JELD-WEN Holding, Inc. (JELD) Earnings Call Transcript & Summary

Good afternoon. I'm Matt Bouley, Barclays U.S. building products analyst. It's my pleasure to have JELD-WEN here with us to close out our 38th Annual Barclays Industrial Select Conference. We've got Gary Michel, CEO. For everyone listening, if you've got any questions you want me to ask, if you don't have my email, it is up on the left side of the screen on the webinar there. And the audience response question should be up on the right side of the webinar. It's always appreciated for folks to fill that out every year. So with that, I'm going to let Gary kick it off here with just a few opening remarks, and then we'll jump right into Q&A. So Gary, please go ahead, sir.

Thanks, Matt. Appreciate it. Thank you all for joining and for your interest in JELD-WEN. For those of you that don't know much about us or don't know anything about us, we're a global leader in windows and doors. We are celebrating our 60th year, or celebrated our 60th year in 2020. We operate across North America, Europe and Australia and -- or Australasia. And began as a company, like I said, 60 years ago with a single mill in Oregon. We've grown to greater than $4 billion revenue company on a global basis. It's been on -- built on acquisitions. 14 acquisitions since 2015. But all of those acquisitions, prior to that, really part of the fabric of what's made JELD-WEN, including brands in Europe and Australasia and in the United States that are really kind of premier that indoors, windows and the like, some of them household names on their own. Over the last several years, since I joined the company in 2018, we've been kind of on an accelerated transformation plan really around 4 pillars, focusing on core revenue growth, operational excellence and margin expansion, disciplined capital allocation and really building a high-performance culture for our people, which has really started to play out for us in delivering performance. All of that has been built on a foundation of deploying a business operating system that we call JEM, the JELD-WEN Excellence Model, which is really a lean problem-solving culture. We're several years into that now and starting to see the benefits of that show up in cycle time reduction, share gain and margin improvement. We also set out on a program to rationalize and modernize our footprint and our operations. We did announce yesterday that we had expected -- when we set that out, it's about $100 million program. We're about 1/3 the way through that in deployment with kind of that $25 million, $30 million run rate hitting our P&L this year, and we've identified the next 1/3 of those programs. They're in various stages of deployment. We'll expect to see those at a run rate kind of in the next 12 to 18 months, but very excited about the work that's gone on there. Basically, what it is, is reducing our footprint but having more modern, more automated, better-located facilities that improve our capacity even as we take footprint and rooftops out of the system. So the combination of JEM and these programs has been really seen in the benefit in our margin expansion and our ability to serve customers reliably. Never would hope for a year like 2020, again, in terms of pandemic and natural disasters and all kinds of other things. But I do think that if you look at the way that our business was able to perform last year, it really does show that we built a nice foundation of operational improvement and some commercial excellence that paid through. Even as markets were either shut down or closed or certainly depressed, in some cases, we were able to deliver for our customers, deliver for the shareholders and deliver for our communities as well. So I guess that's probably a good opening, and I'll let you ask some questions there, Matt.

You got it. That's perfect. Thank you very much for that comprehensive overview. Plenty of areas to jump off there. So maybe before we zoom out to the -- some of the bigger picture initiatives that you've been working on, maybe just kind of drill into some of the items hot off the presses from yesterday. Maybe speak a little bit about the volume side of things. You mentioned yesterday there was a little bit of acceleration through Q4. I guess we can keep it in North America first. But thinking about the outlook for 2021, what are you guys thinking about volumes? And how is that differing across doors and windows?

Yes. So for North America, we're pretty pleased with the market backdrop. Residential and construction, clearly a strong point, will be a tailwind for us in our business, where we do quite a bit of business in residential and construction. And the commitments and share gains that we've made over kind of the quiet period of last year and year before will come to help us accelerate revenue into 2021. So we're pretty excited about that. When you think about kind of what's going on with doors and windows, on the door side, we've been -- the cycle time improvements and our ability to meet customer demand in that particular -- those particular categories have been pretty good and pretty stable, and we continue to add capacity and capability there, although we're kind of at the high end there when you think about the primary point that goes into the door skins. We're continuing to add capacity down and we'll pick up some more capacity later in the year. But, yes, we feel pretty good about our ability to meet accelerating growth there. On the window side, kind of interestingly, that's been a big constraint for builders, pretty public constraint for builders over the last couple of quarters. The work that we've done over the last kind of 12 to 18 months to improve our operations, particularly in vinyl windows, is really paying off. We've got very competitive lead times right now that are much better than what the rest of the industry seems to have. So we're able to use that to pick up some new business as well as gain some share of wallet back from other periods when we had poor performance about 18 months, 2 years ago. So we're pretty pleased where that goes. We hope that all of these starts turn into closings and that, that is at the accelerated pace that everyone's talking about, because we're in a great position to pick up volume there.

Got it. That's helpful. And then you mentioned the share gains. You've been talking a little bit about that for a couple of quarters now. It sounds like perhaps a little bit happening on both sides, doors and windows. I don't know how much you can say, but I'm just curious, where are you taking share? Is it meaningful? And then just kind of how to think about the profitability of these products where you're gaining share.

Yes. So in the -- particularly in the residential and construction space, we get commitments. And those commitments, as this acceleration starts to pick up, is where we'll see the actual volume come through. So we're pretty excited about that. It's really working those relationships and working the product categories with builders. We've been a little innovative as well in our delivery processes with them. So that's been kind of why we've been winning, and that's been pretty good. And given the pricing in the door market, it's all at good margin, too. So we're very, very pleased with that. We've taken the same work that we did on the door side, and we've talked about publicly around commercial excellence, around rationalization of our customer base and segmentation of our customer base, and we do that in windows as well. So now that our operations are in a good place, we're starting to see the ability to meet demand there. So as customers are looking to fill in, we're picking up share of wallet and we're recapturing some of the share there as well. So we expect that to continue to accelerate as well through the year.

