Earnings Call
JELD-WEN Holding, Inc. (JELD)
Earnings Call Transcript - JELD Q2 2023
Operator, Operator
Thank you for standing by. My name is Maria, and I will be your conference operator today. At this time, I would like to welcome everyone to JELD-WEN Holding, Inc.'s Second Quarter 2023 Earnings Conference Call. I would now like to turn the call over to Mr. James Armstrong, Vice President of Investor Relations. Mr. Armstrong, please go ahead.
James Armstrong, Vice President of Investor Relations
Thank you, and good morning. We issued our second quarter 2023 earnings release last night and posted a slide presentation to the Investor Relations portion of our website, which can be found at investor.jeld-wen.com. We will be referencing this presentation during our call. Today, I'm joined by Bill Christensen, Chief Executive Officer; and Julie Albrecht, Chief Financial Officer. Before I turn it over to Bill, I would like to remind everyone that during this call, we will make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation 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 filed with the SEC. JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. 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. A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix of our earnings presentation. With that, I'd like to now turn the call over to Bill.
Bill Christensen, CEO
Thank you, James, and thank you, everyone, for joining our call today. I'm pleased to report that our second quarter came in better than we expected and we continue to make progress against our short-term goals to strengthen the foundation of JELD-WEN. First, I want to take a moment to thank all of our associates around the world. Due to their continued hard work, we are delivering on our commitments, including solid financial results in the first half of this year despite continued challenging market conditions. Let's begin with our second quarter highlights on Slide number 4. While sales were in line with our expectations, earnings were above our forecast, due mostly to continued solid price/cost results. In addition, we are generating strong cash flows driven by earnings and working capital improvements. I'm also pleased that we are delivering on important commitments, including reducing our cost structure, improving our customer service with a focus on on-time info metrics, both in retail and traditional as well as completing the sale of our Australasia business, which I'll speak to in more detail shortly. Julie will also be covering our financial performance in more depth during her comments. Turning to Slide 5. As you have heard me say before, we continue to implement a two-pronged approach to improve JELD-WEN for all stakeholders, paying close attention to both the short as well as the long term with a framework structured around people, performance and strategy. We are making good progress on strengthening the foundation of our business. One important focus area is our cost structure, and we are taking a disciplined approach to this opportunity. We are rightsizing our workforce across the business, optimizing our footprint, addressing procurement opportunities as well as analyzing many other operating expenses. As an example, we're in the final stage of closing our Atlanta facility and expect to achieve full run rate savings from the closure by the end of the third quarter. Such measures will support delivery of the approximately $100 million of cost savings this year. And we are still in the early stages of engaging all associates to identify as well as implement ways to make JELD-WEN a more effective and efficient business. Additionally, we continue to focus on improving operating cash flow to fund the projects that will support our margin improvement and drive higher returns on invested capital. Now turning to the long-term part of our two-pronged approach. We are focused on developing a strategy that delivers sustainable and profitable growth. First, focusing on people, we strongly believe that culture and capabilities will be a critical foundation for our success. I have visited more than 15 of our manufacturing sites during the last six months and have been listening to our frontline associates to get their perspective on what is working well and where we can improve. In addition, we recently completed an employee survey and collected feedback from over 80% of our global associates to gain insights about how well our organization is aligned and suited to adopt and sustain a higher level of performance. We see significant opportunities, and in the coming months, we'll dig deeper into our culture opportunity as part of our journey to improve JELD-WEN for all stakeholders. Second, we are focused on driving improved performance and have intensified the transformation program that we started last year. We are close to completing a thorough due diligence process in which a broad set of opportunities have been identified and we are now validating significant potential benefits both in operations and on the commercial side. As a next step, we move into a bottoms-up planning process focused on developing actions that detail specific steps and resources required to deliver the respective improvements. As we move forward, we are putting a greater focus on transparency, accountability and governance of our transformation activities. I look forward to giving you more detail around these opportunities over the next few quarters. Moving to Slide number 6. On July 2, we completed the important strategic action of selling our Australasia segment generating approximately $446 million of net proceeds, allowing us to both simplify our business and focus on our two remaining largest core segments, both North America and Europe. We then acted promptly to delever our balance sheet and last week on August 3, we repaid $450 million of senior notes and expect an annual interest expense reduction of approximately $25 million. Our net leverage is now below 3x net debt to adjusted EBITDA on a trailing 12-month basis, and we expect further improvements before year-end. Turning now to Slide number 7. And as you can tell from this year's results, we are making progress to become a stronger, more efficient company. We have shifted our priorities with a focus on driving accountability and engagement as well as improved profitability and return on invested capital rather than just getting bigger. During this challenging market environment, we are implementing identified self-help opportunities and are working diligently to find more opportunities and then sequence their execution. These actions, combined with our focus on developing culture and capability, will create a solid foundation for future performance. On capital allocation, we remain committed to a healthy balance sheet and investing in ourselves through strong payback projects to further improve profitability. As we reduce leverage, we are also reviewing our portfolio to assess further actions to better position ourselves for returns above our cost of capital. We are well underway in developing our short-, medium- and long-term goals within each region. I am very optimistic about the significant opportunities we have to improve JELD-WEN in the quarters and years to come. However, we still have work to do, both in terms of due diligence scoping and in developing a clear road map to achieve our goals, including resourcing and related costs to achieve. I continue to give you my commitment to share more information when appropriate and for providing milestones so that you can evaluate our progress along the way. I'll now hand it over to Julie to discuss our detailed financial results.
