Earnings Call Transcript - JELD Q1 2024

Operator, Operator

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the JELD-WEN First Quarter 2024 Earnings Conference Call. I would now like to turn the conference over to James Armstrong, Vice President of Investor Relations. Please go ahead.

James Armstrong, VP of Investor Relations

Thank you, and good morning. We issued our first quarter 2024 earnings release last night and posted a slide presentation to the Investor Relations portion of our website, which can be found at investors.jeld-wen.com. We will be referencing this presentation during our call. Today, I am joined by Bill Christensen, Chief Executive Officer; and Julie Albrecht, Chief Financial Officer. Before I turn it over to Bill, I'd 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. 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 to our earnings presentation. With that, I would 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 with the progress we're making on our transformation journey, and we continue to focus on strengthening JELD-WEN's foundation. While there are various near-term market challenges, we remain confident that we can deliver improved future performance. Let me start by first thanking all of our associates for their continued commitment as we work together to meet our customers' expectations while also taking important actions to bolster our financial performance. Additionally, I want to thank the new senior leaders that recently joined our team. Within their first 100 days, they have rolled up their sleeves to learn the business, visit our facilities, and quickly add value to our transformation journey. I know they will help us achieve the short- and long-term goals we have for JELD-WEN. Today, I will initially share a brief overview of first quarter results and discuss some of the actions we've completed. I'll then hand it over to Julie to discuss our financial results in more detail before returning to discuss future actions in our transformation journey, provide our updated 2024 financial guidance, and then take your questions. I'll begin with our first quarter highlights on Slide 4. Despite the continued challenging market environment, first quarter sales and EBITDA were in line with our expectations as the positive impact from our ongoing productivity actions helped mitigate the anticipated headwinds from soft demand in both North America and Europe. In early April, as part of our ongoing activities to streamline and simplify our manufacturing footprint, we announced the closure of two North America windows facilities. While these were difficult decisions, it's critical that we continue taking the actions needed to improve JELD-WEN's financial results. I'll talk more about one of these decisions in a few minutes. Turning to Slide 5. We continue to make solid progress on our transformation journey, including actions to fix our foundation. Focusing on our people, during the first quarter, we took important steps to strengthen our culture. In January, we gathered 130 of our top leaders from around the globe to align our vision and goals for the year. We also discussed how we will work together to execute our transformation actions, including both cost reductions and top-line growth initiatives. We also began training more than 1,600 senior leaders about the skills and behaviors we expect, along with giving them the tools to succeed in building a values-based organization. Shifting to performance. During the first quarter, we maintained our focus on improving cost efficiency. As I just mentioned, we recently announced our decision to shut down two facilities, our Vista, California composite windows facility and our Hawkins, Wisconsin Wood Windows facility. These closures are part of our plan to simplify and streamline the business with a focus on quality of sales and asset utilization. Together, the closure of these two facilities is expected to deliver at least $11 million of annual EBITDA savings. I'm also pleased that we are increasing our CapEx spending to enable and deliver on operational improvements. In the first quarter, our CapEx increased approximately $10 million year-over-year with much of this additional capital funding projects that are part of our transformation journey. Examples include projects that help us use materials more efficiently and increase automation and production processes, all resulting in driving costs out of our business while also improving quality. We continue to be in the early innings of our transformation journey. However, we are pleased with the progress. I am proud of our team for their continued hard work and dedication in making JELD-WEN a stronger and more profitable company that we all know it can be. I'll now turn it over to Julie to discuss the financial results.

