Richelieu Hardware Ltd
TSX:RCH
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
36.69
48.03
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware First Quarter 2019 Results Conference Call. [Operator Instructions] Note that this call is recorded on Thursday, April 4, 2019. [Foreign Language]
Merci, good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the first quarter ended February 28, 2019. With me is Antoine Auclair, CFO. As usual, note that some of today's issue includes forward-looking information, which is provided with the usual disclaimer, as reported in our financial filings. The first quarter is generally our weakest period in terms of financial results, but this year, we have made a very good start in terms of business acquisition. During the first quarter, we closed 3 new acquisition in Canada, Lion Industries, Blackstone Building Products, and Truform Building Products. These 3 specialty hardware distributors serve a customer base of window and door manufacturers in Ontario and Western Canada from their 3 centers located in Calgary and Concord. They give us the opportunity to increase our business in the window and door manufacturers segment, reinforce our current presence in these markets while adding $12 million in sales. Now let's look at financial highlights. During the first quarter, our results were affected by lower sales to hardware retailers, including renovation superstores in Canada and in the U.S. First quarter sales reached $226 million, up by 2%, of which 2.8% from acquisitions. Sales to manufacturers stood at $192.3 million, up by 5.3%, 1.9% from internal growth and 3.4% from internal acquisitions. In the hardware retailers and renovation superstores market, sales stood at $33.9 million, down by $5.3 million or 13.5%. In Canada, sales amounted to $143.7 million, stable with 2018. Our sales to manufacturers reached $107 million -- $117.7 million, up by 4%. As for the hardware retailers and renovation superstores market, sales stood at $26 million, down 15.9%. This is due to the fact that in the first quarter of 2018, our sales in Canada were exceptionally high in this market for the first quarter. In contrast, during our first quarter of 2019, our sales were impacted by the inventory realignment of our retailing customers in what seemed to be a softer market. In addition, one of our major customers is in the process of closing some stores. So far, they have closed 25 stores. I would like to point out that we did not lose any market share or any listing with our hardware retailers customers. In the U.S., sales totaled USD 62 million, a slight increase compared with 2018. They reached CAD 82.5 million, an increase of 6%, and represented 36.5% of total sales. Sales to manufacturers reached USD 56.1 million compared with USD 55.4 million, an increase of 1.3%, of which 7.4% on acquisition and an internal decrease of 6.1%, resulting from the end of a supply agreement with the major customers, as reported in previous quarters. Note that comparable sales internal growth in the U.S. manufacturers market would have been 3%. In the hardware retailers and renovation superstores market, sales were down 9.2% in US dollars. This decrease is due to the temporary effect of significant cyclical sales made to our major customers in the first quarter of 2018. Excluding these factor, the hardware retailers -- the hardware sales growth in the U.S. would have been 50% due to additional market development. Given the cyclical nature of these sales, we are confident to recoup these sales in the coming quarters. First quarter EBITDA reached $17.4 million, down $2.4 million. Gross margin remained stable compared with the same period of last year. The EBITDA margin stood at 7.7% compared to 8.9%. It was affected by the slowdown in sales to the hardware retailers market during the quarter, the market development costs to increase our offering and our presence in the retailers market in the U.S., including the additional costs incurred as a result of the temporary increase of our inventory and the effect of our recent acquisitions. Amortization expenses for the first quarter of 2019 was $0.4 million, resulting from investments made in capital assets in 2018. First quarter net earnings attributable to shareholders totaled $10.1 million, and diluted net earnings per share was $0.18 compared with $0.22 last year. First quarter cash flows from operating activities before net change in working capital balances amounted to $13.9 million or $0.24 per share, a decrease of 13%. During the first 3 months, we paid dividends of $3.6 million, up 4.4% over 2018. We also invested $6.6 million, of which $4.8 million for business acquisitions and $1.8 million to purchase new equipment in order to improve operational efficiency. As at February 28, 2019, bank draft amounted to $16.4 million compared with cash of $7.4 million as at November 30, 2018. This change mainly arise from the increased inventory resulting from the following main factors: the slowdown in sales to hardware retailers during the quarter, for which we usually keep more inventory in order to maintain close to a 100% service level; a normal increase in view of next periods that are historically the most active; and pursuing a continuous innovation strategy, adding new products in order to develop new business opportunities. The corporation posted a working capital of $333.5 million for a current ratio of 4.2:1. To conclude, in the coming periods, we will continue to seize and create opportunities, building on our key strengths and strong financial position, implementing our innovation and market development strategies and closing new strategic acquisition in North America. We are confident to produce positive results in the next quarter. That concludes my overview. Thank you for your interest, and now we'll be happy to answer your questions.