Julie Albrecht, CFO
Thanks, Bill. Turning to Slide 9. You see our consolidated results for the second quarter of 2023. As a reminder, all of our financial results for the periods presented exclude Australasia, unless otherwise noted. We moved to the segment to discontinued operations after we signed the related agreement on April 17. Further, since we completed the divestiture in our fiscal third quarter, the final impacts of all related activity will be reported in Q3. Our second quarter revenue was approximately $1.1 billion, down 4.5% from year-ago levels, driven by a reduction in our core revenue. Our adjusted EBITDA was approximately $109 million in the quarter, leading to an adjusted EBITDA margin of 9.7%. This margin improvement year-over-year and sequentially reflects our solid execution across the business in this challenging macro environment. On Slide 10, you see that our second quarter revenue decline was driven by lower volume of 11%, which was partially offset by 8% of price realization that primarily reflects our price increases in the second half of last year to offset cost inflation. You'll find a revenue walk, including segment details for the second quarter and first half of this year in the appendix of our earnings presentation. On Slide 11, you see that year-over-year, our adjusted EBITDA improved by approximately $1 million as a solid price/cost benefit and improved productivity were mostly offset by the impact of lower volume mix and a reduction in other income. Related to price/cost, compared to the first quarter, we are experiencing a lower rate of inflation, though most costs do continue to increase. During the second quarter of this year, we recognized an increase of approximately $20 million in total cost inflation compared to the prior year. Of this, approximately 60% was driven by raw materials, with the remainder driven by labor. Moving to other income. As I've mentioned before, we have a full year headwind of approximately $40 million from unique items in 2022 and almost half of that impact was in the second quarter. Additionally, as Bill has mentioned, we are on track to achieve approximately $100 million in cost savings this year. In the second quarter, we realized approximately $20 million of these savings that are reflected on our EBITDA bridge in productivity and SG&A. In the first half of this year, the cost savings benefit was approximately $40 million, leaving $60 million to deliver in the second half. Our run rate is increasing due to the timing of actions that have been started earlier this year or that will be initiated in the third quarter. Moving to our segment results on Slide 12. In the second quarter, our North America segment generated $817 million in sales, down approximately 3% from year ago levels. This was driven by a core revenue decline of 2% due to lower volume mix of 8% with a positive impact from pricing of 6%. North America had adjusted EBITDA of $109 million, up 16% year-over-year while margins increased a solid 220 basis points to 13.3%, driven by strong price cost results. Our demand weakness in North America was spread across most of our products, but I want to highlight the continued strong volume in our Canadian and multifamily VPI businesses. Specifically, our VPI business has grown 50% year-over-year following our facility expansion in Statesville, North Carolina last year. We continue to deliver a number of operational efficiency improvements in North America. These include driving a 4% year-over-year improvement in units per labor hour while also improving our on-time and in-full delivery metrics. We're especially pleased with these results considering this year's reduction in inventory balances, which is helping drive our strong year-to-date cash flows. Europe generated $309 million in revenue and $24 million in adjusted EBITDA. Core revenues decreased by 9% in the quarter, driven by lower volume mix of 17% and which was partially offset by higher price realization of 8%. Adjusted EBITDA was 19% higher year-over-year, leading to 180 basis points of margin improvement to 7.7%. This improvement was due mostly to positive price cost results with the benefit of market and product-specific price increases combined with slowing material cost inflation. Also, our European team has continued to capture market share as certain suppliers have struggled to serve customers, and they have been successful in delivering productivity improvements. Now turning to the market outlook on Slide 13. While our North America full year demand outlook is still a low double-digit decline in volume, we've lowered our outlook for Europe due to weakening demand in their residential housing market. Specific to North America, higher interest rates continue to impact single-family housing starts and permits, and our outlook is unchanged with new home construction declining 15% to 20% year-over-year. For our repair and remodel markets, we still anticipate lower demand at a high single-digit rate. While our North America volume and mix was better than we expected in the first half of this year, partially driven by backlog from 2022 and strong mix, we expect increased declines in the second half. Taking all of this into account, we do continue to expect a low double-digit reduction in full year volume for our North