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Beacon Roofing Supply Inc (BECN) Q1 2019 Earnings Conference Call Transcript

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Beacon Roofing Supply Inc  (NASDAQ: BECN)
Q1 2019 Earnings Conference Call
Feb. 07, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to Beacon Roofing Supply's First Quarter 2019 Earnings Conference Call. My name is Latif and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session toward the end of this conference. At that time, I will give you instructions on how to ask a question. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

This call will contain forward-looking statements, including statements about its plan and objectives and future economic performance. Forward-looking statements are only predictions and are subject to a number of risks and uncertainties, therefore, actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including, but not limited to those set forth in the risk factors section of the company's latest Form 10-K.

These forward-looking statements will fall within the safe harbor provision of the Private Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of the Company, including the Company's financial outlook. The forward-looking statements contained in this call are based on information as of today, February 7, 2019 and except as required by the law, the Company undertakes no obligation to update or reverse any of these forward-looking statements.

Finally, this call will contain references to certain non-GAAP measures, the reconciliation of these non-GAAP measures is set forth in today's press release. The Company has posted a summary, financial slide presentation on the Investors Section of its website under Events and Presentations that will be referenced during management's review of the financial results.

On the call today for Beacon Roofing Supply will be Mr. Paul Isabella, President and CEO; Mr. Eric Swank, Chief Operating Officer; and Mr. Joe Nowicki, Executive Vice President and Chief Financial Officer. I would now like to turn the call over to Mr. Paul Isabella, President and CEO. Please proceed. Mr. Isabella.

Paul M. Isabella -- President & Chief Executive Officer

Thank you and good afternoon and welcome to our first quarter 2019 earnings call. We're extremely pleased to report a solid beginning to 2019. First quarter results are above our internal expectations and the Street consensus for both adjusted EPS and EBITDA. Gross margins were fantastic and operating costs were in line with our expectations and consistent with typical seasonality. A great start to fiscal 2019. Our gross margin execution continues to be a positive highlight for Beacon. The price cost relationship was positive during the first quarter, our third consecutive quarter of out performance. An impressive accomplishment, driven by our disciplined approach to pricing as well as showing the value distribution provides within the roofing and building product supply chain.

I'm excited to give you an update on several of our important strategic initiatives. Starting with the Allied integration, we have just recently passed the one-year anniversary of the acquisition and the integration process remains on track and ahead in some areas. The bridge (ph) consolidations have gone very well and we expect these will be completed over the next one to two quarters.

We are utilizing both the Allied combination and a build-out of the RSA service model to improve profitability and service. Our focus is around center of dispatch and launching electronic delivery tracking. Lastly, systems conversions are going very well, with only interiors remaining and that will be wrapped up this spring.

It's also important to emphasize another important part of the Allied integration, the Allied team. The Allied acquisition added many extremely talented people, including two of our current division Presidents and field and functional team leaders. They've added valuable insights to our organization and the cultural fit has been -- has exceeded our expectations. Their contributions combined with our very talented Beacon legacy team have built an even stronger company whose future is brighter than ever.

As many of you saw firsthand on our investors day, our digital platform is an important element of our organic growth plan. We have a substantial leadership position in this area and we believe this creates unique competitive advantages for Beacon, but we're not resting. We continue to add separation between ourselves and our competitors in this area. We are adding functionality including the delivery tracking feature I mentioned earlier and a contractor project management platform aimed at improving their productivity. These have generated great customer feedback and we're rolling them out nationally later this quarter and throughout the rest of the year.

These efforts are generating results. Customers using Pro+ continue to rise and we're seeing a higher percentage of online purchases from digital customers, great progress, but still a tremendous runway ahead as we push toward our $1 billion sales goal in this channel. Private label continues to be a major initiative for Beacon, a great example of how we drive sales and margin benefits from acquired companies. Remember that Beacon did not begin building out its private label offering until we closed on the purchase of our RSG (ph) 3.5 years ago. We now adopted Allied's private label brand TRI-BUILT and we're adding new product categories and improving the private label penetration in existing areas.

We believe this will enhance sales growth, increase gross margins and build customer loyalty. We remain focused on driving organic growth. Key avenues include the previously mentioned digital and private label, but also complementary products and new greenfield openings. And we've not wavered on our long-term focus on growth from acquisitions. Beacon has many growth avenues available, both within traditional roofing distribution and our newer complementary products channels.

