Yahoo Finance Hayward Holdings Inc (HAYW) (Q1 2024) Earnings Call Transcript Highlights: Navigating Market ...
Net Sales: Increased 1% year-over-year to $213 million.
Gross Margin: Expanded 260 basis points to 49.2%.
Adjusted EBITDA: $45 million with a margin of 21.2%.
Adjusted EPS: Reported at $0.08.
Free Cash Flow: Use of $83 million in Q1; full year 2024 expected to be approximately $160 million.
Net Debt to Adjusted EBITDA: 4x at the end of Q1, with a target range of 2x to 3x within the year.
Effective Tax Rate: Increased to 24% in Q1 from 9% in the prior year.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Hayward Holdings Inc (NYSE:HAYW) reported first quarter results in line with expectations, demonstrating robust profitability and improved cash flow.
Net sales increased by 1% year-over-year, driven by modest contributions from both price and volume, with gross margins expanding by 260 basis points to 49.2%.
The company successfully completed a voluntary early debt repayment, reflecting confidence in its business performance and cash flow generation.
Hayward Holdings Inc (NYSE:HAYW) maintained its full-year guidance, expecting a return to sales and earnings growth with net sales increasing approximately 2% to 7% and adjusted EBITDA increasing approximately 3% to 11%.
The company was honored with the 2024 ENERGY STAR Partner of the Year Award, highlighting its commitment to innovation and sustainability.
Negative Points
Despite overall growth, net sales in Europe and the Rest of the World declined by 17%, affected partly by delays related to consolidating manufacturing operations in Europe.
The near-term demand environment remains uncertain, particularly impacted by current economic conditions and higher interest rates affecting discretionary new construction, upgrade, and remodel sectors.
Inventory levels have normalized post-pandemic, but the channel is continuously recalibrating inventory on hand, reflecting ongoing economic uncertainty.
The company faces challenges in the European market, including a lack of scale and a different competitive landscape compared to North America.
While the company has protection mechanisms against raw material price fluctuations, there is an ongoing need to monitor and potentially adjust pricing strategies in response to changes in input costs.
Q & A Highlights
Q: Can you discuss the gross margin performance and expectations for the remainder of the year, especially considering the bifurcated performance between North America and Europe? A: (Eifion S. Jones, Senior VP & CFO) - We're pleased with the gross margin of 49.2% this quarter, matching our record. The margin expansion is supported by operating leverage, price-cost neutrality, lean manufacturing, and new product introductions with higher margins. In Europe, the margin is lower due to scale and market differences, but we're addressing this with our manufacturing consolidation in Spain. For the full year, we anticipate about 150 basis points improvement in margin.
Q: How did the readout trend in the quarter, and what are the expectations for North America, especially considering the weather impacts? A: (Kevin P. Holleran, President, CEO & Director) - Our guidance remains unchanged, built around a 2% pricing increase. We expect the aftermarket in the U.S. and Rest of World to remain flat, with discretionary segments like new build, upgrade, or remodel under pressure. For the U.S., we project a 10% decline in volume for discretionary segments. Early Q2 shows improving weather and order flow, aligning with our expectations for the season.
Q: What are the expectations for new pools and renovation markets in 2024? A: (Kevin P. Holleran, President, CEO & Director) - We are sticking to our initial guidance with a 10% decline in new pools and renovations in the U.S. and a 20% decline in international markets. We monitor permits closely, and while Q1 was slightly worse, feedback suggests potential improvement. We anticipate some pickup in remodel activities as deferred projects commence.
Q: Can you quantify the impact of the European operations consolidation on sales and income, and how will this affect future quarters? A: (Kevin P. Holleran, President, CEO & Director) - Europe and Rest of World sales were down 17%, with order flow meeting expectations but deliveries impacted by our consolidation in Spain. This was a timing issue with production rates now normalized. We expect to recover the impacted sales as the year progresses, maintaining our full-year guidance.
Q: What trends are you observing in channel inventory and customer behavior? A: (Kevin P. Holleran, President, CEO & Director) - Post-COVID destocking is largely resolved, and we're now aligning our shipments with channel sales. There's a focus on optimizing inventory levels to reduce carrying costs, supported by our forecasting and manufacturing agility. Our guidance accounts for potentially lower inventory levels in channels.
Q: What are the current trends and expectations for input costs, particularly with recent copper price increases? A: (Eifion S. Jones, Senior VP & CFO) - We anticipated about 2% inflation in our input costs, which is playing out as expected. We have protections like fixed pricing contracts and hedging against copper price increases. We're prepared to adjust pricing if necessary, with annual pricing reviews set for October 1.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
