Earnings Call
JELD-WEN Holding, Inc. (JELD)
Earnings Call Transcript - JELD Q3 2020
Operator, Operator
Ladies and gentlemen, thank you for standing by. And welcome to the JELD-WEN Holding Inc. Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Chris Teachout. Thank you. Please go ahead, sir.
Chris Teachout, Speaker
Thank you. Good morning, everyone. We issued our earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website, which we will be referencing during this call. I'm joined today by Gary Michel, our CEO; and John Linker, our CFO. Before we begin, I would like to remind everyone that during this call we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation 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 and statements regarding the expected outcome of pending litigation. Additionally, during this 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 measure calculated under GAAP can be found in our earnings release and in the appendix to this presentation. I would now like to turn the call over to Gary.
Gary Michel, CEO
Thanks, Chris, and good morning, everyone. Thank you for joining our call today. Since we talked last quarter, improving housing fundamentals in the United States and Europe led to accelerating demand for our products and sequentially improved pricing. In addition to the pandemic, weather events including hurricanes and wildfires presented new challenges for us to manage. Because some of our facilities were in the wildfires' path, we experienced limited, short-term facility closures due to air quality but suffered no physical damage. These facilities are back online and meeting customer demand. Unfortunately, some JELD-WEN associates suffered extreme personal property damage and home loss due to the wildfires, but thankfully all are physically unharmed. I'm extremely proud of how so many of our people came together as one team to provide fellow associates much needed assistance to help them on their path to recovery. Our thoughts remain with everyone affected by the hurricanes and wildfires and globally the ongoing effects of the pandemic. Regarding the pandemic, we experienced some isolated operational disruptions in the third quarter. And despite the rise in the number of COVID-19 cases around the world, only a small number of JELD-WEN associates have been diagnosed with the virus and thankfully all have or are now recovering. I attribute this containment to the continued focus on safety and enforcement of protocols to protect our people and business partners. Our first value is safety and our associates embrace it. I am pleased to announce that we once again delivered quarterly financial performance ahead of expectations through disciplined execution of our strategy and actions taken to offset any market challenges. We delivered both revenue growth and margin expansion in the third quarter through profitable new customer acquisitions and sequentially improved price realization. Operational improvements continued to deliver benefits through the ongoing disciplined deployment of the JELD-WEN excellence model or JEM and the footprint rationalization and modernization program. On page 5, you can see highlights of the third quarter including a 200 basis point core margin expansion versus prior year, the result of delivering a 20% increase in adjusted EBITDA on a 1.9% revenue growth. This strong operating performance is the result of productivity, price realization and profitable share gain. Notably, we delivered sequential margin improvement across all business units and regions. In North America, our customer segmentation work and improved operational capabilities are delivering results. You may recall from prior communications that a primary focus for us is increasing penetration with key customers and channels and profitably growing our business. In the quarter, we secured a significant commitment with a national homebuilder for both doors and windows in the Southeast and South Central U.S. We also secured additional share gain through our national channel partners across the country in both doors and windows. We expect these share gains to have an immediate impact on our top line growth and profitability. We also realized higher prices sequentially from Q2 to Q3, and the price changes deployed earlier this year are holding. During the third quarter, we implemented off-cycle price increases in certain products and regions, due to strong demand and increased utilization of our assets. In addition, we have already communicated price increases across our product portfolio for the 2021 building season in North America. In Europe, we delivered the fifth consecutive quarter of year-over-year core EBITDA margin expansion. We saw markets reopen and stabilize contributing to increased demand and sales growth across all of our major markets. We delivered the strongest revenue growth in Germany and the U.K. supported by profitable share gain. Productivity savings from manufacturing efficiencies, sourcing initiatives, and pricing are delivering to the bottom line. The Australia housing market continues to be challenged by demand headwinds and the impact of COVID-19 restrictions. Despite these challenges in the third quarter, our Australasia segment delivered market share gains and delivered positive productivity in this down market. COVID-19-related restrictions in Victoria were recently lifted and we expect to see demand in that market return in the coming months. Our new Cirebon Indonesia plant is fully operational with Joinery door production and painting operations that will support growth in markets around the world. Liquidity remains strong, giving us flexibility and allowing us to invest in our business for future growth. Page 6 shows the progress we're making through our rationalization and modernization programs. These projects are designed to lower costs and increase