Richelieu Hardware Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 10, 2024

There are 5 speakers on the call.

Operator

Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the Q3 1st 9 months ended August 31, 2024. With me is Antoine Lecaire, CFO. As usual, note that some of today's issue include forward looking information, which is provided with the usual disclaimer as reported in our financial filings. Overall, we had a good 3rd quarter where we achieved sales growth and maintained a healthy and solid financial position, considering the soft demand in the R and R and the new housing market.

Operator

Total sales growth for the quarter reached 1.9%, partially fueled by our strong performance in the U. S. Manufacturers market where sales increased by 7.5% in U. S. Dollar, driven by the significant impact of our acquisitions.

Operator

As for the retailer and innovation superstore market, we continue to see lower sales compared to last year, mainly due to the price deflation and lower demand in this market. Our margins continue to be under pressure from temporary factors as it was the case in previous quarters. Notably, the charge of inventory purchased at higher than current costs, lower selling prices for certain products and operating expenses related to our expansion projects. During the quarter, we pursued our network optimization initiative by consolidating 2 of our new centers of our centers in the New York area and on the West Coast of Florida. I'll now hand it over to Antoine for the financial review of the

Speaker 1

quarter. Thanks, Richard. In the Q3, sales reached $407,000,000 up 1.9%. This growth was driven by a positive contribution from acquisition of 3.2%, partially offset by an internal decrease of 1.3%. In Canada, sales totaled $265,000,000 down 2%.

Speaker 1

This decline was mainly due to a 3.5% internal decrease, partially offset by a 1.5% positive contribution from acquisitions. Sales to manufacturers amounted to $222,000,000 up 0.5 percent, while sales to hardware retailers stood at $43,000,000 down 13.4%. In the U. S, sales grew to $148,000,000 in U. S.

Speaker 1

Dollars up 4.8%. Sales to manufacturers reached $141,000,000 up 7.5%. In the hardware retailers and renovation superstores market, sales reached $7,100,000 down $3,100,000 In Canadian dollar, total sales in the U. S. Reached $203,000,000 an increase of 7.5%.

Speaker 1

For the 1st 9 months, total sales reached $1,400,000,000 up 1.6 percent of which 0.8% resulted from internal decrease, offset by 2.4% contribution from acquisitions. In Canada, sales reached $773,000,000 slightly down by 1%. This was driven by a 2.7% internal decrease, partially offset by 1.7% contribution from acquisitions. Sales to manufacturers totaled $642,000,000 up $5,300,000 or 0.8%. Sales to hardware retailers and renovation superstores were $131,000,000 compared to $143,900,000 down 9%.

Speaker 1

In the U. S, sales amounted to $429,000,000 in U. S. Dollar, up 4.3%, with 0.9% attributable to internal growth and 3.4% from acquisitions. They reached CAD583 1,000,000 up 5.3%, accounting for 43% of total sales.

Speaker 1

In U. S. Dollar, sales to manufacturers totaled CAD405 1,000,000, an increase of $23,400,000 or 6.1 percent, driven by 2.5% internal growth and 3.6% from acquisitions. Sales to hardware retailers and renovation superstars were down 19.7% compared to last year. 3rd quarter EBITDA reached $53,000,000 down $8,000,000 or 13.2 percent over last year.

Speaker 1

Gross and EBITDA margin remained under pressure due to temporary factors, including inventories at higher than current purchasing costs, lower selling prices for certain products, primarily sourced from Asia and the temporary impacts of consolidation and expansion initiatives. Consequently, the EBITDA margin stood at 11.3% compared to 13.3% last year. For the 1st 9 months, EBITDA totaled $147,200,000 down 14.2% with the EBITDA margin at 10.9% compared to 12.9% last year. Net earnings attributable to shareholders in the 3rd quarter amounted to $22,700,000 down 23.9%, mainly due to amortization associated with new business acquisitions and expansion projects. Net earnings per share were $0.41 compared to $0.53 last year, a decrease of 22.6%.

