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Edited Transcript of AMWD earnings conference call or presentation 26-May-20 3:00pm GMT

Q4 2020 American Woodmark Corp Earnings Call

Winchester Jul 1, 2020 (Thomson StreetEvents) -- Edited Transcript of American Woodmark Corp earnings conference call or presentation Tuesday, May 26, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* M. Scott Culbreth

American Woodmark Corporation - CFO, Senior VP & Corporate Secretary

* S. Cary Dunston

American Woodmark Corporation - Chairman, President & CEO

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Conference Call Participants

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* David Sutherland MacGregor

Longbow Research LLC - CEO, Director of Research & Senior Analyst

* Garik Simha Shmois

Loop Capital Markets LLC, Research Division - MD

* Julio Alberto Romero

Sidoti & Company, LLC - Equity Analyst

* Justin A. Speer

Zelman & Associates LLC - MD of Research

* Steven Ramsey

Thompson Research Group, LLC - Senior Equity Research Analyst

* Timothy Ronald Wojs

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Truman Andrew Patterson

Wells Fargo Securities, LLC, Research Division - VP & Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the American Woodmark Corporation Fourth Quarter 2020 Conference Call. Please note, today's conference is being recorded today, May 26, 2020.

During this call, the company may discuss certain non-GAAP financial measures included in our earnings release such as adjusted net income, adjusted EBITDA, adjusted EBITDA margin free cash flow, net leverage and adjusted EPS per diluted share.

The earnings release, which can be found on our website, americanwoodmark.com, includes definitions of each of these non-GAAP financial measures. The company's rationale for their usage and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures. We will also use our website to publish other information that may be important to investors, such as investor presentations. We will begin the call by reading the company's safe harbor statement under the Private Securities Litigation Reform Act of 1995.

All forward-looking statements made by the company involve material risks and uncertainties that are subject to change based on factors that may be beyond the company's control. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission and the annual report to shareholders. The company does not undertake to publicly update or revise its forward-looking statements even experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

I would now like to turn the conference over to Scott Culbreth, Senior Vice President and CFO. Please go ahead, sir.

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [2]

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Good morning, ladies and gentlemen. Welcome to American Woodmark's Fourth Fiscal Quarter Conference Call. Thank you for taking time to participate. Joining me today is Cary Dunston, Chairman and CEO. Cary will begin with review of the quarter, and I will add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions. Cary?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [3]

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Thank you, Scott. And good morning to you all. As I begin to prepare my comments for our fourth fiscal quarter, my first thoughts were of all of our families, employees, shareholders, analysts and all others on this call. I certainly hope that you and your families have remained safe and well in this unprecedented time. A time when we have all faced the challenges of running our businesses while also caring for the safety of our families and our employees. Compared to many, I feel American Woodmark has been very fortunate that we have been allowed to remain operational as an essential supplier to the housing industry. I cannot be prouder of how our employees have risen to the challenge. Well before any state or local orders were issued, our teams in every one of our sites went about modifying our operations, altering workflows, implementing mandatory safety requirements and training employees to ensure we have safe working environments. It is due to this extreme effort that we have been able to continue to run our operations and supply the critical housing industry.

In the month of April, we did experience a 2-week disruption in our Mexico operations. This had nothing to do with our ability to operate safely but was tied to a statewide mandate to suspend all operations not being essential. At the time, the governor of Baja, California had primarily only identified businesses tied to food, the health industry and first responders as being critical. Our team worked very aggressively with local and state government officials leveraging our long-standing positive relationships, clearly identifying the safety standards we have put in place in our pre-operations and communicating the importance of our supply to the U.S. housing industry. We were one of the very first businesses allowed to restart due to this effort. Although the disruption did impact our U.S.-based stock and PCS plants in late April and early May, I am very pleased to say that all operations have been fully restored.

With regards to our net sales for the fourth fiscal quarter, we were down 2%. The disruption in our operations impacted net sales by roughly $8 million in the quarter. Prior to the impact of COVID-19, we were experiencing solid mid-single-digit growth in our business. When looking at sales by channel, we did have significant variation. Within new construction, we grew our business 4.6% over prior year. Within this, our Timberlake direct business comped very favorably while our frameless PCS business in Southern California continue to comp negatively. As the nationwide impact of COVID-19 became more evident, builders began to focus on closing out existing starts. This push has kept orders strong.

By region, the Southeast, Texas, the Southwest and Northern California have the strongest comps in the country. As we look forward, buildings are recording a decline in new starts. However, the significance of the decline varied by region. A number of builders have shifted focus to first-time homebuyers and opening price point homes. Although credit is tightening, low interest rates and strong credit reports with younger buyers appear to be generally more positive business at the lower price point. As with all channels, forecasting income and demand is going to be extremely difficult until we get a better sense of the macro impact on the overall economy. The states beginning to restart nonessential businesses, the next couple of months will be very critical in helping to predict the path forward for the U.S. economy. We do believe the underlying fundamentals to strong -- to support long-term single-family growth remains strong is a matter of timing now. Inventory levels within new construction and existing homes remain at record lows. As such, when the recovery begins, we feel new construction will heat up quickly.

In addition, with existing home inventory levels so low, particularly at opening price point, first-time home buyer demand may also help to reduce the severity of the decline in new construction. As always, we will continue to leverage our direct frontline relationships with our builders to help with managing our business. With regards to our new construction PCS business, COVID-19 has only served to further weaken the already challenged market in Southern California. Competitors have also gotten aggressive with pricing. Although the market appears to have recently steadied, we are working to evaluate this business in alignment with our long-term strategy.