capacity, while reducing total manufacturing square footage in every region. We have good visibility to achieving our commitment of $100 million savings from our footprint rationalization and modernization program. We continue to invest in this program. And as you can see on the chart made additional progress identifying and initiating additional phases of the program. Coupled with the positive productivity realized from JEM initiatives, we have a pipeline that will deliver margin expansion into the foreseeable future. As these programs move forward, we are deploying equipment and processes that have been proven in earlier deployments. For example, we will begin executing the next phase of our North America door modernization program in early 2021. We have significantly adapted our business this year across the board, always keeping our focus first on safety, safety of our associates and our partners, and working with channel partners and suppliers to adjust their businesses for mutual market success. Challenging times drive organizations to focus on key critical issues to assure sustainability and growth. I am so very proud of the engagement and the resiliency of our associates, who have demonstrated their commitment to our values and to our business operating system to deliver innovative solutions and processes and continuous improvement in service to our customers, our partners, and each other. It is our associates, who give me the confidence that JELD-WEN will continue to grow and will emerge from the effects of the pandemic an even stronger more resilient enterprise and our history proves that out. We were so excited to celebrate our 60th anniversary in October. As many of you know, JELD-WEN started as a small family business in Oregon. And through the vision of our founder, Dick Wendt has grown into the global leader we are today. Through October, we commemorated key milestones in our history and highlighted long-tenured associates from around the world. Our company is built with the contributions of our associates. And I look forward to working with them to continue to deliver world-class products and unmatched service to profitably grow the company. It is truly an honor to carry on this legacy and lead such a dedicated team. I will now turn it over to John Linker, to review our third quarter financial results in more detail.
John Linker, CFO
Thanks, Gary, and good morning everyone. I will start on page 9. Our third quarter financial results demonstrate continued execution in a challenging operating environment, as we delivered meaningful improvements in revenue, earnings, margins, cash flow and liquidity. This strong performance is a direct result of running our playbook consistently over multiple quarters focusing on our strategy and our continued investments in our business operating system. Third quarter net revenue increased 1.9% to $1.1 billion. The increase was driven by the favorable impact of foreign exchange, while core revenue was essentially unchanged. While we delivered core revenue growth in both Europe and North America, this was offset by continued Australasia housing market weakness and COVID-lockdown restrictions. Adjusted EBITDA margin expanded 170 basis points in the quarter to 11.7%, while core adjusted EBITDA margin, which excludes the impact of foreign exchange and any recent acquisitions, expanded 200 basis points, a strong step up in sequential improvement compared to the second quarter. The combination of a favorable impact from price realization, execution of our structural cost reduction programs and productivity tailwinds from JEM initiatives all contributed to the strong margin performance. The positive margin drivers were partially offset by ongoing volume mix headwinds in certain geographies and channels such as volume in Australasia and mix in the North America retail channel. Page 10 provides detail of our revenue drivers for the third quarter. As I mentioned in the previous slide, our consolidated core revenue was flat comprised of another strong benefit from price of 3% offset by a 3% headwind from volume mix. Please move to page 11 where I'll take you through the segment detail performance. Net revenue in North America for the third quarter increased 1%, driven by a 6% increase in pricing, partially offset by a 5% headwind from volume mix in certain products and channels. Note that both pricing and volume mix improved sequentially from the second quarter. As demand in North America has certainly improved for both residential new construction and repair and remodel, we did see different dynamics by product and distribution channel across the region as follows: in our U.S. retail repair and remodel channel, revenue increased low single-digits with growth in both doors and windows. In this channel, while unit demand increased, overall revenue was impacted by continued unfavorable mix shift towards greater activity and stock SKUs and lower activity and higher-priced special order SKUs. We attribute this mix shift primarily to contractors and builders pushing to complete open projects with available stock SKUs to avoid waiting on special order lead times in such an uncertain environment as well as our retail customers working to restore inventories to target levels. In our U.S. traditional wholesale channel, which typically supports new construction, revenue declined mid single-digits as low teens revenue growth in doors was offset by headwinds in windows. We believe that the traditional doors revenue performance represents share gain in some of our key markets. In our U.S. door distribution business, revenue was approximately flat in the quarter where growth in certain markets was offset by lower special order demand through the retail customers that this channel also serves. And finally, all other channels in North America including Canada and other products