Cornerstone Building Brands Reports Strong Third-Quarter 2021 Results; Agrees to Acquire Union Corrugating Company
Cornerstone Building Brands, Inc.(the “Company”), the largest manufacturer of exterior building products in North America, reported strong financial results for the third quarter of 2021 that reflected net sales growth and strategic actions taken to advance long-term value creation.
-Posted third quarter net sales growth of 18% over prior year
-Generated earnings of $4.82 per diluted common share; $0.39 adjusted net income per diluted common share
-Reported net debt leverage of 3.7x, 1.2x lower than prior year
-Agrees to acquire Union Corrugating Company, expands metal roof offering to residential market
Acquisition of Union Corrugating Company
The Company has entered into a definitive agreement to acquire Union Corrugating Company Holdings, Inc. (“UCC”), a leading provider of metal roofing, roofing components and accessories. Headquartered in Fayetteville, North Carolina, UCC has approximately 700 employees across the Central and Eastern U.S. regions.
“The addition of UCC advances our growth strategy by expanding our offerings to customers in the high-growth residential metal roofing market,” said Rose Lee, President and Chief Executive Officer. “Additionally, the acquisition positions us to realize greater manufacturing economies of scale. I look forward to welcoming our colleagues from UCC to the Cornerstone Building Brands family.”
UCC generated approximately $250 million in net sales during the trailing twelve months ended August 2021. The transaction, subject to regulatory approval and customary closing conditions, is expected to be funded with cash on hand and close in the fourth quarter. The Company expects UCC results to be reported through the Commercial business segment.
Third-Quarter 2021 Financial Highlights
Net sales for the third quarter were $1,444.4 million, an increase of 17.7 percent compared with net sales of $1,227.3 million in the same quarter last year, and an increase of 12.4 percent from the third quarter 2019. Pro forma net sales1 of $1,428.0 million were 20.2 percent higher than in the third quarter of 2020, with one fewer fiscal day. The net sales growth versus prior year was driven by price actions in response to rising commodity costs and other inflationary impacts. For the nine months ended October 2, 2021, net sales were $4,111.6 million, an increase of 20.0 percent over prior year. Pro forma net sales1 were $4,012.4 million, a 21.6 percent increase, driven by disciplined price actions of 13.6 percent, to offset inflationary impacts, and strong volume growth of 7.9 percent with three fewer fiscal days as compared to the same prior-year period.
Net income applicable to common shares was $612.2 million or $4.82 per diluted common share compared with $30.0 million or $0.24 per diluted common share in the same quarter last year. Adjusted net income applicable to common shares1 was $49.6 million or $0.39 per diluted common share, a 32.1 percent decrease compared to the prior year. For the nine months ended October 2, 2021, net income applicable to common shares was $620.0 million as compared to a loss of $484.7 million in the prior year. Adjusted net income applicable to common shares1 was $172.9 million or $1.37 per diluted common share compared to $32.2 million in the same period last year.
Pro forma Adjusted EBITDA1 for the third quarter of 2021 was $181.6 million, which was 3.5 percent higher than the same pro forma period a year ago and 8.2 percent higher than the comparable 2019 period. Pro forma Adjusted EBITDA1 growth was driven by strong residential demand and price actions offsetting inflationary impacts partially reduced by higher manufacturing and SG&A costs. For the nine months ended October 2, 2021, pro forma Adjusted EBITDA1 of $503.8 million was 12.6 percent of pro forma net sales1, which increased 30 basis points over the same pro forma period a year ago and 180 basis points from the comparable 2019 period.
Lee continued, “We delivered strong results in the third quarter, as demand remained favorable across our businesses, and our team continued to navigate through supply chain disruptions and labor challenges. Additionally, we remained steadfast on positioning the Company for long-term growth by investing in operational improvements and deploying portfolio actions to strengthen our core capabilities. We are committed to our capital allocation priorities focused on high-return investments and debt reduction.”
Segment Results Versus Prior Year
Due to the timing of the Company’s fiscal calendar, third-quarter 2021 had one fewer fiscal day than third-quarter 2020.
Windows segment net sales for the quarter were $596.5 million, an increase of 19.0 percent versus the same period last year. On a pro forma basis, net sales1 increased 11.6 percent. Disciplined price actions in response to rising commodity costs and other inflationary impacts drove the increase in pro forma net sales1 as compared to the same period last year. Labor shortages and supply chain disruptions constrained shipments. As such, volumes were slightly favorable by 1.3 percent over pro forma third quarter 2020. Operating income was $15.8 million for the quarter, a decrease of $21.5 million or 57.8 percent from the prior-year quarter. Pro forma Adjusted EBITDA1 was $53.3 million or 8.6 percent of pro forma net sales1, a decrease of 31.7 percent, primarily due to manufacturing inefficiencies associated with market-driven labor shortages and supply chain disruptions. Positive price mix net of inflation of $8 million was partially offset by higher SG&A costs of $6 million.
