Q4 2023 GMS Inc Earnings Call

Participants

Carey Phelp; VP of Investor & Media Relations; GMS Inc.

John C. Turner; President, CEO & Director; GMS Inc.

Scott M. Deakin; VP & CFO; GMS Inc.

Brian Biros; Equity Research Analyst; Thompson Research Group, LLC

Christopher Frank Kalata; Assistant VP; RBC Capital Markets, Research Division

David John Manthey; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division

Elizabeth Ann Langan; Research Analyst; Barclays Bank PLC, Research Division

Jeffrey Patrick Stevenson; VP; Loop Capital Markets LLC, Research Division

Noah Christopher Merkousko; Senior Research Associate; Stephens Inc., Research Division

Presentation

Operator

Greetings. Welcome to GMS Inc. Fourth Quarter 2023 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to Carey Phelp, Vice President, Investor Relations. Thank you. You may begin.

Carey Phelp

Thanks, Sherry. Good morning, and thank you for joining us for the GMS earnings conference call for the fourth quarter and full year fiscal 2023. I am joined today by John Turner, President and Chief Executive Officer; and Scott Deakin, Senior Vice President and Chief Financial Officer. In addition to the press release issued this morning, we have posted PowerPoint slides to accompany this call in the Investors section of our website at www.gms.com.
Starting on Slide 2. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties, many of which are beyond our control and may cause actual results to differ from those discussed today.
As a reminder, forward-looking statements represent management's current estimates and expectations. The company assumes no obligation to update any forward-looking statements in the future. Listeners are encouraged to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC, including the Risk Factors section of the company's 10-K and other periodic reports.
Today's presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides. Please note that references on this call to the fourth quarter of fiscal 2023 relate to the quarter ended April 30, 2023. (Operator Instructions)
With that, I'll turn the call over to John Turner, whose discussion will be starting on Slide 3. J.T.?

