectly into the outdoor living category. When we analyze this business, the primary purpose of a LARSON door is to allow light in, followed by letting air in. While this category may have started with installation, it has evolved into bringing the outdoors into homes. We notice this trend aligns with people’s desire to enhance their indoor/outdoor experience and outdoor living areas. As mentioned earlier, the acquisition has exceeded our expectations. The team is excellent and is integrating seamlessly. The business is performing at a high level while we continue to pursue the value creation synergies we identified. We feel very positive about LARSON.

Thanks. Good luck guys.

Thank you.

Your next question comes from the line of Truman Patterson from Wolfe Research. Your line is open.

Hi. Good afternoon guys, and thanks for taking my question. Appreciate it. First, I wanted to touch on Fortune Brands Advantage. You mentioned that there are a handful of major initiatives to help offset some inflationary pressures that are flowing through. Could you just elaborate on what a few of those initiatives are maybe one from each segment?

Sure. I'm glad to provide that information before passing it to Pat for more specifics. Back in late 2019 or early 2020, we analyzed our portfolio as a team to explore how we could enhance our business model across Fortune Brands. During this process, we identified areas where we were already performing exceptionally well and where we were investing resources. We realized that while we were excelling in certain areas, those strengths could easily be utilized throughout the business. Thus, we collectively focused on enhancing the advantages of Fortune Brands to make better use of these capabilities. One area is category management. With few exceptions, we lead in our categories, and in the exceptions, we rank among the top three. This positioning allows us to provide valuable category insights, optimize shelf displays, engage consumers effectively, and identify areas for innovation. Another important aspect is global sourcing. As a manufacturer with a complex global supply chain, we can leverage sourcing skills to not only significantly reduce costs but also enhance the quality and resilience of our sourcing strategy. We have invested considerably to build teams focused on these opportunities, and while initial investments may be in the low millions, they are expected to yield substantial returns over time. The third focus is on business simplification and using tools like the 80/20 rule in a consistent manner across the organization. This involves uniform training, a shared language, and a clear understanding of our value chain to identify where we can create value. The goal is to embed these practices into our operations so that they become integral to how we function and help us cultivate new capabilities under the Fortune Brands Advantage umbrella, fostering growth. We are currently making significant investments in digital initiatives and gaining unique insights into the housing market through our extensive portfolio. We've developed a data lake that encompasses all our products, enabling us to quickly analyze point of sale data. We are very enthusiastic about these advancements and aim to achieve tangible successes to build momentum for this business model in the future.

Okay. Thanks for that. And then in the prepared remarks, I don't believe, I heard this but could you give an update either on a percentage basis or a dollar headwind, your raw material inflation expectations across the portfolio and the cadence in which it hits your P&L? And then finally, I believe you all said that you would be able to offset it either through pricing or some of these initiatives that you're working on. Will that be more real time, or do you think that you'll be trailing some of these cost pressures before kind of making it up at year-end?

Yes. Truman, inflation has been intense across materials and freight. For us specifically, things like metal, hardwood and freight have probably been the most extensive but certainly petroleum-based resins have been challenges as well, as much from the Texas storm as from different places in perspective. So if you tease them out, last year 2020, our full year COGS base was about $3.9 billion. And I'll tell you that inflation this year is going to be in the kind of 4.5% to 5% of COGS range. And much of that is yet to come. I mean we probably have less than 20% of that flow through our Q1 P&L. Much of it therefore you're talking more than 80% is going to flow through the balance of the year. And we are – we're going to offset it with a combination of cost actions and where necessary price over the balance of the year. I think you should expect that across all four quarters. We'll show a measure of margin improvement. It will be tightest during Q2 in part just because, freight really surged again kind of at the very end of last year and in Q1. And we're going to be doing things to expedite components and other products for our customers. We'll be absorbing some unique levels of freight inflation in the second quarter. But we do expect to make margin progress in the second quarter and make margin progress for the full year.

Well that's – sorry go ahead.

