Gibraltar Industries, Inc. Q2 FY2025 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Gibraltar Industries Second Quarter 2025 Financial Results Conference Call. This call is being recorded on Wednesday, August 6, 2025. I would now like to turn the conference over to Carolyn Capaccio of Alliance Advisors' IR. Please go ahead.

Thank you, Joanna. Good morning, everyone, and thank you for joining us today. With me on the call is Bill Bosway, Gibraltar Industries' Chairman, President and Chief Executive Officer; and Joe Lovechio, Gibraltar's Chief Financial Officer. The earnings press release was issued this morning as well as the slide presentation that management will use during the call are both available in the Investors' section of the company's website, gibraltar1.com. Gibraltar's earnings press release and remarks contain non-GAAP financial measures. Tables of reconciliation of GAAP to adjusted financial measures can be found in the earnings press release that was issued today. Further, please note that continuing operations exclude net sales and operating results of the Renewables business, which has been classified as held-for-sale and as a discontinued operation, and that adjusted results exclude the net sales and operating results of the residential electronics locker business, which was sold on December 17, 2024. Also, as noted on Slide 2 of the presentation, the earnings press release and slide presentation contain forward-looking statements with respect to future financial results. These statements are not guarantees of future performance, and the company's actual results may differ materially from the anticipated events, performance or results expressed or implied by these forward-looking statements. Gibraltar advises you to read the risk factors detailed in its SEC filings, which can also be accessed through the company's website. Now I'll turn the call over to Bill Bosway. Bill?

Thanks, Carolyn. Good morning, everyone, and thank you for joining today's call. We're going to take you through our second quarter results, and we're going to review our guidance for continuing operations, which we are establishing today, and then we'll open the call for questions. Before we review second quarter results, I would like to discuss our recent announcement to strategically shift more focus to our Building Products and Structures businesses. So let's turn to Slide 3. As part of our ongoing strategic assessment and portfolio evaluation process, we continuously assess the overall attractiveness and key drivers of the end markets we are participating in as well as our ability to extract value and generate returns in each of these end markets. As in previous years, our business units kicked off their annual market assessments, and in parallel, we asked two separate advisory firms to also conduct assessments of each of our end markets and our respective businesses. We reviewed our findings and recommendations with the Board in early 2025 and received approval to move forward with executing an overall plan. So on June 30, we announced our plan to simplify the portfolio and focus on Building Products, which primarily covers our Residential business, and focus on Structures markets, which primarily includes both Agtech and Infrastructure businesses. As part of the overall plan, the Renewables segment has been classified as discontinued operations and held-for-sale. We do anticipate that a simpler portfolio with the right resources and capital focused on these markets will yield stronger growth, margin expansion, and cash flow performance, which will drive higher returns for our shareholders. For example, since 2023, excluding Renewables, our continuing operations have delivered solid and steady adjusted operating and EBITDA margin improvement despite a slower residential Building Products end market, which now represents just over 70% of Gibraltar's total revenue. That being said, we are very excited to focus more on the Building Products and Structures end markets. Markets we find attractive, where we can build a leading position and participate across the broader value chain, markets which also have attractive revenue and profit pools with multiple avenues for growth, and markets driven by core fundamental demand drivers with the opportunity to satisfy basic needs and solve big problems. Finally, markets that have long runways for value creation. We are making this transition. And we are currently outpacing our end markets via participation gains through localized expansion initiatives and new products serving both existing and new customers. To date, in 2025, we have invested $208 million in selective M&A to build presence and scale our core competencies in these end markets, with more to come. Now let's turn to Slide 4, and we'll talk about our second quarter results. We executed well in the second quarter and delivered 14% adjusted sales growth, which reflects strong contributions from our acquired metal roofing and structures businesses, additional participation gains in building accessories, and growth in infrastructure. These gains collectively offset project start delays in Agtech and ongoing market softness impacting our residential Mail & Package business. Overall, end market trends and demand remain consistent in Residential, and we continue to gain participation in both retail and wholesaler channels. Additionally, in our project-based businesses, Agtech and Infrastructure, backlog increased 43% to $278 million. Adjusted operating income and EBITDA margin were 14.5% and 17.8%, respectively, and adjusted EPS increased 11% over last year. We generated $44 million in operating cash flow and $25 million in free cash flow as we funded key capital initiatives in each of our businesses. With respect to portfolio management, we announced in June that our Board of Directors approved our plan to sell the Renewables business. The sale process is active and discussions are ongoing with various potential buyers, and we are targeting to complete the sale by year-end. As previously mentioned, we invested $208 million in selective M&A since January, and our pipeline of additional M&A opportunities is very active, particularly in the Building Products segment. Now let's review the business segments, and Joe will start with Residential.