Speaker 1

For the 1st 9 months, net earnings attributable to shareholders reached $61,400,000 dollars down 26%. Diluted net earnings per share stood at $1.09 compared to $1.47 last year. Cash flow from operating activities before net change in non cash working capital were $42,700,000 compared to $49,800,000 last year. The net change in non cash working cap items generated cash flow of $7,500,000 As a result, operating activities provided a cash inflow of 50 point $2,000,000 in the quarter compared to a cash inflow of $104,800,000 in 2023. For the 1st 9 months, cash flows from operating activities represented a cash inflow of $106,400,000 compared to a cash inflow of $198,000,000 last year.

Speaker 1

For the Q3, financing activities used cash flow of $18,400,000 compared to $18,200,000 last year. During the quarter, we paid lease obligation of $10,500,000 and distributed dividends of $8,400,000 For the 1st 9 months, financing activities used cash flow of $76,100,000 compared to $58,000,000 in 2023, with the variance primarily attributable to common share repurchase amounted to $18,600,000 this year compared to $800,000 last year. In the 1st 9 months, we invested $42,400,000

Speaker 2

including

Speaker 1

$17,600,000 for 3 business acquisition and $25,400,000 primarily for investment related to our consolidation and expansion projects, including our new Calgary location and the purchase of equipment to maintain and improve operational efficiency. We continue to maintain a solid financial position with working capital of $632,000,000 and a current ratio of 3.5:one, while holding almost no debt. I now turn it over to Richard.

Operator

Thank you, Jocelyn. We are pursuing our acquisition strategy as we signed agreement in principle in the Q3 in view of 4 new acquisitions, 2 in Canada and 2 in the U. S. We feel confident about achieving good future performances considering that the current oil and shortage in North America is offering a great potential of growth for Vishayu and that the R and R market is expected to recover in the coming months. We are committed to seize this opportunity.

Operator

We benefit from a strong positioning with a robust network, unmatched offering, expert team, outstanding website, a distinctive service appreciated by customers in our diversified segments. And we have a solid innovative drive in all the growth sector of residential and commercial innovation. Thanks everyone. We'll now be happy to answer your questions.

Speaker 2

Thank And your first question will be from Hamir Patel at CIBC Capital Markets. Please go ahead.

Speaker 3

Hi, good afternoon. Richard, if you are successful in completing those 4 acquisitions, would you expect that to be completed in the 4th fiscal quarter and what would be the total revenues associated with the 4 deals?

Operator

Yes, it will be settled before the end

Speaker 1

of the Q3. And Antoine, just to have a precise number. Yes, before the end of the Q4 or slightly after that, but definitely in 2024. And we're talking about adding $40,000,000 to the $60,000,000 that we've already completed at the beginning of the year.

Speaker 3

Okay, great. Thanks, Rod. And would that be largely on the manufacturing side?

Operator

Yes.

Speaker 3

Okay. And then Richard, are you able to give an indication of how sales fared in the month of September?

Operator

Yes. In the month of September, as we already have discussed in our last meetings in Montreal, basically the month of September has been in the same trend that we have seen in the past. And we see the trend, for example, with the kitchen cabinet manufacturer to be a slight increase in this market. The commercial woodworking industry is doing well with an increase of 6%. And we have other specialized markets, which is anything else, an increase of 1%.

Operator

And all the other markets have a slight decrease of something like 2.5% to 3%. So basically, we don't see any sign of recovery yet, but we're certain that in the coming months, the market will certainly improve. And Richelieu is now working with its team to make the budget for the next year. And many of our people are very positive about what will happen in the market. We just hope that this thing will materialize.

Operator

But there is no doubt in our mind the market will have to improve. The question is only when.

Speaker 3

Okay. Fair enough. And Richard, I know the margins kind of troughed in Q1, you had improvement in Q2 and Q3. How do we think about just given it sounds like near term things are still a bit sluggish, would you expect any margin improvement in Q4? And how do you think about maybe where full year margins could go in 'twenty five?