Julie Albrecht, CFO

Thanks, Bill. Looking at Slide 7. Our first quarter revenues were $959 million, down 11% from the prior year. This decrease was driven by a reduction in our core revenues due mostly to the expected market-driven volume declines in both North America and Europe. Our adjusted EBITDA was $69 million in the first quarter, down $10 million year-over-year, leading to an adjusted EBITDA margin of 7.2%. Our Q1 margin was just 10 basis points lower than the prior year's first quarter, showing how our productivity is helping to offset the impact from lower volume mix. As you see on Slide 8, our first quarter revenue decline was driven by a lower volume mix of 12%, with marginal positive impacts from price and foreign exchange translation. As we mentioned in our February earnings call, our first quarter volume mix in North America included an approximately $30 million headwind from unusually high backlog at year-end 2022 that increased our first quarter 2023 sales. Excluding this impact, our first quarter 2024 volume mix decline would have been approximately 9%. I'll provide additional comments about our North America and Europe market trends shortly. On Slide 9, you see that our first quarter adjusted EBITDA decreased by $10 million year-over-year. Despite significant volume mix headwinds, we generated solid profit contributions from improved productivity and also benefited from higher other income. Moving to our segment results on Slide 10. In the first quarter, our North America segment generated $680 million of sales, which was a decline of 11% from year-ago levels. This was driven by a reduction in core revenues of 12% due to lower volume mix. Excluding the impact of the unique backlog in last year's first quarter, North America's volume mix decline would have been approximately 7%. North America's adjusted EBITDA decreased to $61 million from $79 million in last year's first quarter while margins fell 130 basis points to 9%. This decline was due to the lower volume mix that I just mentioned. In Europe, we generated $279 million of revenue and $15 million in adjusted EBITDA in Q1. Core revenues decreased by 12% year-over-year driven by lower volume mix of 14%. Adjusted EBITDA declined by $3 million, leading to margins of 5.2%. The decremental impact from lower volume was mitigated by solid productivity improvements. Now turning to the market outlook on Slide 11. I'll provide some high-level comments on our market outlook then will cover additional details on Slide 12. Starting with North America, due mostly to continued uncertainty around U.S. interest rates, we now expect North America volumes to be down by mid-single digits in 2024 versus our previous forecast of a low single-digit decline. We anticipate that new single-family home construction will be higher by low single digits. However, the outlook for repair and remodel activity remains challenging, and we currently expect R&R activity to be down by mid- to high single digits. The European market continues to remain under pressure and is experiencing higher-than-anticipated demand weakness due to the ongoing macroeconomic and geopolitical challenges. Overall, we anticipate volumes in the region to be down by low double digits versus our previous forecast of a high single-digit decline. Residential construction markets remained soft across Europe, and we continue to expect that these volumes will be down by high single digits. Additionally, commercial project volumes are slowing in Europe, and this demand is expected to decline by low double digits versus our previous outlook of mid-single digits. Given the changes in our market outlook, since we updated you in February, I want to provide additional details on the current market dynamics. So turning to Slide 12, I'll start with North America. As many of you know, single-family housing starts are improving slightly year-over-year. With existing home sales still sluggish and little inventory in the market, buyers are turning to new construction to fill the gap. The largest builders are driving much of this improvement with much of the demand coming from entry-level homes. While this is a positive for our doors business, we are underrepresented with the largest homebuilders in our windows business. As such, our North America business is not seeing as much lift from single-family construction as the overall market data would suggest. Our team is working on the opportunity to increase our windows sales where there is potential growth with this market trend. Bill will describe a specific example of this in a few minutes. The repair and remodel market continues to be weak and the softness is greater than we expected three months ago. A combination of slow real income growth and continued high mortgage rates is causing consumers to delay large projects. Finally, while our multifamily and Canada projects business is only around 10% of our North America sales, these markets are facing much sharper declines than we anticipated due to the uncertain interest rate outlook. We believe that we are doing better than the market overall, but we are seeing sales in these markets down by around 20%. Turning to Europe. The market continues to be soft across all countries. Commercial construction activity remains weak, and the updated forecast now shows 10% to 15% declines in commercial projects while permits are already trending down 12% year-over-year. Like in North America, European commercial construction activity is being delayed due to continued high interest rates. Residential housing also remains challenged with housing starts down by high single digits with weakness in almost every region.