John C. Turner

Thank you, Carey, and thank you all for joining us today. 2023 was a year of strong growth and profitability with record levels of full year net sales, net income, adjusted EBITDA and cash flow generation.
For fiscal 2023, we achieved full year net sales of $5.3 billion, an increase of 15% compared to the prior year. Net income increased 22% to $333 million. Adjusted EBITDA grew 17% to $665.7 million, and adjusted EBITDA margin improved 30 basis points to 12.5%.
Cash generation was also significantly improved year-over-year, reaching a full year record high with cash from operations of $442 million and free cash flow of $389 million, each more than double their levels from a year ago. For the quarter, even after seeing a pullback in single-family demand and without the benefit of the steel inflation that we experienced during fiscal 2022 and early 2023, our team performed exceptionally well to close out the year.
For our fiscal fourth quarter, we grew net sales to $1.3 billion, up 2.8% on a same-day basis. Net income declined slightly to $75.6 million. But despite having 1 less selling day, adjusted EBITDA grew to $154.3 million, marking our ninth consecutive quarter of year-over-year adjusted EBITDA growth. Adjusted EBITDA margin was 11.8% for the quarter compared with 12% in the prior year period.
Strong multi-family demand and continued growth in commercial construction combined with a favorable pricing environment in Wallboard, Ceilings and Complementary Products helped offset lower steel prices and the continued softness in single-family activity that we began to see at the start of this calendar year in most regional markets. That said, on strength in Florida, the Southeast has been an outlier with modest year-over-year single-family growth.
Looking at our balance sheet. During fiscal 2023 and just after the end of our fourth quarter, we refinanced our ABL and extended and amended our term loan facility. The foundational strength of our well-positioned capital structure and liquidity position helps enable us to continue driving growth and improve profitability through the execution of our strategic priorities, which I will review now.
Looking at Slide 4. The first of our 4 strategic priorities is to expand share in our core products. Our team has worked tirelessly to be the supplier of choice for our customers, providing exceptional service, expertise and product availability.
For Wallboard, despite being impacted the most by the slowdown in new single-family housing, our teams have successfully strengthened existing relationships and entered into new agreements with key customers across our end markets. In steel framing and Ceilings, we are also strengthening relationships and successfully winning business in most of the sectors we serve even in large office new and remodel, which does remain muted.
As such, utilizing a combination of data sources, including the Gypsum Association, the Steel Framing Industry Association and our suppliers' disclosures, we believe that we continue to maintain or grow share in each of our core product categories. And we'll continue to focus on this objective going forward.
Next, we are growing our Complementary Products. Broadening and realizing incremental scale in our offerings helps enhance the value we bring to our customers while also allowing us to accelerate our growth and strengthen our margins. The Complementary Products group, comprised of our field business leaders and our central purchasing team, is progressively sharing best practices, identifying areas of opportunity, leveraging scale and consolidating vendors where sensible.
This focus allows us to leverage sales of our core products, such as wallboard and steel, to pull through complementary items such as tools, fasteners or insulation. And we are also expanding our EIFS and stucco lines to new locations and onboarding additional specialized sales expertise to boost growth in this category.
Also during fiscal 2023, we furthered the growth of our Complementary Products with the continued expansion of the AMES footprint. In addition, we entered the New York City market through the acquisition of Tanner Bolt & Nut, a leading distributor of tools, fasteners and other related construction products in that area, added additional EIFS-focused locations with the acquisition of Engler, Meier & Justus and purchased Blair Building Materials, a highly respected provider of Complementary Products in Ontario, Canada.
As we've discussed on previous calls, within our Complementary Product offerings, we are focused primarily on expanding several high-opportunity growth subcategories, including tools and fasteners, stucco and EIFS and insulation. Collectively, these product lines grew nearly 15% during the fourth quarter and 25% for the full year. We intend to continue this push to profitably expand and scale these product offerings across our geographies.
Third, we continue to take steps to expand our platform through accretive acquisitions and greenfield opportunities. As I just mentioned, during the fourth quarter, we completed our acquisitions of EMJ in Chicago and Blair Building Materials in Ontario, Canada.
With EMJ, we significantly expanded our Chicago operations and in the process, strengthened our relationship with Armstrong World Industries in this important market. Meanwhile, the Blair acquisition will allow us to further scale our Complementary Product offerings in the Greater Toronto area.
In addition, we are pleased with our continued growth of new greenfield opportunities with the opening of a new yard in Ottawa, Canada during the quarter as well as 2 new AMES store locations. For the year, we completed 4 acquisitions and opened 6 new greenfield yards and 11 AMES stores.
Expanding our footprint, scale and product offerings remained a key priority for GMS. We have a healthy list of opportunities in our pipeline of core GSD businesses as well as numerous complementary focused businesses.
Our fourth strategic priority relates to our efforts to drive improved productivity and profitability by leveraging our scale and employing technology and best practices to deliver a best-in-class customer experience and further drive profit improvement. Notably, the steps we are taking to build our yard of the future are yielding improvements in efficiencies, productivity and profitability, all while making it easier for our customers to do business with us.
To highlight some of our initiatives, we now have about 60% of our noncash U.S. customers set up with online accounts. Also, we are at the midpoint in our initiative to bring digital capabilities into our larger warehouses, equipping our teams with automated tablets to increase the speed and accuracy of the picking and shipping process and better facilitate customer pickups.
And we are bringing a much more robust and data-driven approach to our purchasing efforts. Using our automated forecasting and replenishment platform, we are seeing improved turns and reduced stock outs. While in the early stages of implementation now, we hope to eventually push approximately 60% to 70% of our purchase orders through this system.
Finally, as we mentioned last quarter, some of our ongoing initiatives are focused on the consolidation of certain back-of-house functions as we continually look to improve efficiencies, streamline our processes and drive complexity cost out of the business. These are just a few of the many efforts we have underway to improve our productivity and profitability.
Such steps, along with growth in Complementary Products and expansion of scale, have contributed to our taking adjusted EBITDA margins from the upper single digits pre-COVID to now consistently reporting these returns at double-digit levels. As a result of our productivity initiatives and heightened systematic focus on organizational and people development, we have become better operators and look forward to making further improvements as we execute on all of our strategic priorities.
With that, I'll now turn the call over to Scott. Scott?