Looking at our remodel business, which includes our home center and dealer/distributor businesses, revenue was down 5.8% to prior year. Within this, our home center business was down 6.3%. Our made-to-order remodel platform was the hardest hit by the pandemic. The vast majority of made to order within home center required a store visit and interface with a designer. With consumers staying at home, store traffic in our space was greatly impacted. To help counter this, we have established a new program with our retail partners to leverage our internal design capacity to assist with a contactless design and transaction. Made-to-order R&R also comes at a higher price point, which is challenging as consumers are now more conservative on the discretionary spend on large ticket items. On the positive, our stock kitchen business continued to perform very nicely comping double digits for the quarter despite the disruption in operations. With customers working remotely and spending more time at home, we are finding that they are willing to spend on low-cost, simple R&R projects. As such, we are seeing strong demand in our lower priced stock cabinet business and expect to continue to experience this into the future.

With regards to our dealer/distributor business, we were down 4.2% for the quarter. As with home centers, consumer demand has been negatively impacted. Many dealers were either forced to shutdown or to operate remotely using only phone and digital services with consumers. As state homeowners are lifted and dealers open the doors, we are in hopes to see some pickup in orders. Overall, looking forward within the model, demand will be suppressed. I have stated many times on this call that future remodel growth is dependent upon getting the younger generation into existing single-family homes. My opinion has not changed. However, the timing is certainly delayed by COVID-19 and the lack of available low-cost existing homes. With the near-term future greatly depending upon the overall health of the economy, forecasting is week-by-week as we work with our retail and dealer partners on creative means to design more business.

Moving on to gross margin, we finished the quarter at 18.9%. We continue to be impacted by the ongoing costs associated with our particleboard supply disruption and tariffs as well as discrete cost due to the isolated suspension of our operations. In addition, the tremendous work to modify our operations to create a safe work environment impacting material flows and productivity. Our teams are working to improve flows while maintaining our safety standards.

With regards to our adjusted EBITDA margin, we finished the quarter at 13.4%, certainly not the level we had originally planned on. However, given the impact from disruption from COVID-19, we are pleased with this performance. For our fiscal year '20, our adjusted EBITDA margin was 14.3%.

As a reminder, we have spoken to numerous cost headwinds this past year as well as the relocation of our facility in California. The facility move is a onetime discrete cost and we do expect our part of that cost to improve as capacity continues to come online within the U.S.

Lastly, we generated $136.8 million of free cash flow for the fiscal year and paid down $96 million in debt while also funding future state projects for the company.

In summary, although a challenging into our fiscal year, I am proud of our team's performance. We have managed through the pandemic extremely well while safely operating with minimal disruption. The key challenge now is gaining an understanding of the macro impact of the virus on the U.S. economy and overall industry. Forecasting the future is extremely difficult to say released. Consumer confidence in spending, unemployment rates and the continued impact of the virus itself, all make for a volatile future. Internally, we remain nimble and will adjust quickly depending on the direction of the industry. I believe the next 30 days will tell us a great deal. Although businesses are starting to reopen and you will see a surge in many areas, most businesses are not rehiring to the level they had prior to the recession. In addition, in the near term, consumer spending will not be at the same level that was before the pandemic, particularly on higher price discretionary items. Special order product in our industry will be impacted the greatest and will be the most challenging forecast. However, our strength in the builder channel will benefit us as we believe it will outperform made-to-order repair and remodel.

In addition, we are extremely pleased that we are in a position with the acquisition of RSI to offer stock product into the retail space as well as our Origins product into new construction. Stock and lower-priced cabinetry are clearly going to be less impacted with more resilient demand into the future. What remains clear to us is that regardless of the near-term challenges, we continue to have a clear vision, and we will not lose focus on the future. How we get there has changed, but not where we are taking this business. In fact, I feel that pandemic has created new opportunities for those manufacturers focused on connecting within consumers and creating a very new and greatly improved experience.

Many economists are already discussing the long-term impact of the pandemic on our industry including the potential movement from higher-density urban areas to the suburbs. Such move would positively impact single-family builders and our direct business as the #1 supplier. Only time will tell, however, I can assure you that we will be well positioned to gain share when the accounting returns. In the more near term, we are managing our cost structure and leveraging our builder and stock platforms.

For our first fiscal quarter, we are expecting revenue to decline 15% to 20%, including the impact of the disruption of our operations early this month. Performance will be stronger in builder direct and stock to regrow the made-to-order R&R. The decremental impact on adjusted EBITDA is expected to be 40% to 45% for our first quarter, once again, including the impact of the suspension of our operations.

Looking forward, as I have stated, it is very difficult to forecast our revenue. However, we do expect incoming order rate to improve throughout the fiscal year. Within the economy as a whole, I expect we will see an improvement in overall consumer spending. However, we will have to be careful to fully understand the demographical data on who we're spending and what they are spending money on. This is particularly true as it relates to forecasting our repair and remodel business. We remain optimistic that the U.S. economy can pull out of risk without an extended decline. However, key sectors will be impacted very differently. With our diverse product offering, I assure you, we will fully leverage our superior customer experience to capitalize on all available opportunities. In closing, I would like to send an incredibly heartfelt thank you to all of our employees, suppliers and logistics companies for continue to keep our operations running during this pandemic. I cannot tell you how much I appreciate all of you.

With that, I thank you, and I will turn it back over to Scott for the detailed financials.

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [4]

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Thanks, Cary. The financial headlines for the quarter. Net sales were $399 million, representing a decrease of 2% over the same period last year. Adjusted net income was $22.5 million or $1.33 per diluted share in the current fiscal year versus $31.5 million or $1.87 per diluted share last year. Adjusted net income was negatively impacted by lower sales, tariffs, particleboard supply disruption costs and expenses related to the temporary suspension of operations in our component plants in Mexico.

In addition, lower interest expenses were offset by a fixed asset software write-off and an unrealized loss on FX forward contracts was $1.1 million related to fiscal year 2021. Adjusted EBITDA was $53.4 million or 13.4% of net sales compared to $63.8 million or 15.7% of net sales for the same quarter of the prior fiscal year.

For the fiscal year ended April, year-to-date net sales were $1.650 billion, representing an increase of 0.3% over the same period last year.