Bill Christensen, CEO

I'll now turn it back to Bill to talk about our transformation journey. Thanks, Julie. Staying consistent with what we have previously said, we are taking a two-pronged approach to improve JELD-WEN. As we show on Slide 14, our short-term focus remains on strengthening the foundation of our business. We continue to make progress on reducing our operating costs and improving our operational performance. However, we have a lot more work to do on getting the basics right, like quality and delivery. In addition to this short-term focus, we continue to assess opportunities to grow our business, and we commit to only invest where we have the right to win. While this review is ongoing, we do see opportunity for profitable organic growth across our current portfolio. This includes the premium, multifamily, and high-performance areas that we currently participate in but can do more. Turning to Slide 15. My three focus areas continue to be people, performance, and strategy. Our transformation journey is currently focused on people and performance. As we spoke about last quarter, we are investing more in our culture, including training around important behaviors such as safety, continuous improvement, and accountability. We are then measuring our progress and closing the loop with feedback from our teams. Shifting to performance. Our numerous initiatives include a balanced focus on both growth and cost reduction actions. As I've mentioned before, we began with approximately 800 projects in the pipeline and have completed more than 300 projects today. Through our disciplined process, we continue to refresh our project funnel as we still have many opportunities to improve. Focus areas remain commercial excellence, manufacturing network optimization, automation, and leveraging our scale to improve sourcing among many other smaller initiatives across the organization. I would like to highlight a few specific examples in the subsequent slides. On Slide 16, you see a growth project that our North America windows team is working on. As Julie mentioned in her market update, our team identified an opportunity to address our underrepresentation in a growing part of single-family home construction. After meeting with the top builders throughout the country, we heard consistent themes. They need shorter lead times, higher service levels, and less callbacks from window installations. To address this, we developed our Windows Stock and Service Program. This project leverages things we do well in various parts of our windows business and brings an offering to the traditional channel that meets their needs. We are starting small with this program, only targeting select regions with partners that understand the value that we are providing and as such, our revenue and EBITDA projections remain modest. However, we see significant potential to expand this program as we continue to focus on providing what our customers find valuable. Turning to Slide 17. Another example of our transformation journey, which I mentioned briefly at the beginning of the call, is the closure of our Vista, California manufacturing facility and along with it, the exit of our Auraline Composite Window business. Despite significant efforts from our teams, Auraline was not achieving our business plan objectives. Following a critical review of the product line, we did not see a reasonable path to get to an acceptable level of profitability. As a result, we are in the process of winding down the business and expect the site closure to be completed by the end of this year. An important part of this process included doing a postmortem review so we can improve similar activities in the future. Finally, as part of our transformation journey, we're reviewing products and customers to identify opportunities to improve the quality of our sales where margin profiles are well below expectations. While some of these decisions may have a negative impact on our near-term financial results, these are critical actions to increase future shareholder value. I now want to discuss our 2024 guidance. As you see on Slide 19 and mostly driven by weaker-than-expected macroeconomic conditions, we are lowering our revenue and adjusted EBITDA guidance for the year. Specifically, we are lowering our revenue guidance to between $3.9 billion and $4.1 billion from $4.0 billion to $4.3 billion previously. Our core revenues are now expected to be down 5% to 9% versus our previous expectation of flat to down 7%. This change is underscored by three main facts: continued high interest rates, leading to increasing project delays in both North America and Europe; a slower seasonal demand ramp-up in the second quarter, especially in our North America retail business; and finally, as part of our transformation journey, we are proactively evaluating our product mix and may give up certain short-term sales to drive higher long-term profitability. We are lowering our adjusted EBITDA guidance due to our updated revenue outlook. We now expect our 2024 adjusted EBITDA to be in the range of $340 million to $380 million versus our previous range of $370 million to $420 million. Our updated EBITDA guidance reflects the impact of lower expected revenue at a 25% to 30% decremental rate. Though we are reducing our revenue and adjusted EBITDA guidance, I'll highlight that the EBITDA margin of our new guidance midpoint is 9%, an improvement from 2023. This is a good example of how our continued focus on cost efficiency is mitigating the current market headwinds. I'd also like to provide some information about our expected second quarter sales and EBITDA. The largest driver of our updated full year revenue guidance is a lower seasonal demand ramp-up in Q2 than initially expected. Specifically, we were originally forecasting a sequential increase in Q2 sales of approximately 10%. Our revised outlook now calls for a mid-single-digit sequential increase. In addition, our second quarter EBITDA will include onetime costs of approximately $10 million due to the closure of two North America window facilities that we announced in early April. Now back to our full year outlook. We continue to be on track for the $100 million of cost savings this year, which is a combination of approximately $50 million of carryforward benefits from last year's actions and new initiatives that will be completed this year. As we look at the phasing of earnings this year, we continue to expect benefits from our cost savings actions and investments to ramp up throughout the year. Considering the timing of both our sales and productivity actions, we expect to deliver approximately 40% of our EBITDA in the first half of the year and the remainder in the second half. On Slide 20, you see our updated cash flow outlook for the year due to our lower sales and EBITDA expectations, we now expect that this year's operating cash flow will be approximately $325 million before we incur an estimated $100 million of non-repeating cash expenses to fund portions of our transformation journey. We expect our free cash flow to be approximately $50 million to $75 million, which reflects both our strong commitment to investing in JELD-WEN's future and our ability to self-fund these investments with operating cash flows. Let's turn to Slide 21. Before I wrap up, I want to give a quick update on Towanda. As noted in our 8-K last week, we have filed a motion to vacate the court order divestiture of our Towanda operations. In light of changed industry and market factors, we believe the divestiture of Towanda is no longer warranted and we are asking for relief from the initial ruling. We believe this motion is in the best interest of the company and our shareholders, but there are no assurances that the motion will be granted. This is the only update we will provide at this time. Despite the difficult macroeconomic conditions that we are facing, we continue to make strong progress on our transformation journey, which will set JELD-WEN up for success as the market improves. While our near-term demand outlook is challenged, our long-term view has not changed, and we believe the underlying fundamentals for North America and European housing remain very positive. We take our commitment seriously, and one of our commitments has been transparency and clarity with our investors. Because of this, we believe now is the right time to adjust our guidance based on the softer-than-anticipated market conditions. I remain confident and optimistic about the number of long-term value-creating opportunities available within our business. We appreciate your continued interest, and I'll now turn it over to James to move to Q&A.