America business. In Europe, we now anticipate that demand will be down by low double digits as the market weakens due to the region's ongoing macroeconomic challenges. Our European volume mix was down by 12% in the first half of this year and we expect a similar decline in the second half. On the residential side, we see sharper declines of 15% to 40% in new residential construction starts depending on the country. In some specific markets, residential construction demand is down by as much as 80%. In the commercial construction market, volumes are expected to be flat in the near term. Construction on current projects has continued, but there is evidence that new projects are being delayed in a number of markets, which may impact demand into 2024. On Slide 14, we provide our updated full year 2023 outlook for revenue and adjusted EBITDA. While we remain cautious as we start the second half of this year due to the continued uncertain macro environment, we are tightening the ranges and raising the midpoints of our revenue and adjusted EBITDA guidance. We now expect full year 2023 revenues to be between $4.2 billion and $4.4 billion and full year adjusted EBITDA to be between $350 million and $370 million. Our updated outlook accounts for our stronger-than-anticipated second quarter results, as well as our expectation for demand headwinds in the second half of this year and our ongoing cost reduction activities. Specific to our outlook for this year's core revenues, our first half core revenues were basically flat to the prior year as carryforward price increases offset lower volume mix. In the second half of this year, we expect a low double-digit decline in our core revenues due to the reduced volumes that I've just discussed with less benefit from year-over-year price increases. All of this combines to support our full year outlook for core revenues being down 4% to 8%. Now turning to Slide 15. You can see how our first half results, combined with our outlook for the remainder of this year to result in our updated full year guidance. As I've described in my comments this morning, our first half results for North America volume mix and global price costs were better than our expectations, while we are delivering on our cost reduction targets. In the second half of this year and despite weaker demand, our earnings outlook is generally unchanged as we deliver cost savings that mitigate the impact from lower volumes. In closing, we remain keenly focused on generating strong cash flows to further strengthen our balance sheet and invest in ourselves. We expect to continue delivering high-quality earnings and reductions in our working capital. As Bill mentioned earlier, we're also committed to improving JELD-WEN's return on invested capital through our various actions focused on operational and commercial improvements.
James Armstrong, Vice President of Investor Relations
Thanks, Julie. Operator, we're now ready to begin Q&A.
Operator, Operator
Our first question comes from Susan Maklari at Goldman Sachs. Please go ahead.
Susan Maklari, Analyst
Thank you. Good morning, everyone. I appreciate the opportunity to ask a question. My first question pertains to the incremental weakness you've observed as you look toward the second half of the year, particularly acknowledging that part of this is influenced by Europe. Considering the housing outlook in the U.S. and North America, especially the positive trends in new construction, do you think there might be an element of conservatism here? Or do you anticipate that various factors might converge over the next few quarters?
Bill Christensen, CEO
Susan, thanks for the question. So I would say it's a very dynamic market, and we're cautious. If we start to see some of the things that we're tracking, especially in Q2, if we look at some of the retail softness, and we felt we kind of exited Q2 at the run rate that we're expecting for the rest of the year. As Julie said in our prepared remarks, Q4 was a pretty big overhang that dropped into Q1. Retail has obviously built through that. And now into the second quarter, we see and we hear also from customers that inventories are very tight across retail locations in North America and sales to stock below 98% means some customers are not getting what they want. So we feel we're close to or at the bottom of the retail valley in North America. But obviously, consumer sentiment is guarded, and so we remain cautious, especially when you look at bigger tickets. So doors and windows are tracking obviously at different rates, both down, but patio doors, for example, are significantly worse than doors. So we see people remaining cautious. Traditional still in kind of that 15% to 20% pocket, a little better than we had expected. But as everyone is remarking, in the second quarter results, we remained cautious, and I don't think that our view has changed versus the end of Q1. We're firming up a bit where we see the range. Europe remains a challenge. There is significant macro uncertainty. Julie commented on some of the markets that are down. It really is a very tough market reality and something that we're very cautious and expect also that the softness will drag into 2024. So that's why we're working hard to make sure our cost structure is appropriately matched to that market reality.