netted to a low single-digit revenue growth rate. Europe revenue increased 8.1% overall and 3% excluding the impact of foreign exchange. Core revenue growth was comprised of 2% volume mix and 1% pricing. We believe our performance exceeded market growth in the quarter demonstrated by mid single-digit local currency revenue growth in both Germany and the U.K. While COVID case growth has accelerated in Europe over recent months, we continue to see good demand for our products. Australasia revenue declined 4.5% overall and 8% in local currency versus prior year, although revenue did improve sequentially from the second quarter. The Australia housing market remains challenged and the impact of COVID has delayed the recovery we are expecting to see in the second half of 2020. Our largest market of Victoria faced COVID-related lockdown measures creating headwinds for our businesses there that offer supply and install services. The Victoria lockdown was recently lifted and we will continue to monitor the reopening progress. In June, the Australian government announced a stimulus package to incent new home sales and renovation projects. We anticipate the stimulus package will help slightly offset some of the housing market challenges. However, the latest housing forecast show a further decline in new housing starts through 2021. Moving to earnings in the third quarter. Overall margin expansion was driven by continued strong price realization, benefits from cost actions, savings from the deployment of JEM tools, and continued execution on our footprint rationalization and modernization program. These factors more than offset margin headwinds from volume and mix. Looking into Q4, we have good visibility for these positive margin drivers to continue driving year-over-year margin expansion. In North America, adjusted EBITDA margin expanded 380 basis points year-over-year with improved profitability in all major business lines, including doors, windows in Canada and a nice improvement sequentially as well. Europe delivered a fifth consecutive quarter of core margin improvement with an increase of 230 basis points year-over-year, due to strong productivity, cost reduction actions and improving volume. Our Australasia segment delivered solid productivity and cost controls to offset volume weakness. While year-over-year margins declined, the sequential trend improved. SG&A increased $20.5 million compared to last year primarily due to charges taken for legacy litigation matters, partially offset by cost reduction actions. Please turn to page 12, where you'll see a current snapshot of our balance sheet and free cash flow performance. We ended the third quarter with total debt and cash equivalents of $1.8 billion and $605.8 million respectively, up from $1.5 billion of debt and $226 million of cash at year-end 2019. These movements reflect good cash flow performance and the proceeds of our notes issuance in the second quarter. Our net leverage ratio decreased to 2.8 times down from 3.1 times tracking closer to our midterm target of 2.5 times or less. Year-to-date free cash flow improved $83.4 million compared to the first nine months of 2019 to $143.7 million, demonstrating the power of JEM. We invested $66.9 million of capital expenditures in the first nine months of 2020, down $37.7 million from the same period a year ago. While we took a pause in CapEx in the second quarter during the height of COVID uncertainty, we are now investing at a normalized rate and attractive high-return projects. Turning to page 13. Our global liquidity currently stands at $953 million and consists of $605.8 million in cash and $347 million in undrawn credit facilities. This level of liquidity is the highest ever for the company. With that, I'll turn it back over to Gary who will provide closing comments.
Gary Michel, CEO
Thank you John. I'll comment briefly on our business outlook, and then open the line for Q&A. While uncertainty remains elevated around COVID-19 and overall macroeconomic conditions, in the fourth quarter, we expect to build on our solid operational performance and improving visibility to deliver both revenue growth and margin expansion. In North America and Europe, we expect fourth quarter core revenue growth of low to mid single-digits, which is also consistent with our preliminary October results. In Australasia, we expect continued core revenue headwinds in the fourth quarter. However, with Victoria reopening, demand should improve sequentially. Fourth quarter margin expansion will be supported by pricing and productivity, partially offset by mix and the restoration of targeted SG&A investments. Given these factors and assuming no new significant COVID-19 lockdown restrictions, we now expect full year 2020 adjusted EBITDA in the range of $435 million to $450 million. JELD-WEN through our associates and commercial and financial performance has proven our agility and we believe that our strong fundamentals and business strategy will continue to deliver results. As we manage our business through the current market disruptions, we are also preparing for the longer-term and making strategic investments that position us for future growth. As I reflect on the year, I want to acknowledge and thank every JELD-WEN associate for their adaptability and focus on customer needs that have delivered results this year and will assure a successful close to 2020 and set us up for continued growth into the future. Before we wrap up and open the lines for questions, I'd like to note, as all of you are aware that today is Election day in the United States. I hope that everyone on the call who is a registered voter has the opportunity to cast your vote. With that, we'll open the line for questions.
Operator, Operator
Thank you. Your first question comes from Truman Patterson with Wells Fargo. Please go ahead, your line is now open.
