Huttig Building Products, Inc. Announces Fourth Quarter and Full Year 2020 Results

Fourth Quarter 2020 Highlights (as compared to prior year quarter):

-Net sales of $184.6 million compared to $180.4 million

– Reduced operating expenses by 17.2% to $36.1 million

– Operating income increased to $1.0 million compared to a loss of $8.0 million

– Total liquidity increased to $59.3 million compared to $33.7 million a year ago

– Reduced indebtedness by $42.7 million compared to a year ago

– Adjusted EBITDA increased to $2.4 million compared to a negative $4.9 million

– Full year adjusted EBITDA increased to $20.1 million compared to $5.2 million

Huttig Building Products, Inc. (“Huttig” or the “Company”), a leading domestic distributor of millwork, building materials and wood products, today reported financial results for the fourth quarter and year ended December 31, 2020.

“The momentum we generated through the third quarter of 2020 continued and contributed to our solid fourth quarter results,” said Jon Vrabely, President and CEO of Huttig. “In light of the headwinds of restructuring activities and continued supply chain challenges across several key product categories, we were able to grow fourth quarter sales over the prior year and significantly improve our operating results and profitability. Combined with effective working capital management, we ended the year with our highest liquidity and lowest debt levels in several years. I am very proud of our entire organization and look forward to continuing our progress in 2021 as we build on the foundation we established in 2020.”

Fourth Quarter 2020 Compared to Fourth Quarter 2019

Net sales were $184.6 million in the fourth quarter of 2020, which were $4.2 million, or 2.3%, higher than the fourth quarter of 2019. The increase was attributable to higher levels of residential construction activity offset by a number of factors, including pandemic-induced changes to the operating environment resulting in supply chain disruption and labor shortages, which have increased lead times to our customers for value-add production sales, and the execution of planned restructuring activities, including the closure of two branches in the third quarter of 2020. We also commenced a broader product rationalization project in the third quarter designed to strengthen our focus on core and strategic products. This project, while initially resulting in lower sales as we forgo replenishment or promotion of these items, is expected to ultimately generate higher gross margins and higher sales of focused product categories.

Due primarily to restructuring activities and supply chain disruption and labor shortages, which lengthened lead times to our customers, millwork sales decreased 1.9% to $88.3 million in the fourth quarter, compared to $90.0 million in the fourth quarter of 2019. Building products sales increased 7.5% in the fourth quarter of 2020 to $82.9 million, compared to $77.1 million in the fourth quarter of 2019 as sales benefitted from consistent high levels of demand for certain product lines within the category, including certain strategic product lines. The sales growth in this category was also offset by supply chain disruption as well as product rationalization activities related to our objective of focusing on higher-margin, non-commoditized products. Wood product sales increased 0.8% in the fourth quarter of 2020 to $13.4 million, compared to $13.3 million in the fourth quarter of 2019.

Gross margin was $37.1 million in the fourth quarter of 2020, compared to $35.6 million in the fourth quarter of 2019. As a percentage of sales, gross margin was 20.1% in the fourth quarter of 2020, compared to 19.7% in the fourth quarter of 2019. The increase in gross margin percentage reflects the favorable impact of our focus on higher-margin sales opportunities, partially offset by product mix as higher-margin categories were more significantly affected by supply chain disruption and labor shortages. Gross margins were also impacted by branch closures and product rationalization activities as we reduced inventories at less than normal margins. We completed restructuring activities in the fourth quarter of 2020. These initiatives, taken together, are expected to improve our overall margin performance in 2021.

Operating expenses decreased $7.5 million, or 17.2%, to $36.1 million, or 19.6% of net sales, in the fourth quarter of 2020, compared to $43.6 million, or 24.2%, of net sales in the fourth quarter of 2019. Personnel costs decreased $2.7 million as a result of expense reduction actions taken in response to the COVID-19 pandemic, including workforce reductions, wage reductions, suspension of our matching contributions under our employee benefit plan and restructuring activities. The majority of wage reductions were restored during the fourth quarter of 2020. These cost reductions were partially offset by higher incentive compensation driven by improved operating results. A severance charge of $0.8 million was recognized in the fourth quarter of 2019. Non-personnel costs decreased $4.8 million primarily due to the curtailment of advertising and promotion, travel, and other discretionary spending, due in part to the pandemic environment. Vehicle and workers’ compensation insurance costs, rentals due to space and equipment management, contract hauling and fuel costs, based on volume levels and underlying costs, were also lower in the fourth quarter of 2020.

Net interest expense was $0.6 million in the fourth quarter of 2020 compared to $1.4 million in the fourth quarter of 2019. The lower interest expense in the fourth quarter of 2020 reflects both lower average debt outstanding and lower interest rates.

Income taxes were $0.1 in the fourth quarter of 2020 and zero in the fourth quarter of 2019.

As a result of the foregoing factors, we reported net income from continuing operations of $0.3 million for the quarter ended December 31, 2020, compared to net loss of $9.4 million for the quarter ended December 31, 2019.