There are many potential opportunities, but will always balance these with balance sheet management. Joe will comment more about our 2019 guidance in his remarks, but we're optimistic about our outlook. I will say that January is off to a good start as we delivered organic growth in the 5% to 6% range.

Finally, I want to provide a brief introduction of Eric Swank. In January Eric was appointed to the newly created Chief Operating Officer position. A well-earned promotion for Eric after 14 plus years at Beacon, which included leadership roles in HR, sales and marketing and operations. Hopefully, many of you had the opportunity to meet with them during our 2016 and 2018 Investor Days and he will be more visible in our future Investor Relation activities.

I'm going to pass the call over to Eric. Before we move on to Joe's financial comments, Eric?

C. Eric Swank -- Chief Operating Officer

Thank you Paul. As mentioned, I've been with Beacon since 2004 and participated in the company's growth from $600 million in sales to what is now a $7 billion company. Over the past several years, I've been at the forefront of some of Beacon's most exciting growth initiatives, including our digital platform. I see a Company that has a unique ability to lead this industry because of our size, innovative spirit, corporate culture and vision.

Through small and large acquisitions, we've created a powerful platform. But it's our differentiation innovation and dedication to customer service that will spur significant outperformance in the future. I'm very excited to have this new opportunity and look forward to working with all of you in the investment community.

Joe, now I'll pass the call over to you to finish our quarterly review and guidance update.

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Thanks Eric, and congratulations again. Good afternoon, everyone. I'll now provide additional detail on our first quarter and an update on our 2019 guidance. But first just to hit the highlights. I am very pleased to say that we have exceeded both our internal and Street estimates for sales, adjusted EPS and adjusted EBITDA. We did what we said we would do and more.

First quarter adjusted EPS was $0.60, which is $0.05 over our estimates and the Street estimates. Adjusted EBITDA was a record at $121.7 million, representing more than a 40% year-to-year increase. First quarter revenues increased 53%. Organic daily sales decline 3.5%, which reflects one additional selling day during the quarter. Total and organic sales were both above our expectations, as well as being meaningfully above the Street consensus. Overall pricing was up approximately 7 percentage points with gains across all three product categories. The price increases reflect the previously discussed inflation occurring during spring and summer 2018. There were no new price increases implemented. It is great to see that the industry pricing remains seasonally firm during the early winter months.

Now moving on to gross margins. First quarter gross margins increased a strong 130 basis points year-over-year from 24% to 25.3%. Overall gross margins benefited by approximately 110 basis points to the favorable margin profile of our acquired businesses as well as synergy contributions related to Allied. Our existing market gross margins improved 20 basis points, as price cost was again positive. This marks the third consecutive quarter of positive price cost impact, another strong achievement. Our strategic initiatives around product procurement, customer pricing and private label expansion are all paying significant collective dividends to our gross margin performance and they have only just begun.

Adjusted operating expenses were $336.4 million, which was within a couple of million dollars of our internal projections. This represented 19.5% of sales, it was in line with our normal sequential patterns as a percentage of sales. If you look back over the last couple of years, you'll see the same trend and rate of change. So again, no big surprises in the OpEx line this quarter, but still something we're continuing to work hard on improving. Cost improvement has always been a part of our culture. With regard to synergies, we remain on track for our full run-rate target of $120 million and our fiscal 2019 objective of $100 million. As Paul outlined, all of our integration efforts are progressing as expected.

Before I move on to an update of our 2019 guidance, I want to spend a few minutes providing some additional color on our balance sheet. Our debt balance rose to $3.1 billion, primarily as a result of a 338(h)(10) tax election as part of the Allied acquisition, coupled with the timing of AP payments. As you may recall from our prior discussions, we were able to structure the Allied transaction in a way that would allow us to benefit from a greater amount of tax savings. This election cost us $164 million in Q1, but we'll provide almost $400 million in future tax benefits. We remain committed to lowering our debt and reaching a 30 (ph) target for net debt leverage.

