Huttig Building Products, Inc. Announces Record Second Quarter Net Earnings

Huttig Building Products, Inc. (“Huttig” or the “Company”), a leading domestic distributor of millwork, building materials and wood products, today reported financial results for the second quarter ended June 30, 2021.

“We are very pleased as an organization to report our second consecutive quarter of record operating results as a public company,” said Jon Vrabely, President and CEO of Huttig. “Our focus on strategic product category growth is working, and our results clearly demonstrate the positive impact our success is having on our financial model. Despite severe supply chain disruption and labor shortages, we generated substantial gains across every facet of our financial performance including sales, profitability, and liquidity. The strong underlying fundamentals of the residential construction market, combined with the sustainable improvements we have achieved in the business, positions us very well to continue generating solid results in the future.”

Results of Operations

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Net sales were $247.4 million in the second quarter of 2021, which were $55.4 million, or 28.9%, higher than the second quarter of 2020. The increase in net sales was primarily attributable to an increase in residential construction activity as compared to the second quarter of 2020, which was significantly impacted by the onset of the pandemic. Sales and income growth in the second quarter of 2021 was moderated in comparison to the second quarter of 2020 by restructuring activities announced in the second quarter of last year, and by our 2020 product rationalization program. Net sales in 2021 were favorably impacted by the improved pricing environment where demand-driven pricing has increased due to supply chain disruption. Despite ongoing supply chain challenges, sales increased in all three of our product classifications.

Millwork sales of $97.3 million in the second quarter of 2021 were $15.6 million, or 19.1%, higher than the second quarter of 2020. Millwork has been most significantly impacted by supply chain disruption and was also impacted by 2020 restructuring and product rationalization activities. Building products sales increased 29.5% in the second quarter of 2021 to $126.3 million, compared to $97.5 million in the second quarter of 2020. Second quarter 2021 building products sales benefitted from consistent high levels of demand for certain product lines within the category, including certain strategic product lines. The year-over-year sales growth in this category was mitigated by supply chain disruption and by product rationalization activities related to our focus on higher-margin, non-commoditized products. Wood product sales increased 85.9% in the second quarter of 2021 to $23.8 million, compared to $12.8 million in the second quarter of 2020. Higher market prices had a significant impact in this category.

Gross margin was $55.3 million in the second quarter of 2021, compared to $38.7 million in the second quarter of 2020. As a percentage of sales, gross margin was 22.4% in the second quarter of 2021, compared to 20.2% in the second quarter of 2020. Gross margins were favorably impacted by our continued focus on non-commoditized, strategic product lines which carry higher margins, as well as effective pricing management. The increase in our gross margin percentage from these actions more than offset the impact from a disproportionate increase in lower-margin direct sales in the second quarter of 2021 as compared to 2020.

Operating expenses increased $4.8 million to $39.5 million in the second quarter of 2021, compared to $34.7 million, net of a $1.5 million restructuring charge described below, in the second quarter of 2020. Personnel costs increased $4.4 million, or 22.4%, reflecting increased variable incentive compensation from improved operating results, wage increases and reinstatement of compensation reductions taken in 2020. These increases were partially offset by lower medical costs. Non-personnel costs increased $0.4 million, or 2.6%. The increase was primarily driven by higher fuel and insurance costs which were substantially offset by an improved bad debt provision in the second quarter of 2021 as pandemic-related disruption continued to subside. Overall, our cost structure was levered against higher sales volume. As a percentage of net sales, operating expenses were 16.0% in the second quarter of 2021 compared to 18.1% in the second quarter of 2020.

During the second quarter of 2020, we began the process of closing our Columbus, Ohio and Selkirk, New York branch locations, which was substantially completed during the third quarter of 2020. We recorded a restructuring charge of $1.5 million for closure-related costs for personnel, facility, equipment and working capital-related costs.

Net interest expense was $0.6 million in the second quarter of 2021 compared to $0.9 million in the second quarter of 2020. The lower net interest expense in the second quarter of 2021 reflects both lower average debt balances and lower interest rates.

Income taxes were $0.3 million and zero for the quarters ended June 30, 2021 and 2020, respectively.

As a result of the foregoing factors, we reported net income of $14.9 million for the quarter ended June 30, 2021, compared to net income of $1.6 million for the quarter ended June 30, 2020. Adjusted for the restructuring charge in 2020, adjusted net income for the quarter ended June 30, 2020 was $3.1 million.