Adjusted net income was $111.8 million or $6.59 per diluted share in the current fiscal year versus $119.7 million or $6.91 per diluted share last year.

Adjusted EBITDA was $236 million or 14.3% of net sales compared to $244.9 million or 14.9% of net sales for the same period prior fiscal year.

The new construction market remained strong during the fourth quarter of fiscal 2020 as demand drops related to COVID-19 not impacting the business until the first quarter of fiscal 2021. Recognizing a 60- to 90-day lag between start and cabin installation, the overall market activity in single-family homes was up 21% for the financial fourth quarter. However, single-family completions for the fiscal fourth quarter were up 0.3%.

Our builder channel net sales increased 4.6% for the quarter. The made-to-order frame direct-to-builder business comp positively, and this was partially offset by price and mix and negative comps in our frameless business. The remodel business felt the impacts of state closures much sooner than our new construction business with home centers limiting shoppers and hours and many dealers having to close their physical locations. Despite interest rates remaining low, and existing home sales increase even during the first calendar quarter 2020, the recent unemployment rate increases will negatively impact the economy for quite some time.

Our combined home center and independent dealer and distributor channel net sales decreased 5.8% for the quarter, the home centers decreasing 6.3% and dealer/distributor decreasing 4.2%.

The company's gross profit margin for the fourth quarter of fiscal year 2020 was 18.9% of net sales versus 21.4% reported the same quarter of last year. Gross margin in the fourth quarter was unfavorably impacted by tariffs of $0.9 million, net cost impacts related to our particleboard supply disruption of $1.3 million and expenses related to the temporary suspension of operations in our component plants in Mexico.

We estimate a sales loss related to COVID-19 operational suspensions of approximately $8 million, leading to approximately $4 million in EBITDA impacts, which represents both the lost sales margin and corresponding cost deleverage. We have not treated these costs as an adjustment to EBITDA. I'm happy to now report that all of our operations are currently open and operating.

Year-to-date gross profit margin was 19.9% compared to 21.1% in the same period in the prior year. Gross margin for the current fiscal year was unfavorably impacted by tariffs of $6.4 million. Net cost impacts related to our particleboard supply disruption of $4.2 million. Duplicate rent move costs related to our California facility move to $2.4 million and expenses related to the temporary suspension of operations in our component plants in Mexico.

Total operating expenses were 12.1% of net sales in the fourth quarter of fiscal 2020 compared with 11.9% of net sales for the same period in fiscal 2019. Selling and marketing expenses were 5.3% of net sales in the fourth quarter of fiscal 2020 compared with 5.3% of net sales for the same period in fiscal 2019. The ratio held flat to the prior year spending adjustments on natural sales decline. General and administrative expenses were 6.8% of net sales in the fourth quarter of fiscal 2020 compared with 6.6% of net sales for the same period of fiscal 2019. The increase in ratio was driven by deleverage from lower sales.

Free cash flow totaled $136.8 million for the current fiscal year compared to $151.5 million in the prior year. The decrease was primarily due to a onetime tax benefit received in the prior year related to the acquisition. And timing of inventory and accounts receivables. Net leverage was 2.12x adjusted EBITDA at the end of the fourth fiscal quarter. The company paid down $6 million of its term loan during the quarter. As a reminder, there are no term loan debt maturities due until December 2022.

In closing, I want to thank our teams for their efforts to maintain our employee safety during this pandemic and find new ways to meet our customer needs. For the year, we are pleased that we delivered positive sales growth, but margins were challenged with tariffs, the costs related to the new of our California facility, unexpected particleboard supply disruption expenses of $4.2 million and expenses related to the temporary suspension of operations in our component plants in Mexico. These last 2 items were not things we anticipated, but our employees rose to the challenge to minimize the risk to our customers and to our employees.

Due to the impacts of COVID-19 and the evolving macroeconomic uncertainty in the currently modeling and homebuilding environment, we are unable to provide a fiscal year 2021 outlook. Our vision and strategy remains unchanged, and we expect to take market share during this time of uncertainty. Liquidity and decremental margin management are priorities for our teams. For the first fiscal quarter, we believe demand trends to result in sales decline of approximately 15% to 20%. The decremental margins of approximately 40% to 45% as we work to offset the inefficiencies associated with safety measures taken across the corporation and better match our capacity to demand. Our expectations are to improve upon the decremental margin rate in future quarters. This concludes our prepared remarks. We'd be happy to answer any questions you have at this time.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today will come from Truman Patterson with Wells Fargo.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - VP & Senior Analyst [2]

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I hope you all are safe. First question, thanks for breaking out the buckets of the cost, the particleboard, the Mexican disruption cost, tariffs, et cetera. How should we think of these going forward? I'd imagine that the operational costs should start to roll off and the tariffs ease going forward? And how I'm thinking about this is your 40% to 45% decremental operating margin. I would imagine that that's fiscal 1Q is probably the low water mark and it should improve going forward? Just wanted to understand how you're thinking about it?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [3]

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Yes. So on the related items, tariffs will certainly start to lap those. It's going to be less of a story going forward. Particleboard supply disruption cost, over $4 million for the year. Our estimation is got to reduce considerably as we shift into the future year. It could be as low as 1/3 of that number ongoing. So that would actually be a benefit due to comparison year-over-year. I think the biggest challenge for us in being able to predict the next couple of quarters, Truman, is related to COVID-19 and the overall demand environment really only going to be able to look forward into this first quarter. And it's severe because it is such a sharp drop right out of the gate on the demand side. So our teams are working rapidly to mitigate and offset, but we do expect that 40% to 45% range to be appropriate for the first fiscal quarter.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - VP & Senior Analyst [4]

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Okay. Associated with that demand decline, how is the industry pricing and promotional activity trended the past couple of months? And do you expect that starts to intensify going forward?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [5]