Lastly, I want to speak briefly on our 2019 guidance. At this early stage of the year, we believe it's appropriate to keep our sales, adjusted EBITDA and adjusted EPS outlook unchanged. We are off to a great start to the year with Q1 results exceeding our Street estimates and our forecast by $0.05 and January sales seeing solid, positive organic growth. Our industry is very healthy and our strategy is on target. We certainly have a bright future ahead of us.

I'll now turn the call back to Paul, before we open up the line for your questions.

Paul M. Isabella -- President & Chief Executive Officer

Thanks, Joe. And to reiterate, we are extremely excited about the great results to begin fiscal 2019. And as Joe said, we're comfortable in our outlook for the remainder of the year. And as always, we will update our view each quarter. Organic growth programs including digital are performing very well. We remain committed to expanding EBITDA margins this year and beyond through continued price-cost execution in leverage of operating costs. As I've said many times in the past, we're in a great industry with many solid fundamentals, such as the high R&R content, which is in the 70% to 75% range for us. I'm bullish about the future of growth, expanding margins and a strong balance sheet.

With that I'd like to turn the call back to the operator and initiate the Q&A portion of the call. Thanks.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Matt McCall of Seaport Global. Your question please.

Matt McCall -- Seaport Global Securities -- Analyst

Thanks, good afternoon guys.

Paul M. Isabella -- President & Chief Executive Officer

Good afternoon Matt.

Matt McCall -- Seaport Global Securities -- Analyst

So maybe a little bit more insight into the SG&A outlook, specifically as we move through '19 and I want to kind of tie this into the op margin expectations. I think our published model has some year-over-year margin expansion returning next quarter on the operating line. So just wondering what's assumed in the unchanged guidance on either -- either or both the SG&A and op margin lines?

Paul M. Isabella -- President & Chief Executive Officer

Yes, Matt. We don't actually give guidance at the level of margins or operating expenses to that level. We really focused on the EPS and also on the adjusted EBITDA range to it. Well, I will say on the operating expenses for the current quarter, we were in line -- where we expected to be both from an existing market perspective, but also even more importantly from a total operating expense perspective as well too. We're seeing -- when you do the math on our total operating expenses, adjusted, we're seeing that the synergies that we talk about are according to the numbers as providing the benefit that we had hoped to. So we think that will continue.

Matt McCall -- Seaport Global Securities -- Analyst

Okay, all right. What about free cash flow or expectations for this year, and then I've got some updated thoughts on the leverage targeting -- the EBITDA guidance didn't changed, the outlook for '19 didn't change. Did anything change from a deleveraging perspective?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Yes. So from our long-term strategic perspective, Matt, nothing is changed from debt leverage perspective. Our intention is still to get to the 30 point. So that element of it, has not changed for us and as we said, it's all a function really of one -- our continued paying down of debt as we will combined with our EBITDA generation piece, right. And both of those two on track that will affect the timing of how we quickly we get down to the 30, that's still the path that we're on. Free cash flow, I think would just to confirm the same numbers that we had mentioned last time. As we said, last quarter, we gave a guidance for the full year, then we talked about free cash flow number in the range of $200 million to $300 million for the full year based on the guidance that we gave, that's built into the numbers outlined. Hope that helps.

Matt McCall -- Seaport Global Securities -- Analyst

Yes. Thank you, Joe.

Operator

Thank you. Our next question comes from Trey Grooms of Stephens Incorporated. Your line is open.

Trey Grooms -- Stephens. Inc. -- Analyst

Hi, good afternoon. Thank you for taking my question.

Paul M. Isabella -- President & Chief Executive Officer

Hi Trey.

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Hey Trey.

Trey Grooms -- Stephens. Inc. -- Analyst

So sales were very strong, better than you were expecting. Was there anything specific you could point to? Any geographic region that outperformed? So if you could just talk to where you may have seen that, better than expected volume?

Paul M. Isabella -- President & Chief Executive Officer

I'll just comment on that without getting into an awful lot of detail. I mean it really follows what we have talked about, very closely to some extent in the fourth quarter call, right, that the east side of the country saw a reasonably good volume and the west -- our Western regions had that same challenge that they had throughout the year and we are down. So I mean, we actually saw some good organic growth in our non-Western divisions, which is very encouraging right, for as we went through the quarter. But it couldn't overcome the deficit that the West created.