Thanks, Bill, and good morning, everyone. Let's start with Residential on Slide 5. Adjusted net sales for our Residential segment increased by $18.8 million or 8.9%, driven by our Metal Roofing business, which was acquired at the very end of Q1. Organic revenue was down less than 1%, driven by participation gains in building accessories as we continue to expand into more local markets and benefit from new products launched last year. Strength in building accessories was offset by slowness in the Mail & Package end market, which is driven mainly by lower new construction starts in 2024. Now turning to margins. Adjusted operating and EBITDA margins decreased 90 basis points and 60 basis points, respectively, remaining at strong levels with improvement in contribution from building accessories and metal roofing, which offset the impact from lower volume in Mail & Package. We continue to execute well and drive profitability benefits from 80/20 initiatives, and we remain on track to complete all business system conversions in 2026. So, let's move to Slide 6, and I'll give you an update on the residential market and some new activity in our expansion initiatives. The residential market continues to be down versus 2024, both in the quarter and on a year-to-date basis. Housing affordability and interest rate levels continue to weigh on new and existing home sales in multiple regions. That being said, we are seeing home prices come down and inventory of homes increase in certain regions as well. From a channel perspective, retailer point-of-sale results in the quarter reflect roofing accessories were down between 5% and 6%, with some states and regions down more than others. Additionally, ARMA reported shingle shipments to distribution for the quarter were down 4.3%, and the Independent Distributor Alliance Corporation, the IDAC survey reflected sales from distribution to contractors down a similar amount. But for us, overall, building accessories, which correlates closely with the roofing accessories market, was actually up 2.3% during the quarter, driven by participation gains and the impact of new products. As we experienced in the first quarter, we believe we outpaced end market demand, and we will remain focused on driving more participation in the second half of the year. When the end market returns to growth, we will be in an even better position to accelerate our business. Our Mail & Package product sales, specifically for our centralized mail solutions, were down just over 7% in the quarter. Historically, given a centralized mail system is one of the last things installed in a multifamily property, we tend to see revenue about one year after a new build has been started. To put this in perspective, in 2024, starts for multifamily new construction reported down over 35%, which has resulted in less demand and revenue for us in 2025. Given our sales were down 7% in a market down over 35% demonstrates our team's ability to drive significant participation gains in challenging market conditions. We also remain active in our local market expansion initiative and recently added another location in Oklahoma City through the acquisition of Gideon Steel Panel Supply. Gideon's last 12 months of revenue were approximately $10 million with EBITDA margins of 20%. Gideon is a leading provider of metal roofing systems and roofing accessories in the OKC market, and we are excited to have the leadership team stay on board and drive future growth and profitability. To date, in 2025, we have entered 9 new locations through either organic or M&A investment, and we expect to expand our location efforts with 3 to 4 additional operations before year-end to better support customers and also increase our participation. Now let's move on to Agtech. So turning to Slide 7. Agtech net sales growth benefited from the acquisition of Lane Supply, which helped offset the effect of delays in start dates on 3 larger controlled environment agriculture projects. Despite these project delays, demand continued to accelerate with backlog increasing 71%. On an organic basis, excluding Lane Supply, backlog increased 33%, and we believe that backlog is the clearest indication of our future revenue trends. Segment adjusted operating margin decreased 100 basis points, driven by the impact of the delayed controlled environment agriculture projects and resulting lower volume, partially offset by project mix and Lane Supply's contribution. Adjusted EBITDA margin increased 20 basis points as it excludes the impact of higher amortization resulting from the acquisition of Lane and its related intangible assets.