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Truman, it's Cary. For the most part, we've been fairly stable on pricing. We're starting to see some asking of price succession out there. But the reality is it appears to be holding pretty steady right now. And obviously I think it's going to be an indicator of supply versus demand in the future. And I think in our world, particularly in the new construction market with the service we offer and I think where we're sitting with regards to our ability to supply the builders versus some competitors, I don't see any challenges of the pricing right now. But once again, similar to Scott's comments on predictability. Obviously, if we move into recession or this decline continues to really drive into an extended time period, and it's really going to be difficult to predict it. But right now, we're holding steady, and we are not predicting any type of price declines in our markets.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - VP & Senior Analyst [6]

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Okay. Okay. And then final one from me. Just on your professionally installed business kind of versus the DIY. It's part of it. Many homeowners aren't allowing the pro contractor into their home to install cabinetry, kitchen and bath, et cetera. I guess how has that business trended over the past couple of months? Have you started to see that business improve and allow -- homeowners allowing those pros into their homes and just some of the moving parts as you look out the next couple of quarters with that business specifically?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [7]

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Yes, Truman, it's a really good question, and I didn't specifically comment on the pro side. But yes, it's a very similar situation. It's all impacting the R&R market, whether it's a consumer's lack of willingness to go into a store, sit down with the designer or the fact that they don't want people coming in their home to do a measure or to absolutely do a rip out the kitchen and install, those are all, I'll just say, headwinds right now for the R&R market that we're aware of and kind of built into our outlook already, which is why we feel new construction is going to outpace the R&R market. As far as what really becomes of it, I think, obviously, pros get very creative and you already have with regards to contractors and so forth. So I think they're working very closely with consumers, and they're obviously being screened, offering services at certain times of the day to minimize contact with homeowner and so forth. But it is foreseeable challenge, which is one of the key reasons we have our R&R market is sitting in a greater impact right now than new construction.

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Operator [8]

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Our next question will come from Garik Shmois with Loop Capital.

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Garik Simha Shmois, Loop Capital Markets LLC, Research Division - MD [9]

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Just wondering, just on the 1Q 15% to 20% decline in sales that you're expecting, wonder if you could provide maybe open more granularity on what you're expecting with respect to the new construction stock, made to order, you touched on it a little bit. And would you expect me to see the worst of it in the quarter as states start to now open up a little more fully? Or just given the timing right for housing and when cabinets [doze] in, if you could speak to visibility and would you potentially expect to see maybe a little bit more lag in sales relative to the housing starts and things of that nature?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [10]

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Okay. Give me 1 second. You broke up a little bit. I mean did you get the exact question?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [11]

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Yes. Garik, it was a little hard to hear you. On that, I'm going to try to phrase the question, and then we'll respond to it. I think your question was very specific around first quarter and what our demand expectations were around the end channels. And if we thought the delay in starts would impact this quarter or the next quarter?

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Garik Simha Shmois, Loop Capital Markets LLC, Research Division - MD [12]

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Yes, yes, exactly. So if you could break out the quarter with respect to the different channels and then also just around your visibility, just given the lag starts and when cabinets tends to go into new construction.

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [13]

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Yes. So new construction, obviously, I could comment. It's been running strong. The early indications where the builders are really focused on closing out existing starts. So as Scott communicates in his notes, we typically have a 60- to 90-day lag between when a home has started when we actually see the revenue on the cabinet side. So obviously, all those homes that were started 2, 3 months ago, continue to be pushed through. And what we've really been looking for and trying to anticipate is there a significant wall coming, is it going to fall off. And obviously, it starts were just released in April. So we're seeing a decline. But at the same time, we've been that, you're going to see some significant variation, like I commented with regards to price point. It's -- in Truman's question even on pricing, one of the reasons that we're not seeing a significant change in price on new construction, you are seeing a move down in price, but it's not price concession on our part. So we are seeing an increased strength in the opening price point product in our market, which is our Origins product, which we can fulfill profitably. So we are seeing those builders. Some builders were already strong in that market, and we're seeing some of them reported, honestly, from my comment on first-time homebuyer credit rating and so forth that they are seeing some steady flow of first-time homebuyers at that lower price point. And we're also seeing a number of other builders that have tried to make a very significant swing in the past couple of months and to getting into new subdivisions and increasing their portfolio of opening price point homes as well. To the extent to that, it's really difficult to predict going forward. Obviously, we're watching the permit data, we're watching start data very, very closely as well as we have boots on the ground on the frontline, working directly with builders, building builder's sentiment and so forth.

So like I said in my notes, we do anticipate the builder to remain stronger. As far as specifics, I honestly can't give you specifics because I don't know right now. I mean we're -- we have -- like I said, we're running based on the backlog right now and that delay. But at the same time, we are seeing starts continue. Many builders shifted to sell one, build one. But at the same time, when you jump in opening price point, builders typically jump into spec homes because they're going to build outside the business and sell spec home. So that would once again be a positive for our business because we get to sale even before they got the sale. So right now, I'm just going to say we're somewhat more optimistic on builder relative to R&R, but the exact percentage of the impact we -- I really can't tell you right now other than what we see in the next month or so. It's -- right now, we see new construction remaining fairly good.

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Garik Simha Shmois, Loop Capital Markets LLC, Research Division - MD [14]

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Okay. Great. The $8 million in cost savings with the headcount and salary reductions, is that starting immediately in the first quarter? And I guess, how should we think about modeling that cost savings through fiscal '21?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [15]

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Yes. It will start inside the first quarter, it'll be pro rated. It won't be a full -- you can't take it and divide by 4 quarters and calibrate it that way. But it'll start inside the first quarter and the end of the second quarter for the actions.

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Garik Simha Shmois, Loop Capital Markets LLC, Research Division - MD [16]

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Okay. And then just lastly, just on the frameless PCS business, it sounds like you're considering some additional actions there. If you could provide any color on what you're looking to do to rightsize that business.

