JELD-WEN Holding, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 24, 2022; comparisons are to the periods ended September 25, 2021. JELD-WEN manufactures and distributes windows, doors, and other building products through North America, Europe, and Australasia. Amounts below are U.S. dollars.
Key financial results
| Metric | Q3 2022 | Q3 2021 | First nine months 2022 | First nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,295.8 million | $1,146.6 million | $3,797.8 million | $3,484.8 million |
| Gross profit / margin | $250.8 million / 19.4% | $228.1 million / 19.9% | $700.2 million / 18.4% | $755.9 million / 21.7% |
| Operating income (loss) | $(3.1) million | $53.7 million | $67.6 million | $199.3 million |
| Net income (loss) | $(33.2) million | $40.5 million | $12.1 million | $126.7 million |
| Diluted EPS | $(0.39) | $0.41 | $0.14 | $1.26 |
| Adjusted EBITDA | $116.5 million | $98.9 million | $322.6 million | $345.0 million |
Revenue rose 13% in Q3 and 9% year to date, mainly from pricing; foreign exchange partially offset growth. Core revenue increased 18% in Q3 and 13% year to date. Gross margin contracted as material, freight, labor, and utility inflation outpaced pricing and productivity benefits. Q3 operating loss included a $54.9 million goodwill impairment in Europe. Adjusted EBITDA is a non-GAAP measure.
Cash flow and liquidity: Operating cash flow was $(73.4) million for the first nine months, versus $135.3 million provided a year earlier, reflecting higher working capital and lower earnings. Investing cash use was $42.7 million; financing cash use was $47.9 million, including $132.0 million of share repurchases, partly offset by $84.8 million of net borrowing. Cash and cash equivalents were $199.8 million at September 24, 2022. Reported total liquidity was $562.4 million, including cash, $347.4 million available under the ABL Facility, and $15.2 million under the Australian facility.
Debt: Total debt was $1.827 billion, net of issuance costs and discounts, compared with $1.721 billion at December 31, 2021. Long-term debt was $1.774 billion and current maturities were $40.1 million. The company reported compliance with its credit agreements and notes at quarter-end. It had $115.0 million drawn on its $500 million ABL Facility and $34.6 million of letters of credit.
Material changes and segment performance
- North America: Q3 revenue increased 23% and Adjusted EBITDA increased 37%, supported by pricing and volume/mix. For nine months, revenue rose 17%, while Adjusted EBITDA declined 2% amid cost inflation.
- Europe: Q3 revenue declined 6% and Adjusted EBITDA declined 24%; nine-month revenue declined 3% and Adjusted EBITDA declined 43%. Foreign exchange, inflation, and weaker volume/mix pressured results.
- Australasia: Q3 revenue increased 6% and Adjusted EBITDA increased 14%. Nine-month revenue declined 1% and Adjusted EBITDA declined 5%, with foreign exchange and cost inflation weighing on results.
- Goodwill impairment testing identified a triggering event amid higher interest rates, persistent inflation, supply-chain disruption, the Ukraine conflict, and currency movements. Europe goodwill was partially impaired by $54.9 million. North America was not impaired, but estimated fair value exceeded carrying value by only 14%.
- The company repurchased 6.85 million shares for $132.0 million in the first nine months. A new $200 million repurchase authorization was approved in July 2022.
Outlook, risks, and unusual items
- Management stated that operating cash flow and other liquidity sources are expected to be adequate for operations, planned capital expenditures and investments, and debt service for at least the next 12 months. No quantified revenue or earnings guidance is provided in the filing text.
- Management cited inflation, higher interest rates, weaker housing and remodeling demand, raw-material and freight costs, supply-chain disruption, labor costs, foreign exchange, and seasonality as risks to performance and liquidity. The company discontinued its limited Russia sales activity in Q1 2022.
- Other income included $14.0 million year to date from recovery of interest received on impaired notes, $6.3 million of insurance reimbursements, and $8.7 million of foreign-currency gains. These items contributed to reported earnings and should be distinguished from ongoing operating performance.
- The company is required to divest its Towanda, Pennsylvania operations under the Steves litigation outcome; the divestiture process remained ongoing. Assets held for sale were $124.6 million. A Canadian putative antitrust class action remains pending, and a settlement in derivative litigation was awaiting final court approval. The filing notes environmental remediation estimates for Everett, Washington of $11.8 million to $33.4 million; final costs and allocation among potentially liable parties remain uncertain.
Important facts for investors to verify
- Whether price increases and productivity can continue to offset inflation and any softening in housing and remodeling demand.
- Whether Europe’s operating performance or valuation assumptions lead to further goodwill impairment.
- Working-capital requirements, continued negative operating cash flow, ABL borrowing availability, and debt-service capacity.
- Timing, terms, and financial effects of the Towanda divestiture and the status or potential exposure of pending legal and environmental matters.
- How much of reported results and Adjusted EBITDA depends on nonrecurring recoveries, foreign-exchange effects, and other adjustments.