Truman Patterson, Analyst
Hey good morning guys. Nice results. First, it seems like every North American window and door manufacturer running at elevated capacity but it doesn't seem like there were any manufacturing inefficiencies during the quarter that have kind of come up in the past. Can you just walk us through what you've done over the past six months some of the processes you put in place as you've ramped your capacity from essentially zero at the start of COVID to almost full capacity today? And I'm really thinking I mean there's just a lot of moving parts in there right? You're doing JEM initiatives the global footprint rationalization. I'm just hoping you can help us get comfortable that maybe some of the one-off window manufacturing headwinds over the past several years just won't occur going forward?
Gary Michel, CEO
Well, thanks Truman and great question. Obviously, through kind of the last six or seven months there have been various issues here and there that we've had to deal with mostly related to COVID-19 and quite frankly, mostly related to post any governmental or municipality shutdowns which are kind of behind us mostly related to absenteeism and the ability to get labor into the plant which is an area that we've been working on. But what we've been seeing and you can see it certainly in the margin expansion and the consistency of our performance is the work that we've done on our modernization rationalization as well as the deployment of JEM further into the organization with deeper take-up and better use of the tools. We're seeing consistently sequential improvement in our operations. So, we talked about it certainly in the North America door business quite a bit where we talked about some of the moves we made on modernization. But really we've been sequentially improving the performance in our Windows business in North America, up for better over a year at this point we've seen that improvement. We just continue to get better and better with our ability to meet demand and avoid the things that quite frankly are past history in our mind.
Truman Patterson, Analyst
Okay. Okay. Thanks for that. And then in North America, pricing was up 6%. I believe you said that you actually realized some sequential improvement as well. Is that just realizing the prior price hikes from earlier in the year? And then going forward in North America, you all have announced a handful of pricing initiatives. I think some competitors have followed suit. Could you just discuss what some of those are the timeline for implementing? And whether or not some of your largest competitors have really followed you all?
John Linker, CFO
Sure Truman. It's John. In the second quarter, pricing in North America was approximately 5%, and we saw a 6% increase in the third quarter. This reflects effective realization and stability without any significant changes. We implemented some incremental measures in the third quarter that positively impacted our results. Looking ahead, we constantly evaluate every aspect of our business to ensure pricing can offset tariffs, inflation, and anticipated inflation while considering the balance of supply and demand and asset utilization. As Gary mentioned earlier, we did have some off-cycle price increases in certain business lines during the quarter, but we did not see their benefits in the third quarter. We've also announced price increases globally, not just in the U.S., as we prepare for the 2021 building season, proactively addressing potential inflation, tariffs, or supply chain issues. In terms of our current status, it's still early in the process. We prefer not to provide forward-looking guidance on pricing at this point, but we anticipate that 2021 will be another year with a favorable price-cost tailwind. However, it may be premature to offer clear insights on what's effective and which channels are responding, but we are actively addressing this situation worldwide.
Truman Patterson, Analyst
Yes. Yes. I know that that's absolutely fair enough. Just one follow-up on that. Competitors have largely followed suit with your A&L's actions.
John Linker, CFO
For the most part, yes, I'm not aware of anything where we're seeing competitors not taking price up for next year.
Truman Patterson, Analyst
Okay. Thanks, and good luck in the upcoming quarter.
John Linker, CFO
Thanks.
Operator, Operator
Your next question comes from the line of John Lovallo from Bank of America. Please go ahead.
John Lovallo, Analyst
Hey, guys. Thank you for taking my questions as well. The first one, I know this is challenging, but when do you anticipate that volume and mix could turn positive again in North America? I mean, it seems like the stock versus made-to-order headwind could improve. But I guess, how are you thinking about the wholesale channel and that getting back up to speed?
Gary Michel, CEO
Yes. We're beginning to see some positive changes in the channel, particularly regarding the shift to higher stock versus special orders in retail. We've observed some movement here, but the stock units continue to sell strongly. There are two key factors: first, as stock flows through, it builds up inventories and maintains solid positions for the mixed game. Even while special orders begin to improve, we still have the benefit of restocking shelves, which impacts the mix. As we head into the next year, I expect to see some stabilization. People are becoming more comfortable with projects taking a bit longer to get exactly what they need instead of relying solely on what's available in stock. I believe we will see changes in the mix as a result.
John Linker, CFO
Yes. I'll just add on that certainly looking at very near-term, sort of, fourth quarter and even into the first quarter, I would anticipate still having some mix headwinds just given the magnitude of, sort of, where retail inventories are and relative to where our retail customers want them to be. But certainly as you think about 2021 as a whole, we would be thinking about North America in a positive volume mix as a tailwind to our results and not being a headwind overall for the year for sure.
