Huttig Building Products, Inc. Announces Second Quarter 2019 Results

Second Quarter 2019 Highlights:

• Net sales of $218.5 million
• Operating income increased 57% to $3.3 million
• Operating cash needs reduced by $15.6 million
• Successfully completed a major enterprise resource planning system upgrade

ST. LOUIS, July 29, 2019 (GLOBE NEWSWIRE) -- Huttig Building Products, Inc. (“Huttig” or the “Company”) (NASDAQ: HBP), a leading domestic distributor of millwork, building materials and wood products, today reported financial results for the second quarter ended June 30, 2019.

“Our sales are slightly behind last year’s pace due to some market softening caused in part by inclement weather across many parts of the country in the first half of the year,” said Jon Vrabely, Huttig’s President and Chief Executive Officer.  “While we made a significant investment in, and successfully executed a major ERP upgrade, we experienced temporary disruption which impacted our sales.  Meanwhile, our cost management initiatives have begun to improve operating income, and our cash management has significantly reduced our borrowing needs. We continue to focus on achieving efficient working capital levels.”

Results of Operations

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Net sales were $218.5 million in the second quarter of 2019, which were $4.9 million, or 2.2%, lower than the second quarter of 2018.  The decrease in net sales was primarily attributed to a modest softening in the markets we serve coupled with prolonged adverse weather conditions in many parts of the country which negatively impacted construction activity.

Millwork product sales decreased 3.9% in the second quarter of 2019 to $99.5 million, compared to $103.5 million in the second quarter of 2018, building products sales increased 1.7% in the second quarter of 2019 to $101.1 million, compared to $99.4 million in the second quarter of 2018, and wood product sales decreased 12.7% in the second quarter of 2019 to $17.9 million, compared to $20.5 million in the second quarter of 2018. The proportionate increase in sales of building products is generally consistent with our strategic growth initiatives.

Gross margin was $44.3 million in the second quarter of 2019, compared to $45.1 million in the second quarter of 2018. As a percentage of sales, gross margin was 20.3% in the second quarter of 2019, compared to 20.2% in the second quarter of 2018.  Gross margins were generally commensurate with sales activity.

Operating expenses decreased $2.0 million to $41.0 million in the second quarter of 2019, compared to $43.0 million in the second quarter of 2018.  Personnel costs decreased $0.3 million as lower wages and variable compensation costs were partially offset by higher medical costs. Non-personnel costs decreased $1.7 million for the quarter primarily due to non-recurring litigation and settlement costs of approximately $2.5 million in 2018. Other decreases in non-personnel expenses were offset by higher rent from our operating facilities, including expansion efforts. As a percentage of sales, operating expenses were 18.8% in the second quarter of 2019 compared to 19.2% in 2018. Adjusted for non-recurring litigation and settlement costs, our operating expenses were 18.1% in 2018.

Net interest expense was $1.8 million in the second quarter of 2019 and $1.7 million in the second quarter of 2018 as the impact of lower average borrowing was offset by higher interest rates.

Income tax expense was $11.8 million for the quarter ended June 30, 2019, as compared to $0.2 million for the second quarter of 2018.  We recorded a tax charge of $11.8 million in the second quarter of 2019 related to an increase in our deferred tax asset valuation allowance.  The increase was required as realization of the net deferred asset no longer meets the more-likely-than-not criterion under US GAAP.  Most of the Company’s net deferred tax asset is comprised of federal tax loss carryforwards which will begin expiring in 2030.  The deferred tax valuation allowance is assessed each reporting period and the amount of net deferred tax assets considered realizable could be adjusted in future periods based on the Company’s financial performance.  The net operating loss carryforwards remain available to offset future taxable income.

As a result of the foregoing factors, we reported a loss from continuing operations of $10.3 million for the quarter ended June 30, 2019, compared to income from continuing operations of $0.2 million for the quarter ended June 30, 2018.

Adjusted EBITDA was $5.2 million for the second quarter of 2019 compared to $6.5 million for the second quarter of 2018.  Adjusted EBITDA is a non-GAAP measurement.  See below reconciliation of Non-GAAP Financial Measures.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Net sales were $415.9 million in the first six months of 2019, which was $5.5 million, or 1.3%, lower than the first six months of 2018.  The decrease in net sales was primarily attributed to a modest softening in the markets we serve coupled with prolonged adverse weather conditions in many parts of the country which negatively impacted construction activity.

Millwork product sales decreased 2.0% in the first six months of 2019 to $194.8 million, compared to $198.8 million in the first six months of 2018, building products sales increased 2.4% in the first six months of 2019 to $189.3 million, compared to $184.9 million in the first six months of 2018, and wood product sales decreased 15.6% in the first six months of 2019 to $31.8 million, compared to $37.7 million in the first six months of 2018. The proportionate increase in sales of building products is generally consistent with our strategic growth initiatives.

Gross margin was $81.7 million in the first six months of 2019, compared to $83.8 million in the first six months of 2018. As a percentage of sales, gross margin was 19.6% in the first six months of 2019, compared to 19.9% in the first six months of 2018. The reduction in gross margin percent was primarily attributed to a higher proportional increase in building product sales as compared to other higher margin product categories as well as pressure from a competitive pricing environment and higher costs from customer promotion programs.