Okay. Let's turn to Slide 8. I'll give you a little more color on the CEA initiatives. During the quarter, I mentioned we had 3 larger CEA projects moved from the first half to the second half of the year. I'm going to discuss 2 of those 3 CEA projects on this slide. So on the left, the Houwelings retrofit project is a $90 million project funded by both the owners and through a USDA loan, which is relatively typical. We started Phase 1 of the project in Q2 with design and engineering services and maintenance services. Phase 2, which starts the major retrofit and construction of the project, was originally scheduled to start in Q2 and is now scheduled to begin on September 1 when funds from the USDA loan are now expected to be released. This project will benefit in Q3 and then accelerate in Q4 and also be impactful for most of 2026 as well. Shortly after quarter end, we were awarded 2 new projects by Pomas Farms, totaling $13.6 million in contract value. These 2 projects were originally scheduled to be signed in Q2 but were delayed due to a water rights issue, which has since been resolved. The first project is what we refer to as a Greenhouse Lift project, where we are, in this case, raising the height of an existing 4.9-acre growing facility by over 6 feet. The second project is an expansion of the existing Pomas bell pepper growing facility by 18 acres, which is shown as Phase 2 on the first picture on the right-hand side of the slide. These Pomas projects are not yet included in our backlog data shared earlier, given the projects were signed after quarter-end. The project is funded. We are finalizing designs, and the project is planned to start in October. On Slide 9, I would also like to highlight 2 other projects currently in process. The $4.8 million expansion of the Lewis-Ginter Botanical Conservatory in Richmond, Virginia, a partner of ours for many years from the inception of the conservatory through all the additions and expansions completed over the years. In this expansion, we are adding a 3,500 square foot Tropical greenhouse and a 3,500 square foot Butterfly greenhouse. The TAP INS project on the right side of the slide represents a new innovative design created with our customer to utilize our greenhouse growing structures and systems knowledge to develop and build a $2.4 million, 3.5-acre, 30,000 square foot indoor temperature-controlled miniature cutting course, bar and restaurant, which is located in Overland Park, Kansas. I have to say it's pretty exciting to see yet another creative and end-use application for our structures. Given the new CEA starts planned for the second half, the performance of Lane Supply and its current backlog and our pipeline of new opportunities, we expect the Agtech business to deliver growth and solid operating margins in 2025. We also expect to continue to book additional projects in 2025 as demonstrated by the Pomas projects and further build our backlog for 2026. Now let's move on. We'll discuss the Infrastructure business.

So turning to Slide 10. Our Infrastructure net sales increased $0.4 million or 1.6%, driven by continued strong execution. Demand remains solid with backlog increasing 3%, and quoting activity remains robust, supported by ongoing investment in funding at both the federal and state levels. Segment adjusted operating and EBITDA margins improved 300 basis points and 290 basis points, respectively, driven by strong execution, effective supply chain management, and product line mix. We continue to expect sales growth and margin expansion in this business in 2025. So now let's move to Slide 11 to discuss our balance sheet and cash flow. At June 30, we had cash on hand of $43 million and $395 million available on our revolver. During the quarter, we generated approximately $44 million in cash from operations from net income and management of working capital. During the quarter, we used $18.2 million or about 5.9% of sales for capital expenditures, including investments in our residential expansion initiatives and in our Agtech facility move. We expect CapEx for the year to be approximately 3% to 4% of sales. Free cash flow generation expanded on a sequential basis to 8% of sales as expected, and we are on track to hit our 2025 target of 10% of sales. Our revolving credit facility remains untapped and we remain debt-free. We expect to continue to generate strong cash flow in 2025 and in the coming years. Our capital allocation priorities for 2025 are to continue to invest in our organic growth and operating systems for scale with capital expenditures of approximately 3% to 4% of sales for the year. We continue to explore inorganic growth opportunities with a focus on our leadership positions in our current Residential and Agtech end markets and have an active pipeline of high-quality M&A. Our strong balance sheet supports this effort and provides optionality and flexibility. Lastly, we plan to continue to deploy capital for value creation through opportunistic share repurchases and have $200 million remaining under our current stock repurchase authorization. Now I'll turn the call back to Bill.