Scott M. Deakin

Thanks, J.T., and good morning, everyone. I'll be starting on Slide 5. As J.T. mentioned, in terms of the economic backdrop, we are seeing generally positive but in some ways inconsistent fundamentals. We've seen strong levels of multi-family construction activity and many signs of recovery in commercial construction, while at the same time, navigating soft but improving single-family construction demand and still saw new and remodel activity in the office space, particularly in large urban centers.
Additionally, we are seeing deflationary pricing in steel framing but largely resilient pricing in Wallboard and other products, all while we manage continuing inflationary and activity-based increases in operating expenses as product demand shifts between end markets. With that overview of current market conditions in mind, I'll provide some details related to our fourth quarter results.
Net sales increased 1.2% year-over-year to $1.3 billion for the quarter. Organically, sales were roughly flat with a year ago. Adjusting for 1 less selling day year-over-year, however, net sales increased 2.8% with daily organic sales increasing 2.2%.
From a U.S. end market perspective, continued strength in multi-family and increased commercial Wallboard volumes, coupled with resilience in Wallboard pricing, led to residential sales dollar growth of 5.8% for the quarter. Commercial sales dollar growth in the U.S. was softer at 1.2% overall with an increase of more than 25% for commercial Wallboard revenues, offset primarily by declining steel prices.
Now looking at these fourth quarter results for each of our product segments. Wallboard sales of $544.7 million increased 10.9% in total and 12.7% on a per day basis, comprised of a 15.5% increase in price and mix, offset by a 2.8% decline in volume as the slowdown in the single-family residential market most heavily impacted this product segment, offsetting increases in both multi-family and commercial Wallboard volumes.
Organically, fourth quarter Wallboard sales on a per day basis [grew] 13.1% year-over-year, comprised of a 15.7% increase in price and mix and a 2.5% decrease in volume. In terms of U.S. Wallboard volume, multi-family residential led the way with 27.9% volume growth for the quarter as compared with a year ago. U.S. commercial Wallboard volumes improved 7.3%, marking the fourth consecutive quarter of year-over-year commercial Wallboard volume growth.
And finally, again, reflecting reduced demand across most regional markets, single-family Wallboard volume in the U.S. was down 16.6% in the fourth quarter. Similar to our experience last quarter, Wallboard pricing has remained resilient given the supply side capacity and cost dynamics in that market.
Plus, there has been a small benefit to Wallboard prices from a mix shift toward higher commercial volumes, which utilize a higher-grade, higher-cost Wallboard product. While we are starting to see some minor reduction in Wallboard pricing as we head into the summer, we believe that a lack of excess capacity in the market, the inflationary input and production cost environment and increasingly pressured access to synthetic gypsum are causing Wallboard pricing to be more resilient than we've seen in prior cycles.
For the fourth quarter, the average realized Wallboard price was $482 per 1,000 square feet, up slightly from our fiscal third quarter and up 15.9% as compared with a year ago. While we are extremely pleased to see a jump in single-family starts for May and are encouraged by the recent sentiments expressed by several key homebuilders both regionally and nationally, permits are still down more than 10% year-over-year.
Therefore, we believe that even as starts begin to recover, it will take some time for builders to reverse course and for closings to regain pace. But we are much more optimistic today about the near- to medium-term outlook for the single-family space than we were several months ago.
Multi-family residential is expected to continue its solid construction levels in the near term. And in the commercial space, even though our bidding activity remains robust, concerns about credit risk and lease renewals are creating uncertainty about the prospects of this end market.
With that in mind, given the current headwinds and affordability issues, we expect some modest degradation of Wallboard prices in the coming quarters with likely sequential stabilization in the back half of our fiscal year.
Fourth quarter Ceilings sales of $155.1 million increased 4.2% year-over-year or 5.9% on a per day basis, comprised of a 6.9% benefit from price and mix and a 1% decrease in volumes. Organic sales in Ceilings grew 3.8% or 5.4% on a per day basis, with a 6.4% benefit from price and mix, partially offset by a 1% decrease in volume as Thailand grid volumes lag what was otherwise a period of demand for architectural specialties.
As a reminder, acoustical Ceiling volumes tend to increase seasonally in the summer months. Consistent with that trend, we are starting to see sequentially higher acoustical Ceiling volumes in June.
Fourth quarter steel framing sales of $223.8 million were down 19.2% versus the prior year quarter or 17.9% on a per day basis as deflationary pricing drove a 24.7% decline in price and mix, while volumes increased 6.8%. Organically, steel framing sales were down 17.8% on a per day basis with a 24.2% decline in price and mix, partially offset by a 6.4% increase in volume.
In addition to strength in multi-family, many of our regional markets are experiencing favorable commercial activity with active health care, education, government, hospitality, biotech and other sector projects underway. Prices for steel framing products were down as expected with specific declines of 22.8% year-over-year and 11.9% on a sequential basis.
Prices hit their low point during the quarter in March with a very slight improvement in April. Steel prices will likely remain relatively volatile with slight sequential declines expected for each of the next several quarters.