John Lovallo, Analyst
That's positive news. In the second quarter, you managed to reduce SG&A expenses by approximately $20 million, and the forecast was to decrease by about $5 million each quarter in the latter half of the year. Can you share what the reduction was in the third quarter and what you expect for the fourth quarter? As we move into 2021, are you anticipating that some of this SG&A spending will return as you invest in growth?
John Linker, CFO
There were several factors influencing the SG&A line this quarter. In the GAAP results, we recorded a significant charge related to legacy litigation, which was excluded from the non-GAAP results. Despite that, we managed to achieve some notable cost savings and deferred discretionary expenses, particularly in travel and entertainment, until we have a clearer view of market conditions. In this specific quarter, we faced some year-over-year challenges from variable compensation that had been favorable in the third quarter of the previous year. There are a lot of variables at play, but we are focused on closely managing SG&A. Looking ahead to next year, considering the SG&A expenses we eliminated this year due to COVID-related measures such as furloughs and salary cuts, there's likely a baseline of approximately $40 million that will return, even before we decide on discretionary spending and future investments. Therefore, we do expect SG&A to increase next year. Additionally, we plan to make targeted investments to boost the business's top-line growth as well.
John Lovallo, Analyst
Great. Thanks, guys.
Operator, Operator
Your next question comes from the line of Matthew Bouley with Barclays. Please go ahead. Your line is now open.
Matthew Bouley, Analyst
Good morning. Thank you for taking the questions. So, back on the North America volume mix, down 5%. John, you gave some great details about the channels there. I guess, number one, are you able to quantify how much those mix issues actually did impact that volume mix number? And also, sorry to hear about the impact of the wildfires to your team, but are you able to quantify the impact of operational disruptions within that as well? Thank you.
John Linker, CFO
Sure. The North America mix headwind in the third quarter, we would attribute approximately $10 million of EBITDA headwind from that. So, mostly related to that stock, special dynamic as well as just some of the overall other channel mix dynamics compared to the third quarter of last year. The wildfires headwind was pretty minor. I'd say maybe a couple of million dollars of sales in the quarter just towards the end of the quarter as we had some temporary shutdowns. We also had a little bit of downtime in some other facilities related to the hurricanes, but maybe a couple million of revenue, nothing significant and nothing ongoing, as Gary mentioned in his remarks.
Matthew Bouley, Analyst
Thank you for that. On a broader note regarding footprint rationalization, with the current demand and recovery levels, similar to what some other companies are experiencing, is there any impact on the timing of rationalizing your footprint? Essentially, are you in a position to achieve this market growth while also rationalizing capacity simultaneously?
Gary Michel, CEO
We have discussed the rationalization and modernization program, especially in its early stages, where we focused on reducing risks associated with timing and the activities involved in learning new equipment and processes. We implemented our best practices while establishing what our standard work and deployment would entail. Throughout this process, we maintained redundant capacity. This modernization, especially with North American doors, is designed to increase capacity by shifting from batch manufacturing to single-piece flow, which enhances flexibility, improves cost efficiency, and boosts overall capacity. The sooner we can achieve this, the better. With proven processes and improved equipment, we have gained valuable insights that help us manage capabilities effectively. We can keep redundant capacity operational until our new facilities are prepared. Our approach is to ensure we have proven lines in place before we remove any existing capacity. I don't foresee demand affecting the timing of our programs, as they are well-structured, and we understand how to implement them, focusing on when to phase out redundant capacity.
Matthew Bouley, Analyst
Got it. Thank you, Gary. Thanks, John.
Operator, Operator
Your next question comes from the line of Susan Maklari with Goldman Sachs. Please go ahead. Your line is now open.
Susan Maklari, Analyst
Thank you. Good morning, everyone.
Gary Michel, CEO
Good morning.
John Linker, CFO
Good morning.
Susan Maklari, Analyst
My first question is just can you give some color on what you're seeing in terms of input costs, especially maybe we're hearing about inflation in transportation, in some of those areas. How are you thinking about that going forward? And perhaps, how is it reflected in the guidance that you're giving us for EBITDA?