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [17]

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Yes. I mean right now, I say we lots on the table. But initially, we're just understanding the market. I said it's really fair to have steadied out. So we're just looking at the dynamics of the industry where our competition and some of our competition does have manufacturing local to California. So they're obviously more focused on covering overhead costs and so forth. So we have seen some aggressive to some pricing. But once again infused, all that's steadied out. So I think by strategy, we're really looking at where demand starts to shift. And that going to be a multifamily, single-family and really what -- how our competitors respond to that versus how we respond. So when I say strategically, it's not like anything drastic, it's just that looking at our competitiveness and since -- obviously, we completed the acquisition of RSI a couple of years ago, we have been very focused on improving the whole quality system-related to our PCS business, focused on the supplier, our customer experience, improving our logistics system and so forth. So there's a lot of things that go into the mix when I say strategic that we're continuing to evaluate. So I think the big question is how much do we -- how much are we willing to invest in the short-term versus where we feel the market is going to go in the near term.

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Operator [18]

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Our next question will come from Steven Ramsey with Thompson Research Group.

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Steven Ramsey, Thompson Research Group, LLC - Senior Equity Research Analyst [19]

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I guess to ask the sales outlook question, maybe another way, I guess, what end market, what specifically would you say are the big factors that swing you from the low end to the high end? And how much of this is -- this outlook is informed by May trends to date?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [20]

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Informed by what trend, sorry?

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Steven Ramsey, Thompson Research Group, LLC - Senior Equity Research Analyst [21]

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May trends.

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [22]

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Yes, May trends. As far as the key things we look at, it really varies between R&R and new construction. You break R&R down by whether it's what I call made-to-order or special order or whether it's stock. So as we -- when we talk about R&R and the challenges of R&R, it's really talking about the special order business. And that's all the challenges we already talked about, where it's consumers likely willingness to go into stores, it's the pro going into the home. I think that -- for the foreseeable future, that business is going to have some challenges. We are, like I said, we're very aggressively and creatively working with both dealers and our home center partners. To figure out ways to serve that market, including even the pro side of it. So we're -- they have a very invested interest, obviously, to try to get that business back on the growth curve and we're working with them on that. When it comes to stock business, so the good thing is, I think, like you're seeing out there, whether it's a short-term gain or longer term, but consumers have been spending on, I'll say, low dollar ticket R&R. So it's a simple at home repairs and remodels and our stock business, which is a cash and carry kitchen and bath amenities has been running strong. And right now, we're expecting that to continue to run strong well into the future. And that's just really based on -- even going back to one of our strategic reasonings for the acquisition of RSI is at lower price point is much more resilient when you get into downturns in recessionary type environment. So it's looking good.

I think the very one; that we're obviously very, very focused on and I'd say it's just difficult to predict as the special order R&R, but new construction, the indicators that we look at there, overall, similar to remodel in the context of consumer spending, consumer confidence, overall GDP growth in America and so forth. But I think there's a lot of other variables that impact new construction as well, including credit availability. And obviously, what happens with unemployment rates and so forth. And up to now, I'll say mostly unemployment is not factor on the opening price point home consumer. A little bit of concern as a lot of the essential companies that have ran for the past couple of months. They're not starting to see the impact -- or the macro impact -- micro effect of the economy. You're seeing some starting to make some reduction in force to align with overall demand. So the question is, how does that impact the economy and impact our new construction business. So it's so hard to give you 2 or 3 variables that we could just track and say that these are key indicators even in May that we're watching because it really is a short-term outlook right now that we're trying to just focus on and the good things we are fairly nimble. When it comes to R&R, we do run on backlog. And it's -- so we're fairly predictable out 30 days or so. When it comes with stock, that's really too basically by demand. We build inventory and sell-through. So it's really a point-of-sale data that we use there. So I wish I had better data to give you. It's something we're all going to be watching very, very closely. It's why we're all very hesitant to be any type of outlook because there's so many variables with America opened up right now, states opening up. We'll see what happens with coronavirus, is it W, is it a slow recovery, is a fast recovery. I think every time this has a different answer and somebody is going to be right. We're trying to be as realistic as possible and take advantage of everything we can while we go through this.

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Steven Ramsey, Thompson Research Group, LLC - Senior Equity Research Analyst [23]

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Great. And then thinking on investment and CapEx, how are you shifting priorities, especially you talked about in the last few calls this time of transition with customer preferences shifting and then the strong fundamental demand for housing broadly. With the shifting going on, how are you changing your priorities for investing?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [24]

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The other good thing, believe it or not, is about a year ago, I have started communicating our new -- we do 6-year vision, we've got a 2025 vision. And the most important aspects of that vision are definitely alignment with where we need to take this business even post COVID-19. It really focused on the digital aspect, interfacing with the young consumer, improving the overall customer experience, recognizing that our future consumer is going to be changing drastically as we get into younger generation and how they shop, where they shop, what attributes they feel are important, I think the COVID-19 it's only going to expedite that transition into the need to be of interface digitally. I think the challenge thereby has is this is pretty easy relative to many other things that allow and set up a company and digitally connect with the consumer and sell a kitchen to them. The hard part is how you service it. So how do you take that consumer, manage that entire customer experience, including getting their existing kitchen out and getting the new kitchen in, that's where the experience takes a downfall and that's where pro is obviously your challenge. So I think all that is -- we started evaluating that strategy a couple of years ago. We've already started to invest in it. We're working on future state products. We're working on their digital strategy. And the good thing is those are in alignment with, I think, everything we've been focused on thus far. So I can't say we're reducing that. We're certainly making strategic choices internally on prioritizing projects from a capital perspective. At the same time, I will tell you, we're not deprioritizing the most important aspects of our strategy and our vision. We're getting the team move ahead, and we're going to continue to capitalize on what we feel the opportunities are coming in COVID-19.

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Operator [25]

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Our next question will come from David MacGregor with Longbow Research.