Let's move to Slide 12 and discuss the factors behind our 2025 guidance for continuing operations. We expect overall demand to stay in line with market conditions and our internal expectations. In the residential market, we anticipate that current conditions will persist, allowing us to focus on increasing participation, expanding into local markets, and integrating our recent metal roofing acquisitions. The performance of our metal roofing acquisitions is meeting our expectations, and integration activities are underway. We are excited to welcome Gideon to the team. In Agtech and Infrastructure, we have a strong order backlog and expect more bookings in the second half as well. While some CEA project starts have been delayed from the first half, they will significantly impact the second half of the year. We also foresee continuous demand in our Lane Supply business, which supports new store and retrofit initiatives for our core customers. Regarding tariffs, we are managing the evolving tariff landscape similarly to how we navigated the high inflationary period of 2021 and 2022. So far, we've minimized the effects of tariffs and plan to manage this throughout the year. Now let's move to Slide 13 and review our 2025 guidance for continuing operations. We anticipate net sales to be between $1.15 billion and $1.2 billion, reflecting an approximate 16% increase. Our adjusted operating margin is expected to be between 14.6% and 14.9%, with the adjusted EBITDA margin also projected between 17.5% and 17.7%. GAAP EPS is projected to range between $3.67 and $3.91, a decline from last year primarily due to the gain from the sale of our electronic blocker business at the end of 2024. Our adjusted EPS is expected to be between $4.20 and $4.45, indicating an increase of about 13%. We anticipate free cash flow to be 10% of net sales. In conclusion, we will continue to observe the macro environment and make necessary adjustments. Our team is ready to execute our plans. We are also excited to streamline our portfolio, allowing us to focus resources on our continuing operations. I appreciate our teams across Gibraltar for their dedication and adaptability as we evolve our portfolio and carry out our primary initiatives. Now, let's open the call for your questions.

The first question comes from Daniel Moore at CJS Securities.

Maybe just start with a little housekeeping, just the revenue contribution in Q2 from metal roofing acquisitions. If I missed it, I apologize. Just trying to get a sense for what the true organic growth looked like.

Yes. Residential is essentially flat, with a decrease of less than 1% organically. The fixed growth is driven by metal roofing.

Portfolio optimization, please go ahead. I apologize.

Yes. No, no, my bad. So the key pieces of that are the roofing accessories, our biggest piece of residential, was actually up 2.3%. Metal roofing was up, and then that offset Mail & Package, which was down 7% that I mentioned. Those are the kind of key components you think about residential overall.

That's really helpful. And obviously, the big news on the decision to divest the renewables piece, I guess, number one, probably not a lot, but anything you can say as it relates to the process there or expectations around timing, et cetera? And two, as we think about expansion from here, what are some examples of Structures businesses outside of the current Agtech, Canopy's, et cetera, that might be interesting adjacencies for you?

Yes. In response to the first question, the process is very active right now. We're engaged in discussions with potential buyers, and our goal is to close the sale before the end of the year. Our teams are working diligently on this front, which is positive. There is significant interest, and that summarizes the current state of the process. Regarding additional opportunities in Structures, I view it somewhat differently. Over the past three years, we have added Controlled Environment Agriculture as a segment, which is growing. You're likely familiar with this area of fruits and vegetables. We have also just added Canopy's, alongside our core commercial business, of which I shared a couple of examples today. I believe there is considerable potential within the segments we currently have rather than expanding into new areas based on market sizes. As previously mentioned, the Canopy Structures market is nearly $2 billion, indicating substantial room for growth. We see ample opportunity in Controlled Environment Agriculture as well as within our core commercial business. Our focus will remain on strengthening our presence in the existing markets rather than seeking new ones.

