Richelieu Hardware Ltd (RHUHF) Q3 2024 Earnings Call Highlights: Navigating Challenges with ...
Total Sales Growth: 1.9% for the third quarter.
US Manufacturers Sales Growth: 7.5% in US dollars.
Canadian Sales: $265 million, down 2%.
US Sales: USD 148 million, up 4.8%.
Third Quarter EBITDA: $53 million, down 13.2%.
EBITDA Margin: 11.3%, down from 13.3% last year.
Net Earnings Attributable to Shareholders: $22.7 million, down 23.9%.
Net Earnings Per Share: $0.41, down 22.6%.
Cash Flow from Operating Activities: $50.2 million in the quarter.
Working Capital: $632 million with a current ratio of 3.5 to 1.
Release Date: October 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Richelieu Hardware Ltd (RHUHF) achieved a total sales growth of 1.9% in the third quarter, driven by a strong performance in the US manufacturers market with a 7.5% increase in sales.
The company maintained a solid financial position with a working capital of $632 million and a current ratio of 3.5 to 1, while holding almost no debt.
Richelieu Hardware Ltd (RHUHF) is pursuing an acquisition strategy, with agreements in principle for four new acquisitions, which are expected to add $40 million to $60 million in revenue.
The company is optimistic about future growth opportunities, particularly in the Latin American housing market and the expected recovery of the renovation and remodeling market.
Richelieu Hardware Ltd (RHUHF) continues to benefit from a strong market positioning, a robust network, and a distinctive service offering appreciated by customers.
Negative Points
Sales to hardware retailers and renovation superstores decreased significantly, with a 13.4% drop in the third quarter.
EBITDA for the third quarter decreased by 13.2% compared to last year, with margins under pressure due to temporary factors such as higher inventory costs and lower selling prices.
Net earnings attributable to shareholders fell by 23.9% in the third quarter, primarily due to amortization associated with new business acquisitions and expansion projects.
Cash flow from operating activities decreased significantly, with a cash inflow of $50.2 million in the quarter compared to $104.8 million in the previous year.
The company faces ongoing challenges in the retailer and renovation superstore market due to price deflation and lower demand, impacting overall sales performance.
Q & A Highlights
Q: If you're successful in completing the four acquisitions, would they be completed in the fourth fiscal quarter, and what would be the total revenues associated with these deals? A: Yes, the acquisitions would be settled before the end of the fourth quarter or slightly after that, definitely in 2024. We are talking about adding $40 million to the $60 million already completed at the beginning of the year. (Antoine Auclair, CFO)
Q: How did sales fare in the month of September? A: In September, the trend was similar to previous months. The manufacturers' market saw a slight increase, with the commercial woodworking industry up by 6% and other specialized markets up by 1%. However, other markets experienced a slight decrease of 2.5% to 3%. We anticipate market improvement in the coming months. (Richard Lord, CEO)
Q: Would you expect any margin improvement in Q4, and what are your expectations for full-year margins in 2025? A: A slight improvement is expected, but significant margin changes require market recovery. We are working on expansion projects to improve EBITDA, but material improvement depends on market conditions. (Antoine Auclair, CFO)
Q: How consistently can you add $100 million in run-rate revenue through acquisitions? Is this an average target or an annual minimum? A: This is an average target. If we achieve only $50 million one year, we aim for $150 million the next. Over the next five years, we target an average of $100 million annually, which is feasible given our current portfolio of potential acquisitions. (Richard Lord, CEO)
Q: How is the situation with the US customer lost in Q2, and how are you backfilling those volumes? A: We are gaining sales from other customers. The lost customer decided to import their own brand from China, but we are compensating with sales to other clients like Tractor Supply. We aim to regain business through increased sales to the US retail market and potential acquisitions. (Richard Lord, CEO)
Q: How is the price hike from Bloom progressing, and are other suppliers following suit? A: We haven't seen other suppliers following yet, but non-Asian suppliers will likely increase prices due to rising costs. Asian suppliers, however, are willing to offer better prices, which should improve future margins. (Richard Lord, CEO)
Q: When do you expect to move past the modernization and expansion costs? A: We anticipate moving past these costs early next year. (Antoine Auclair, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.