James Armstrong, VP of Investor Relations

Thanks, Bill. Operator, we're now ready to begin Q&A.

Operator, Operator

Your first question is from Phil Ng with Jefferies.

Philip Ng, Analyst

I guess my first question is your outlook, where you're reducing your top line guidance to EBITDA mix and just given the uncertain macro backdrop. But Bill, I think you called out less of a seasonal uplift, particularly in the retail channel. Can you unpack that a little bit? Because I was under the impression perhaps even last quarter, inventory levels were quite low already. And then just give us a little more context in terms of how we should think about some of the business that you pruned this year that might be a drag from a top-line perspective, at least in the near term this year.

Bill Christensen, CEO

Sure, Phil. We have identified the slower ramp-up in the R&R sector during Q2 as a headwind that is more significant than we anticipated for the year. This primarily affects our U.S. R&R business. In terms of inventories, our view shows they are remaining fairly stable without significant fluctuations; rather, we are experiencing a lower market uptake. Given our substantial presence in the R&R segment, this has become a clear challenge. The reasons are well understood: consumer sentiment remains cautious, large purchases are being delayed, there is uncertainty around interest rates, and it's an election year. Therefore, we are adjusting our expectations downward as we are not witnessing the anticipated uplift. Regarding the pruning aspect, we are actively evaluating our portfolio's mix and its corresponding profit margins. Specifically, within our windows division, we have decided to discontinue certain business lines that are failing to meet expected profit levels, which we do not want to sustain in the long term. We have eliminated some of our window business. Furthermore, our plans to replenish this segment with other lines have not come to fruition. This is partly due to the sluggish uptake in the R&R space, but overall, we have not fully achieved our goals for backfilling some of the weaker segments we have phased out. Consequently, this has contributed significantly to the volume reductions we foresee for the year. These two main factors, the weaker R&R market and our pruning efforts in the windows business, are key issues we are currently addressing, along with potential portfolio adjustments.

Philip Ng, Analyst

Bill, any color in terms of how to size the pruning dynamic for you guys this year?

Bill Christensen, CEO

Sure. I would expect it's kind of between $50 million and $100 million of top-line headwinds.

Philip Ng, Analyst

What about from an EBITDA standpoint, is it neutral to positive?

Bill Christensen, CEO

Well, there's going to be two dynamics there. Number one, it's a dilutive margin, so that would be positive. But obviously, we need to make sure that we can take the fixed cost out of the structure as we roll forward.

Julie Albrecht, CFO

Yes. One more thing to add there on the cost and the impact to EBITDA this year, and I think Bill mentioned this in his remarks. Specific to the two windows actions that we announced in early April, we do have about $10 million of onetime costs that will run through our adjusted EBITDA. They're related to various aspects of inventory kind of write-downs and adjustments and that kind of thing. So that is specifically a headwind in the second quarter. That is a headwind to full year EBITDA and Q2 EBITDA and then other than that, generally, these moves are accretive to our margins.

Philip Ng, Analyst

Julie, is that $100 million being excluded from your adjusted EBITDA guidance since it's a one-time charge?

Julie Albrecht, CFO

Yes. It was $10 million of onetime costs in the second quarter that will be included in adjusted EBITDA. So we do have other onetime costs related to those site closures as well as other types of restructuring that we're doing that we do adjust out of adjusted earnings, but particularly just kind of per our policy and our internal governance, we have about $10 million of those onetime costs that are negative to Q2. That's one part of the call down of Q2 and the full year.