Complementary Products sales of $380.5 million for the quarter grew 2.3% year-over-year or 4% on a same-day basis as we benefited from positive contributions from acquisitions. Organically, sales of Complementary Products increased 1.5% on a per day basis.
Included in this product segment are our Canadian lumber sales, which comprised 8.5% of the quarter -- of the category in the fourth quarter compared with 13% a year ago when commodity lumber prices were much higher. Excluding these lumber products, net sales for Complementary Products in the fourth quarter grew 7.6% or 9.3% on a per day basis.
As J.T. mentioned, we continue to focus on the growth of our tools and fasteners, EIFS and stucco and insulation product lines, all of which contributed to higher sales growth in the broader complementary category with fourth quarter combined sales growth of 14.8% or 16.6% on a same-day basis.
Now turning to Slide 6, which highlights our profitability for the quarter. Gross profit of $424.5 million increased 2.8% as compared with the prior year period principally due to the continued pass-through of product inflation, improved commercial Wallboard sales, growth in higher-margin Complementary Products and incremental gross profit from acquisitions.
Gross margin improved 50 basis points to 32.5% as a relative mix shift that was more heavily weighted toward multi-family and commercial projects provide a benefit, particularly in Wallboard and steel. As Wallboard prices moderate with a continued near-term slowdown in single-family residential demand and steel margins normalize over the next few quarters, we expect first quarter gross margins to return to our more normal levels around 32%, consistent with our first quarter of fiscal 2023.
Selling, general and administrative expenses increased during the quarter to $279.8 million compared to $264.5 million in the prior year period. And SG&A as a percent of sales was 21.5%, an increase of 90 basis points from 20.5% a year ago while adjusted SG&A expense as a percentage of net sales of 20.9% increased 70 basis points from 20.2% in the prior year quarter.
SG&A leverage was negatively impacted by steel price deflation and the relative mix shift between softened single-family demand and strength in multi-family and commercial. While this end market shift was favorable to gross margin, it also requires a higher operational cost to serve.
Inflationary wages, higher facility costs and a onetime charge for bad debt also contributed to the year-over-year variance. All in, including higher interest expenses, net income increased 1.2% to $75.6 million for the quarter or $1.80 per diluted share compared to net income of $76.5 million or $1.75 per diluted share a year ago.
Growth in earnings per share for the quarter outpaced net income as a result of the continued execution of our share repurchase program. During the quarter, we repurchased approximately 497,000 shares for $27.9 million at an average cost of $56.15 per share compared with 348,000 shares repurchased for $17.6 million at an average cost of $50.63 per share during the prior year quarter. For the full fiscal year 2023, we repurchased 2.3 million shares for $110.6 million at an average price of $48.74 per share.
Adjusted EBITDA remained strong at $154.3 million, up just slightly from $154.2 million in the prior year quarter. Given the previously mentioned single-family demand pressure, steel framing price declines and the inflationary operating cost environment, adjusted EBITDA margin decreased to 11.8% compared to last year's fourth quarter level of 12%.
Now shifting to our balance sheet, which is highlighted on Slide 7. At quarter end, we had cash on hand of $164.7 million and $759.2 million of available liquidity under our revolving credit facilities. We have no near-term debt maturities. And our net adjusted EBITDA debt leverage at the end of the quarter improved to 1.4x, down from 1.8x a year ago.
Cash from operating activities for the fourth quarter was $204.8 million compared with $199.5 million in the prior year period. Free cash flow for the quarter was $185.4 million compared with $191.6 million a year ago as capital expenditures increased year-over-year due to opportunistic off-lease equipment purchases and certain building and leasehold improvements.
For the quarter, capital expenditures were $19.4 million compared to $7.9 million a year ago. And full year capital expenditures were $52.7 million compared with $41.1 million in fiscal 2022. We expect that for fiscal 2020 -- excuse me, fiscal 2024, capital expenditures will be approximately $50 million.
We are always evaluating opportunities to ensure that our capital structure and allocation priorities align with our 4-pillar strategy, balancing investing in our strategic initiatives with paying down debt or otherwise strengthening our balance sheet and opportunistically leveraging favorable market conditions for share repurchases. As such, subsequent to the end of the quarter, we refinanced our term loan, extending its maturity date by 7 years to 2030.
We also entered into new interest rate swap agreements to reduce rates, smooth the variability of interest payment cash flows and otherwise hedge exposure to future interest rate escalation. With these steps, we have successfully strengthened our already solid balance sheet, which further enables the execution of our strategic priorities and growth plans.
All in all, I am extremely pleased with our results for the fourth quarter and full year fiscal 2023. Despite lower steel prices and near-term softness in the single-family market, we are entering fiscal 2024 poised with the same commitment to deliver best-in-class service to our customers and to drive profitable expansion of the business. We are positioned to continue to capitalize on our significant scale, our wide breadth of product offerings and our team's expertise to provide value across all of our end markets.
With that, I'll now turn the call over to J.T. for a review of our outlook starting on Slide 8.