Operating expenses decreased $1.6 million to $80.6 million in the first six months of 2019, compared to $82.2 million in the first six months of 2018.  Personnel costs decreased $0.5 million as lower wages and variable compensation costs were partially offset by higher medical costs. Non-personnel costs decreased $1.1 million in the first six months of 2019 primarily due to non-recurring litigation and settlement costs of approximately $3.3 million in 2018. Other decreases in non-personnel expenses were offset by higher rent from our operating facilities, including expansion efforts. As a percentage of sales, operating expenses were 19.4% in 2019 compared to 19.5% in 2018. Adjusted for non-recurring litigation and settlement costs, our operating expenses were 18.6% in 2018.

Net interest expense was $3.5 million in the first six months of 2019 compared to $2.8 million in the first six months of 2018.  The increase was primarily due to higher interest rates in the first six months of 2019 compared to the first six months of 2018.

Income tax expense was $11.1 million for the first six months of 2019, as compared to an income tax benefit of $0.9 million for the first six months of 2018. We recorded a tax charge of $11.8 million in 2019 related to an increase in our deferred tax asset valuation allowance.  The increase was required as realization of the net deferred asset no longer meets the more-likely-than-not criterion under US GAAP.  Most of the Company’s net deferred tax asset is comprised of federal tax loss carryforwards which will begin expiring in 2030.  The deferred tax valuation allowance is assessed each reporting period and the amount of net deferred tax assets considered realizable could be adjusted in future periods based on the Company’s financial performance.  The net operating loss carryforwards remain available to offset future taxable income.

As a result of the foregoing factors, we reported a loss from continuing operations of $13.5 million for the six months ended June 30, 2019, compared to a loss from continuing operations of $0.3 million for the six months ended June 30, 2018.

Adjusted EBITDA was $4.9 million for the six months ended June 30, 2019 compared to $8.7 million for the six months ended June 30, 2018.  Adjusted EBITDA is a non-GAAP measurement.  See below reconciliation of Non-GAAP Financial Measures.

Balance Sheet & Liquidity

Cash used in continuing operating activities was $19.8 million for the six months ended June 30, 2019, compared to cash used of $69.6 million a year ago.  At June 30, 2019, the Company had $39.6 million of total liquidity including excess committed borrowing availability of $38.5 million and cash of $1.1 million.  Total liquidity was $41.0 million at June 30, 2018 including excess committed borrowing availability of $39.4 million and cash of $1.6 million.

Conference Call

Huttig Building Products, Inc. will host a conference call Tuesday, July 30, 2019 at 10:00 a.m. Central Time.  Participants can listen to the call live via webcast by going to the investor portion of Huttig’s website at .  Participants can also access the live conference call via telephone at (866) 238-1641 or (213) 660-0927 (international). The conference ID for this call is 1148978.

About Huttig

Huttig, currently in its 135th 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 27 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.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “estimate,” “project” or similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words.  Statements made in this press release looking forward in time, including, but not limited to, statements regarding our current views with respect to financial performance, future growth in the housing market, distribution channels, sales, favorable supplier relationships, inventory levels, the ability to meet customer needs, enhanced competitive posture, strategic initiatives, absence of material financial impact from litigation or contingencies, including environmental proceedings, are included pursuant to the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995.   

These statements present management’s expectations, beliefs, plans and objectives regarding our future business and financial performance. We cannot guarantee that any forward-looking statements will be realized or achieved.  These forward-looking statements are based on current projections, estimates, assumptions and judgments, and involve known and unknown risks and uncertainties. We disclaim any obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.

There are a number of factors, some of which are beyond our control that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements. These factors include, but are not limited to, the strength of construction, home improvement and remodeling markets and the recovery of the homebuilding industry to levels consistent with the historical annual average; the cyclical nature of our industry; the successful implementation of our growth initiatives; the effects of increased inventories to support our growth initiatives and the impact if levels become excessive; the uncertainties resulting from changes to United States and foreign laws, regulations and policies; the cost of environmental compliance, including actual expenses we may incur to resolve proceedings we are involved in arising out of the formerly owned facility in Montana; any limitations on our ability to utilize our deferred tax assets to reduce future taxable income and tax liabilities; our ability to comply with, and the restrictive effect of, the financial covenant applicable under our credit facility; the loss of a significant customer; deterioration of our customers’ creditworthiness or our inability to forecast such deteriorations; commodity prices; dumping duties; tariffs; risks associated with our private brands; termination of key supplier relationships; risks of international suppliers; competition with existing or new industry participants; goodwill impairment;  the seasonality of our operations; significant uninsured claims; federal and state transportation regulations; fuel cost increases; our failure to attract and retain key personnel; deterioration in our relationship with our unionized employees, including work stoppages or other disputes; funding requirements for multi-employer pension plans for our unionized employees; product liability claims and other legal proceedings; the integration of any business we acquire and the liabilities of such businesses; information technology system failure, network disruptions, cybersecurity attacks and breaches in data security; and those set forth under Part I, Item 1A – “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These factors may not constitute all factors that could cause actual results to differ from those discussed in any forward-looking statement. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results.

Non-GAAP Financial Measures

Huttig supplements its reporting of net income with the non-GAAP measurement of Adjusted EBITDA. This supplemental information should not be considered in isolation or as a substitute for GAAP measures.

Huttig defines Adjusted EBITDA as net income adjusted for interest, income taxes, depreciation and amortization and other items as listed in the table below.

Huttig presents Adjusted EBITDA because it is a primary measure used by management, and by similar companies in the industry, to evaluate operating performance and Huttig believes it enhances investors’ overall understanding of the financial performance of our business.  Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income as a measure of operating performance.  Huttig compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors affecting the business.  Because not all companies use identical calculations, Huttig’s presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Adjusted EBITDA

The following table presents a reconciliation of net income, the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented (in millions): 

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