Trey Grooms -- Stephens. Inc. -- Analyst

Got it. And on my follow-up. So there's several of the manufacturers on the residential side are out with price increases for come March-April timeframe. How are you guys thinking about price action, internally timing and just kind of that outlook as we go through the year. I think you know the answer to this, but just kind of the outlook, as we look through the year on price cost, given that there are a few announcements out there currently for that March-April timeframe.

Paul M. Isabella -- President & Chief Executive Officer

Yes, we know that and as we've said at this time of the year in the past, it's really too early for us to tell. We'll continue to watch it -- will continue to watch how that might impact the markets will be accepted and then then we'll react from there. As you know for 2019, we had said that we would not see any new price. We said that on the last earnings call, which imply that we would just run through the increases that we saw and then they eventually would lap and go through the balance of the year. So we feel worth -- we feel comfortable, right now, right, because we -- pretty good engaging the market and then we'll make our judgment as we go through these next two months as to what we're going to do in terms of us announcing et cetera.

Trey Grooms -- Stephens. Inc. -- Analyst

Got it. Thanks for answering the questions. Congrats on a great quarter.

Paul M. Isabella -- President & Chief Executive Officer

Thanks Trey.

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Thanks Trey.

Operator

Thank you. And next question comes from the line of Trey Morrish of Evercore ISI. Your line is open.

Trey Morrish -- Evercore ISI -- Analyst

Thanks for the time guys. So the first question I want to get on is -- is also talking about a little bit of pricing, but taking different angle on it. You've definitely showed the ability to get price in an inflationary environment and you just talked about how in 2019 you don't really anticipate pricing sticking. But given the industry's history of existing within price deflation for the last several years, excluding last year, could you talk about potential challenges that you -- if this turns into a deflationary environment? How you would think about holding where your prices are?

Paul M. Isabella -- President & Chief Executive Officer

First, we didn't say that prices wouldn't stick. We said every year the manufacturers typically announce at this time, we do -- we do our analysis of the market and then we react from there. Last year we reacted and we reacted multiple times and we did quite well. And from the deflationary standpoint, we have also -- if you look in the past when there is heavy deflation right as -- if -- economy based, I think we did quite well at controlling pricing vis-a-viz COGS, input costs, as we went through the year. So of course we cannot predict what's going to happen this year at all, just as you can't, but will react to it. We believe because of our size, because of our sophistication that will in either scenario will do quite well because our team reacts very well to either one of those and we've proven that over time.

Trey Morrish -- Evercore ISI -- Analyst

Alright. Thanks for that. And then turning to your revenues generated from Allied and some other acquisitions. Last quarter you had been talking about that being a $600 million number in the quarter, but that clearly was end up in north of $700 million. Can you talk about -- if there's anything in excess of what happened in the larger environment that was stronger at those Allied or the Allied Beacon combined branches relative to what you saw in your legacy branches?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

So I'll just give a general overview on that and then let Paul collect comments on this well too. First, just -- yes the sales number for the acquired roughly that's $700 million, $713 million for the quarter. One of the things that makes it a challenge is when we do combined branches -- so when we will combine some branches together -- so part of our synergies was taken, two branches that were close to each other combined. When we combine them, we move all those combined revenues into the acquired bucket, so we start to call them acquired. So even if there was a Beacon brands, that previously was existing we roll it into the acquired number. We do that because we what our existing to really be an apples to apples comparison for you, right. We didn't want -- we wouldn't want to have it be artificially inflated. So some of what you see with the number growing are some of those combined branches in there. Overall, I don't think the results of operations from our acquired company -- really were any different in the operations on the Beacon side of the business, Paul?

Paul M. Isabella -- President & Chief Executive Officer

No, I think it's very consistent as we look at them, and again, as you know now, we're in the lapping period. Right so we are all one big Beacon because Allied been with us after that quarter for year. And there's no doubt as -- we've talked about at the Investor Day as we launched RSA, which is all the great -- productivity we're driving with these big markets, dense markets. There is movement between branches in terms of where products are shipped from, right, so that's going to change some of this. So it really -- what I'm saying is a charge, it doesn't matter now. I mean we have branches, they're all Beacon and we're moving forward in that fashion and each one is measured by themselves.

Trey Morrish -- Evercore ISI -- Analyst

Thanks very much guys.

Paul M. Isabella -- President & Chief Executive Officer

Thank you and welcome.