Adjusted EBITDA was $17.4 million for the second quarter of 2021, compared to $5.7 million for the second quarter of 2020. Adjusted EBITDA is a non-GAAP measurement. See the below reconciliation of non-GAAP financial measures.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Net sales were $462.1 million in the first six months of 2021, which was $67.1 million, or 17.0%, higher than the first six months of 2020. The increase in net sales was primarily attributable to an increase in residential construction activity as the second quarter of 2020 was significantly impacted by the onset of the pandemic. Sales and income growth in the first six months of 2021 was moderated in comparison to the first six months of 2020 by restructuring activities announced in the second quarter of last year, and by our 2020 product rationalization program. Net sales in 2021 were favorably impacted by the improved pricing environment where demand-driven pricing has increased due to supply chain disruption. Despite ongoing supply chain challenges, sales increased in all three of our product classifications.

Millwork product sales increased 8.8% in the first six months of 2021 to $193.5 million, compared to $177.9 million in the first six months of 2020; building products sales increased 20.1% in the first six months of 2021 to $228.2 million, compared to $190.0 million in the first six months of 2020; and wood product sales increased 49.1% in the first six months of 2021 to $40.4 million, compared to $27.1 million in the first six months of 2020. Millwork sales, although most impacted by the disruption of our supply chain and by our 2020 restructuring and product rationalization activities, performed well and benefited from improved market pricing. Building products sales benefitted from consistent high levels of demand for certain product lines within the category, including certain strategic product lines. The year-over-year sales growth in this category was mitigated by supply chain disruption and by product rationalization activities related to our focus on higher-margin, non-commoditized products. Wood product sales have been most impacted by market-driven price increases.

Gross margin was $101.0 million in the first six months of 2021, compared to $79.6 million in the first six months of 2020. As a percentage of sales, gross margin was 21.9% in the first six months of 2021, compared to 20.2% in the first six months of 2020. Gross margins were favorably impacted by our continued focus on non-commoditized, strategic product lines which carry higher margins, as well as effective pricing management. The increase in our gross margin percentage from these actions more than offset the impact from a disproportionate increase in lower-margin direct sales in the first six months of 2021 as compared to 2020.

Operating expenses, increased $2.7 million to $76.4 million in the first six months of 2021, compared to $73.7 million in the first six months of 2020, excluding a goodwill impairment charge of $9.5 million and restructuring costs of $1.5 million in the first six months of 2020 as described below. Personnel costs increased $3.8 million, or 9.0%, reflecting increased variable incentive compensation from improved operating results, wage increases and reinstatement of compensation reductions taken in 2020. These increases were partially offset by lower medical costs. Non-personnel costs decreased $1.1 million, or 3.4%. Discretionary spending reductions and improvements in our bad debt provision in the first half of 2021 offset higher fuel and insurance costs. Overall, our cost structure was levered against higher sales volume. As a percentage of net sales, operating expenses were 16.5% in the first six months of 2021 compared to 18.7% in the first six months of 2020.

During the first quarter of 2020, a decline in the market value of our public equity concurrent with the COVID-19 pandemic triggered an assessment of goodwill. As a result of the interim goodwill impairment test, we recognized a goodwill impairment charge of $9.5 million. During the second quarter of 2020, we began the process of closing our Columbus, Ohio and Selkirk, New York branch locations, which was substantially completed during the third quarter of 2020. We recorded a restructuring charge of $1.5 million for closure-related costs for personnel, facility, equipment and working capital-related costs

Net interest expense was $1.3 million in the first six months of 2021 compared to $2.2 million in the first six months of 2020. The lower net interest expense in the first six months of 2020 reflected both lower average borrowing and lower interest rates.

Income taxes were $0.3 million for the first six months of 2021, as compared to zero income tax expense for the first six months of 2020.

As a result of the foregoing factors, we reported net income of $23.0 million and a net loss of $7.3 million for the six months ended June 30, 2021 and 2020, respectively. Adjusted for the $9.5 million goodwill impairment charge and the $1.5 million restructuring charge in 2020, adjusted net income for the first six months of 2020 was $3.7 million.

Adjusted EBITDA was $27.9 million for the first six months of 2021, compared to $9.2 million for the first six months of 2020. Adjusted EBITDA is a non-GAAP measurement. See the below reconciliation of non-GAAP financial measures.

Balance Sheet & Liquidity

Cash used in operating activities was $0.8 million during the first six months of 2021, compared to cash provided by operating activities of $10.2 million during the first six months of 2020. During the first six months of 2021, we invested $14.6 million in a normal seasonal build of inventories, compared to rationalization of $30.9 million of inventory in response to the COVID-19 pandemic in the first six months of 2020. The impact from the increased inventory investment in 2021 was substantially offset by higher cash flows from improved financial results and higher accounts payable in the first six months of 2021 compared to the first six months of 2020.

At June 30, 2021, we had total liquidity of $100.7 million, including excess committed borrowing availability of $97.8 million and cash of $2.9 million. At June 30, 2020, total liquidity was $56.0 million, including excess committed borrowing availability of $54.2 million and cash of $1.8 million.

For the full second quarter results, click here.

About Huttig

Huttig, currently in its 137th 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 25 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.

Source: Huttig Building Products, Inc.