Speaker 1

Yes. It's Antoine. Slight improvement to change the margin materially. We would need to see a recovery in the market. So we're in distribution.

Speaker 1

So top line additional sales goes down the bottom line very quickly. Same thing if is a reduction in sales. But in a market in a better market, you will see the margin improving. If not, there are a few things we're doing like improving our expansion projects and those projects we have ongoing. So this will improve the EBITDA, but not materially if the margin if the market does not recover.

Speaker 3

Okay. Fair enough. It's all for now. I'll get back in the queue. Thanks.

Speaker 2

Thank you. Next question will be from Zachary Evershed at National Bank Financial. Please go ahead.

Speaker 4

Good afternoon, everyone, and thanks for taking my questions. Yes. How consistently do you think you can add $100,000,000 in run rate revenue through acquisitions? Do you think that's an average target or an annual minimum going forward?

Operator

It is an average target. So we have to the plan that we have, this is what we would like to achieve. If one year we make only $50,000,000 the next year we're going to have to make $150,000,000 So basically, average for the next 5 years should be around $100,000,000 which is quite possible. I mean we see the portfolio of potential acquisition that we have in our hands as we speak. We just said that we have a principle agreement in principle for 4, but there are other coming soon as well.

Operator

The timing seems to be pretty good.

Speaker 4

Good color. Thanks. And then the U. S. Customer lost in Q2, how is it going on backfilling those volumes?

Operator

We're getting some sales from other customers. Just to explain, that was Lowe's. We are supplying them with Injuez and Slide with the distributors and Bloom name, for example. They have decided to have their own brand names importing from China. I don't think it's a good move for them because the people when they replace the hinges or slide into the kitchen cabinet, it's only printed bloom of the issue onto the slide because we both together, I think we have something like 80% of the market.

Operator

So but that's their decision. We have to respect that and we have to find sales in the with other customers, which we're doing with customers like Factor Supply, for example, that we have a good commitment from them and we're going to see our sales increasing in the next quarter as well. Basically, we should get that business back from other customers and we have to sell more to the retailer market in the U. S. Where we have to refine our plan.

Operator

We have to we would like to make an acquisition in this market as well. Eventually, that will happen.

Speaker 4

Understood. Thanks. And on the topic of Bloom, you mentioned that they were pushing for a price hike last quarter. How well is that flowing through so far? And are you seeing other suppliers start to follow suit?

Operator

No, we don't see that, but that's going to happen because the suppliers that are not from Asia, they have to increase their costs by the rent are increasing, the salary increasing. So, basically, I think this is obvious that eventually all these suppliers, the North American, the European suppliers will have to increase their price again. And that does not apply to Asia though because Asia, we thought the communication that we have with our suppliers in Asia is that they don't have much to do. So they're quite willing they give us better price though. So that this is we improve the margin for the future, but they don't have much to do.

Operator

So, we don't see them we don't see that they will increase their price shortly.

Speaker 4

Understood. And just last one for me. When do you think we start to get out from under the modernization and expansion costs?

Speaker 1

I would say early next year, Doug.

Speaker 4

That's it for me. Thanks. I will turn it over.

Speaker 2

Thank you. Thank you. And at this time, Mr. Lal, we have no other questions registered. Please proceed.

Operator

Okay. Thanks, everyone. Now, we would be happy to answer your question.

Speaker 1

Hello?

Speaker 2

Hello, Mr. Lard?

Speaker 1

Yes.

Speaker 2

We have no other questions at this time, sir.

Speaker 1

Sorry, no, that's fine. And thanks a lot for attending. And if you have any question, you can give us a call.

Operator

I have to apologize. I received a phone call. So I had to answer immediately. It took 10 seconds, but the timing wasn't good for you. So I apologize yet.

Speaker 2

Thank you, gentlemen. 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.

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Earnings Conference Call
Richelieu Hardware Q3 2024
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