Operator

Thank you our next question comes from Michael Eisen of RBC Capital Markets. Your question please.

Michael Eisen -- RBC Capital Markets LLC -- Analyst

Good afternoon gentlemen. Thank you for taking the questions.

Paul M. Isabella -- President & Chief Executive Officer

Sure thing, Mike.

Michael Eisen -- RBC Capital Markets LLC -- Analyst

Just wanted to start off. In looking at some of the industry data and what we're seeing on the ground, it looks like there was a lot of shipments out from the OEMs. And when we look at the inventory levels you guys posted today that seems a little high to, can you talk a little bit about what you're seeing in the channel and what inventory builds look like if there's anything to take note of there?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Yes, there isn't. Our inventory is actually, when you look at it and it's in great shape. Sequentially in past years we've seen a slight build from Q4 to Q1, that's natural. I'm not going to comment too much on ARMA other than -- as you would expect with ARMA there was product that we shipped into storm regions, the East Coast mainly because of the hurricane and then in the areas that are -- we've seen some challenges with, there were less shipments in. So the correlation again between ARMA and sales is pretty wide and we just don't like using that. From a channel perspective, I really don't have too much intelligence, other than our own inventory and as I said, we're in actually a great -- we got great position with that level as we go into -- through this quarter and as we go into the spring. So nothing unusual has happened with us.

Michael Eisen -- RBC Capital Markets LLC -- Analyst

Got it. That's really helpful. And then if I can follow up with a little clarity on a couple of points you guys have made in the prepared remarks. First on the January organic growth, you mentioned 5% to 6% across the portfolio. You also talked about in the fourth quarter pricing of 7% across the portfolio. Can you give a little granularity across the different segments? Is it the same everywhere or some segments outperforming others?

Paul M. Isabella -- President & Chief Executive Officer

Yes, we're not -- we won't comment on that level of detail as we haven't in the past for the first month. We do have that total number. We're very pleased with it. And -- from a pricing perspective going into January, we wouldn't comment other than, as you can imagine, it's going to be very similar to what we saw as an exit rate for our Q1, right. So when you look overall, it's healthy for us. It's a change from the fourth quarter organic growth price and then -- but again, it's January, but it's positive for us and we're happy about it.

Michael Eisen -- RBC Capital Markets LLC -- Analyst

Understood. Thanks for taking the questions and congrats on a good quarter.

Paul M. Isabella -- President & Chief Executive Officer

Thank you.

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Garik Shmois of Longbow Research. Your line is open.

Jeffrey Stevenson -- Longbow Research LLC -- Analyst

Hey, this is Jeff Stevenson on for Garik. My first question is on the rate of gross margin and it's -- as documented well ahead of expectations due to digital private label and other things mentioned in the prepared remarks, but just wanted, if you could comment on how sustainable you think that is throughout the year?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Yes, this is Joe. We feel real good about the gross margin rate that we saw in the quarter and for all the reasons that you mentioned, right. Everything that we've done through our procurement teams, through synergies, through the Allied acquisition, not to mention the elements around digital and private label and all those will be continuously go through. We feel pretty good about our ability to continue to sustain our gross margins through the rest of the year.

Paul M. Isabella -- President & Chief Executive Officer

(Multiple Speakers) As we've said in the past, we don't give -- we're not going to give quarterly guidance on gross margin, but there's no doubt we're seeing a nice benefit from the Allied acquisition, which we talked about for sure and our continued improvement from a process standpoint on pricing, et cetera. So we believe we're in good position when it comes to gross margins as we go forward and we're going to continue to focus very, very hard on it.

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

As always, there is seasonality in our gross margins that's impacted by quarter. Traditionally, you'll see the gross margins in the -- if you look historically over our numbers, you'll see the gross margins in the second quarter run rate right now. It used to be a little bit lower. So I expect, you'll see seasonality, but sustainability for the long term absolutely.

Jeffrey Stevenson -- Longbow Research LLC -- Analyst

Okay, great. Now shifting to the interiors business. I'm just wondering from what you're seeing, is there any change in market outlook given deceleration concerns on the housing side?