Perfect. And then lastly, just confidence around the timing. I think you mentioned September 1 for Phase 2. Is the USDA funding in hand or expected to be? Just confidence around that timing of that project.

I think the confidence is pretty high, and we meet weekly with the owners. We've been doing day-to-day maintenance since the beginning of Q1, and we're doing design engineering work for them as they're going through these retrofit initiatives. I think the USDA loan, which has been submitted, and all the supporting documentation has been in for some time, and people generally feel good about September having those funds released. Our supply chain is ready to roll. I can't give you a confidence level on whether it's September 1 or September 10, but we feel pretty good about September being when we're going to kick things into gear with that project.

The next question comes from Walt Liptak at Seaport Research.

I wanted to ask a couple of them on the renewables business as the discontinued operation. I wondered about any tax implications of the eventual sale.

Yes. We would expect that the transaction would be pretty efficient from a tax perspective. That's kind of how we think about that just based on what we have that on the books, but also the fact that we have some carryforwards as well. So we feel pretty good from a tax perspective that it will be pretty efficient.

Okay. Great. And then as you do the divestiture, are there any efficiencies that you can gain from the divestiture, any corporate expenses or things that might enhance the profits from the divestiture?

Nothing of great magnitude. The way we're structured today, we're a very small corporate group to start with. The businesses are pretty much stand-alone. So I think when you separate out, there's very little stranded cost. There are some, and we'll manage some of that through transition services agreements. We'll be efficient on that front. We'll redeploy, particularly as we think about some of the M&A activity we have in front of us. The transition will hopefully enhance profitability and productivity as we reorganize the portfolio, but we're not expecting much stranded cost at all in this process.

Okay. All right. Great. And just going back to the conversation about Residential. You talked about the operating margin decline a little bit on volume and the mix with mail and packaging. You didn't mention anything about tariffs or inflationary metals, anything like that. I wonder if you could talk a little bit about just the price/cost and how you're feeling about the positioning of inventory for the back half of the year.

Yes. I mentioned it really hasn't been an impact for us this year, and we had the businesses together 1.5 weeks ago. We have a pretty robust model that tracks tariffs by HTS code, by any type of component or raw material coming from every country that we import from. So as tariffs change, which they seem to do somewhat here and there, we get a real week-to-week idea of what, if any, impact it will have for our business, and thus that triggers what we need to do accordingly. That's been pretty effective for us through the first 7 months. We don't anticipate, based on what we know today, that changing for the rest of the year. As you know, when managing through these things, there are several variables that you're trying to pull and optimize. In our residential business, which is now 70% of what we do, many of our contracts have clauses related to commodity indexes that automatically drive recovery on something that flows through. We have built-in mechanisms that should help us navigate. As I've stated previously, there's nothing today that resembles the challenge we faced in '21 and '22, trying to manage inflation, price/cost, supply chain availability, etc. This is nothing like that. I feel confident in our approach and discipline. It is a week-to-week operation as we monitor tariffs and how they might change. So far, we've been able to minimize the impact effectively.

Next question comes from Julio Romero at Sidoti & Company.

I had a high-level question about your strategy going forward with regards to the direct-to-contractor model and how you gain wallet share with the contractors. If the strategy is based on brand loyalty with regards to the contractors favoring your product when they buy from the distributor, or would the strategy be more focused on better serving the distributors and gaining loyalty from them more so than the contractors, if you could speak to that?