John C. Turner

Thank you, Scott. First, I'd like to provide some further color on our end markets, which continue to inform our outlook. As we enter the new fiscal year, the operating environment continues to evolve, and customers are exploring how best to navigate the economic uncertainty. As such and despite the surge in single-family starts in May, we remain cautious in the very near term as homebuyers linger on the sidelines in most markets and broader macroeconomic concerns persist.
However, the strong starts does provide some additional confidence in the relatively short duration of this slowdown. For multi-family, given the current backlog of projects, we believe that the current strength in this end market should continue at least into calendar 2024.
And in the commercial space, although there is concern that the regional banking crisis and higher interest rates might constrain the availability of capital for construction to date and absent large office, commercial bidding and quoting activity remains strong. In fact, our teams recently secured some significant project wins such as the Walmart headquarters campus in Arkansas, a large Ford battery plant in Kentucky and the new Los Angeles Clippers arena in California as well as many smaller projects underway across our portfolio, providing some confidence to this end market as we head into fiscal 2024.
Looking now at each of our product segments. For Wallboard, as I just mentioned, given the current backlog and longer build times associated with multi-family projects, we continue to expect the strongest growth to come from this end market during our fiscal first quarter with multi-family Wallboard volumes expected to increase in the high teens year-over-year.
Single-family Wallboard volumes will likely be down 10% to 15%, while the commercial end market should continue its modest growth that we've enjoyed for the past 4 quarters with expected commercial Wallboard volumes up mid- to high single digits for the quarter. In all, given the near term drag created by softness in single-family construction, we expect our total Wallboard volumes to be flat to down low single digits for our fiscal first quarter with high single-digit year-over-year inflation in pricing.
In Ceilings, given the current sources of commercial demand and their relative mix of architectural specialties to acoustical tiles, we expect first quarter Ceilings volumes to decline in the low single digits with prices that are up in the low single digits. And for steel framing, we expect volumes to be up low to mid-teens as compared to the first quarter of fiscal 2023, with a year-over-year decline in pricing of 25% to 30% as we'll anniversary last June's peak of steel prices.
Finally, in Complementary Products and including the benefits of recent acquisitions, we expect to see low double-digit sales growth with balanced contributions from both volume and price.
Turning now to Slide 9. Combined, we expect net sales for GMS to be up low single digits year-over-year on a per day basis for our fiscal first quarter. Gross margin should be roughly consistent with both our first quarter of fiscal '23 and our long-term average of around 32%, resulting in an adjusted EBITDA expectation in the $170 million to $175 million range.
As it's typical during our fiscal first quarter, we expect to record a use of cash. However, for the full year, we expect free cash flow generation to be 50% to 60% of our full year adjusted EBITDA.
With slower single-family housing conditions expected to continue in the near term, our team is prepared to continue to navigate this trend and deliver value to our customers, shareholders, supplier partners and the entire GMS team. Moreover, given the limited inventory of existing homes and the structural need for residential housing, we are also encouraged by recent improvement in starts activity and builder sentiment as we look later into the fiscal year. We maintain a high degree of confidence in the future prospects of our business.
Before we open the line for questions, I'd like to remind you of the strength of GMS and the power of our network. With more than 300 distribution yards and over 100 AMES stores, our unique operating model combines the benefits of a North American platform and strategy with a local go-to-market focus enabling us to generate significant economies of scale while maintaining high levels of specialized customer service.
As a leader in the markets we serve, our customers have come to rely upon the benefits that our scale provides to secure the products they need. We are continuing to leverage this scale and employ technology and best practices to deliver an outstanding customer experience. We are building the GMS yard of the future to improve efficiency, productivity and profitability while delivering greater value to our customers and stakeholders.
Thank you for joining us today. We have a number of investor-focused items on our agenda over the next few months, including several conferences, another earnings call in just 2 months. And we expect to issue our inaugural corporate social responsibility report at the end of this summer.
Operator, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question is from Matthew Bouley with Barclays.