Paul M. Isabella -- President & Chief Executive Officer

Yes. Again, in terms of specific to our interior business, we haven't given public comments. I can't say that, of course we watch economic indicators. At this point, I don't have any concerns. I mean we have a very solid business. We like the interior business and I'll just leave it at that. We are performing very well.

Jeffrey Stevenson -- Longbow Research LLC -- Analyst

Okay, thank you.

Paul M. Isabella -- President & Chief Executive Officer

Thank you.

Operator

Thank you our next question comes from the line of Kathryn Thompson of Thompson Research. Your line is open.

Kathryn Thompson -- Thompson Research Group LLC -- Analyst

Hi, thank you for taking my questions today. This is really for both interior and exterior products. Could you quantify or add some color on the weather impact in the quarter? And also just as a follow on to that, what if any impact you saw in January with Polar Vortex. Because if you are growing kind of that 5% to 7%, even with that impact that would imply a better growth rate. So really just helping us understand that impact for the quarter reported and for January?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Yes. In terms of the weather, I'm not going to sit here and stick through the quarter. There's no doubt, range did not help us during pieces of the quarter. I mean I won't -- I'm not going to quantify the impact, right. We talk a lot about weather and there's no doubt in January a little bit of -- I think of that cold weather we saw, kind of evened out the month from a weather perspective. Interiors, obviously less impacted by that, which means, as we've said in the past, it's very consistent from a -- as a percent of sales shipped per quarter, which is very positive for us.

I think I'd leave it at that without going blow by, blow by month. I mean you can go to the rain data and there was a lot in the quarter, but there was also some decent weather here and there that we were able to drive sales. As we said the last quarter, we tried to get away from too much -- trying to be the weather person on these calls and only really trying to address when there's major events. So I guess to Paul's comments, nothing major to report there really Kathryn.

Kathryn Thompson -- Thompson Research Group LLC -- Analyst

Yes, now really the spirit of the question is, does the applied growth -- growth rate would actually be better some one times? And just to clarify on the earlier question in terms of your bogey for delevering in 2019, I believe you've said that you had wished to take it out about another one-time turn in '19. Is that accurate or is it more a half turn, I just really want to get that for clarification purposes?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

No, we -- what we initially said a year ago during the Allied transaction was that we would try to get to somewhere around a half a turn a year with our initial kind of goal. But really as we said, it was trying to get three hours (ph) is the point that's exactly where we're trying to get to, it's just a matter of the timing, is it -- and that really is dependent upon a lot of the EBITDA and the sales generation piece to it, right. Those are the two big elements that play into it. We could get there quicker. We can get there slightly slower, but it all depends on the EBITDA generation element to it. Clearly, we're on a path to continue to pay down the debt. We demonstrated that last quarter when we did that as well too. Well you'll see that continue. Nothing has changed in our outlook that way, Kathryn, still heading toward getting it to three, the specific timing by year will really depend on that sales EBITDA flow.

Kathryn Thompson -- Thompson Research Group LLC -- Analyst

Okay, great. Thank you so much.

Paul M. Isabella -- President & Chief Executive Officer

Thanks Kathryn.

Operator

Thank you. Our next question comes from Keith Hughes of SunTrust. Your line is open.

Keith Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

Thank you. Push on margin, the guidance implies a bit point about 8% EBITDA margin. You were off year-over-year in this quarter. With the synergy rolling in, do you think you'll get on the positive side of margins year-over-year starting in the second or is it going to be in the seasonally stronger second half?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Usually it's the seasonally stronger second half, when you'll see the margins get on the upside of that. As you know that this quarter that were at is usually the most challenging one because of the lower revenue piece to it.

Keith Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

(Multiple speakers) Even on a year-over-year basis, you still think you you'll be up year-over-year?

Paul M. Isabella -- President & Chief Executive Officer

Oh, yes. If we look at that each of the quarters second, third and fourth quarter should probably be up each, correct.

Keith Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

Okay. And a quick question on demand. With the 7% surprising, units were down pretty meaningfully in the fourth. Looks like it's gotten somewhat better here in the first. With the unit decline primarily roofing driven or did you see it in all the segments?

Paul M. Isabella -- President & Chief Executive Officer

For the quarter in all segments. But -- as we've talked about in the past, roofing takes more brunt of that's because of the weather impact and what happened in the West.