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David Sutherland MacGregor, Longbow Research LLC - CEO, Director of Research & Senior Analyst [26]

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Yes. Thanks for the detail on the first quarter. That's helpful. I guess I'm just trying to get a sense as you talked about the 40% to 45% decrementals for the first quarter, and that's obviously given the uncertainty in the environment, that's as far forward as you'd like to talk about right now. But we're trying to think beyond that, I guess, taking those decrementals apart, SG&A, I guess, in particular, how much ability do you have to flex there and what -- I guess there's a little bit of a time requirement there. It's harder to be nimble, maybe with some of those adjustments. How should we think about that sort of going beyond first quarter?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [27]

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I'll let Scott answer detail that, but I do want to give you just a little bit of strategic decision we've made, similar to what we made during the last Great Recession is our touch points with our customers are very, very critical. So we have made a decision that, although we have taken some reduction on the SG&A side, on our sales force side, we are, I would say, it's very important as we continue to keep that contact with our customers and continue to invest in our customers, invest in our strategy and so forth. So it's a decision we made in this last cutback and a busy decision we'll continue to make. So it's just a little bit different strategic play for us. But at the same time, I think both good to go back to the Great Recession and see how we came out of it, you'll understand why we strategically are making that decision.

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [28]

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So when you look at the selling and general and administrative expenses, you're right. Typically, there's going to be a higher fixed element related to those particular categories. But you can also look back over the last couple of years at the business and see what that reach has been. We've done a nice job of managing that and leveraging that appropriately on the upticks and downticks in volume. Now as we look forward, are we taking actions? Yes. We've taken actions. We announced that in the release with reductions enforce. And unfortunately, we had to process inside the first quarter. So it'll take some time for those to catch up, and we'll see the benefits start to read in future quarters. But in absence of that, it would have been a tougher slate because it would have been significant leveraging process G&A categories.

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David Sutherland MacGregor, Longbow Research LLC - CEO, Director of Research & Senior Analyst [29]

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Right. Okay. And then you talked about the particleboard, which is helpful. Can you sort of step back from there and just talk about, in broader terms, raw material costs for the year ahead? Are you seeing inflation, deflation? How should we be modeling that?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [30]

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Yes. Actually, that's probably a wide-open question as well (inaudible) the word demand or inflation or anything else. But at this point in time, we've seen lumber prices principally down versus prior year. Our hope and expectation is with that to maintain kind of status quo. Particleboard, we've certainly talked about ad nauseam over the last year. With respect to transportation, fuel is moving to a favorable status versus prior year, but we still see contracted rates for prior arrangements, still a slight uptick versus prior year. So it depends on the category, but I don't sit here today thinking that raws are going to be our big issue going forward. I think it's more the demand discussion.

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David Sutherland MacGregor, Longbow Research LLC - CEO, Director of Research & Senior Analyst [31]

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Okay. And then final question for me, just labor availability. Are you feeling any pinch points within your own production? I realize on the installation side, that's a separate discussion. But just within your own manufacturing operations, are you feeling any pinch in terms of labor, getting people back into the plants and the degree to which that might be disruptive to the model right now?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [32]

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Yes. The good thing is since we really never shutdown, we're not asking people to come back. I think it would be much tougher if we had folks that were in a layoff scenario and we were not declared essential and then you had to get back to operating right now, like many of the nonessential manufacturers are trying to do. So we maintained our running status, which kept our employees fully engaged. Yes, we're seeing that -- I'll just say what you typically are seeing with other manufacturers in this environment, COVID-19 has certainly impacted some people just from a psychological perspective and sort of turned over upside, sure it is. The good things we're managing through that. Like Scott mentioned on SG&A, where -- obviously, we -- our variable cost in the manufacturing platform. We are aggressively managing that as well. And the good thing, although we have had some, I'll say, limited reduction in forces out there. We're just using attrition as it means to managing our variable costs. So it's something that we're continuing pay attention to. But for the most part, it is something we're managing through effectively. It does that when I obviously commented on the overall impact of productivity just related to COVID-19 and the relay out of operations. There is some new headcount just -- impact in there as well with regards to fulsome turnover as well as just increase in the absenteeism, but nothing that we're not managing through, I can tell you that.

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Operator [33]

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Our next question will come from Tim Wojs with Baird.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [34]

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I hope you guys are safe. I have a big picture question and then a couple of follow-ups, but maybe just on the overall cabinet industry and the health of it itself. Do you think COVID puts more stress on some of the smaller players just given the capacity and liquidity, do you think that could benefit you over time? And then I guess, as a secondary part of that question, do you think just the absence of Chinese product in the market will help on the R&R side? Or do you just think that the demand levels could remain suppressed enough that you don't really see that?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [35]

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Tim, first question on the small players. It's -- obviously it's something that we're -- we haven't seen an impact yet. And just looking at the macro impact on the economy, it certainly has taken a tougher toll on smaller businesses out there. It's -- my team obviously talk that we -- that's the last thing we want to happen any one of our competitors in this business. And logic says, is based on the macroeconomics is, yes, they're going to probably struggle more just from a fixed overhead perspective and many them play at a higher price point. So most of your smaller players out there in the semi-custom space, which has taken a much bigger hit during this downturn than have lower price point products. So have we taken -- or will we see an impact from it? We have certainly not forecasted that. And obviously, I don't hope so because, obviously, that means that somebody's gone out of business, which I don't wish from anybody. We'll monitor it closely. I think it's going to be hard to show, and it's not going to have a significant impact on, say, the near term demand, just because of the significant shift down in price point. We're -- dealer business right now is already ready down. We are seeing move down in price point even in dealer. If you start to see some local regional semi customer through our business, it could certainly impact our dealer business. But right now, it's not something we're predicting or honestly have not talked a whole lot about.

