JELD-WEN Holding, Inc. — Q1 2023 Form 10-Q
Reporting period: Unaudited quarter ended April 1, 2023; comparable quarter ended March 26, 2022. JELD-WEN manufactures and distributes windows, doors, and related building products. Results are seasonal and depend on housing construction and repair-and-remodel activity. Unless otherwise noted, amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2023 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $1,222.6 million | $1,171.0 million | Up 4.4% |
| Gross margin | $232.1 million; 19.0% of revenue | $203.3 million; 17.4% | Margin up 1.6 percentage points |
| Operating income | $37.3 million; 3.1% of revenue | $10.3 million; 0.9% | Improved |
| Net income (loss) | $15.1 million | $(0.5) million | Turned profitable |
| Diluted earnings (loss) per share | $0.18 | $(0.01) | Improved |
| Adjusted EBITDA | $93.5 million; 7.7% of revenue | $80.2 million; 6.9% | Up 16.6% |
| Cash used in operating activities | $0.7 million | $186.9 million | Substantially lower cash use |
| Capital expenditures | $21.4 million | $15.4 million | Up $6.1 million |
Business and period-over-period performance
- Core revenue, which excludes foreign exchange and recent acquisitions or divestitures, increased 7%. Price realization contributed 10%, while volume and mix reduced growth by 3%; foreign exchange reduced reported revenue by 3%.
- Gross margin improved primarily because of favorable timing between input-cost increases and pricing actions. SG&A declined to $185.5 million from $193.0 million, reflecting lower labor and variable compensation costs associated with reduced headcount.
- North America revenue rose 6.3% and Adjusted EBITDA rose 18.1%; price realization and favorable price/cost more than offset weaker volume and mix. Europe revenue fell 3.3%, including a 6% adverse foreign-exchange effect, while Adjusted EBITDA rose 20.0%. Australasia revenue rose 13.3% and Adjusted EBITDA rose 21.4%, supported by demand and pricing.
- Interest expense increased 15.6% to $21.2 million, principally because of higher borrowing costs on variable-rate term debt. The effective tax rate was 29.1%, versus 26.3%.
Cash, debt, and liquidity
- Cash and cash equivalents were $202.6 million at April 1, 2023, down from $219.4 million at December 31, 2022. Cash, cash equivalents, and restricted cash totaled $204.0 million at quarter-end.
- Operating cash flow was nearly breakeven, versus substantial use in the prior-year quarter. Management attributed the improvement principally to working-capital cash flow, including lower inventory days and improved days sales outstanding. Investing activities used $19.0 million; financing activities used $0.1 million.
- Total debt was $1,761.2 million, including $29.1 million of current maturities; long-term debt was $1,721.2 million. Net interest-bearing debt was not reported as a headline measure in the supplied filing text.
- Reported total liquidity was $618.9 million: $202.6 million of unrestricted cash, $401.2 million available under the ABL Facility, and $15.1 million available under the Australian facility. The company reported compliance with its debt covenants at quarter-end.
Outlook, material events, and risks
- The filing provides no specific full-year revenue or earnings guidance. Management said cash from operations and available liquidity were expected to be adequate for operations, planned capital spending, investments, and debt service for at least the next 12 months.
- On April 17, 2023, after quarter-end, the company agreed to sell its Australasia segment for approximately AUD 688 million. Closing was expected in Q3 2023, subject to closing conditions and regulatory approvals, including Australian Foreign Investment Review Board approval. The company also entered into AUD-to-USD forward contracts to hedge part of the expected proceeds.
- The company announced a plan to close its Atlanta, Georgia manufacturing facility. It estimated approximately $19.3 million of pretax restructuring expenses, other closure costs, and capital spending, including $3.0 million of capital expenditures. Through April 1, $8.1 million had been expensed; expected cash outlay was approximately $15.0 million, with $3.2 million incurred by quarter-end.
- Australasia results included credit losses related to the bankruptcy of a large customer. The filing also cites market softness and uncertainty, especially in Europe, and exposure to housing demand, interest rates, input costs, labor, foreign exchange, and seasonality.
- The Towanda, Pennsylvania operations remained classified as held for sale following the Steves litigation and divestiture order. Related assets were $128.5 million at quarter-end. The divestiture process was ongoing, and the company noted that completion was not assured.
- Unresolved matters include Canadian antitrust class actions and environmental remediation. For the Everett, Washington site, the company estimated a possible remediation range of $11.8 million to $33.4 million and cautioned that final costs and allocation among potentially liable parties could differ materially. The filing also discusses other litigation, self-insurance, warranty, and environmental exposures.
Important facts for investors to verify
- Whether the Australasia sale receives required approvals, closes on schedule, and produces proceeds consistent with the stated purchase price and currency hedges.
- How housing demand, pricing, volume and mix, and input costs affect margins in subsequent quarters; Q1 earnings benefited from price/cost timing.
- Whether working-capital improvements sustain operating cash generation, particularly as the business enters its seasonally stronger periods and funds capital expenditures.
- Debt service and refinancing exposure, including variable-rate borrowing costs and the planned transition of term-loan and hedge references from LIBOR to SOFR.
- The costs and execution of the Atlanta facility closure, the required Towanda divestiture, and the resolution of Canadian antitrust and environmental matters.
Adjusted EBITDA is a non-GAAP measure as defined by the company; it should be considered alongside, not as a substitute for, GAAP results and cash flows.