Philip Ng, Analyst

Okay. That's helpful. And just one last one from me. On the cost out and improving the foundation of the business, it's encouraging to see that, Bill, you're reiterating the $100 million target despite perhaps a weaker demand backdrop. Any risk on that, just given softer volumes usually not a great thing for productivity savings? And then, I noticed CapEx was reduced a little bit. Was that more timing-related or you're throwing back on some growth initiatives? And just lastly, any opportunity to kind of pull forward some of these cost savings in a weaker demand environment?

Bill Christensen, CEO

Yes. So let me try and hit those, Phil. So I'd say that we are digesting significantly more CapEx than we have in the past. So the organization is getting used to scaling up our CapEx. So we're pushing as much through as we can. Let me put some numbers behind that, Phil, so you can understand kind of the magnitude. We feel still a high level of conviction on the $100 million. We have about 300 projects that are already delivering benefits. So 100 that rolled from last year into this year and 200 additional roughly this year that we've gotten to the goal line. Think about it as 80/20. So there are a lot of smaller projects in there, but our machine room is really getting effective at pushing these through. And we still have more than 700 active projects. So as we look forward, we see still a pretty robust pipeline of self-help initiatives. And clearly, some of it is replacing some of the sales that we're losing. We've talked about some of the initiatives that we're working on in the past, but a lot of these are still cleaning up the foundation and just really driving quality, safety, and delivery initiatives because there's still a lot of room to improve within our network. So we feel confident on the $100 million, a lot of work that has been ongoing. And as I said, the 300 projects at the goal line give us a high level of conviction that we're able to deliver on that. I think the call down on CapEx is our organization digesting and we're going to be pushing hard on any acceleration options. But right now, we feel that's more realistic based on what we're seeing kind of tracking over the last 3 to 6 months.

Operator, Operator

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

Susan Maklari, Analyst

I just want to go back to thinking about the cadence on the margin performance for this year. It does seem like you're expecting to gain some incremental momentum on the cost initiatives as we think about the back half versus the first half of the year. I guess can you just talk a bit about what drives that confidence? How you're thinking about those benefits coming through? And then any thoughts on the margin that we could see as an exit rate for this year? Just any color there would be helpful.

Julie Albrecht, CFO

Yes, Susan, I'll begin and then let Bill provide additional details. Our outlook for margins in the first half compared to the second half has changed somewhat based on our new guidance, which updates what we discussed in February. Initially, we expected our first half margins to be relatively flat year-over-year. Now, we anticipate a slight decline, approximately 100 basis points. This shift is driven entirely by a decrease in the second quarter. Specifically, we are expecting lower volumes in Q2, along with associated costs from windows site closures, amounting to around $10 million. For the latter half of the year, we still expect our margins to improve year-over-year by about 100 to 150 basis points, aiming for around 9% for the year. The improvement in the second half will be influenced by better comparable volumes. Although we predict a slight year-over-year decline in second half sales, it represents a better comparison than the 10% to 11% decrease in the first half. Additionally, regarding our productivity and cost savings timing, we foresee a distribution of roughly 30-70 between the first and second halves. As the initiatives from last year and new ones this year gain traction, we anticipate more cost savings in the latter half. All these factors contribute to the 40-60 distribution of our EBITDA and the expected margin improvement in the second half of the year.

Susan Maklari, Analyst

Okay. That's great color. And then you mentioned also in your remarks the opportunity to perhaps gain some more exposure with the builders, especially maybe the big builders. Can you talk a bit more about some of those initiatives, how you think about gaining that momentum there and how it could come together?

Bill Christensen, CEO

Yes. Sure, Susan. So if you look at where the market is moving, clearly it's on the lower end of new construction because people that need a house at that level have to buy a house. So there's, I would say, less interest rate sensitivity even though rates are clearly a headwind. And as that area of the market starts to move, we're clearly seeing solid growth on interior doors, which you would expect, but we're definitely underrepresented on windows. And one of the things that we're trying to do is really figure out if we're selling a door through our partners, how can we also augment that with windows. So as I've said in my prepared remarks, we've been spending a lot of time with our customers really trying to figure out what are the problems that we can help them solve and how can we relate to that. We do have a pretty solid offering, I'd say, at the lower end of our window portfolio on the vinyl side, which is a pretty good fit for this segment. And the white glove service is really allowing us to meet their demands, put a specific team internally on solving those problems and really focus on delivering and pulling that through. This is going to take a while, obviously, until we're backed into the job, we're pulled through the channel. The start becomes far enough along that we're installing windows. So think six to nine months out. So we're well into next year before this has a pretty significant effect to start rebalancing the doors and the windows portfolio share in this segment.