On your second question on China, right now, it's -- the way we're predicting I guess, realizing some of the benefit from China and talking with our home center partners is not only we get the advantage of the move down in price point, but we do feel that some of the upside that we're seeing in the stock, particularly stock kitchen business is related to the Chinese tariffs. It's hard to put a value on that and quantify it, but we definitely feel, along with several other factors that is contributing to the increase in our stock business. I think it's -- the price point that it was playing out there, and we've said all along, it's kind of 2 buyers. One was buying it because they just want a cheap cabinet. Another was a true semi-custom buyer that was just buying it because it was all plywood and offer some of the features of our semi-custom product in America. Most of those customers right now just aren't buying. So it's not like they shifted away from a Chinese product that there's not out there buying period because it's -- obviously, at that price point and most folks just aren't modeling, they're doing a complete kitchen remodel right now. So -- but we do believe we're seeing that uptick in our stock because of the Chinese tariff.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [36]

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Okay. Okay. Great. And then just 2 follow-ups. I guess on the overhead reductions, the $8 million, is that fully permanent? Or is there any sort of temporary, I guess, variable impact to that if demand would come back faster than you think? And then the second follow-up question I have is just really on your order rates in the made-to-order business, is there any way to kind of put a little more granular about what you're actually seeing on the order side in April or early May?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [37]

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You said on incoming demand?

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [38]

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Yes, the incoming orders on the made-to-order side.

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [39]

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Yes. The first one on the layouts is -- no, I mean, right now, they are defined as permanent layoffs. So the only thing that would alter that is that we got back in an aggressive growth phase. And we had to go out and rehire, but right now, those are our permanent layouts for our kitchen circulation. With regards to the orders, and I can't really say much more than what I've already said. Incoming demand right now is stronger in the new construction and not as strong in R&R. And with our -- I'll say our back -- we're managing our backlog successfully right now. So we've not gotten ourselves in a situation where our backlog has dropped significantly, and we have holds in our schedule. We are running full and our schedule. We must tell the R&R team has done a very, very good job of scheduling our manufacturing operation and adequately supplying our demand. So obviously we had a more significant shift in new construction with shorter lead times. But it's all faring very well with regards to our manufacturing process. So incoming right now is, I'll just say, properly balanced with our production.

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Operator [40]

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Next, we'll hear from Julio Romero with Sidoti & Company.

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Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [41]

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Hope you folks are doing well. I just wanted to make sure I got this part of the guide right. Is that 40% to 45% decremental in the first quarter, inclusive of the beginning of that $8 million in annualized reductions? Or is that kind of pre savings, like assuming you get -- to get none of that cost reduction benefit in the first quarter?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [42]

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That would be inclusive of the benefits associated with that inside the first quarter.

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Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [43]

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Okay. Okay. And you mentioned your facilities are all back online, all your plants are fully operational. Could you speak to maybe the utilization rates you're seeing, either maybe on an absolute basis or relative to maybe this time prior year?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [44]

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Well, I'd just say our utilization play in line with the overall production that we talked about for our revenue. We don't get into specifics with regard to utilization just because, obviously, it gives an indication to our competitors, where our capacity is and so forth. So I'd just say right now, we're running somewhat, I'll say, fairly efficiently given the current environment. Most of our operations, we did have, I'll say, 2 whole shifts running and we've scaled back on some of those. But right now, it's -- I would say, we have room to grow, but at the same time, our utilizations are not having a significant impact on our efficiency.

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Operator [45]

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Next, we'll hear from Justin Speer with Zelman & Associates.

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Justin A. Speer, Zelman & Associates LLC - MD of Research [46]

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I just wanted to see if you could unpack the home improvement and the new construction revenue trends versus the prior year in April and May.

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [47]

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I just say they're down. I mean new construction, of course, we talked about our comps. So new construction was up positive, combined new construction of over 5%. But R&R is down significantly compared to last year. As far as train goes, as we counted as R&R is definitely, I'll say, trending -- I say -- right now, I'll just say it's fairly steady, but it's down significantly over the prior year. New construction is a big question, right? Obviously, we had a good ending to the fiscal year. Most are predicting, if you look at starts, obviously, down close to 30% single-family, mostly predicting a pretty good decline in new construction. Right now, I'm just saying we're fairing fairly well in that space, just given the move down in price point in our direct-to-builder market that we have. So we're going to -- if you look at the way the industry is trending, we expect to trend better and so we should over-index the industry, like, we pretty must say every quarter.

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Justin A. Speer, Zelman & Associates LLC - MD of Research [48]

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Okay. And then the other question for me is just on the decremental margins thinking about the costs, what -- I guess, how much benefit from costs that were absorbed last fiscal year not repeating this year? You mentioned particle board, but what about the PCS cost and any other costs that don't repeat, that should be good guidance this next year?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [49]

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Yes, certainly throughout the full year, you don't have the California facility move repeating. So that benefit. When you think about that from a comparative standpoint, particleboard supply, we already mentioned that we expect that likely be closer to 1/3 of what we saw as we rate in the prior year. Tariffs continue. It's just you're kind of lapping that. So it's not going to be an incremental pain point. It will just be absorbed in the current run rate.

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Justin A. Speer, Zelman & Associates LLC - MD of Research [50]

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Okay. So what wouldn't decremental margins be normally? I know there's a lot of special things going on right now, a lot of inefficiencies. But what would you normally plan for in terms of decrementals?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [51]

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Yes. We haven't typically provided guidance around incremental or decremental margin over the last couple of years post acquisition. I would just gear you to the remarks around the first quarter. And again, there's tremendous uncertainties. You look at the space, our competition and customers, and there's a lot of uncertainty out there. So at this point in time, we can see into the first quarter, we feel reasonably comfortable with the range of estimates around that. And we'll just have to continue to monitor the next couple of weeks and months and see how that plays out for future quarters.