Elizabeth Ann Langan

You have Elizabeth Langan on for Matt today. Just to kind of -- nice to speak with you again. So just getting started, as we kind of are seeing this new improvement in residential construction, would you mind talking about how that -- your expectations about how that's going to flow through relative to starts and maybe the timing of when you expect you might start to see volumes pick up on your end?

John C. Turner

Yes. I think we still have a couple of quarter trough here to work through in builder activity, but we certainly were encouraged with the May starts number. And if we start seeing that follow on with the builder sentiment that we're hearing, we would expect that to continue to some extent that the latter half of our fiscal year should probably be better than we would have previously expected. Not comfortable yet to talk about growth in that category, but I believe that what we just talked about certainly is less bad than we would have expected even a quarter ago.
So our first quarter guide here of down 10 to 15 is probably in the neighborhood of 5 to 10 points better than we would have previously expected for this quarter. So the continuing backlog in the Southeast of starts versus completions, that still exists in Florida to some extent. Maybe there's 100,000 units or so total left in that backlog. But now you're starting to see some acceleration in other markets again.
And like I said, I guess 6 months of still double digits, probably declines, I would guess, in volume. But after that, should be back into the single digits. And maybe we'll get lucky and we'll see some growth in the back half.

Elizabeth Ann Langan

Okay. That makes a lot of sense. And would you also mind touching on multi-family, given that backlog seems to be pretty resilient. Would you mind talking about how long you think that will continue? Or if that -- if you see a point at which that might recede?

John C. Turner

Again, even the starts numbers here just the other day were still strong for multi-family. And I think completions still trailed again this last month or for, again, I would say, not still, but again, trailed -- completions trailed starts in multi-family adding to the backlog.
So 6 months, I think we've talked about getting through all of -- all the way to calendar '24. So that would be at least 6 more months of solid growth, and then we'll have to look at what happens.
I would expect those starts numbers to begin to decline as I think most people would say that we're going to be built out from a multi-family perspective mid-'24. We're at record levels now, right, or since at least the early '80s. So I'm comfortable and confident in the next 6 months. How about that?

Scott M. Deakin

We feel good about -- through the calendar year, but as you look at declining rents and you look at cap rates being more difficult to make, there's likely some decline into the next calendar year. But we feel good through this calendar year.

Operator

Our next question is from Jeffrey Stevenson with Loop Capital Markets.

Jeffrey Patrick Stevenson

I just wondered, how did your Wallboard price at the end of April compared with your fourth quarter average Wallboard price? And then Wallboard pricing has held in better than [peer] to start of the year. And just wondered if you think the consolidation at the manufacturer level over the last 5 years has helped contribute to the stability of prices so far.

John C. Turner

Let me answer the macro, and I'll hand it back to Scott. Whether or not that specific issue is driving the resilience in pricing, I'll let others speculate, but it's a factor. There's a lot of factors, quite frankly, in my opinion. And that is -- that's purely that.
Even if you looked at the first quarter shipments from the GA, the Gypsum Association first quarter shipments calendar quarter, we're only down 1%. And so you still have high levels of capacity utilization happening.
And the expectation that those -- that what we will see is sequentially kind of normal seasonality in the market, which would mean this quarter should be better than the first quarter, which means more capacity being utilized.
And then we touched on it in our script. Certainly, there's a lot of noise around synthetic gypsum. And while I'm not an expert in manufacturing of this product, I certainly understand that the raw material itself is becoming more difficult to obtain and more costly to obtain.
So I think between -- what you mentioned, just generally speaking, stronger volume than I think most people would have expected and raw material inflation, of course, wage inflation as well, I think we're seeing a more resilient Wallboard market.

Scott M. Deakin

Specifically to your question, we ended the quarter just a tick higher than we were for the average. And even further, if you look into May, that actually reversed a little bit to come down just about 1% from where we ended the quarter. So on balance, relatively flat.

Jeffrey Patrick Stevenson

Great. That's very helpful color. Appreciate that. And then last quarter, you highlighted the reduction of 170 positions would result in $15 million in annualized savings. And I just wondered how much of that savings was realized in the fourth quarter? And are there any other kind of cost reduction initiatives the company is considering moving forward?