Gary Michel, CEO
Certainly, there's pockets of inflation, and it really varies quite a bit depending on which category and which region of the world you're talking about. As it relates to us, you mentioned freight. In North America, we're largely under contract at this point. And so, at least for the next couple of quarters, assuming those contracts hold, we would not anticipate a significant hit from any freight inflation. But in terms of looking forward into 2021, things that we are working to mitigate at this point, would be metals. So I think aluminum hit sort of pretty much an all-time low here recently. So that metals in general are coming back. Logs, we don't buy a lot of lumber but we do buy logs and process them in our sawmills. That's an area of inflation of concern. Millwork as a whole, particularly not only the inflation but we are seeing some antidumping countervailing duties impact from some of the impact of the government acquisition around millwork coming out of China. So there's certainly some pockets that we are watching. I'd say at this point it's manageable and that's why we've tried to get ahead of things with our pricing actions. So I would think about inflation in 2021 certainly being more than it was in 2020. But we believe, if we're successful with our pricing strategy we should be able to offset that completely.
Susan Maklari, Analyst
Okay. That's helpful. Thanks. And then my next question is just Gary you mentioned in your comments that you are thinking about the next phase of your restructuring program as we look to 2021. Can you perhaps give us some early color on what to be expecting from those efforts? How we should think about them flowing through? And just where we are in this process? And what moving to this next stage represents?
Gary Michel, CEO
So we've been giving progress reports every quarter on kind of where we are in terms of the deployment. We've done quite a bit – well we've done some in every region of the world. Obviously, with what's going on in Australia, we've probably pulled some programs sooner than we might have otherwise done to offset the market conditions there. We've done smaller projects in Europe and we had some real focus that we've talked about before in our North American business, particularly in the modernization of portions of the door business. Where we are? As I said in the earlier comments and we showed in the presentation is we're taking what we've learned in the early first phases of the North American door modernization and we're now deploying that further into North America. So while we expect to commence kind of the next phase of that in early part of 2021, and we'll start to see probably benefits from that later – late in the year. But we feel pretty good about that. We have identified really kind of that next – the next group of projects and those are kind of teed up and we're in various stages of planning them. So that about, I'd say two-thirds or so of all of the $100 million that we've committed is pretty well understood and laid out in a project plan. So that we're kind of just really now looking at the last piece of that funnel, and we expect to see kind of that fill out over the next 12 months, as we're working through the deployment of what we've already identified.
Susan Maklari, Analyst
Okay. Great. Thank you. Good luck with everything.
Gary Michel, CEO
Thank you.
Operator, Operator
Your next question comes from the line of Tim Wojs with Baird. Please go ahead. Your line is now open.
Tim Wojs, Analyst
Hey, everybody. Good morning. Nice job on the margins.
Gary Michel, CEO
Thanks. Good morning, Tim.
Tim Wojs, Analyst
Maybe just first on channel inventories. Is there a way to frame for us maybe what the channel inventory positions look like relative to normal? I'm not sure if you want to think of like weeks of inventory or things like that? Just trying to understand how much some of the inventory restocking could help here over the next couple of quarters?
Gary Michel, CEO
Yes. I mean, we have the best visibility into our channel inventories with our retail partners. And I – it varies by product line and by customer. But I would say, right now compared to the same position as last year, those retail inventories of stock SKUs are down in the 5% to up to 20% in some cases down versus prior year. So, certainly still quite a bit of room to go to resolve all that. We do have less visibility into where channel inventories might be in the traditional wholesale distribution channel. But my gut is there's probably not a lot there right now just given the demand that we're seeing from that channel.
Tim Wojs, Analyst
Okay. Okay. That's helpful. Thanks. And then as you look at Europe just on the quarter, I mean any particular regions that were stronger than the rest of the continent? And have you seen any impacts just near-term from any of the shutdowns that have happened over there?
Gary Michel, CEO
Yes. In the third quarter, we observed stabilization across all markets. We particularly noted strength in Germany, Central Europe, and a bit in the north, as well as in the U.K. and France as they reopened. Regarding the new COVID-19 developments, if they are short-lived as currently projected, we do not anticipate significant impacts on our business since manufacturing and construction remain operational and we can support those areas. We will keep monitoring the situation, and if the disruptions last longer, it could lead to different outcomes. However, at this moment, our industries and operations are well-positioned to remain open and continue production.
Tim Wojs, Analyst
Okay. Okay. That's good to hear. Good luck to you guys. Thanks for the question.
Gary Michel, CEO
Thank you, Tim.
Operator, Operator
Your next question comes from the line of Phil Ng with Jefferies. Please go ahead. Your line is now open.
Phil Ng, Analyst
Hey, guys. Your fourth quarter guidance implies some modest slowdown in the momentum you saw in Q3. Can you expand on some puts and takes? And it sounds like you're expecting a little more growth now in North America and all the productivity and pricing still seems very sustainable?