[Operator Instructions] And your first question will be from Zachary Evershed at National Bank Financial.
So a couple of quick ones just off the bat. I was wondering if you could break down U.S. organic growth and acquisition growth in US dollars.
Yes, we have this information over here. U.S. internal growth is basically minus 6% from internal -- it's a decrease, acquisition at 6.6% growth. And basically, the reason for the internal decrease is twofolds. The cyclical sales on the retailers market and also the loss of this -- of the one customer that we're mentioning since the last 4 quarters. So excluding the effect of this one customer in the industrial side, so the internal decrease is 6%, but excluding that effect, it's a growth of 3% on the industrial side. And on the retail side, excluding the impact of the cyclical sales for one customer, it's growth of 50% instead of the decrease of 9%.
That's great. Another quick one. Will capital expenditure in 2019 be consistent with the levels we saw in '18 and '17?
Now you should see a bit of reduction because in '17 and '18, remember that we have invested a lot of money for our auto store system here in Saint-Laurent. So the maintenance CapEx should be around the $10 million mark.
Next one, going more in-depth on your gross margins and operating margins. We talked about market development costs to increase the presence in U.S., temporary increases in inventory. Going forward, do you see pressures on the business or any kind of structural or cyclical shift that will result in lower margins? And in essence, do you view RCH as a 10% EBITDA margin business?
What we see is that our margins will be back to normal. Considering the decrease in the sales to hardware retailers, actually, that does affect the bottom line directly because we have to keep up with the same expenses, plus the fact that as a result of those customers that are not buying. So we -- our inventory has to be full 100% all the time because we're expecting those sales. And most of the product that we sell to that market segment comes from Asia. So we could not stop the containers, so that does increase the inventory, resulting also in further expenses because our warehouses are full. So we had to go for outside warehousing and a few other things like that, that cost some dollars. Did I forget something, Antoine? So basically, things should be back to normal as soon as the sales are back to normal.
And so if end markets don't pick up and we see a bit of a structural slowdown, will you continue to have the drag from higher inventories? How long does it take to turn down that tap?
Well, yes -- actually, we will try to close the tap right now, if it's possible, and we will, eventually, if the sales are not back. But I would be surprised if the market comes back to a normal level with the hardware retailers. Usually, this market is pretty stable. People -- do-it-yourself market has been always strong in Canada and should continue to be strong this year. I don't know, I cannot explain the -- all the reasons why the point of sale for them seems to be lower than last year. Is it a matter of season? Is it a matter of something else? We don't know. But basically, usually, this market is rather stable. It should be back. Regarding the cyclical sales, we expect -- we already have the order in hand to confirm that we will sell at least as much as we did sell last year. So we don't see any problem there, too. So that should be fine if the sales improve. And if not, as you mentioned, there's no doubt we're going to close the tap.
Understood. And last year, we were looking at somewhere around a $40 million run rate per quarter for sales to retailers. In the last 2 quarters, it's been closer to $34 million with the impacts that we've described. How good it is your visibility on the next quarter? Which way do you think it'll lean, to the $34 million or the $40 million?
Right. It's hard to answer to that. I think the $40 million seems to be a reasonable number, and that -- yes, the first quarter, Zach, is always the weakest quarter as well. So the spring season is always a busier season for the retailers. So hopefully, this will come back to a more normal level.
That's very helpful. And just one last one for me. If we could get additional color on your end markets and the geographic performance in Canada?
Yes, the geographic is interesting. The industrial sales in Canada East is up by 4.6%, Western Canada is up by 3.6% and Ontario is up by 1.3%. Ontario seems to be weakening a little bit for the time being.
And on your various end markets, kitchen cabinets, that kind of thing?
Yes, kitchen cabinet are up by over 2.5%. And we have the residential and office furniture market, which is up by 10%. And we have other markets where -- I will explain the other market, which is up also by 10%. That other market -- what we call other market, actually, we should reclassify our information a little bit better, but that consists the window and door manufacturers, the glass customers and the other distributor that we sell to.