Susan Maklari, Analyst
Okay. That's helpful. And then you mentioned a lot of the progress that you are making on the company's specific efforts in terms of cost and service levels and those initiatives there. As you're getting to the final stages of closing that Atlanta facility, can you talk a little bit about some of the upcoming key milestones or key steps that you're thinking about as you think about maybe the end of this year and even into 2024?
Bill Christensen, CEO
Yes. So we're working on three things, as we've discussed, people performance and strategy. On the people side, we're making great progress on really trying to dial in the culture and capabilities that we need as an organization to really transform ourselves. So we've done a lot of digging with the help of our associates around the world to really benchmark and baseline where we are today. On the performance, we're still controlling what we can control, and we really feel quite positive about the work that we've done taking cost out of the business and getting ourselves dialed in. There's two big buckets that we're really digging deeper into, looking really bottom-up at all of the opportunities. One is operations footprint and making sure we're aligned, especially when we look towards the European market outlook and that volume reality. And the second thing, what we're really trying to work through is on the commercial side, so to make sure it's the right offering, the service levels are appropriate. We have the pricing under control. And as we've reported in the past, some of the things like managed supply chain, et cetera, are going to start dropping in, in the back half of this year. So we'll be back with our next quarterly results with more specifics around some of these cost levers and some of the broader initiatives that we think we'll have. We also want to share more about the culture journey that will be on at that stage and just let you know how we want to hold ourselves accountable as we look into 2024.
Susan Maklari, Analyst
Thank you for the color. Good luck with everything.
Bill Christensen, CEO
Thank you very much, Susan.
Operator, Operator
Our next question comes from John Lovallo from UBS. John, please go ahead.
John Lovallo, Analyst
Good morning, guys. Thanks for taking my question. I just wanted to go back on Susan's question for a moment. What specifically are you guys seeing that makes you think North American volume and mix is going to decelerate so much sequentially in the second half? I mean it sounded initially like it may have been a timing issue, meaning that the pickup that we're seeing in starts right now maybe something that flows through in 2024. But Bill, your most recent comments that this softness may continue into 2024 leaves a little bit of a question there. And along the same lines, the 15% to 20% decline in single-family starts that you guys are forecasting seems to be conservative given your improving activity and easier comps in the back half. But just curious, is that just really out of an abundance of caution? Or are you seeing something more specifically that gives you confidence there?
Bill Christensen, CEO
I would say that Europe is certainly showing signs of weakness heading into 2024, which is not related to North America. In the North American market, we have collaborated closely with our retail partners, and our retail team is doing an excellent job of understanding the current situation. We believe we finished Q2 at a realistic run rate, but it is a very tight market. Sell-in and sell-out are closely aligned, and channel inventory is extremely low. Many retail partners are tightening their working capital and discussing labor reductions, indicating that they are also experiencing weak demand. When we start seeing stock shortages on shelves, it highlights the uncertainty in the market. Therefore, our expectation as we exit Q2 is aligned with what we anticipate for Q3 and potentially Q4, leading us to feel cautiously confident that our retail expectations are accurate. We have pointed out since the first quarter that the market would be soft, and while it is tighter than we expected, we don't believe it can decline much further due to the current inventory situation. We foresee around a 15% to 20% drop in new starts, and we expect that trend to persist, though there are varying dynamics across different product lines and materials. For instance, vinyl windows, typically linked to production builders, have been weak since the start of the year, with volumes holding steady. The pricing discussion is becoming more significant due to the tight volume. Meanwhile, wood windows, which cater more to custom builders, have been a stronger line for the first half but are starting to decelerate as builders delay starts. Overall, we remain cautious in this dynamic environment with expectations for softening in Europe in 2024, but for the U.S., we are focused on the latter half of this year rather than 2024.
John Lovallo, Analyst
Okay. Understood. And then can you guys help us on just the cadence of the third quarter and fourth quarter margins and sort of the expected realization of productivity and cost saves as we move into the back half of the year?
Bill Christensen, CEO
Yes, sure.
