Yahoo Finance The AZEK Co Inc (AZEK) (Q2 2024) Earnings Call Transcript Highlights: Robust Growth Amid Challenges
Net Sales: Increased to $418 million in Q2, up 11% year-over-year.
Adjusted EBITDA: Expected to range between $364 million to $380 million for the full year.
Net Income: Forecasted to be between $74 million to $75 million.
Residential Segment Growth: Grew 20% year-over-year for the first 6 months.
Adjusted EBITDA Margin: Projected to be between 25.8% and 26.4% for the year.
Capital Expenditures: Approximately $19.2 million for the quarter.
Share Repurchases: About 0.5 million shares repurchased, totaling approximately $25.2 million.
Free Cash Flow: Expected to deliver another strong year of generation.
Debt Levels: Gross debt at $669 million, with net debt at $441 million.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
The AZEK Co Inc (NYSE:AZEK) reported strong performance with double-digit residential sell-through growth, driven by effective execution of growth initiatives.
The company raised its fiscal year 2024 net sales and adjusted EBITDA outlooks, reflecting increased confidence in its business execution.
The AZEK Co Inc (NYSE:AZEK) experienced growth in its residential segment by 19% year-over-year, supported by strong channel, contractor, and consumer demand.
Investments in research and development, brand awareness, and customer relationships have strengthened The AZEK Co Inc (NYSE:AZEK)'s market position as a category leader.
The company's recycling and operational initiatives have expanded, including a new Texas-based operation, enhancing sourcing network and reducing costs.
Negative Points
The AZEK Co Inc (NYSE:AZEK) is delaying its Form 10-Q filing due to discrepancies found in inventory accounting, which required a thorough investigation.
A plant accountant discovered a gap in the company's balance sheet and physical inventory sub-ledger, leading to an independent investigation.
The investigation revealed unsupported manual journal entries by a former employee, increasing inventory value and decreasing cost of goods sold.
The inventory issue led to a restatement of past financials and a $4 million additional cost not previously planned for in fiscal year 2024.
Despite strong performance indicators, the company maintains a cautious outlook, assuming a flattish repair and remodel market and mid-single-digit sell-through growth for the remainder of the fiscal year.
Q & A Highlights
Q: Can you discuss the sell-through deceleration from double-digit this quarter to single-digit in the upcoming quarters? Has this already started in April? A: Jesse G. Singh - CEO, President & Director: The deceleration has not occurred yet. The assumption of a flat R&R market and a sell-through growth of 5 points over that remains consistent with previous forecasts. Current sell-through growth continues at about double digits.
Q: What can you tell us about the new business wins mentioned? Can you size the incremental business? A: Jesse G. Singh - CEO, President & Director: The new business wins span both retail and Pro channels. While not sized specifically, these wins are significant and set us up well for 2025, supporting continued market outgrowth expectations of 5%.
Q: Regarding the investments mentioned, are they mainly for channel servicing and sales rep support? A: Jesse G. Singh - CEO, President & Director: The investments are primarily transition costs associated with significant gains in the Pro or retail channels.
Q: Can you elaborate on what is driving the share gains and if there's a balance between retail and Pro channels? A: Jesse G. Singh - CEO, President & Director: Share gains are driven by a balanced execution in both Pro and retail channels, expansion of the product portfolio, and investments in downstream sales force and SG&A. The focus remains on expanding in premium segments while also addressing underpenetration in mid-price points.
Q: How are you managing the inventory levels, and what are the channel partners' attitudes towards inventory management? A: Jesse G. Singh - CEO, President & Director: The approach is to maintain high service levels with minimal necessary inventory, facilitated by consistent execution of lower lead times. Channel behavior is normal, focusing on sufficient product availability without excessive stock impacting ROI.
Q: What updates can you provide on the capacity expansions and utilization rates mentioned in the earnings call? A: Peter G. Clifford - Senior VP, CFO & COO: Utilization rates are approaching normal levels with significant capacity coming online, particularly in Boise. This supports the company's growth and operational efficiency.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