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Justin A. Speer, Zelman & Associates LLC - MD of Research [52]

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Yes. I understand that. I guess maybe coming at it a different way. Does the $8 million cost reduction effort offset, what you think will be the productivity headwind from the virus, assuming that all of your operations stay up and running. Is that kind of what you're trying to achieve with those cost reduction efforts?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [53]

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No. I mean, obviously, the cost reduction effort just to align our SG&A with our overall volume. And then we manage the operations obviously in alignment with volume separately as the variable cost. We have a fixed overhead cost piece of the plan, of course, that would be impacted from an overhead perspective. But from a productivity impact of COVID and flows and so forth, I mean, we're working to try to continue to improve that. But it's just so unpredictable to what we don't know. I mean it's just like every other manufacturer out there in America in the world today, it's we're managing this day-to-day. And we're taking temperatures of every employee walks in the door, where our safety of our employees comes first, period. And what you don't know is the unpredictability of what is right, whether it's a city or timing we are operating in, what happens if we have outbreak in plant, we just -- it's very difficult to predict those things. And we feel extremely comfortable and confident with the safety we put in place. But I'd be honest, I have some concerns with the states opening back up and people, I'll say, not properly watching their behaviors and violating some of the safety expectations and then potentially getting COVID-19, right? So how does that impact your operations? How does it impact consumer confidence, consumer spending? Obviously, too many variables to really predict out there. So we're managing our costs appropriately. Obviously, our cost structure right now is in alignment with our current estimates of balancing to where we are today versus where we think this is going to go in the next few months versus knowing that we want to continue to invest in our future, our strategy, our vision and our goal always when we go into any recession. I mean this is something where -- I did say we're not used to the COVID-19, but we're used to recessions in this industry. It's very cyclical. And we know how to run the company during a downturn in recession. And more importantly, we know how to run this company to really win and come out of the recession. And that's absolutely what we're going on during this time.

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Justin A. Speer, Zelman & Associates LLC - MD of Research [54]

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That's helpful. And then last question, a follow-up is just in terms of thinking about all the complexity in recent years associated with antidumping duties, the trade situation, and how you've got the pandemic disruption. How do you think this plays out for product -- I guess, productive capacity shifts this next cycle, particularly looking at imported product versus domestic production for that stock product that's doing so well right now. How do you think that unfolds in the coming years?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [55]

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Yes. It makes for a great case study, right. So reported last call that you saw to see a shift from China and Vietnam and other Asian countries. You're always going to have, I'll say, competitors that want to play the international sourcing, low cost sourcing. We truly believe that we have a strategic advantage by keeping our investments local because our customer -- the experience is so critical. And I am not going to keep saying is that it's easy to supply a cabinet. It's extremely difficult to create a positive customer experience. When you think about American Woodmark and how we're positioned and the investments that we have in our total infrastructure, including our direct-to-builder that we can leverage on the direct-to-consumer. We're one of the few companies out there -- the only company out there that can offer national type of customer service and experience. So I think you are going to continue to see shifts. You're going to see -- obviously, you think about the equation for semiautomation.

You're going to see probably more investment in capital-intensive operations over time just because people's willing -- lack of willingness to operate and want to come and work in the manufacturing plant. So I think companies with strong balance sheets, particularly those with larger economies of scale are going to have an advantage in the future. I think it's -- there's going to be a lot of lessons learned from COVID-19 that impact the psychology of the consumer, the psychology of the worker. And obviously, we're very active in our strategy, thinking about how we're going to modify this business and how we're going to make investments in the future. And I think we're well positioned to be able to take advantage of those.

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Operator [56]

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And we'll take a follow-up from Truman Patterson with Wells Fargo.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - VP & Senior Analyst [57]

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Cary, just a couple of quick ones. Your largest competitor is rotated aggressively towards the value product. Just want to understand industry dynamics here. It sounds like you haven't seen them put any pressure on pricing. Where are they gaining market share? Is it coming from other U.S. manufacturers? Is it the lack of Chinese product in the market? Just wanting to understand the moving parts there.

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [58]

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Yes. The key competitor and the key products you're talking about, at least part of we know is an import product that they're leveraging in the dealer business. So it is a replacement for what was imported from China, it's coming from other sources, other Asian sources. It's something that we -- I've told investors all along that it's easy for us, it's easy for our competitors to get into that supply chain, if we so desire. We continue to evaluate that there's a short-term play as we work on future state products to import even pod, we can certainly do it. And we'll keep you informed of that. So most of that share that they're talking about is being gained in the dealer world as a direct replacement for that low-price Chinese product, where we actually do not have a price offering that's comparable. It's all plywood. It's just basically exact same product that we imported from China. That's now shifted to other Asian countries that they're now importing. So it certainly is an opportunity they're taking advantage of. We strategically take a different approach. We're working on future state high-tech solutions. But at the same time, I will say that we are aggressively evaluating our position and for short term bridge, if we want to get into that supply, it's not difficult to do. So it's something that we'll continue to evaluate.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - VP & Senior Analyst [59]

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Okay. So it sounds like the Chinese-imported product is going away. However, other countries and Southeast Asia are fairly rapidly replacing that Chinese supply is that an accurate statement? And maybe some -- exactly what's occurring there, how quickly you think that supply can be replaced?

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S. Cary Dunston, American Woodmark Corporation - Chairman, President & CEO [60]

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Yes. It's a very accurate statement. However, obviously, capacity is a key issue. So there's a lot of capacity in China, and it's going to take quite some time to the capacity in Vietnam and Asia and other countries. But yes, I actually reported on our last call that we've been quite amazed at how quickly investment has shifted to other Asian countries, not only from, I'll say, manufacturers and local companies within those countries, but also Chinese companies have aggressively shifted their production to other countries outside China. It really amazed us on how quickly that's occurring out there. So COVID-19 has certainly delayed some of that, but it still continues and expect it to continue just because there's a lot of money there. But once again, long term, we continue to feel like we can compete against that with a future state solution without having to take on that risk of an international supply chain.

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Operator [61]

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(Operator Instructions) And as I do not see there anyone else waiting to ask a question, I would like to turn the conference back over to Mr. Culbreth for any closing remarks. Please go ahead.

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [62]

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And since there are no additional questions, this concludes our call. Thank you for taking time to participate.

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Operator [63]

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Thank you. And again, that does conclude our conference for today. We thank you for your participation.