Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The AZEK Co Inc (AZEK, Financial) reported a 12% net sales increase year-over-year, with an 18% increase excluding the recently divested Viacom business.
- Adjusted EBITDA grew substantially year-over-year, with a margin expansion of 260 basis points to a record 27.5%.
- The residential segment saw a strong 33% year-over-year growth in adjusted EBITDA margin, reaching 28.1%.
- The company delivered strong cash generation and announced a $600 million expansion of its share repurchase program.
- New product launches and channel expansion initiatives are driving sales and market conversion, with significant gains expected in fiscal year 2025.
Negative Points
- The commercial segment experienced a 49% year-over-year decline in net sales, primarily due to the sale of the Viacom business.
- There was some market-driven softness in the residential new construction market, impacting the exteriors business.
- The company expects a down repair and remodel market for the remainder of fiscal year 2024.
- Channel partners' inventory levels are expected to be at or below historical averages, indicating potential future sales pressure.
- The company noted regional softness in the exteriors business, particularly in the Northeast, which could impact future performance.
Q & A Highlights
Q: Can you give some color on how orders and backlogs have progressed through the quarter and into July? How are different customer segments performing?
A: Jesse Singh, CEO: We are predominantly a pro business with about 5% of our decking in stock at retail. Our business is skewed towards premium products, with 60% in the premium category. We saw double-digit growth in Deck, Rail & Accessories, although it moderated slightly. Contractor backlogs remain steady, and we saw some geographic weakness in our exteriors business.
Q: What are your expected sell-through trends after the fourth quarter? Is there any deceleration embedded in that?
A: Jesse Singh, CEO: For the fourth quarter, Deck, Rail & Accessories are expected to be above mid-single digits, while exteriors will be below mid-single digits. Exteriors make up about 25% of our business. We have several growth initiatives, including new products and downstream contractor wins, which should drive sell-through growth.
Q: Can you quantify the impact of channel expansion on growth this year and next?
A: Peter Clifford, CFO: We aim to outgrow the market by 5% to 7%. Channel expansion and new products have contributed about 5% to our growth this year. We expect similar self-help growth initiatives to continue into 2025, giving us a strong start for the year.
Q: How will you manage margins if the market weakens?
A: Peter Clifford, CFO: We have multiple levers to pull, including increasing recycled content, improving conversion costs, and driving productivity in our plants. We have also been investing in SG&A to support growth, but we can achieve modest SG&A leverage in the future.
Q: Can you discuss the success of new products and their impact on growth in 2025?
A: Jesse Singh, CEO: New products like our aluminum substructure and terrain plus decking have seen good adoption. We expect continued growth from these products into next year. We also have new products like the timber tech Fulton rail, which should see strong adoption in its first year.
Q: How will the new Texas facility impact recycling content in your products?
A: Jesse Singh, CEO: The Texas facility will allow us to expand recycled content in our exteriors business and continue to launch new products. It will also help us increase recycled content in our premium exterior products.
Q: Are you seeing any pressure at the entry or mid-price point products?
A: Jesse Singh, CEO: Entry-level products are a small part of our business. While there may be some market softness, our growth in this segment is offsetting any market decline. Special order products are performing stronger than stock positions.
Q: How do you view the opportunity for additional share repurchases or acquisitions?
A: Peter Clifford, CFO: With our new share repurchase program, we will be modestly programmatic but also opportunistic, especially given the current market dislocation. We remain focused on organic growth and will repurchase shares opportunistically.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
