Business context and reporting period
JELD-WEN Holding, Inc. manufactures and distributes windows, doors, and other building products. This unaudited Form 10-Q covers the quarter ended July 1, 2023; comparisons are with the quarter ended June 25, 2022. Continuing operations comprise North America and Europe. Australasia was classified as discontinued operations pending its sale.
Financial performance and condition
Amounts below are in U.S. dollars; figures are rounded. Revenue and operating results for continuing operations exclude Australasia unless noted.
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Net revenues | $1,125.8 million | $1,179.2 million | -4.5% |
| Gross profit (margin) | $225.6 million (20.0%) | $206.6 million (17.5%) | Margin +2.5 pts |
| Operating income | $56.3 million (5.0% of revenue) | $48.9 million (4.1%) | +15.0% |
| Income from continuing operations, net | $22.5 million | $35.0 million | -35.6% |
| Net income, including discontinued operations | $38.3 million | $45.8 million | -16.5% |
| Adjusted EBITDA from continuing operations (non-GAAP) | $108.9 million (9.7% of revenue) | $108.3 million (9.2%) | +0.5% |
Q2 diluted EPS was $0.45, including $0.18 from discontinued operations; continuing-operations diluted EPS was $0.26, versus $0.40 in the prior-year quarter. Interest expense, net, was $20.9 million, up from $20.2 million. The effective tax rate on continuing operations was 32.3%, versus 23.7%.
For the six months ended July 1, 2023, continuing revenue was $2,206.3 million (-0.8%); gross margin was 18.9%, versus 17.0%; operating income was $86.0 million, versus $53.0 million; and continuing net income was $31.0 million, versus $31.4 million. Adjusted EBITDA was $188.2 million, up 6.7%. Six-month net income, including discontinued operations, was $53.4 million versus $45.3 million.
At July 1, cash and cash equivalents were $188.9 million and restricted cash was $0.6 million. Continuing-operations liquidity, as defined by the company, was $649.9 million: $188.9 million of unrestricted cash and $461.0 million available under the ABL facility. Total debt was $1,696.1 million, including $47.3 million of current maturities; the ABL had no borrowings and $39.0 million of letters of credit outstanding. The company reported compliance with its debt agreements.
Six-month cash from operating activities was $153.4 million, versus cash used of $165.7 million in the prior-year period; these cash-flow figures include discontinued operations. Investing activities used $42.2 million, including $42.0 million of property and equipment purchases. Financing activities used $70.8 million. Management attributed the operating cash-flow improvement primarily to a $284.3 million improvement in working-capital cash flows.
Material changes versus the prior comparable period
- Q2 revenue fell as core revenue declined 4% and foreign exchange reduced revenue by 1%; volume/mix fell 11%, partly offset by 7% price realization. For the first half, core revenue was flat: 8% price benefit offset an 8% volume/mix decline.
- Gross margin improved in both periods, primarily from price realization, despite $9.1 million of accelerated depreciation in North America related to equipment-capacity optimization.
- Q2 continuing net income declined despite higher operating income. Other expense shifted to $2.2 million from $17.1 million of prior-year other income, which had included interest recoveries and insurance reimbursements. Higher SG&A, mainly performance-based compensation, also weighed on results.
- North America Q2 revenue declined 2.6%, while segment Adjusted EBITDA rose 16.4% to $108.8 million. Europe revenue declined 9.2%, while Adjusted EBITDA rose 19.1% to $23.9 million. Price/cost and productivity gains in both segments were partly offset by weaker volume/mix.
- Six-month operating cash flow improved substantially from the prior-year period, while debt declined by $70.3 million and capital spending increased.
Outlook, commentary, risks, and unusual items
- Management said cash from operations and available liquidity are expected to cover ongoing operations, planned capital expenditures and investments, and debt service for at least the next 12 months. The filing provides no specific revenue, earnings, or EBITDA guidance.
- The company completed the Australasia sale on July 2, 2023, for approximately AUD $688 million and received approximately $446 million in net cash proceeds. It expects to recognize a gain in the quarter ending September 30, 2023; the filing does not state the gain amount. Transition services are expected to be provided for fees.
- On August 3, 2023, the company redeemed $250 million of 6.25% Senior Secured Notes and $200 million of 4.63% Senior Notes, plus applicable accrued interest and, for the secured notes, a redemption premium. The filing does not provide pro forma debt or cash after the redemptions.
- The Atlanta facility closure is expected to involve approximately $17 million of pretax restructuring expenses, other closure costs, and capital spending, including $3 million of capital expenditures. Approximately $13.3 million had been expensed and $9.0 million paid by July 1, 2023.
- Material risks include softer housing and repair/remodel demand, price and volume pressures, raw-material and labor costs, interest-rate and foreign-exchange exposure, and execution of restructuring initiatives. Legal matters include the court-ordered Towanda divestiture related to Steves & Sons litigation; the divestiture process remains ongoing. The company also faces environmental remediation exposure at its Everett, Washington site, with estimated possible outcomes of $11.8 million to $33.4 million and uncertainty over final costs and allocation among responsible parties.
- A preliminary agreement to resolve Canadian antitrust class actions for an immaterial amount was reached in July 2023; final documentation and court approval remain pending. The company says other litigation outcomes could materially affect results, financial position, or cash flows if plaintiffs prevail.
Important facts for investors to verify
- How demand, volume/mix, and price realization develop in North America and Europe, and whether margin gains persist as demand softens.
- The final gain and cash/debt effects of the Australasia sale, including the impact of the subsequent $450 million note redemptions.
- Actual costs, cash outlays, and savings from the Atlanta closure and other footprint or productivity initiatives.
- Progress and potential financial exposure in the Towanda divestiture, Everett remediation, and other litigation or contingencies.
- Debt service capacity and liquidity under changing interest rates; Adjusted EBITDA is a non-GAAP measure and should be assessed alongside GAAP results and cash flows.