John C. Turner

I guess based upon the stronger-than-expected volumes and very strong steel volumes if you look at it, I wouldn't think that we are doing anything other than the existing productivity initiatives which we always have in place, which we talked about in the script. And that's getting better at what we do in leveraging technology to service our customers better.
And I think that's more cost avoidance opportunity for us going forward, the ability to push more through our machine without having to add as much cost. I think our slight beat to guidance in our SG&A number, we certainly had some contributing factors on the top line. But with steel declining as dramatically as it did, I feel pretty confident that we're achieving that $15 million on a run rate basis.
We did talk about it ramping up. So I would say it's probably a couple of million dollars in this quarter that we're talking about now. And then it will kind of ramp up into the run rate of the $3 million or $4 million a quarter as we go forward.

Operator

Our next question is from David Manthey with Baird.

David John Manthey

If gross margins were to deteriorate from this 32 level closer to 31 at some point during fiscal '24, what would be the most likely cause of that?

John C. Turner

Probably steel doing something strange, I would imagine, would probably be the driver of that. I just don't see it happening in the other categories. Pricing is resilient in Wallboard. And even if that top line was to change a little bit, right, the margin probably doesn't change in that category. And it's really the volatility around steel would be the one negative wildcard for gross margin.

David John Manthey

Okay. And then second, I'm wondering if there's a world that could possibly see cost of goods sold for you deflate, but your SG&A cost stack items continue to insulate labor, transportation, occupancy. We've seen everything go up clearly in unison, but is there a world where one continues to go up, and the other one moderates or goes down?

John C. Turner

Well, that's a tough one. I mean, I think we could see steel continue to decline, right? I mean, even while steel prices declined, we maintained or grew our gross margin in the quarter. So I think that's something that we could see steel deflate. And we could see gross margin stay the same or improve slightly potentially based on the lag effect there on the way down, right?
We would have quoted some higher prices out into the future on commercial projects. Inflation is moderating somewhat on the wage side. It's -- we're still dealing with -- on a year-over-year basis, we're talking about kind of the inflation that we committed to last year. The inflation we're committing to at this point on the wage side is less on a percentage basis than it would have been in previous periods.
Certainly, if the economy stays in kind of this odd malaise or the switch over to services from goods, I don't see a lot of transportation inflation. And I don't see a lot of fuel inflation in this environment either. So I don't know how to answer your question in aggregate. That's some macro things that I see.

Operator

Our next question is from Steven Ramsey with Thompson Research Group.

Brian Biros

This is actually Brian Biros on for Steven. So just start on just Wallboard, maybe overall commercial. Just can you touch on how much was driven by new construction versus T&I work?

John C. Turner

Yes. We don't have as good internal information on pure new versus the TI. But clearly, TI is lower than historical right now. And so there is a stronger mix of new commercial.
And I think what you're seeing is you're seeing some of these mega projects that I mentioned in my remarks in our script here. You're seeing some of these larger projects come to fruition. And certainly, you've seen some huge plant announcements made, whether it be chip manufacturing or otherwise.
I think the -- I read the other day that manufacturing is now accounting for double. Manufacturing starts is accounting for double what it did in the prior year period in the put in place construction numbers. So you are seeing a resurgence in large manufacturing in the United States.
And those projects, they take a lot of Wallboard depending on the type of manufacturing. So certainly, we're seeing new construction be more important.
All that being said, outside of office, you're still seeing good remodel activity. Institutions are remodeling dorms out there. You're seeing multi-family remodeling to compete with the new. You're seeing a lot of retail changes in the retail landscape, a lot of redevelopment of historical malls into all types of multi-use facilities and entertainment arenas and areas.
So there's still a lot of remodel activity out there as well, just not office, large office. What you're seeing is you're seeing the suburban office, right, start to tick up a little bit but that's -- a lot of that's new.

Brian Biros

Helpful. And a follow-up, I guess, is on gross margin expectations. Generally, it's been about 32%. I think you've consistently kind of outperformed a little bit 32.5% in the past 3 quarters. Can you just put into context where you've exceeded expectations over time? And I guess just how realistic is it to think that might continue in the next quarter or 2?

John C. Turner

The mix of multi-family and commercial has helped. The product mix on multi-family and commercial has absolutely helped. And our steel margins were better than expected because our volumes were much better. So some incentive type of impact to gross margin was real in the quarter that probably won't repeat as we go into our fiscal first and second quarters.
So while we still have good volume, those incentives won't be anything -- won't be a part of the calculation until much later in the year when we understand what the absolute total volume might really be. So steel will moderate a little bit this quarter for sure.
And that probably gets us back into our -- as we mentioned and Scott mentioned as well, the Wallboard moderation in price, we expect a little bit of moderation in price in Wallboard. So maybe a tick lower in Wallboard margins as well.