Julie Albrecht, CFO
Yes, John, I can address that. Overall, Q2 was very strong, and we are pleased with the results. However, we do expect some pressure on margins in the second half. Looking at our typical margins for Q3 and Q4, I would say Q3 will perform slightly better than Q4. We foresee this trend continuing this year. Therefore, while we aim for margins in the second half to remain relatively stable compared to the first half, it’s possible they might dip a little. I anticipate Q3 to be slightly better than Q4. In terms of cost savings, as we mentioned earlier, we've already achieved about 40% of our expected savings this year. I believe this will result in a more balanced contribution from Q4 compared to Q3, although we expect the run rate for cost savings to increase in Q3 over Q2, and then again in Q4 over Q3.
John Lovallo, Analyst
Understood. Thank you very much.
Bill Christensen, CEO
Thanks John.
Operator, Operator
Our next question is from Phil Ng with Jefferies. Please go ahead.
Phil Ng, Analyst
Hi, guys. Congrats on a strong quarter in a pretty dynamic environment. Good morning, everyone. Bill, outside of the inventory destock on the retail side, what's your rate on the R&R market? How has that kind of trended in the U.S. intra-quarter through call it, early August? And if things do snap back, what's your ability to meet that demand? And you called out how you're expecting weakness in Europe through 2024. Is your view any different on the U.S. side? Or do you see some sort of recovery early next year?
Bill Christensen, CEO
Yes. So I would say that it's definitely a choppy market on R&R. Big tickets are definitely weaker, and we're seeing some of our retail partners really focus on turns on lower ticket items because that's where they're getting some traction. We're working with them, obviously, as much as we can to make sure that the right mix and balance is across their network, so we can satisfy any demand that exists. So I'd say we remain cautious. I just think, Phil, that there's a lot of consumer uncertainty currently in the market. Interest rates are high, inflation is sticky, discretionary spending, people are just cautious. And our belief is that we are really close to the bottom of the inventory in the channel. And we're doing a lot of work on making sure our delivery metrics and our network is ready for a potential rebound, and I think that's the key. And one of the things that we're looking at from a bottom-up standpoint is what's the right footprint to serve our markets and how do we make sure that we can help them through a rebound post the softness that we're seeing. That's in North America. We're not calling the North American market right now. If it's just a 2H '23 softness or if that rolled into '24. Clearly, with the starts where they are and our products three to six months built in after the starts, this softness on a traditional channel will roll into 4Q and potentially into the first Q of next year. With that said, the good news is there's a lot of pent-up demand, and that's getting bigger every month. So there will be a snapback. Same goes for Europe. I think we're more cautious on Europe. There's a lot of macro uncertainties. The war is still ongoing. We're rolling into another heating season with some uncertainty around energy, inventories and costs. So there are still a lot of things that are really foreshadowing people's decision to buy something new, and Julie mentioned the rates of the new build, and it's pretty significant and severe. So there's a lot of work that the industry has to do to make sure we can get ourselves positioned to ride out the storm, but also get ready for the rebound, which we don't see until into '24 in Europe.
Phil Ng, Analyst
Got you. Okay. That's helpful. And then maybe a question for Julie. On the pricing side, certainly very solid through the first half. Curious, from a guidance standpoint, are you baking any price erosion in the back half? And then from a price cost standpoint, how should we think about the second half as you kind of lap some of these previous increases as well?
Julie Albrecht, CFO
Yes, overall, year-over-year pricing in the second half is expected to be stable, possibly slightly higher. As you mentioned, we really began to align price with cost in the second half of last year, which is the comparison we are entering now in the third quarter. The comparisons between the first and second halves of this year are quite different, and you have likely noticed this in the first half and will continue to do so in the second half. The pricing environment remains relatively stable, with some variations across regions. However, the key issue is really about these comparisons, resulting in a flat to slightly positive outlook. Additionally, from a price cost perspective, we anticipate that the benefits will significantly decrease in the second half. This has been a major contributor to our stronger than expected earnings in the first half, but we do expect it to tighten considerably in the latter half of the year.
Phil Ng, Analyst
And you slightly did better than you expected in the price cost in the first half, Julie, has that been more on the price side or it's been on the cost side with input cost being maybe a little more favorable?
Julie Albrecht, CFO
It's been some of both. I will say inflation in both North America and especially Europe has been better than expected. You think about coming into the year, what we were expecting with energy costs in Europe, that clearly was better than we expected again and very much so in the first quarter. So price has probably been a little more stable than we expected, but a lot of the benefit has been weighted on the less inflation on the cost side.
Phil Ng, Analyst
Okay. Appreciate all the great color.
Operator, Operator
Our next question comes from Mr. Michael Rehaut, JPMorgan. Please go ahead.