So the 3 new acquisitions will be falling under the other category?
The window and door.
Next question will be will from John Novak at CCL.
My question was answered on the last one.
Next question will be from Robert Currie at Louisbourg Investments.
Can you guys hear me?
Hi.
Perfect. Just a couple of questions on margins here. I've kind of been expecting margins to start to tick a little bit better. Seems like it's moving in the opposite direction. Can you guys just give me clarity on when -- you guys have talked about before, I think, 11% to 11.5% kind of normalized margins. Are you still expecting that? You just mentioned before that you are expecting things to normalize, but can you just give me some color on how that's going to happen and the operating leverage in the business?
Yes, so what's important to understand is what's going to be happening with the retailer market, that's one thing. And the other thing that impacts our margin and percentages is basically our acquisition. So we have made some good acquisition last year where we're continuing to invest in acquisition. But of course, for some acquisition, mainly in the U.S., the level of EBITDA is not at the same level as the one that we have with Richelieu. So we're going to be working and improving those acquisition. The value is there. The long-term value, that's really what we are looking at. So depending of the streak of acquisition that we're going to be completing, that could have an impact on our margin percent. But our basic business, industrial, either in the U.S. and in Canada, is in good shape and the margin are stable or improving.
If I could add something to that, actually, we spent more for dollar of sales in the U.S. because we are trying to capture more and more market shares. So -- and the other side, we invest more in new products. We have increased -- our inventory increase consists of something like $20 million, Antoine, from new products.
Yes.
It's like making an acquisition. Sometimes -- and this thing in new products, you increase your inventory, you might temporarily increase your expenses, but the goal is to sell more in the future, that's -- I think it's good money invested. It's like making an acquisition. Same thing for the investment that we do in the U.S. We could cut our expenses in the U.S. and have temporary -- I would say, short term in EBITDA, much closer to what we do in Canada. But I think for the long term, we have to keep on investing both in the sales rep and reps that cover architects and designers and so on and so forth, as well as developing the retailer market. It costs some money to develop some market. I can't -- personally, I can't bill that as making an acquisition. You invest money in order to improve your income in the future, and I think this is exactly what we do. We do think about the long term of this company and make sure that we will achieve the goal that we hope to achieve in the future.
Yes, that's helpful for sure. I guess I'm thinking as well just on -- you guys have talked about before about the kind of investment you made, obviously, in the warehousing, but how that's also impacted costs. And my understanding is that you're either lapping those costs now or you will be very soon. Can you just give me quick color on how that's going to shape up?
Actually, regarding the investment that we made in the warehouse, actually, really brought the benefit that we were looking for. But for the -- but if you look at the -- it's been muted, like I said in the last meeting. By transferring those expenses somewhere else, like the changes that we've made into our warehouse in order to organize the area for the -- for near to store creates a new turbulence now that we have to readjust in the rest of the warehouse, plus the fact that the retailers are not processing. We have new products coming in for $20 million. So really, the -- that did created expenses, including outside warehousing and more employees in order to cope with that.
Right. So yes, can you give me some color -- one of the things -- you guys don't give adjusted numbers, but if you could just give some color towards what would normalized EBITDA have been this quarter? And I don't know if you guys are comfortable with kind of sharing if there are some puts and takes and what you guys see on more of a run rate basis, but that would be helpful, I think, too.
What we could tell you is that the margins on the industrial market for our basic business are stable in Canada. They are slightly increasing in the U.S., so we're improving in the U.S. because sales are increasing. So at the EBITDA level, we're gaining EBITDA percentage, that's for sure. What hurts us in the retail market, it's the volume, like Richard said. So we lose the sales, but we don't have any -- we don't have many operational costs in there. So I would say that excluding this major variance in top line, the retail margin -- and excluding also the investment that we're making in the network in the U.S., the margin are not reducing materially, that's for sure. But it's an investment, so it impacts the bottom line.
And important to mention, our gross margin were slightly higher in the manufacturers market in Canada in the last quarter as well as in the U.S.
That's helpful. So you guys are mentioning things like, for example, using external warehousing, and so with that, you're starting to get capacity. You, obviously, alluded to that being a higher cost pressure on you guys. Is that something that's going to alleviate in the near future? Does that covet a tailwind?
Sure.
Yes? And so when do you see that -- is that just waiting for those retailers to purchase that inventory that you guys have already bought? Or how does that...
