Huttig Building Products announces Q4 and full year 2018 results
Company saw 2018 sales growth of 11.5 percent last year.
Huttig Building Products, Inc. has reported financial results for the fourth quarter and year ended December 31, 2018.
“I am pleased that we continue to achieve significant sales growth above that of the residential construction market in the fourth quarter, and for the full year,” said Jon Vrabely, Huttig’s President and CEO. “Our fourth quarter sales growth of 9.5%, and full year growth of 11.5%, further supports the validity of our organic growth strategy. Despite our strong sales growth, we have yet to be successful in leveraging our growth into incremental profitability. Accordingly, we recently completed actions to adjust our cost structure which we believe will enable us to achieve this objective in 2019.”
Results of Operations
Fourth Quarter 2018 Compared to Fourth Quarter 2017
Net sales from continuing operations were $196.2 million in the fourth quarter of 2018, an increase of $17.0 million, or approximately 9.5%, compared to $179.2 million in the fourth quarter of 2017. The increase was primarily due to sales growth in our Huttig-Grip product line and higher levels of construction activity.
Net sales in our major product categories changed as follows in the fourth quarter 2018 from the fourth quarter 2017: millwork sales increased 4.9% to $97.1 million, building product sales increased 20.3% to $83.5 million, primarily due to sales growth of the Huttig-Grip product line as well as increased construction activity, and wood product sales decreased 9.3% to $15.6 million primarily to market variability.
Fluctuations across product categories can occur based on general market conditions, new product incentives, promotions, changes in product lines, and commodity pricing, among other things.
Gross margin increased approximately 3.5% to $38.1 million the fourth quarter 2018 compared to $36.8 million in the fourth quarter 2017. Gross margin as a percentage of net sales declined to 19.4% in the fourth quarter 2018 from 20.5% in the fourth quarter 2017 due to a higher proportionate increase in direct sales volume as well as the higher proportional increase in building product sales compared to the growth of other, higher margin product categories.
Operating expenses increased $1.8 million or 4.2% to $44.2 million, or 22.5% of net sales, in the fourth quarter 2018, compared to $42.4 million, or 23.7% of net sales, in the fourth quarter 2017. The increase in operating expenses was mainly attributable to an increase in non-personnel costs. Non-personnel expenses increased approximately $1.7 million, primarily as a result of higher fuel prices, increased contract hauling costs, and higher facility costs. As a percentage of sales, operating expenses decreased to 22.5% in the fourth quarter 2018 compared to 23.7% in in the fourth quarter 2017.
Net interest expense was $1.9 million in the fourth quarter 2018 compared to $0.9 million in the fourth quarter 2017. The increase was due to higher average outstanding debt and higher borrowing rates during the fourth quarter 2018 versus the fourth quarter 2017.
An income tax benefit from continuing operations of $1.0 million was recognized during the fourth quarter 2018 compared to an income tax provision of $2.4 million during the fourth quarter 2017. Income tax expense in the fourth quarter of 2017 was driven by the impact of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which required us to adjust deferred tax assets and liabilities during that quarter.
As a result of the foregoing factors, we reported a net loss from continuing operations of $6.9 million in the fourth quarter 2018 compared to net loss from continuing operations of $8.9 million in the fourth quarter 2017.
Adjusted EBITDA was $(4.1) million for the fourth quarter of 2018 compared to $(3.1) million for the fourth quarter of 2017.
Fiscal 2018 Compared to Fiscal 2017
Net sales from continuing operations were $839.6 million in 2018, an increase of $86.4 million, or approximately 11.5%, compared to $753.2 million in 2017. The increase was primarily due to sales growth in our Huttig-Grip product line and higher levels of construction activity.
Net sales in our major product categories changed as follows in 2018 from 2017: millwork sales increased 5.0% to $400.6 million, building product sales increased 22.2% to $365.4 million, primarily due to sales growth of the Huttig-Grip product line as well as increased construction activity, and wood products increased 1.1% to $73.6 million. Fluctuations across product categories can occur based on general market conditions, new product incentives, promotions, changes in product lines, and commodity pricing, among other things.
Gross margin increased approximately 6.9% to $166.5 million in 2018 as compared to $155.8 million in 2017. The increase in gross margin was due to higher overall sales volumes. Gross margin as a percent of net sales declined to 19.8% in 2018 compared to 20.7% in 2017 due to a higher proportionate increase in direct sales volumes as well as the higher proportional increase in building product sales compared to the growth of other, higher margin product categories.
Operating expenses increased $11.8 million, or 7.6%, to $167.5 million, or 19.9% of net sales, in 2018, compared to $155.7 million, or 20.7% of net sales, in 2017. The increase in operating expenses was partially attributable to an increase in personnel costs.
Personnel costs increased approximately $4.8 million, primarily as a result of wage increases and increased variable compensation. Non-personnel expenses increased approximately $7.0 million, primarily as a result of higher fuel prices, increased contract hauling costs, higher facility costs, and expenses associated with prior litigation and settlement.
Operating expenses include charges of $3.5 million and $3.1 million in 2018 and 2017, respectively, related to settled litigation. Excluding these expenses, operating expenses would have been approximately 19.5% and 20.3% of sales for the year ended December 31, 2018 and 2017, respectively.
Net interest expense was $6.5 million in 2018 compared to $3.1 million in 2017. The increase was due to higher average outstanding debt and higher borrowing rates in 2018 versus 2017.
An income tax benefit from continuing operations of $1.4 million was recognized for the year ended December 31, 2018 compared to an income tax provision $3.2 million for the year ended December 31, 2017. The income tax expense in 2017 was driven by the impact of the Tax Act. The Company recognized $4.5 million in tax expense related to the net change in our deferred tax assets and liabilities as a result of the Tax Act’s reduction of the U.S. Federal tax rate from 35% to 21%.
Although the lower U.S. corporate income tax rate was effective January 1, 2018 our deferred tax assets and liabilities were adjusted in 2017 when the new tax law was enacted. Excluding the impact of this adjustment, as well as other immaterial tax adjustments, the Company would have recognized a tax benefit of approximately $1.3 million in 2017.
As a result of the foregoing factors, we reported a net loss from continuing operations of $6.0 million in 2018 as compared to $6.2 million in 2017.
Adjusted EBITDA was $10.2 million in 2018 and 2017.
Balance Sheet
Total available liquidity was $32.3 million as of December 31, 2018, as compared to $51.7 million at December 31, 2017. At December 31, 2018, total available liquidity included $0.8 million of cash plus $31.5 million of availability under our credit facility, while at December 31, 2017, total available liquidity included $0.3 million of cash plus $51.4 million of availability under our credit facility. At February 28, 2019, total available liquidity was $50.4 million, which included $0.6 million of cash plus $49.8 million of availability under our credit facility.
For more information, visit www.huttig.com.
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