Adjusted EBITDA was $2.4 million for the fourth quarter of 2020, compared to $(4.9) million for the fourth quarter of 2019. Adjusted EBITDA is a non-GAAP measurement. See reconciliation below of non-GAAP financial measures.

Fiscal 2020 Compared to Fiscal 2019

Net sales from continuing operations were $792.3 million in 2020, a decrease of $19.7 million, or approximately 2.4%, compared to $812.0 million in 2019. The decline was attributable to a number of factors, including pandemic-induced changes to the operating environment, resulting in supply chain disruption and labor shortages, which have increased lead times to our customers for value-add production sales, and the acceleration of planned restructuring activities, including the closure of two branches in the third quarter of 2020. In the second half of the year, we also commenced a broader product rationalization project designed to strengthen our focus on core and strategic products. The product rationalization plan, while initially resulting in lower sales as we forgo replenishment or promotion of these items, is expected to ultimately generate higher gross margins and higher sales of focused product categories. Following a strong first quarter in 2020, some of our largest markets were significantly impacted early in the pandemic. By the end of the third quarter, activity had recovered to levels approaching prior year sales, and fourth quarter net sales recovered to moderately exceed prior year levels. Demand has improved as construction activity has rebounded.

Net sales in our major product categories changed as follows in 2020 from 2019: millwork sales decreased 7.2% to $357.0 million, building product sales increased 3.4% to $379.0 million, and wood products decreased 7.4% to $56.3 million. Millwork sales were negatively impacted by supply chain disruption and labor shortages, which lengthened lead times to our customers. Building products sales increased due to consistent high levels of demand for certain product lines within the category, including strategic product lines; however, sales growth in this category was offset by supply chain disruption, and product rationalization activities related to our objective of focusing on higher-margin, non-commoditized products. Wood product sales were also negatively impacted by sourcing disruption which more than offset price increases for products within the category.

Gross margin decreased $2.6 million, or 1.6%, to $159.4 million in 2020 as compared to $162.0 million in 2019. The decrease in gross margin was due to lower overall sales volumes. Gross margin as a percentage of net sales increased to 20.1% in 2020 compared to 20.0% in 2019. The gross margin percentage reflects the favorable impact from our focus on higher-margin sales opportunities, partially offset by sales product mix as higher-margin categories were more significantly affected by supply chain disruption and labor shortages. Gross margins were also impacted by branch closures and product rationalization activities as we reduced inventories at less than normal margins. We completed restructuring activities in the fourth quarter of 2020. These initiatives, taken together, are expected to improve our overall margin performance in 2021.

Operating expenses, excluding a restructuring charge of $1.5 million and goodwill impairment charge of $9.5 million, decreased $20.0 million, or 12.1%, to $145.6 million, or 18.4% of net sales, in 2020, compared to $165.6 million, or 20.4% of net sales, in 2019. Personnel expenses decreased $11.6 million as a result of expense reduction actions taken in response to the COVID-19 pandemic, including workforce reductions, wage reductions, suspension of Company matching contributions under an employee benefit plan and reduced medical claims. Personnel costs in 2019 included a $0.8 million severance charge related to cost reduction actions. Non-personnel expenses decreased $8.4 million in 2020, primarily due to curtailment of travel, advertising and promotion, and other discretionary spending, due in part to the pandemic. Vehicle and workers’ compensation insurance costs, rentals due to space and equipment management, contract hauling and fuel costs, based on volume levels and underlying costs, were also lower in 2020.

Net interest expense was $3.6 million in 2020 compared to $6.6 million in 2019. The lower interest expense in 2020 reflected both lower average outstanding borrowings in 2020 and lower interest rates.

We recognized an income tax expense from continuing operations of $0.1 million for the year ended December 31, 2020 compared to an income tax expense of $11.1 million for the year ended December 31, 2019.

As a result of the foregoing factors, we reported a net loss from continuing operations of $0.9 million in 2020 as compared to a net loss of $21.3 million in 2019.

Adjusted EBITDA was $20.1 million in 2020 and $5.2 million in 2019. Adjusted EBITDA is a non-GAAP measurement. See below reconciliation of Non-GAAP Financial Measures.

Balance Sheet & Liquidity

Cash provided by continuing operating activities was $42.8 million in fiscal 2020 and $6.6 million in fiscal 2019, an increase of $36.2 million. Total available liquidity was $59.3 million as of December 31, 2020 compared to $33.7 million at December 31, 2019. At December 31, 2020, total available liquidity included $0.3 million of cash plus $59.0 million of availability under our credit facility, while at December 31, 2019, total available liquidity included $2.2 million of cash plus $31.5 million of availability under our credit facility.

For the full fourth quarter results, click here.

About Huttig

Huttig, currently in its 137th year of business, is one of the largest domestic distributors of millwork, building materials and wood products used principally in new residential construction and in-home improvement, remodeling and repair work. Huttig distributes its products through 25 distribution centers serving 41 states. Huttig’s wholesale distribution centers sell principally to building materials dealers, national buying groups, home centers and industrial users, including makers of manufactured homes.

Source: Huttig Building Products, Inc.