JELD-WEN Holding, Inc. Q3 FY2025 earnings call

Before starting, Bill recognized the team's commitment during challenging times. The third quarter saw further softening in market conditions in Europe and North America with new construction and repair/remodel activity weakening. Faced operational challenges limiting market share capture. Experienced price and cost headwinds from labor and material inflation. Took actions like ~11% North America and corporate headcount reduction, strategic review of European business, and evaluation of smaller noncore assets. In North America, revenue decline was driven by weaker market demand and operational inefficiencies. In Europe, revenue increase was offset by soft demand in key markets but partially offset by productivity improvements and cost actions.

In North America, revenue declined 19% year-over-year with volume and mix down 13%. Adjusted EBITDA for North America was $38 million compared to $75 million in the same quarter last year. In Europe, revenue increased 2% year-over-year with volume and mix down 6%. Adjusted EBITDA for Europe was $16 million, roughly flat compared to the prior year. Tariffs had an annualized impact of around $45 million on the business, with approximately $17 million expected in 2025 results.

2025 outlook was lowered: sales expected to be between $3.1 billion and $3.2 billion compared to the prior range of $3.2 billion to $3.4 billion. Adjusted EBITDA is now expected to be between $105 million and $120 million, down from the prior range of $170 million to $200 million. Core revenue is expected to decline 10% to 13% compared to the prior 4% to 9% decline. The fourth quarter is expected to have a more typical seasonal pattern, with continued negative price and cost pressures. Operating cash flow is expected to be a use of approximately $45 million compared to the prior forecast of a use of $10 million. Capital expenditures are expected to be approximately $125 million, down from the prior $150 million. A strategic review of the European business is ongoing to address leverage issues.

Market conditions continued to soften with further weakening in new construction and repair/remodel activity. Operational challenges limited the ability to capture market share. Persistent price and cost headwinds from labor and material inflation. Uncertainty surrounding tariffs with an annualized impact of around $45 million, and resistance from larger accounts to tariff surcharges.

Q: My first question is going back to the share losses that you talked about in your prepared remarks. Can you give us a bit more color on where those are coming from? How they came through over the last quarter? And then understanding that you've had a more challenging time regaining some of that share. But just how do you think about the path from here?

A: So thanks for the question, Susan. A couple of comments. As you remember, there was a significant share loss last year with the Midwest retailer on the windows side of the business. So that laps in September. So we were still tackling that base effect in Q3. Second point, as we did note in our prepared remarks, pricing remains challenging across the market in North America, particularly with some aggressive pricing actions around the edges from some competitors, mainly on the door side of the business. So we have seen specific regional share loss, but on balance, not material. And I think the third point is, as we continue to our simplification of our portfolio, our target is to reduce approximately 30% of our SKUs by year-end -- or not by year-end, excuse me, we're in the process of reducing 30% of our SKUs. We're about 50% of the way there. So we have been trimming complexity which allows us then to optimize our service levels into our customers. I think the last point is then just a weak overall market. And we've said we're really focused on rebalancing our shares with customers where we have strong door volume, we want to try and increase our window business and the other way around. We've actually made some progress on the Windows side. But in general, the soft market has created, I think, opportunities from aggressive pricing as we've talked about and our portfolio reduction, which is simplification driven has also led to a little bit of that. And as we look forward, we see that continuing into the fourth quarter from a market standpoint. Volumes remain soft. Nothing that we've seen in the month of October would suggest a different run rate. So we're expecting that through the end of the year, and you can see that on the bridge.

Q: And then turning to the productivity and the cost saving efforts that you have been working on, can you give us an update on where those projects are and how you're thinking about the carryover benefit into 2026? Appreciating you're not giving guidance for next year yet, but just any thoughts on those projects specifically where they're falling and the outlook there?

A: Sure, Susan. As you've seen on our guidance bridge, Page 14, we expect about $150 million to offset the various headwinds that we've laid out. As in prior years, we would expect from our transformation savings of about $100 million, roughly half of that to roll forward. And in addition, as we've announced and talked about today in the prepared remarks, there are going to be some pretty significant headcount reductions taking place in the fourth quarter of this year, and we would expect benefits of roughly $50 million as we're thinking about a full year impact 2026. So that's roughly $100 million currently. And I think we wouldn't want to give any more specific guidance than that.

Q: John Lovallo: And maybe just a follow-up on Susan's question and just to put a finer point on it. The outlook implies $55 million of productivity, SG&A and other in the fourth quarter. I think there's only been about $37 million year-to-date. So what is driving that ramp? It sounds like if I understood the answer to Susan's question that a lot of this is already baked and is just and is waiting to come through? Is that the right way to think about it?

A: Yes. So thanks for the question, John. It's -- a lot of the savings are fully baked. So the headwind mitigation, the transformation is fully baked. The actions that Bill described in the recorded remarks, are not expected to have a material impact in Q4. We would expect that full run rate going into 2026. Where you see in just kind of isolating maybe Q4 and looking at that year-on-year, the biggest drivers, I would say, on the negative side are the volume mix, which is, let's call it, in line with what we expected in Q3 in previous quarters. Price cost, unfortunately, being more negative. And part of that is some of the resistance on tariff surcharge pass-throughs. So that is more negative in Q4. And then the continued, let's call it, court ordered divestiture of Towanda's impact into our P&L. The mitigation efforts, those are -- as I said, they're already done and dusted and they're in the P&L. And so that's going to be helping to offset some of those.