Siding segment net sales for the quarter were $357.9 million, an increase of 11.2 percent versus third-quarter 2020. For the quarter, positive price/mix of $62 million more than offset lower volume due to raw material and labor constraints during the quarter. Operating income was $46.1 million for the quarter, an increase of $0.8 million or 1.8 percent from the prior-year quarter. Adjusted EBITDA1 was $75.2 million or 21.0 percent of net sales, a decrease of 4.9 percent, primarily due to lower volume, increased manufacturing costs to serve customers, and return of near-term costs in SG&A offset by positive price mix net of inflation of 16.1 percent.
Commercial segment net sales for the quarter were $490.0 million, an increase of 21.3 percent versus the same period last year. On a pro forma basis, net sales1 increased 45.0 percent. Disciplined price actions of approximately 42.7 percent taken to mitigate rising steel costs drove the increase in pro forma net sales1 as compared to the same period last year. Operating income was $908.5 million for the quarter, an increase of $852.3 million from the prior year primarily due to the gain on the sales of the insulated metal panels (“IMP”) and roll-up sheet doors (“DBCI”) businesses, which were divested as part of the Company’s strategic portfolio optimization actions to accelerate long-term value creation. Excluding the gain on the sales, operating income increased 37.5 percent from the realization of price actions taken to offset rising steel and other manufacturing costs coupled with higher volume from positive end-market demand, which offset return of near-term costs and manufacturing inefficiencies as a result of supply constraints. Pro forma Adjusted EBITDA1 was $86.3 million or 19.2 percent of pro forma net sales1, an increase of 91.9 percent over the same quarter last year, primarily due to positive price mix net of commodity and other inflation impacts of $49 million, partially offset by manufacturing inefficiencies caused by raw material constraints and higher SG&A costs together totaling $16 million.
Balance Sheet and Liquidity
The Company’s cash flow used in operations during the third quarter of approximately $171.9 million was driven by investments in net working capital to support the strong demand environment and increased inventory valuations from rising commodity costs and other inflationary aspects. Capital expenditures for the quarter were $27.5 million, with greater than 50 percent invested in innovative product offerings and process automation that are expected to generate profitable growth and structural cost improvements in the future.
The Company continues to strengthen the balance sheet and improve its leverage position. As previously disclosed, during the second quarter, the Company fully redeemed its $645 million, 8.00% Senior Notes due April 2026 using available cash from the balance sheet and net proceeds from its extended and upsized senior term loan facility. Additionally, the Company refinanced its credit facilities, meaningfully extending its debt maturities and reducing annual interest costs by more than $50 million a year.
During the third quarter of 2021, the Company repaid the $190 million outstanding balance of its asset-based lending facility. Unrestricted cash on hand was approximately $677 million and liquidity was approximately $1,356 million as of October 2, 2021. The net debt leverage ratio improved to 3.7x at the end of the third-quarter 2021 compared with 4.9x at the end of the third-quarter 2020.
Fourth-Quarter 2021 Guidance
The Company expects net sales to be between $1,425 million and $1,475 million
-Strong single-family and repair and remodel end-market momentum
-Positive non-residential end-markets
-Material shortages and inflation impacts driving price actions
-Gross Profit is anticipated to be between $310 million and $350 million
-Expect Adjusted EBITDA1 to be between $170 million and $185 million
Fiscal Year 2021 Guidance
-Capital spending is projected to be between $90 million to $110 million
-Cash interest expense is expected to be approximately $170 million
-Cash tax rate is expected to be approximately 30%
-Year end net debt leverage ratio expected to be between 3.2x-3.5x
(1) Adjusted and pro forma financial metrics used in this release, including Adjusted EBITDA, are non-GAAP measures. See reconciliations of GAAP results to non-GAAP and pro forma adjusted results in the accompanying tables.
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About Cornerstone Building Brands
Cornerstone Building Brands is the largest manufacturer of exterior building products for residential and low-rise non-residential buildings in North America. Headquartered in Cary, N.C., we serve residential and commercial customers across the new construction and repair and remodel markets. Our market-leading portfolio of products spans vinyl windows, vinyl siding, stone veneer, metal roofing, metal wall systems and metal accessories. Cornerstone Building Brands’ broad, multichannel distribution platform and expansive national footprint includes more than 20,000 employees at manufacturing, distribution and office locations throughout North America. Corporate stewardship and environmental, social and governance (ESG) responsibility are embedded in our culture. We are committed to contributing positively to the communities where we live, work and play. For more information, visit us at www.cornerstonebuildingbrands.com.
Tina Beskind – Vice President Finance & Investor Relations – firstname.lastname@example.org – (866) 419-0042
Source: Cornerstone Building Brands, Inc.