And I was just going to say I'd be remiss if I didn't call out how heroic our supply chain teams have been. I mean everything from being able to secure the freight, being able to secure the raw mats, being able to – as Pat referenced, resins and ready to find new resin suppliers get them tested and through the system really quickly and get that behind us. Really remarkable. And I think as you see the market gap to our performance and you see the outperformance of our business increase in an environment like this a lot of that is really attributable to that team and their ability to keep our customers supplied. And they've been at it for a long time now. I mean, if you go back to plywood tariffs in 2017, where we had to change out $100 million with the buy, out of China into other geographies and do it very quickly, they've really become world-class experts at managing this. And so they're just excellent. And that's what gives us the confidence to basically say, we'll manage this.

Yes. I think the team has been incredible. As Nick referenced, I mean I think since the second half of 2017, they've been facing some extreme challenge, whether it's tariffs, pandemic disruption of Asia or the latest surge of inflation. And I'd say even labor inflation is more challenging than it typically is as well, given the demand dynamics and the government program dynamics. We're going to offset it, as I said this year. They've been doing a heroic job and cost is a big part of it. We're not leaning just on price. The cost is contributing equally to that equation because we want to keep our products competitive and we want to keep our channel partners competitive.

That’s very encouraging. Thanks for taking my questions and good luck on the coming quarter.

Your next question comes from the line of Susan Maklari from Goldman Sachs. Your line is open.

Thank you. And let me add my congratulations as well on a great quarter. My first question is really around thinking about the second quarter appreciating the guidance that you've given us this year. But when we think about the upcoming quarter specifically, given the fact that the comps are just so abnormally low given the shutdowns that we had last year, how are you thinking about that coming together? Is there any color you can give us on it?

Yes. As I said a little bit earlier in the call too I think stacked growth quarter-by-quarter will be pretty helpful way to look at things. So if you recall last year we were down about 9% top line in the second quarter. And as I said, we're going to be averaging about 30% across the first half in terms of reported sales growth. So backing that up that means down 9% last year second quarter then up about high 30s to approaching 40 this year getting to that stack 30% for the second quarter. And then similarly on the organic basis kind of averaging about 20% across the first half of the year. The one thing I would point out is, last year while we were down 9% in the second quarter we had really good expense and cash management in that down quarter and our operating margin last year with sales down was 14.3%. So we managed our bottom line very effectively during the second quarter. We'll still make a margin progression this quarter because all of our teams are working very hard on driving the business forward and contributing to the full year margin expansion of around 100 basis points, but it will be 50 basis points or less during that second quarter, I'd say in terms of margin expansion.

Thank you for that information. My second question is more focused on the long term. It seems like there is a positive mix shift happening across the business. We discussed cabinets, and you mentioned that ROHL experienced 25% growth in the quarter. Could you provide some insight into the positive mix shift and its impact on the margins you anticipate? Additionally, as we look at the three-year targets you presented in the slides, how are you considering mix in that context? Is there a possibility that we might see an increase if the mix shifts more positively than your base case prediction?

Yes. I'll take it and maybe Nick could give some color. I'll start with what is the mix signal about the market and I think as especially as you've seen housing activity in suburbs in the Northeast Mid-Atlantic Upper Midwest where you have people moving from cities out into suburbs at housing price points that are relatively high and having a lot of confidence in the ability of both housing values to sustain and their desire to invest in their home because they're going to probably be spending a bit more time there than they expected to be it gives a lot of great signal at the housing market in terms of people investing in larger single-family homes than doing it in a premium fashion is well underway. And it's nice relative to the last housing expansion. This is really not happening with unsustainable home equity loans or something like that. This is people for the most part using cash to do it. So I think it's a great signal for the market. I think in terms of mix and how to think about it from our business we've been working as we've been preparing for the millennial generation to make entry price point and mid-price point products on a percentage basis every bit as attractive as premium-priced products. So we've been trying to make across our portfolio, our ability to increase margins a possibility even if it was a lot of millennials buying opening price point product. So we try to not overplay mix. But as we talked about with some of the questions I think we got to with Phil on an absolute dollar basis if you're selling a $1000 faucet instead of a $200 faucet even that's a same percentage margin obviously it's a lot more dollars. And so I think the upside that you're pointing to is it really allows you to leverage your fixed cost base. And so, if we were to see a pronounced and sustained mix in premium there'll probably be upside to some of the figures we've given out there because it'd be reasonable to assume, it's kind of new news and therefore it's kind of not in our multiyear assumption some massive mix shift. And if that does perpetuate and sustain at the levels, it's had recently it would be upside. Just leveraging fixed cost base off of higher absolute dollar contribution per unit.