Operator

Our next question is from Mike Dahl with RBC Capital Markets.

Christopher Frank Kalata

It's actually Chris Kalata on for Mike. Just to go back to the Wallboard pricing comments. I think May, you said the pricing came down. How much of that was mix versus like for like? And I think you also said there's some modest pickup in competitive dynamics. Is that broad-based or is that more regional?

Scott M. Deakin

It's tough to fully quantify truly how much the mix impact versus what the price impact was. But generally, I'd say the price came down, but we were benefited by the mix shift offsetting it.
So single-family pricing is -- came down a little bit more. The commercial and multi-family stuff was a little higher. And then we got the mix benefit just in terms of the value of those products relative to single-family was a benefit as well, roughly balanced between the 2.

Christopher Frank Kalata

Understood. That's helpful. And then just going back to commercial and your outlook for this year. Do you expect volumes to remain positive in commercial through the balance of your fiscal year? Or do you expect some sort of weakness to emerge later in the year, given the lag to residential weakness? Or is that kind of big project type work enough to keep volume supportive?

John C. Turner

I mean, at least in the next couple of quarters, the volume looks good. The backlog looks good. As we mentioned in the script, the regional banking discussions, the availability of capital, tightening lending standards, all those kinds of things that we all read about, they haven't impacted the near-term quoting activity yet.
You saw the ABI came out, had growth again for the first time in a few months. Earlier this week, moderate growth but still growth. So most of the indicators would say we're probably in an environment that we should enjoy this mid-single digits through the next couple of quarters.
After that, it will be based upon new data, right? It would be based on the tightening, Fed tightening, bank tightening, but take a look at all that.

Operator

Our final question is from Trey Grooms with Stephens Inc.

Noah Christopher Merkousko

This is Noah Merkousko on for Trey. So first, I wanted to circle back on sort of the margin dynamics just with the mix shift to more multi-family and commercial. I guess how much longer should we expect to see the gross margin benefit and SG&A deleverage from this shift in end market demand?

John C. Turner

Let's see. It will continue until we get -- we start rolling over where we started to see this, which is probably still 3 quarters. So I would imagine that it will be at least 3 quarters where we'll still see the mix shift benefit on the gross margin side to some extent, and that we'll still see the cost to serve being a little bit higher.
The steel, as an example, when you ship 6% or 7% more volume in steel and it's going out at 20% lower prices, and there's inflation on the delivery side, the G&A as a percent of sales looks lousy. But you're still generating the same gross margin dollars or more gross margin dollars that we generated in the prior year period.
So it's still a really nice profitable sale. It's just as a percent of sales, that SG&A looks bad, right? So I think that dynamic is going to continue for 2, 3 quarters.

Scott M. Deakin

Yes. I mean, the macro is the driver. So you take J.T.'s point that if our -- if the view is that single-family is going to be softer for the next couple of quarters as the starts activity resets in the marketplace, and then you've got continued strength in multi-family and commercial during that time period, that relative mix shift difference will be there during that window.

Noah Christopher Merkousko

Got it.

Scott M. Deakin

And in the latter part of the year, we should start to see single-family come back and that start to balance out a little bit more.

Noah Christopher Merkousko

Yes. And then maybe last one for me. Kind of circling back on that thought that we start to see some single-family improvement in the back half of the year. It sounds like supply chains have gotten a lot better, especially since last year, and homebuilders are talking about cycle times improving. So I guess, does that kind of assume that the lag from a start to when you ship volume is shortening at least compared to the sort of last up cycle we went through?

John C. Turner

I mean, likely to some extent, yes. So I'm not sure -- we in Wallboard with the exception of maybe the Southeast didn't really delay projects in comparison to the long international supply chains of some of the finishes. So I think we were still able to supply -- even at the peak, we were still able to supply in a reasonable amount of time, although there was some scrambling going on for sure. But I would say that, yes. I mean, if you think your single family -- most of the builders can complete in 6 months, then start to finish it still is 6 months, and that's our cycle.

Operator

With no further questions, this will conclude today's conference. You may disconnect your lines at this time. And thank you again for your participation.

John C. Turner

Thank you.