Keith Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

Okay. I assume the -- if pricing stays where it in -- stays where it is right now, will it contribute another 6 to 7 points in the first -- excuse me in the second quarter as well?

Paul M. Isabella -- President & Chief Executive Officer

Yes, we haven't, Keith -- we haven't given the pricing guidance by quarter. We did, as I said earlier, we just talked about the fact that it's going to run itself up through the year with no incremental price. So I really have to do is go back quarter-by-quarter and look at the lapping and that change that's going to occur once we start hitting those positive comps that occurred really in Q3 and Q4.

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

By Q4, it'll get back to zero, so just paint it from there.

Keith Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

Okay. Thanks very much.

Paul M. Isabella -- President & Chief Executive Officer

Thank you.

Operator

Thank you our next question comes from the line of Michael Rehaut of JPMorgan. Your line is open.

Elad Hillaman -- JPMorgan Securities LLC -- Analyst

Hi, this is Elad on for Mike. I just wanted to follow-up over on that. Did I hear you say -- did you mention that volume came in a little bit flat, toward the end of the quarter and maybe if you could just comment a little bit on the monthly trends throughout the quarter. I saw in the press release, and I think stabilizing organic net sales trends. So I was wondering how much of that related to volume versus price? Thank you.

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

On your first question in regards to a comment on the demand during the quarter. No, we didn't say anything about demand kind of decreasing during the quarter. The comments you heard from Paul was, obviously in January, we saw our year-over-year get better as we said that positive -- kind of 5% to 6% growth number. So I think a bit the opposite, so we didn't at all talk about it declining in anyway. And there was a second question in there that I missed. Sorry, could you repeat the second question?

Elad Hillaman -- JPMorgan Securities LLC -- Analyst

And I was more talking about the monthly trends of the quarter and then how much of the January 5% to 6% organic growth related to volume?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Yes, the second question that was about the January and I think Paul mentioned that before. We really don't give the price elements on a monthly basis, especially now at this point.

Elad Hillaman -- JPMorgan Securities LLC -- Analyst

Okay, thanks. And one more thing I want to check up on your follow-on was, on the Investor Day, once again you mentioned completed about 12 RSAs and weren't processes creating the additional RSAs. I was just wondering where you were holding out with the rollout and how that's progressing?

Paul M. Isabella -- President & Chief Executive Officer

Yes without getting into specific details, it's going quite well. As we talked about on the Investor Day, we're starting to see benefits. We really haven't talked about those benefits, but they will increase as we go through time time and we do view it as I said at Investor Day, said it on the prepared remarks, we view it as a great differentiator for us and most importantly a big help to our customer base. So it's going quite well.

Elad Hillaman -- JPMorgan Securities LLC -- Analyst

All right. Thank you.

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Thank you Elad.

Elad Hillaman -- JPMorgan Securities LLC -- Analyst

Thanks Mike.

Operator

Thank you our next question comes from David Manthey of Baird. Your line is open.

David Manthey -- Robert W. Baird & Co. -- Analyst

Hi guys, good afternoon. So last quarter I think the back -- fourth quarter you told us that you had $25 million in synergy cost savings. What was that number in the first quarter and what is your expectation for the second quarter, just to give us an idea of how the OpEx should walk ?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Hey, for the full year we're expecting that $100 million is kind of target to it. And in terms of by the quarterly spread, we really haven't given it too much by quarter. You may see a little more in the first quarter, one with a little bit higher. So if you just take the $100 million, that's a $25 million a quarter. First quarter was a little bit higher because you have all those procurement savings that kind of roll into it and then they kind of go away after it in the second, third and fourth, but beside that the remaining course will be pretty level.

David Manthey -- Robert W. Baird & Co. -- Analyst

Okay, thanks. And historically looking at those trends, 2Q is typically been plus or minus a few million dollars sequentially from 1Q. Any factors other than what you just talked about there, Joe, that we should think about as it relates to that OpEx walk from the first quarter to the second fiscal quarter?

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Hey, that's a good question, Dave. Nothing comes to mind for me that I think would impact this -- the traditional trend we see from quarter-to-quarter on the OpEx piece to it. So, no, I don't think there should be anything. Synergies, of course, as we just kind of described affect the total, but beside that, no, I don't think there's anything else unusual there.

David Manthey -- Robert W. Baird & Co. -- Analyst

Okay. Thank you.