Yes. When you think about wholesale and the contractor, there are two distinct business models. There's the traditional building and accessories work that we do, which involves all the roofing accessories, trims, flashings, ventilation. That has historically gone through wholesalers and/or big box retailers. About 80% of contractors buy their needs through wholesale, and 20% through big box, which is why we saw firms like Home Depot buy SRS. On the other hand, when discussing metal roofing, there are two types of business models. One involves panels typically for barn or agricultural applications, which are sold through wholesale and big box due to limited variety and customizations. The metal roofing initiative we are pursuing involves direct sales to contractors, centering around custom solutions for homes or light commercial facilities. This is a manufactured solution based on architectural drawings, fulfilling unique site requirements, which differs from the inventory-driven approach used by wholesalers and big box retailers. Our strategy has shifted from a strong focus on big box retail seven years ago to a more balanced approach, emphasizing wholesale. We've also introduced a third channel through direct contractor sales for metal roofing. This expands our revenue and profit pools across multiple channels without disrupting existing wholesalers or big box operations. Servicing contractors effectively through quick delivery and quality products is crucial for establishing trust and repeat business. This has been our approach—building a local and strong presence while leveraging our backend efficiencies.

It's a fascinating answer. Thanks so much for the color. A couple of follow-ups there. What is the key brand you go to market with in metal roofing? Is it DOT metals? Is it SEMCO?

It's all local. Remember, we've talked about this localization effort. The contractors in these areas know the local brand; they don't know Gibraltar. Our local brands must remain central to our strategy, so we can drive service while supporting them with our backend efficiencies.

Understood. And then what is the turnaround time from when you receive an architectural drawing from these contractors to when they can expect delivery? Is that better than competitors—or will it be as you become more localized?

You have to be able to perform within a 1- to 3-day window, depending on the size of the home or building and the iterations required. When the drawings are complete, they enter our system, and production commences quickly. Some contractors prefer on-site production, utilizing portable machines to make adjustments in real-time, while others prefer shop-made components. We aim to deliver in one to three days or even hours in certain cases, replicating this efficiency is essential to captivate the competitive market.

Great. I have one more here for you, and it's about the Structures business. Can you talk a bit about the fact that Structures encompasses Agtech and Infrastructure? Have those two segments cross-sold in the past? What potential synergies do you see between the two going forward?

We've characterized infrastructure in the structures business due to the support it provides. However, I want to clarify that there hasn't been significant synergy between these areas in the past. It's a project-based business where engineering is key. While there are loose connections since both support structure applications, we're not fully integrated in strategy across these segments currently.

The next question is a follow-up from Daniel Moore at CJS Securities.

Two quick follow-ups. One, following along Julio's last question. Infrastructure, obviously, you've done a tremendous job on the margin front with that business. Just thinking longer term from a portfolio optimization perspective, does it necessarily fit into those two buckets that we're considering? Might there be thoughts or opportunities to monetize that?

Our strategy with infrastructure is to continue improving it, and the team has done a great job to get us to this point. While we’ve seen some new technologies emerge, it's niche compared to broader infrastructure demands. Our aim isn't to aggressively expand but to enhance what we're already doing. Is it possible to consider opportunities in the future? Yes. But for now, we are committed to driving the business as is. Additionally, there’s significant bipartisan activity regarding the next phase of the infrastructure bill in D.C., which could bode well for our interests in this area.

Very helpful. Last one, just a question on the cadence of growth or seasonality embedded in the revised guidance. You gave pro forma financials earlier this morning. As we look to Q3 and Q4, Joe, can you guide us on year-over-year revenue or EPS growth Q3 relative to Q4 off those pro forma numbers? I'm looking to avoid a modeling headache within your revised guidance?

Expect to see the normal seasonality in the past, particularly on the residential side, especially in building accessories. As for Agtech, you'll notice more project completion in Q4 versus Q3 due to pushouts.

I’d say that’s unique to this year on the Agtech side. Generally, the base and cadence will become more predictable given the project sizes. If more projects are active, the seasonality will be less prominent. Over time, as Building Products dominate and we build the Agtech side, seasonality will reflect historical trends, meaning slowest in Q1, followed by growth in Q2 and Q3. Q4 will depend on weather conditions but remains a strong quarter.

We have no further questions. I will turn the call back over to Mr. Bosway for closing comments.

Well, thank you, everyone, again, for joining us today. We plan to present at the Seaport Summer Investor and Sidoti Small Cap Conferences as well as other events. Thank you again for your ongoing support of Gibraltar, and we look forward to speaking to you again after our third quarter report. Take care.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.