Andrew Azzi, Analyst
Hi, everyone. This is Andrew Azzi on for Mike. Good morning, and congrats. I just wanted to ask in terms of the drivers of the rate guidance, both in terms of sales and EBITDA. Was it just 2Q? Or are there any changes to your kind of 2H outlook in terms of sales or margins?
Julie Albrecht, CFO
Yes. Really, most of the key driver is the upside delivery from our expectations for the second quarter. And so we look at the second half, I mean, again, we've adjusted. We've mentioned more weakness in Europe. However, we've obviously tweaked as well our expectations around cost savings as well as some price costs as well. So net-net, the back half of the year from an EBITDA perspective is generally about what we expected as we have reassessed all the moving parts of our forecast. And so really the increase in the guidance range is mostly due to our over delivery versus our expectations in the second quarter.
Andrew Azzi, Analyst
Got it. That's helpful. In terms of the broader portfolio review, I wanted to ask if the North American product portfolio will include any significant changes, or should we anticipate mainly minor adjustments?
Bill Christensen, CEO
Yes. So at a high level, just to kind of set everyone on the right trajectory here. So we had three areas of business, and we closed the divestment of our Australasia segment, two core segments then North America and Europe. And what we're doing with our regional leadership is now taking a deeper dive into each of the regions, really looking at the market segments that we serve, what's core, what's non-core, and where are we on our ability to serve and win in those various markets. So we are in that process now. And we feel more comfortable than sharing details as we progress towards the end of the year. So no specifics right now on what we're doing. But we're looking at everything and it's a dynamic environment. So we are also spending a lot of time making sure our cost to serve and our delivery metrics are on track. But more details at the end of the year regarding any portfolio opportunities that we want to dive deeper into.
Andrew Azzi, Analyst
Okay. Thank you for the color. I'll pass it on.
Bill Christensen, CEO
All right. Thanks Andrew. Have a good day.
Operator, Operator
Our next call comes from the line of Steven Ramsey with Thompson Research Group. Please go ahead.
Steven Ramsey, Analyst
Hi. Good morning. Maybe just start with just some clarification. VPI growth, very strong multifamily, great backdrop this year for VPI. As you look into 2024, that end market potentially slowing. Are you preparing the business operationally for that kind of environment yet or is it still execute on the opportunity at hand?
Bill Christensen, CEO
I believe that in the short term and long term, we are executing exceptionally well, and we are very pleased with the team's efforts. However, we need to prepare for some challenges. We anticipate that volume may decrease due to financing constraints for certain multifamily properties, but we still have a substantial backlog that will benefit us through the latter half of this year. Currently, we do not expect any significant changes, aside from ensuring that we are set up with the right mix for 2024. Our sales team is actively working on this and has done an excellent job of developing the right portfolio to align with our production locations, including the new one on the East Coast with the volume we are selling into.
Steven Ramsey, Analyst
Great. That's helpful. And then kind of zooming out assessing the environment here, this reset period with volumes down, some lingering inflation and cost savings being worked out. This environment pretty much forces all producers to make these kinds of moves. Are you seeing anything from channel partners or competitors that you think would change the overall competitive environment when we reenter a growth territory for the market? Are you seeing anything irrational in the near term that may change what things look like on the other side?
Bill Christensen, CEO
I think the short answer is no. The longer answer is that there are many things we can control, and we are beginning to manage those, which will create great opportunities for us when the market rebounds. We are evaluating our cost structure and the cost to serve. We are focusing on our on-time and full metrics. Naturally, there's a lot of discussion about pricing, especially in segments that usually experience higher volume but lower value, because of the current soft volumes. However, these considerations will also guide us as we review our portfolio and make decisions on where to compete and how to succeed. We feel as comfortable as possible in this challenging volume environment, since there’s still much work to do to strengthen our foundation. That said, I don't perceive anything particularly irrational in the market right now, aside from the expected discussions around pricing and competitiveness in light of weak volumes and excess capacity in several segments.
Steven Ramsey, Analyst
Very helpful. Thank you.
Bill Christensen, CEO
You're welcome, Steve.
Operator, Operator
Our next question comes from Joe Ahlersmeyer with Deutsche Bank. Please go ahead.
Joe Ahlersmeyer, Analyst
Thanks. And good morning. Just curious about your first half results in overall residential new construction, if you kind of combine single-family and multifamily. Is there a way to think about that decline?