Got you. And then -- so that's helpful. The windows side, interesting comment you made there about having a little bit better lead times because clearly, windows, I think, structurally, is a category that -- a little bit more labor-intensive and all that. Can you maybe just elaborate a little bit on that? What are you doing to get the production really going on the windows side and kind of your degree of confidence of sort of getting through the backlog that's built in that business?

Well, it comes back to our deployment of our business operating system, our lean deployment called JEM, the JELD-WEN Excellence Model. We probably -- the windows business was a little behind our doors business in the initial deployments. But using those tools and using those capabilities across windows to improve the operations has really been beneficial. So it's about, first of all, making sure that we've got a good IBP or SIOP process, good forecasting, demand forecasting plan, how do we plan the operations. It was about making sure that we've got good visual management. We've got standard work. We've right -- set the right playbooks, really understanding the value stream and where the constraints were in our operations. So really starting to deploy the JELD-WEN Excellence Model is starting to have the benefits that are allowing us to quote better lead times in the windows area. And the fact that, that happens to be a constraint right now for many builders, it's probably an opportunity. Because the 2 come together, we're able to perform at the same time that there's demand to be had. So we're expecting that. That's exactly the best part about lean, right? You've got improved cycle times, that's a competitive advantage. That turns into market share. So it's kind of one of the things you always talk about when you're trying to deploy lean, and here's a perfect example of that.

Got it. So that's a great segue into JEM because it sounds like from your perspective, I mean, at the end of the day, it's a lot more than just ripping costs out of the business. So can you speak to just a little bit of that beyond the windows side? What are some of the operational opportunities? The whole point of JEM is it's never finished. So if we think about the next 1, 3, 5 years, what are some of the opportunities we can look for as kind of a guidepost for us?

Yes, that's an articulate way of saying, it's never finished. I usually always say we're just starting. But yes, it's always -- the more you do, the more you find opportunity. And it becomes just part of the fabric of the company and the culture of our people to continuously look for ways to improve. So it's everything you would expect in a problem-solving lean culture, right? It's around visual management. It's around managing for daily improvement. It's around setting targets and looking for breakthroughs, value stream, understanding your value stream map and where your constraints are and then what can be, right? For us, it started with -- it really started with building a problem-solving culture, deploying visual management into all of our plants and our process and cadence around coaching and managing. We're now into kind of the next phase. We brought in some new talent, new thinking to help us kind of move to the next level, which is really about standout performance, in particular, model plants. We've identified some model value streams within the company, and we're now deploying kind of transformation tools into those so that we'll have several plants. We'll always have plants rolling through, but we'll start with these model plants to start testing out kind of the tool set that we have. And we are starting to see separated performance already in a number of places where we've deployed JEM effectively. So we're just trying to extend that into the rest of the organization. This is not a North American phenomenon. This is something we're doing across the enterprise. And just to mention as well, we deploy JEM tools across our functions as well. So it's not just about manufacturing capabilities. It's about using the same type of lean tools as we look at areas like marketing and even in our legal department. So it's been fascinating to see -- it's always fascinating to see how people deploy the tools. But we're building a culture around high performance, and this is the -- kind of the linchpin or the foundation of doing that.

Got it. No, that's very helpful and certainly something we'll continue to watch for. So then some of the more discrete actions you've been doing on the rationalization and modernization side. You outlined, I guess, kind of the expectations this year around the cost that should actually come out of the business tangibly. Can you just kind of lay out the longer-term road map? And I don't know, post COVID, did you sort of see any opportunities to accelerate that or actually pull back on any projects that you might have thought you needed to do, but now didn't? Just how has that kind of evolved over the past year?

Well, yes, it's funny, before last year, I was always asked, what would you do during a downturn? Would you pull back this investment, right? And I said, no. This is exactly -- we'll be in a better position because we already know the things that we need -- the levers we need to pull because these are the exact type of things you would do in a downturn anyway, right? If you were really trying to take cost out and improve your overall cost position. So you'll remember, rationalization and modernization program is really around taking up $100 million out of our fixed cost base by reducing footprint and rooftops, quite frankly, but also modernizing our facilities, adding more automation, to get better throughput, better utilization, better quality, quite frankly, out of our doors and windows businesses primarily, but it is a global program. So in 2020, we continued down the path of all the programs that were in flight. We probably took 1 quarter off during the second quarter when things were a little uncertain. We didn't know where were we -- not off of the programs that were in flight, but off of adding anything new. And so we probably lost about 1 quarter last year out of new deployments, but we continue to write-back where we left off. And the great thing about that is the work we're doing today or the work -- the benefits we're getting today are things we did 12 and 18 months ago. So the fact that we've got about 1/3 of those programs already deployed, we're going to just start clipping the coupons on those. The benefits are in the business and will be in the run rate. The programs that we're deploying now will give us benefits in the next 12 to 18 months. So it's about 1/3 that we've already deployed, and we're waiting on the results. And then the other 1/3 is -- or the second 1/3 is programs that are in various stages of deployment and will be giving us the results probably in the next 12 to 18 months. Then there's another 1/3 that we'll start focusing on.

Perfect. Okay. Very helpful color there. So we should talk about the pricing environment a little bit, just given everything going on in inflation, which is a separate question. But just sticking to the pricing side, what should we expect across the business? I don't know, last year, you guys got into a fair bit of detail about the level of price increases you had seen or had taken in several categories. So whatever you're willing to say. Be curious to just kind of hear the level of pricing you're expecting this year.