John Linker, CFO
Hey, Phil. Yeah, volume mix in the fourth quarter will still be a headwind to prior year, less of a headwind than it was in Q3, so kind of getting better. Australia is still down year-over-year. But I think Gary gave sort of the projected sales by region in the prepared remarks in terms of sort of low single-digit type of growth in North America and Europe and then down in Australia. So we feel still pretty good that we're seeing some sequential improvement. But as I noted, we're not yet to the point where we can say volume mix is going to be a tailwind in Q4, particularly in North America. The price cost should be a tailwind in the fourth quarter, but a little bit less than it was in the third quarter, partially because we lap the November implementation last year of some of the wholesale price increases that went in. And then also, we're seeing a couple of million dollars of inflation from the millwork antidumping countervailing duties issues. Productivity should be better in Q4 than it was in Q3. And then SG&A is slightly up as well. So at this point, we've got really solid visibility to margin expansion, nice margin expansion like we had in the third quarter. So I wouldn't call it a deceleration or anything like that. It's more than anything, it's sequentially everything is moving in the right direction.
Phil Ng, Analyst
Okay. That's helpful color. And I guess from a door skin capacity when we look at next year, how are you set up there? Do you have enough supply there to meet demand? And assuming trends that we're seeing in resi broadly North America is sustained. Should we expect volume growth in North America? And for that segment to track more in line with some of the end markets? I guess, when we look at volumes for the last few years, it's kind of been down for obviously different reasons. So just trying to get a better handle you play a little catch up next year?
Gary Michel, CEO
Yes. We are not providing guidance for 2021 yet, but we anticipate that the positive developments in residential new construction, along with our ongoing strength in the repair and remodel markets, will support our growth. As previously mentioned, the shift back toward special order business in the retail sector is expected to enhance our growth potential as we move into 2021. We believe we are well-prepared for this, not just with our door skins and similar components, but also with our improved capacity and throughput that will enable us to meet customer demand in both North America for doors and windows, as well as showing expected sequential improvements in Europe and Australasia.
Phil Ng, Analyst
Got it. That's really helpful. And just one last one for me. Gary in your prepared remarks you talked about some recent wins with a large builder. And I think via a channel partner as well. Can you help us size up that opportunity? And the timing of how that kind of ramps up?
Gary Michel, CEO
Yes, I don't want to provide too many specifics about any individual customer. However, it's exciting for us to gain exclusivity in markets with builders for both windows and doors. We have the capability to fulfill all needs, addressing operational aspects as well as design and product line considerations across our offerings. We're enthusiastic about this opportunity, especially as we are witnessing an uptick in new home sales and starts, which we believe will benefit us. Additionally, on the traditional wholesale side, we're not just relying on one channel partner; we're seeing improvements in wallet share and some expansion. Our customer segmentation efforts involve selectively choosing customers who are growing and who we believe we can grow alongside, as they value what JELD-WEN offers. We have built strong relationships with these customers, and we believe that the gains we've made—both in terms of overall share and share of wallet among existing customers—are significant advantages that will continue to develop this quarter and increasingly into next year and beyond.
Phil Ng, Analyst
Okay. Thanks a lot, Gary. I appreciate the color.
Operator, Operator
Your next question comes from the line of Michael Rehaut with JPMorgan. Please go ahead, your line is now open.
Elad Hillman, Analyst
This is Elad Hillman on for Mike. Thanks for taking my question. So first I just want to clarify a bit on some of the sales trends. I think for windows you mentioned that you saw windows growth in the retail channel, but then revenue decline in the wholesale channel. So just wondering the dynamics you're seeing in windows? And any of the progress you're seeing there into October?
John Linker, CFO
Yes, the situation relates to our current channel inventories. In certain regions of North America, we have limited capacity for some product lines, particularly vinyl windows. As we focus on supporting our retail customers to help them reach their desired stock levels, this effort temporarily affects growth opportunities in the traditional wholesale distribution channel. There's a trade-off happening where utilizing our capacity to assist retail results in low single-digit revenue growth in windows. On the other hand, this prioritization creates challenges for other channels. Additionally, we are experiencing a delay in new construction activity. Although homebuilders are announcing numerous orders, that enthusiasm has not yet translated into increased demand and revenue for our wholesale window business. Looking ahead to next year, we anticipate growth across all our window channels—wood, vinyl, retail, and traditional. However, in the short term, we are still facing challenges in the traditional wholesale channel.