It's part of the retailer's volume, but also, it's moving those new products that we're investing in. So that has an impact. And of course, this -- the inventory situation is adding cost to the -- to our cost structure. So once this is behind us, the operational costs should be back to a more normal level.
Yes, that's helpful. If you can help me understand too, this is probably one of my last questions here, but just trying to understand the comment you guys made on adjusting for the more cyclical purchasing in the U.S. retail that you would've been growing internal growth of about 50%, just seems like a dramatic change from the number presented. So can you just help me understand the mix there of how that works? And what you're really talking about? Like, what really is considered -- what's the mix of cyclical versus non? And kind of how I can think about U.S. business in that way?
Yes, apart from the cyclical sales, actually, for the regular sales to the retailing customers in the U.S., we're developing new products with new customers. We have new products at Lowe's, for example, that we're installing. We're loading their stores actually. And we have, what's the name? The True Value, which we -- with which we increased our sales because we penetrate the market where one True Value member, one by one. So basically that does create additional sales but with not the margin that we're looking for because it's -- we have to incur the cost of getting into their stores, installing, obviously, as usual. It's business as usual for Richelieu. It creates nice sales, but it's also much -- with more expenses in order to get our products in their stores. So we're very happy with that because for the midterm it's a fantastic business that we're developing there.
And if I can add one thing, the cyclical sales, what's important to understand is it is with 1 customer. So we can -- I can call it cyclical or seasonal, but basically, one quarter, you can receive a large deal for all of their stores, next quarter, it won't be there. But what we are expecting is that we didn't get the sale -- or we had lower sales in this current quarter, but sales should come in the next 2 quarters.
Because we had...
And it needs to buy from you. Like, they are going to need to replenish inventories. So it wasn't this quarter, but it could be the next quarter or the quarter after that. So you mean...
We already have the order on hand confirmed. We will sell at least the amount that we sold last year -- in the whole year.
Okay. Yes, that's what I was going to get clarity on that, too. Yes, that's helpful. So then you're seeing quite an investment in working capital this quarter, as you've mentioned as well. We're seeing for the first time, you guys -- well, I don't know if I should say it's the first time, but...
It's not the first time.
No, no. I was going to say the first time for really being net debt, I guess you could say, now with the bank draft. So what's kind of your capacity you guys are willing to lever up to? And do you want -- let's say, for example, inventory still needs investment but you see continued acquisitions or your stock price falls another $2, $3, are you guys going to -- would you consider reinitiating the NCIB and start buying back more stock? Or just want to get a sense for capital allocation as well.
Yes, we're always on the search for the NCIB, but the priority is acquisition. So we have a lot of leverage on the balance sheet. That is not a -- it's definitely not an issue. Either we invest in acquisition, we invest in working cap, but priority -- what you need to understand is, priority is acquisition, after we have dividend policy and also the share buyback that is in place. And what we could leverage a company -- we could leverage a company 3x the EBITDA, but we won't do that for the -- we will do that for -- only for the right reasons. For the right acquisition, we'll do it. We need to look at sustainable EBITDA, that's very important. We have a lot of rigor in our acquisition process, but we're not against leverages that we didn't find the right opportunity to do it.
That's helpful. So -- and I'm assuming the right opportunity, you're likely more looking south of the border. But I mean, I'm sure you look at everything, but that's kind of where you'd rather? Is that an accurate understanding?
We're looking everywhere. We just didn't find it yet.
[Operator Instructions] The next question is a follow-up from Zachary Evershed.
We've seen a little bit of activity initiatives from superstores in a space targeting the pro market as well as automated pickup lockers. Have you seen any impact on your market share in the U.S. or in Canada as a result of this? Or have you noticed any change in the competitive dynamic?
We have not seen such thing. We only -- what they do usually, they go after the pro market, but they don't have all the product. They couldn't have serviced, for example, the cabinet industry except for a few hinges and a few basic drawer slide. But they -- most of the time, they buy products from our customers, which they resell to consumers and they supply the installation. This is what we see more and more. The other pro business that we see that they are doing, usually, it's not affecting us for the type of product that we sell, but we have to keep an eye on that, we never know.
And at this time, Mr. Lord, we have no other questions, so I would like to turn the call back over to you, sir.
So thank you very much. It's always a pleasure to talk to you. Have a nice day.
Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.