PGT, Inc. ( PGTI)

Q3 2011 Earnings Conference Call

November 3, 2011 10:30 AM ET


Brad West – Director of Finance and Corporate Controller

Rod Hershberger – President & CEO

Jeff Jackson – Executive Vice President & CFO


Rob Hansen – Deutsche Bank

Sam Darkatsh – Raymond James


Good day, ladies and gentlemen, and welcome to the PGT Incorporated third quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions on how to participate will be given at that time. (Operator instructions) And as a reminder, today’s conference call is being recorded. Now, I’d like to turn the conference over to your host, Director of Finance and Corporate Controller, Mr. Brad West.

Brad West

Thanks and good morning for joining us for today’s PGT’s third quarter 2011 conference call. I am Brad West and today I am joined by Rod Hershberger, President and CEO; and Jeff Jackson, Executive Vice President and CFO. Rod and Jeff will represent PGT in this morning’s call.

Before we begin, let me remind everyone that today’s conference call may contain statements concerning the company’s future prospects, business strategies, and industry trends. Such statements are considered to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations and are subject to risk and uncertainty.

Actual results may vary materially from those contained in the forward-looking statements. Please refer to the November 2 nd press release, our most recent Form 10-K, and other documents filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements.

A copy of our press release is posted on the Investor Relations section of our corporate website at Included in the press releases are the unaudited consolidated balance sheets and statements of operations prepared in accordance with GAAP and adjusted information, which is quantitatively reconciled to GAAP. Our company uses non-GAAP measurements as key metrics for evaluating performance internally.

A detailed explanation of these non-GAAP measurements can be found in our Form 8-K. These non-GAAP measurements are not intended to replace the presentation of financial results in accordance with GAAP. Rather, we believe these non-GAAP measurements provide additional information for investors to facilitate the comparison of past and present performance.

For today’s call, Rod will provide an overview of our performance for the third quarter, then Jeff will discuss our results in more detail. After their prepared remarks, we will take your questions.

With that, let me turn the call over to Rod Hershberger. Rod?

Rod Hershberger

Thanks Brad. Good morning everyone.

I am pleased to report the consolidation of our operations is complete and our Florida location is now operating at the capacity, both plants for achieving prior to the consolidation. All lines previously in North Carolina are up and running and producing quality products in the short lead times for which PGT is known.

Accordingly, we shipped additional product versus the second quarter of 2011. Sales in the third quarter decreased to 1.4 million or 3% from a year ago. This decrease reflects our decision to reduce our sales and marketing efforts in certain out of state markets. Our sales out-of-state decreased 2.2 million or 33.8%. Our international sales also decreased 300, 000 or 13%. However, our quarter sales increased 1.1 million or 2.9% and represented 86% of our total sales, compared to 81% a year ago.

By product line, our WinGuard sales which were down last quarter because of temporary capacity constraints associated with the consolidation are back on track with the consolidation complete. Sales for WinGuard were up 1.2 million or 4% when compared to the prior year. Additionally, WinGuard sales were up 2.5 million or 8.7% compared to the second quarter of 2011.

We also saw an increase in our PremierVue line which compared to 2010 was up 1.5 million to 2.4 million in sales. Both vinyl WinGuard and PremierVue benefited from 2.2 million in sales from our new vinyl sliding glass door series launched earlier this year. This door won the industry’s Crystal Achievement Award for the most innovative door design, our second Crystal Achievement Award in a row.

Our vinyl non-impact products including SpectraGuard had a 1.8 million decline in sales or 38% compared to the prior year. This decrease reflects our decision to decrease selling and marketing efforts in certain out-of-state markets in connection with the consolidation.

We also experienced the 2.1 million decrease in architectural system sales due to ongoing softness in the commercial market, as well as the reduction in curtain wall sales on which we partnered with a third party as a contract manufacturer and is not part of our refocus goals and strategies as result of a shift in focus towards our core markets.

Our decline in overall sales compared to last year occurred both in new constructions down 3% and in R&R down 2%. As a percentage of total sales for the third quarter of 2011, R&R sales accounted for 76% and new construction sales accounted for 24% of sales.

Comparing our third quarter to the prior year third quarter, our adjusted net income was 982,000 compared to a net loss of 207,000 in 2010. This is the highest net income in any quarter since the second quarter of 2008. Our adjusted gross margin was 30% versus a gross margin of 30.9% in 2010. Adjusted gross margin decreased mainly due to temporary higher than anticipated material usage mainly in our glass operations. We also experienced an increase in the cost of materials including an increase in our average cost of aluminum, which is up 19% over prior year. The cost increases had been offset by a price increase announced in the first quarter of 2011.

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