Operator, Operator

Your next question is from the line of John Lovallo with UBS.

John Lovallo, Analyst

The first one is, can you break out the impact from volume versus mix in that 12% core revenue decline on a consolidated basis? And then any color from North America in Europe would be helpful as well.

Bill Christensen, CEO

Yes. So I can maybe start on a high level. So clearly, the headwind maybe if I zoom up, John, just remember what we were saying price cost, we want neutral, and that's still our expectation for the full year. Price is challenged in certain areas, but we still feel that that's an appropriate guide. Being neutral, we were making progress in Europe in Q1. And obviously, there was a higher volume headwind there. I would say, more balanced in North America, but we feel pretty comfortable at least from a price cost as to what we're doing in the market. And the volume, I'll let Julie give you some additional color on that.

Julie Albrecht, CFO

Yes, sure. That 12% volume mix decline was really maybe like 60-40 volume mix. And with most of that, call it, mix headwind in North America, that's really an average selling price dynamic like we just talked about. So you think about the average selling price of an interior door where we're having very strong unit volume growth, but the average selling price is lower than, let's say, our premium windows and windows overall. And so we are seeing a top-line mix decrement, let's say, from some of that mix in North America and very much less so in Europe, really in Europe, it's really all volume-related. But definitely a top-line mix challenge with again the product dynamics we've just been talking about in North America. But at the top level, that ends up being about a split like 60-40 unit volume versus mix.

John Lovallo, Analyst

That's helpful. And then maybe just following up on that pricing in North America was negative here, negative one. It sounds like that could be ASP related. Now was that a mix between exterior versus interior, some more interior doors? Or is there anything else going on there within that mix equation?

Bill Christensen, CEO

We typically wouldn't dive into that kind of detail on pricing at a segment level. I'd just say, in general, if we kind of look forward, we're pleased with where price cost is. Clearly, there is some input cost on the factor side that we can't ignore. Labor inflation, benefits inflation, and that's clearly what we're working towards to offset through our productivity and our transformation initiatives. So I'd say, it's still kind of price cost neutral for the year. That's what we see, but we wouldn't want to jump into any specific segment pricing details for obvious reasons.

Operator, Operator

Your next question is from the line of Jeffrey Stevenson with Loop.

Jeffrey Stevenson, Analyst

So could you provide any more color on how North America volumes trended throughout the quarter and whether volume declines accelerated as the quarter progressed from the challenging R&R demand fundamentals you cited today?

Bill Christensen, CEO

Yes. So I would say, if we just try and keep it at a macro level here, Jeffrey. As we said, the anticipated reload in Q2 has been a lot softer than expected. This is, I would call it, unusual just because a lot of our retail partners look to load their inventory for a late spring and summer build season, we're not seeing that. I'd say, that's the main difference as we look out. Clearly, the commercial projects are significantly weaker than we had initially anticipated, but those are pushouts typically linked to interest rates that are staying high and project owners are waiting because they feel, at least a lot of them feel that they could wait and get better financing in the future on these projects. So we're seeing significant delays. It's a smaller piece of our business still is relevant if you combine kind of our multifamily, which is the VPI business that we've spoken about and a lot of stuff that we're doing in Canada, which is project-related that we kind of put into this bucket. So I would say, in general, it's the R&R business and the headwind that is significantly, say, worse than expected. But outside of that, there's nothing unusual, and I think we'll just keep it at that level, it's probably more appropriate.

Jeffrey Stevenson, Analyst

Okay. Definitely understood. Then we've heard that mid-end window and door categories are under the most pressure since the low end is benefiting from production builder growth and the hiring construction activity is holding in okay. Would you agree with that, Bill? And could you talk maybe more about your outlook for better and best products?