And Sue, I'd just add that what we're observing is shifts in terms of the total and how it comes together, but it's really additive. We're not seeing any decrease in the trends in the core portfolio. Everything we see is in addition to what we already have, which is very positive. Looking at where this is coming from, some markets, as Pat mentioned, are experiencing healthier home equity levels and a degree of confidence. Additionally, some of our builder partners have noted that while the first few years of millennial buyers were focused on entry-level price points, we're now seeing first-time millennial homebuyers who are further along in their careers purchasing homes that were previously considered as second upgrade-type homes. They are coming in and really enhancing those houses with every available option. I believe that along with the value that the Boomer Generation and Gen X are reinvesting into their homes, as their confidence has risen and given that the housing stock is generally quite aged, gives us increased confidence in the premium of that portfolio. This is very exciting; margins remain comparable, but overall dollar figures are higher and many design cues come from that portfolio, which we utilize across everything.

Got you. Okay, that’s very helpful color. Thank you and good luck with everything.

Thanks, Su.

Thanks, Su.

Your final question today comes from the line of Keith Hughes from Truist. Your line is open.

Hi, Keith.

Yes. Hi. This is Dennis in for Keith Hughes. How are you?

Good, Dennis. How are you?

Great. Thank you. Thanks for squeezing me in. So I just wanted to ask a quick question on fiber on specifically pricing. Just wanted to ask whether you'd be anticipating doing a mid-year price increase or something along those lines? And then just one other one. In cabinets if we're seeing some imports come back is that having an effect on your business? Thank you.

All right. Dennis, I'll provide some insight. Firstly, we don’t comment on the specific timing of price increases on a product-by-product basis. However, I would refer you to my earlier comments about Fiberon taking a leadership position in pricing within the category. When we acquired Fiberon, it had established its business primarily at the entry level of deck boards, and our goal was to move up the price spectrum. As we expanded our wholesale distribution, which also supports retail through special orders with our partners, we see opportunities in both pricing and product mix in decking. This sector offers better margins as we move up the pricing scale, presenting a favorable opportunity. Regarding imports, a few key observations: volumes have stabilized broadly, returning to levels similar to pre-antidumping case periods, though now they are running significantly below peaks seen during those cases. While dollar levels are comparable to the past, our understanding is that current market pricing is notably higher than it was back in 2018, indicating that volumes are down. Additionally, we now account for a greater share of those imports in our global supply chain. Despite stabilization in dollar amounts, the volume is considerably lower. Importantly, this hasn't negatively affected us, as the replacement has come from importers with longer lead times, reduced availability, and increased costs. Whether these costs arise from genuine competition or shipping challenges, they are substantial enough to impact pricing. We have committed to building a global supply chain that does not depend on governmental support and remains cost-competitive. It is currently demonstrating strong cost advantages over imports, and we see a growing number of dealers approaching us for replacement products. Moreover, customs are intensifying enforcement against fraudulent shippers, which is likely to further reduce imports moving forward. The combination of the antidumping case and our strategic development of a global supply chain has effectively achieved our goals, reflected in our top-line and margin performances.

Okay. Thank you.

At this time, I turn it back to management for closing remarks.

Okay. Well, I would just say thank you everyone. I appreciate the questions very thoughtful. Please stay safe out there and we look forward to talking to you soon.

Thank you everybody for joining today's conference call. You may now disconnect.