Elad Hillman, Analyst
Got it. Okay. Following up on the wholesale channel regarding doors, I believe you mentioned sales growth in the low teens. I'm curious if that reflects the improved order trends at the homebuilders and if you anticipate further improvement in Q4. Is that what you have factored into your guidance for the low single-digit revenue expected in Q4 for North America?
John Linker, CFO
I would say this is largely due to the targeted share gains that Gary mentioned. We have chosen to align ourselves with customers in the traditional wholesale channel who want to grow alongside JELD-WEN. Consequently, we are experiencing growth rates in our top-tier customers that exceed the low teens in traditional wholesale doors. This isn’t market growth; it’s a reflection of JELD-WEN partnering with customers interested in mutual growth in select regions. As for the potential boost from homebuilders in this channel, it will take some time for these orders to convert into revenue for us. In the short term, what we anticipate for the fourth quarter is continued growth that we believe is above market levels with our top-tier wholesale customers.
Elad Hillman, Analyst
Great. Thank you.
Operator, Operator
Your next question comes from the line of Adam Baumgarten with Credit Suisse. Please go ahead. Your line is now open.
Adam Baumgarten, Analyst
Hey good morning. Thanks for taking my questions. Just on the potential for restocking, do you expect maybe seasonally it could help to see some benefits starting in the fourth quarter of some of your customers maybe restocking, and that being a slight tailwind for you guys in North America?
Gary Michel, CEO
Certainly, we are encouraged to reach our goals. We are on track with point of sale performance, which benefits both our channel partners and us as we ensure more units are available. Generally, when point of sale begins to drop during the winter months, we start to build stock units for delivery in the first quarter, ahead of the next season. Our focus now will be on filling the shelves, and as we continue to build inventory, we will be prepared for the construction season and increased demand in the spring. I do believe this will contribute to our growth in the upcoming quarter.
John Linker, CFO
And then, just to clarify from a mix from a profitability standpoint though, it will help certainly help revenue with restock. But from a profitability standpoint, we do expect to see that stock-special mix headwind, persist in the fourth quarter.
Adam Baumgarten, Analyst
Got it. Thanks. And then just, as your leverage starts to tick down into next year, should we expect the return to acquisitions and/or share repurchase sometime in 2021?
Gary Michel, CEO
Yeah. I think we've been pretty disciplined, in our capital allocation. We had a lot of really good projects internally high returns. We talked about our modernization rationalization programs. And we'll continue to invest in those. And we have through this year with just a small pause, maybe during the second quarter, when there was some uncertainty. As we look into next year, we'll continue to fund those programs. And we continue to look for opportunistic bolt-on kind of acquisitions that make sense for building out our strategy, accelerating our strategy for growth. And we'll continue to look at those. So yeah, I think you're spot-on.
Adam Baumgarten, Analyst
Great. Thanks guys.
Operator, Operator
Your next question comes from the line of Reuben Garner from Benchmark. Please go ahead. Your line is now open.
Reuben Garner, Analyst
Thank you. Good morning guys, everyone.
Gary Michel, CEO
Good morning, Reuben.
Reuben Garner, Analyst
I have a quick question regarding the potential for pre-buy. I may have missed it if this was already discussed, but considering the successful price increases this year, is there any pre-buy included in your outlook? Or is the capacity so limited right now that this isn't feasible? Perhaps the first half of 2021 could be even stronger because you'll be capitalizing on housing demand alongside the higher price increases you've implemented?
Gary Michel, CEO
I believe that's accurate. Currently, production and demand are in balance. On the retail side, we're fulfilling point-of-sale needs and gradually restocking inventories. As demand grows in residential and construction sectors, we'll continue to address it. I don't think we've anticipated any pre-buy this time around because it seems absent. People are utilizing what they purchase.
Reuben Garner, Analyst
Perfect. Thank you, guys.
Operator, Operator
And I'm not showing any further questions that are in the queue at this time. I will turn the call back over to Gary Michel for any closing comments.
Gary Michel, CEO
Well, thank you very much. And thank you all again for joining us this morning and your interest in JELD-WEN. Our associates are committed to meeting the needs of our customers and partners, even in the face of the challenging market conditions that we've seen. They've demonstrated the ability to perform and deliver commercial and financial results while ensuring a healthy and safe workplace. As we've done over our 60-year history, we will continue to innovate and grow JELD-WEN. And we look forward to sharing this exciting future with you. Thanks for joining us. Please be safe.
Operator, Operator
And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.