Bill Christensen, CEO

I wouldn't necessarily confirm that the high end is performing well. We're also experiencing challenges at the upper end. For instance, in wood windows and our LaCantina business, which involves aluminum systems for high-end homes, there is noticeable weakness. This fits into the broader trend of project-related weaknesses we're observing, with declines in double digits, and even more pronounced in certain areas. It's clear that the high end is struggling, and if conditions are weak now, they are likely to remain so until new construction starts to pick up and products are built. In contrast, the low end is progressing; we’ve noted good performance in doors, although we are underrepresented in our windows business. Overall, there is weak performance in high-end projects, particularly in commercial segments, while the low end is seeing significant growth in doors, but facing challenges with windows due to our limited presence in that market.

Operator, Operator

Your next question comes from the line of Steven Ramsey with Thompson Research Group.

Brian Biros, Analyst

It's actually Brian Biros filling in for Steven. Regarding the outlook, could you elaborate on the specific data points that led you to adjust the guidance? I understand you've covered this extensively in the call, but I'm curious since it seems that the changes are largely driven by macro factors. It's interesting to see which companies are adjusting their guidance this quarter when the impacts appear to be widespread across the industry rather than isolated to specific companies. What did you observe that prompted you to change your guidance while others chose not to?

Bill Christensen, CEO

Yes. So I would say it's not only macro. Let me just call your attention to our portfolio pruning, which we had called out. So there's two things. Number one, we're stepping out of our Auraline Composite Window business, but we are also pruning additional lines within our windows portfolio because we were unhappy with the level of profit that these areas were delivering. You rolled that all up, call it, between $50 million and $100 million of top-line headwind this year. So that's the one bucket. I think macro, I would say, we've talked a lot about the macro headwinds that exist. Clearly, we have a pretty solid position in the R&R segment, which has not yet rebounded as we had expected in Q2, and that's what we already see. So we want to make sure we're being as transparent as possible with the capital market and calling it as we see it; this is not going to be a straight-line recovery. It's very choppy. I think everyone would agree with that in the market. But in addition, which I think is an important point, we're taking some sales out of our P&L because we don't like the quality. And clearly, we've got to adapt our cost structure, which we are already doing to it. But on the back side, when the rebound occurs, we'll have a much better package of product that we're selling into the market. And that's why we're making these decisions now, even though it's a tough market to be calling off sales in a down environment.

Brian Biros, Analyst

That's very helpful. Maybe thinking back when the recovery happens maybe into '25, I know it's a faraway away. A lot can happen until then. But just trying to think how some of the automation or the self-help margin improvement projects you guys have that will play out into 2025, if volumes do come back, kind of giving you the added tailwind of kind of the volume leverage on top of the initiatives benefits on their own. I don't know if there's any thoughts there on how impactful that could be to margins on that outlook?

Bill Christensen, CEO

So I think, number one, that should be pretty significant because we're doing a couple of things. I mean, we're taking cost out of the structure, but we really feel that based on some of the changes that we're making, which include automation and some efficiency projects, we will be able to deliver at or above the expected volumes that we have in the next couple of years with the infrastructure that we will then have in place. So there's a pretty significant upside. We're talking a lot about decremental margins based on the current macro reality, but you flip that around on the upside and you're talking 25% to 30% lift on additional sales, which we'll be pushing through the existing infrastructure. So we really are moving towards that future state, again, with a focus on making sure we like the quality of sales that we have in our portfolio. We're making the tough decisions to adapt the cost structure but also to weed out the product portfolios that we don't like and that we need to take action on. And so these things are kind of, I'd say, accumulating in this year. If we talk about the projects in our pipeline, as I referenced to Phil's question, we have still 700 initiatives that we're working through. And a lot of these are really focused on making sure the strength of the foundation for the recovery is very solid. Just a view on recovery. Clearly, our view is that things should get better in '25 in North America and definitely, Europe is going to be challenged in '25. And I think that's the very high level based on how we see the market and where things are. It's going to be, I think, better in '25 for North America, still challenged in Europe.

Operator, Operator

Our next question is from Matthew Bouley with Barclays.

Matthew Bouley, Analyst

Sticking on the topic of the pruning, I guess, is it realistic to think that the portfolio as it stands now is sort of the starting lineup that you want to go with? Or if we are in kind of a choppier end market backdrop for an extended period here, is there a potential that there could be additional to come as you sort of review all your product lines?