Bill Christensen, CEO
Yes. Well, what I would say is that our multifamily pillar is definitely a lot smaller than our residential pillar is. So even though we're growing at exceptional high double-digit rates, it's going to take us a while to get to that scale effect that we're looking for. So definitely overweight on new res. And as a result of that being down as much as it is, that's overshadowing. If you look at Europe, it's a little more balanced, not quite, but commercial has a stronger presence in Europe, and that's been helping us because we're now working through a backlog that has existed for a number of months. But there's also expectations that the backlog will soften and we see it already into 2024. So that's also another reason why we're being cautious on the guide in Europe, especially as we look forward into '24.
Joe Ahlersmeyer, Analyst
When you mention your multifamily business being smaller in proportion, are you referring specifically to the VPI mid high-rise segment, or does that also include garden-style apartments in the overall multifamily conversation?
Bill Christensen, CEO
No. I'd say it's mid-high, so 6-story type of units that are going in all over metropolitan areas, especially on the East Coast and West Coast. That's the area that we're talking about.
Julie Albrecht, CFO
Sure. For our capital expenditures this year, I anticipate that the second half could exceed the first half, but we do not expect any significant increase at this time. We are sticking with our original guidance for the year, aiming for around $100 million in total capital expenditures. We will reassess our capital expenditure needs as we consider the detailed planning Bill discussed this morning, looking into how we can invest in automation, digitization, and our operational footprint. As we progress, we will provide more clarity on our capital expenditure outlook for 2024, but I am not ready to make any commitments just yet. I do see potential for increased capital spending, focusing on high-return investments that will drive our EBITDA growth and cash flow over time. Regarding our leverage and capital allocation, we are pleased to be just below our target of 3x net leverage. Moving forward, we will be very attentive to capital allocation, and we remain optimistic about the cash flow generation capabilities of the business. We are satisfied with our performance in the first half and are committed to returning to pre-2022 cash flow levels. We will continue to manage our balance sheet while also investing in ourselves and exploring potential bolt-on acquisitions. More details will come as we advance, but we are excited about the cash flow generation and how we can reinvest that back into the business.
Joe Ahlersmeyer, Analyst
All right. Sounds encouraging. Thanks a lot. I'll turn it back.
Bill Christensen, CEO
Thanks Joe.
Julie Albrecht, CFO
Thank you.
Operator, Operator
Our next question comes from Mr. Keith Hughes with Truist. Please go ahead.
Keith Hughes, Analyst
Thank you. Earlier, you talked about flattish and obviously a price in the second half, I think you're talking about the U.S. Can you dig down in that? Is there any areas where you're actually doing better than that price, any products or any that are lagging a little bit as we head in the second half of the year?
Bill Christensen, CEO
Yes. So Keith, we typically wouldn't provide that kind of detail. I can just tell you there's a couple of things, I mean, as Julie said in her prepared remarks. So it still is an inflationary environment, but it's definitely slowing. Point number two is we have a more robust H2 '22 price comp. So the bar is getting higher when we look at kind of a year-over-year comp. Third message is that we've been doing a lot of work on the commercial side of the business, especially in Europe, to really make sure that we're priced appropriately in different markets. So it's not a one-size-fits-all approach. It's more of a fine-tuned granular approach. And that's something that we've been spending some time on, and we haven't done it well in the past. So we're starting to really improve transparency, dialing the granularity and make sure that we're appropriately priced in the market. So I think those two levers have been delivering the solid performance that we've seen. But again, the bar is ratcheted up in the back half of the year, and that's something that you need to be aware of when you think through your model.
Keith Hughes, Analyst
Okay. And that would apply to Europe as well as the United sites. Is that correct?
Bill Christensen, CEO
Yes, it would. Yes, it would.
Operator, Operator
Our next question comes from Matthew Bouley with Barclays. Please go ahead.
Matthew Bouley, Analyst
Hi. Good morning, guys. Thanks for taking the questions. So on Europe, to the extent residential is soft and commercial could be softer into next year. I'm curious what cost actions may need to be taken sort of incremental to what you've been previously doing? And would these be permanent or type of more temporary austerity actions, I guess. How are you planning to kind of manage this downturn in Europe here?