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Thanks, Dave.

Operator

Thank you our next question comes from the line of Phil Ng of Jefferies, your question please.

Phil Ng -- Jefferies -- Analyst

Hey, guys. Your commercial business has been a little weaker over the last few quarters. Just curious what's driving some of the softer trends and how you're thinking about growth in that market? Some of the Dodge Momentum Index has been -- has softened it's touch, but it's always tough to gauge because it's such a broad base end market?

Paul M. Isabella -- President & Chief Executive Officer

I'm sorry. It was difficult to hear. You're talking about commercial market?

Phil Ng -- Jefferies -- Analyst

Yes. the commercial business seems to be low weaker in the last few quarters, just curious what's driving the weakness ?

Paul M. Isabella -- President & Chief Executive Officer

No, I think, one, we have a very large commercial business. We're very intent and very focused on growing it. I think, but there just based on a lot of factors there is going to be variation from quarter-to-quarter, it's not going to necessarily match what Carlile (ph) for instance might announce just because of the geographies that they're in and that we're in, but we know over time and more than a quarter, we're going to continue to grow that business effectively.

Phil Ng -- Jefferies -- Analyst

Okay. There wasn't any like weather-related issues or anything like that?

Paul M. Isabella -- President & Chief Executive Officer

Well, again, if we got into the regional piece and broke it out, I mean, it does follow suit with what we talked about in general. What I mentioned earlier, East Coast relatively strong, West of the country and Mississippi West not so strong. They sell a lot of commercials, so that's part of it, right, as we go through and it's not a surprise, not unusual for us and that's just how we lay out geographically, which is a huge benefit for us because of our density and positioning in these markets. So we -- as commercial, we're going to continue to focus on and it will grow.

Phil Ng -- Jefferies -- Analyst

Got it. That's really helpful. In your interior business, both on the wallboard and ceiling manufacturers have increases out there early in the year, if I heard you correctly, you guys aren't really planning to raise prices at this juncture for any of your businesses. So is your view that it's not going to see much traction or you're expecting some modest price cost, please?

Paul M. Isabella -- President & Chief Executive Officer

No, no. I mean, my comment was only geared toward saying, when we see a price increase or we get news of a potential price increase, we don't immediately knee jerk. I mean we sit and evaluate what the markets are doing, what the markets are saying, where we're positioned, where the manufacturers are positioned and then we react. And as I said last year, we reacted appropriately by raising price multiple times and you can see it in our results, now three quarters in a row, positive price cost, obviously got a bleed through this year. So -- no, it's -- we are at a position as we have been really for years at this point in the year to just evaluate with the markets look like and then from there we react.

Phil Ng -- Jefferies -- Analyst

Okay. All right. thanks a lot.

Paul M. Isabella -- President & Chief Executive Officer

All right.

Operator

That concludes the questions. Now, I'd like to turn the call back over to Mr. Isabella for his closing comments.

Paul M. Isabella -- President & Chief Executive Officer

Great. Thank you. Thanks for your participation in today's call. A

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Image source: The Motley Fool.

s always, we appreciate the continued support from the analysts and investment community. And as always, we offer a special thanks to our valued customers, supplier partners and our employees. Have a good rest of the evening. Thank you.

Operator

Ladies and gentlemen, that concludes your program. You may disconnect your lines at this time. Have a wonderful day.

Duration: 43 minutes

Call participants:

Paul M. Isabella -- President & Chief Executive Officer

C. Eric Swank -- Chief Operating Officer

Joseph M. Nowicki -- Executive Vice President & Chief Financial Officer

Matt McCall -- Seaport Global Securities -- Analyst

Trey Grooms -- Stephens. Inc. -- Analyst

Trey Morrish -- Evercore ISI -- Analyst

Michael Eisen -- RBC Capital Markets LLC -- Analyst

Jeffrey Stevenson -- Longbow Research LLC -- Analyst

Kathryn Thompson -- Thompson Research Group LLC -- Analyst

Keith Hughes -- SunTrust Robinson Humphrey, Inc. -- Analyst

Elad Hillaman -- JPMorgan Securities LLC -- Analyst

David Manthey -- Robert W. Baird & Co. -- Analyst

Phil Ng -- Jefferies -- Analyst

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