Bill Christensen, CEO

We are not yet in an ideal situation and still have work ahead of us. We are focusing on two main areas. First, we are analyzing our cost to serve to ensure we are as efficient as possible while meeting our customers' expectations regarding quality and delivery. At the same time, we are evaluating the quality of our sales mix in today's cost to serve environment and how it will evolve in the future. If we do not identify a clear path to profitability, such as with Auraline, we will need to make difficult decisions and discontinue operations. The organization is beginning to understand the importance of accountability. If we create a business plan, we must hold ourselves accountable for its execution. If we find that we are lacking a plan for corrective action, we need to make that correction or face tough choices. This approach is new for us and making these tough decisions is essential as we have not achieved the results we promised. We want to signal clearly to our stakeholders the direction we intend to take this organization and demonstrate our willingness to address areas where we have fallen short of expectations, ensuring clarity in our intentions to the capital markets.

Matthew Bouley, Analyst

Got you. Okay. Regarding price cost, I understand you prefer not to go into specifics about individual product lines. However, when you refer to it as neutral for the year, it's clear that price was negative in North America in the first quarter. You mentioned that inflation is still affecting several areas. So, was price cost positive in Q1? Do you expect it to gradually drift lower throughout the year? Any additional insight on what might keep price cost neutral despite these fluctuations would be appreciated.

Julie Albrecht, CFO

Yes, sure. Yes, our price cost was just slightly negative in the first quarter, like $2 million. So I think plus or minus a little bit, we call that neutral. So I'd say, generally speaking, and Bill has already mentioned, I mean, we clearly continue to see inflation, specifically in areas like labor and benefits, really as we expected. And then, again, puts and takes around material costs and transportation, etc., in both of our regions. So again, in this environment, our goal is to be raising price appropriately to cover inflation and our costs; and so I think like you see in the first quarter, I mean, North America was slightly negative, Europe was slightly positive on the top line for price. Net-net, there was just a very minor negative impact year-over-year to EBITDA. And again, that's what we're really working towards as we move through the year.

Operator, Operator

Your next question is from the line of Mike Dahl with RBC Capital Markets.

Michael Dahl, Analyst

I wanted to ask about the implied second half sales. I think you characterized it and the guide would suggest that sales would be down slightly year-on-year. I think the pruning that you've articulated alone might account for like a 2% year-on-year headwind, which would put the organic ex-pruning more like flat? Is that a fair characterization? And I know comps get easier, but that does seem to imply some market improvement in the second half, which maybe less visible today. Maybe just elaborate on that?

Julie Albrecht, CFO

Yes, you're correct about the pruning being in the 1.5% to 2% range for the full year. With the reset of our second quarter sales and considering the seasonal ramp-up into Q3 and our expectations for Q4, we are looking at a slightly lower year-over-year outlook for the second half. As you noted, the second half of last year does present a somewhat easier comparison, but it's still fairly nominal from a comparison standpoint. We anticipate a modest improvement in half-year sales compared to the first half, but nothing particularly dramatic.

Michael Dahl, Analyst

Got it. Okay. My second question is about Auraline specifically. I understand this initiative started under a previous management team, but it's relatively new. The full ramp was really achieved in 2020, and it was seen as a significant growth opportunity at that time. Therefore, deciding to shut it down just short of four years later is noteworthy. Bill, I know you're probably still working on the postmortem, but can you provide a bit more insight into what specifically happened? Did the market change in terms of materials, or did you not gain traction with certain sales channels? Can you elaborate on what really went wrong that led to this decision?

Bill Christensen, CEO

Sure. There were several internal delays with the project. Although it started quite some time ago, it progressed at different speeds. Upon entering the market, we anticipated being able to capture market share in a segment that is well-managed by our competitors. However, our performance in the sales channel did not meet our expectations, resulting in lower volume growth and raising concerns about the business case. We also faced significant increases in input costs as we advanced along our maturity curve. This combination of lower volume and higher costs posed a substantial challenge in making the business case viable. We're still reviewing the situation, but it has become clear that we wouldn't reach our targets. Consequently, we decided to redirect our capital and resources towards the other 700 projects that are generating considerable value in our portfolio. While this was a difficult decision, it ultimately reflects our commitment to accountability and informed decision-making at JELD-WEN.

Operator, Operator

This concludes the question-and-answer session of today's call. I will now turn the call back to James Armstrong for any closing remarks.

James Armstrong, VP of Investor Relations

Thank you all for joining our call today. If you have any questions, please reach out, and we're happy to answer. This ends our call, and please have a great day.

Operator, Operator

This concludes the JELD-WEN First Quarter 2024 Earnings Conference Call. Thank you for joining. You may now disconnect.