Bill Christensen, CEO
Yes. So obviously, that's top of mind as you can imagine right now. It's going to be a mix of both. We're already in short work scenarios in different countries based on the local rules and regulations of labor markets. So we are utilizing that and have been for a number of months with obviously a double-digit down volume. Second thing is we're taking a hard look at footprint, time to achieve such projects have a longer gestation phase in Europe. So there's things that we're constantly looking through to try and make sure we're balanced with the expectation of the market reality, which remains very dynamic. So that is a challenging factor. And we're also obviously taking cost out of the business. So part of the $100 million that you're seeing are some sites that we've taken offline last year that are having an impact this year. And on the flip side, we want to stay balanced because some of our competitors are really struggling. We've had competitors going out of business. We've had customers coming to us for short-term switches of supply base. So we are picking up volumes in select markets where other customers have or other competitors have been having trouble. So it's balancing a bit picking up where weaker competitors are suffering, but at the same time, preparing for a longer-term right size of the fixed asset base that we need to supply to market. So that's ongoing, Matt. We'll have more detail at the end of Q3. And as we said, there's a number of things that we're working through. And as soon as we're ready to announce it, we will.
Matthew Bouley, Analyst
Got it. Okay. That was very helpful. Secondly, regarding capital deployment that Julie mentioned, you have now achieved the 3x leverage goal. I'm curious about your priorities for organic investment versus mergers and acquisitions, and whether you might consider returning to share repurchase. What would the timing look like for that? Are you looking to be further below the 3x leverage, or do you have any thoughts on timing?
Bill Christensen, CEO
Yes. Thanks, Matt. So I'm pleased, very pleased. I want to thank the organization that we're even having this discussion already. So that means that we've hit kind of our goal number one of getting below 3x and doing that in a pretty rapid fashion this year. So if we go through the wish list, there's kind of three things that are on our list, and one is definitely investing in ourselves. We still do see a lot of very accretive internal investment opportunities in the transformation process. And we expect when we're done with the diligence and the bottom-up planning, there'll be a lot more. So that's the one big bucket. Second is we're looking at some M&A options, and we constantly screen the market, obviously. It's an interesting environment right now, but our leverage reality gives us a little more flexibility to look at some nonorganic opportunities. And clearly, share repurchase is an option, lower priority right now because we think bucket one and two that I just went through have some opportunity here in the midterm. So we'll obviously be back to the market if we're going to act on any of those, but we'll be coming back in Q3 and just really laying out the investments in ourselves and what we want to do there. So it's pretty clear and transparent.
Matthew Bouley, Analyst
All right. Thanks Bill. Good luck.
Bill Christensen, CEO
Yes. Thanks Matt. Have a good day.
Operator, Operator
Our next question comes from Tim Wojs from Baird. Please go ahead.
Tim Wojs, Analyst
Hi everybody. Good morning. We've run through a lot here, but maybe just build back to the portfolio review. As you kind of look through that, maybe just give us a little bit of guardrails or some of the attributes maybe that you're looking for to say certain businesses should be part of JELD-WEN or maybe they're better off kind of somewhere else. What are the two or three things that you're kind of looking for when you do that?
Bill Christensen, CEO
Well, I mean, it's pretty simple. The first thing is, before we even start that discussion, Tim, what we want to make sure is that we do our homework and we sweep the corners and fix the foundation. So that's what we're working on right now to make sure that the businesses that we do currently run. We have a robust plan with our management as to how we want to improve them. So that step number one is, I'd say, fix or strengthen the foundation. Number two is clearly to define core, non-core and how do we really want to grow the core and what are the key questions that we want to ask around non-core assets? And as we've said in prior calls, our teams are really doing a good job. We're pushing down the responsibility and authority and getting kind of the business pillars really detailed within the regions and challenging the leadership of each of those pillars to really come up with a plan on where they are, where they need to get to, what's the capital that they're going to be requiring to change and what's the return on that capital that we can expect as an enterprise. So that's a process that's ongoing, and it's going to be a sum of the parts discussion. And so it's return on capital, ability to win, core growth. Those are the key levers that we're focusing. And my assumption is that the foundation has been strengthened in those pillars, and we need to do that first and foremost, and that's the focus right now on what we've been working on diligently in the last six months.
Tim Wojs, Analyst
Okay. That's great. And then maybe just on price/cost, Julie. I think in the first half, kind of a $94 million benefit on a year-over-year basis. Would you expect that to kind of step down in the back half just with the lower year-on-year price and then maybe slipping to see similar deflation?
Julie Albrecht, CFO
Yes. We absolutely expect that $94 million to really decline, I think pretty dramatically. We expect to be positive price costs in the second half of the year, but it will be notably less of an impact versus what we have seen in the first half.
Operator, Operator
I will now turn the call back over to James Armstrong, Vice President of Investor Relations for closing remarks.
James Armstrong, Vice President of Investor Relations
Thank you very much. If you have any further questions, please feel free to reach out. I'd be happy to answer any follow-ups. This ends our call today, and please have a great day.
Operator, Operator
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.