Q: Fiona Shang: You have Fiona on for Phil today. Just wondering on your full year EBITDA guide, can you help us understand how much of that is coming from Europe? We're assuming about roughly half of the consolidated total. Is that directionally correct?

A: Yes. That's directionally correct. So when you think about Europe and North America, how much is coming from each, it's about in line. We've seen, let's call it, an improvement of Europe. And unfortunately, because of some of the challenges in the North American market, a bit of a decline in North America year-on-year from an EBITDA standpoint. So that's the right way to look at it, Fiona. Thank you for the question.

Q: Trevor Allinson: First one just on 4Q EBITDA guidance, the implied 4Q EBITDA guidance. The bottom end of that is roughly breakeven from an EBITDA perspective. That would be a pretty severe decline sequentially compared to what you guys are expecting from a revenue standpoint from 3Q to 4Q. Can you just talk about what's driving that big drop-off in EBITDA expectations sequentially? Anything more onetime in nature occurring in 4Q, then that wouldn't repeat going forward?

A: Yes. I can go through that. So a few things. When we initially guided out, we expected a nonseasonal Q4, so a much stronger Q4 in terms of both the volume as well as the productivity. And unfortunately, we are seeing, I would say, more of the seasonality that we've seen in previous years. So when we think about the range that we've guided to, you're correct on the low end of that range and that's tied to some of the uncertainty that we are seeing going into Q4. The last month of the year is generally for us, a very soft year with different holiday period, customer buying patterns. And so it's hard to predict on that. But I would say when you look at kind of the midpoint of our range and how we're guiding to the 2 biggest drivers, as I talked about earlier are the volume mix being, I would say, as down year-on-year as Q3 with maybe a little bit more of softness and then the price/cost negativity being almost double what we experienced in Q3. We are seeing cost inflation, of course, more in line with our expectations, maybe slightly higher, but more in line with what we expected. Unfortunately, the pricing realization is lower than expected, as we talked about earlier. So those 2 are, I would say, the biggest needle movers in driving. And then some of the base productivity is we need to rightsize our North America structure for the lower demand that did not materialize from the incremental gains we initially expected.

Q: Steven Ramsey: On the share gain that you expected to capture, would you say that opportunity is gone? Or is that something that you hope to get in '26 to greater fruition and then maybe if you could share any detail on the opportunity itself, if it was windows or doors or channel? Any color there?

A: Yes, Steven -- so definitely something that we expect that we're going to be able to target in 2026. A number of these things that we were targeting would be in the bucket of share we never should have lost, and I'm linking that to some challenging performance across our network, service levels, specifically and we felt we were ready to go and get it, but the market obviously took a step down in the third quarter and that was unexpected by our organization, and we were challenged by that headwind. So clearly, we're making great progress across our network, getting our service levels where they need to be, and we're going to be tackling this in 2026 on a different cost base, and we do expect as we've said, that there's not going to be dramatic changes in volume. So we're going to have to control what we can control, and that's what we're planning on doing in '26.

Q: Anika Dholakia: You have Anika Dholakia on for Matt today. So I wanted to start off. I'm wondering how sales trended through the quarter and into October as we saw some interest rate relief. And similarly, how has mix trended as you see relief on the rate side. I'm wondering if people are willing to mix up and more broadly, what you think is necessary to improve the mix dynamics? I know mix is positive this quarter, but maybe it was more so a function of lapping easier year-over-year comps.

A: Yes. So let me take the first part. When we're thinking about kind of the rate -- the funds -- Fed funds rate decline and that trickling then down through. There's a couple of different dynamics. I mean there's huge pent-up demand. Obviously, there's a lot of home equity that's there but not being acted on because there is uncertainty. If we think about mortgage rates and where mortgage rates currently are and where they need to be to create some additional significant traction. I don't think we're yet at a point where we're going to see dramatic improvements. And again, you need to remember after the Fed funds rates decline, if it does flow through to the long end of the curve and mortgages are repriced, there is an expectation that doors and windows, especially if it's new construction or probably 6 to 9 months behind the start. So there clearly is a lag from rate reduction to products being purchased and built in to new homes. So don't expect a very close connect between rate reductions and volume increases on the new construction side of the business. I think in general, consumers still remain very cautious I said before to Steven's question, big ticket items are still very slow in the retail side of the business and the expectations are that this continues. We haven't seen a significantly different trend in October than we did through the third quarter. And so I think, to answer your question specifically, the Fed funds reductions did not move the needle for us in the month of October.

Q: Anika Dholakia: Understood. That's helpful. And then second, I'm just wondering, you lowered the revenue guide for core. It's now down 10% to 13% from prior 4% to 9%. It seems to be largely driven by volume and mix as you look at the '25 guidance bridge. So just going back to that mix point, if you can separate how much is volume given you lowered the end market assumptions for both new construction and retail? And then how much is mix?

A: Yes. I can take that question. A very small portion of that is mix. I would say there's maybe small mix changes on the edges of some of the product groups. But we are expecting in the near-term, as Bill talked about, to be at a very low mix level. So we don't expect mix further down from where we are. But I mean, just in ballpark, I mean, it's more than 90% volume. It's a much bigger volume story than it is mix.