Huttig Building Products Reports Record Fourth Quarter and Full Year Net Income

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 fourth quarter and year ended December 31, 2021.

Fourth Quarter 2021 Highlights (compared to prior year quarter)

• Net sales increased 24.8% to $230.4 million compared to $184.6 million
• Gross margins increased to 21.8% compared to 20.1%
• Gross margins were reduced by a LIFO valuation adjustment of $7.3 million and $1.1 million, representing 317 basis points and 60 basis points, in 2021 and 2020, respectively
• Net income from continuing operations was $7.4 million compared to $0.3 million
• Total liquidity increased to $166.5 million compared to $59.3 million a year ago
• Adjusted EBITDA was $9.7 million, as reduced by a LIFO valuation adjustment of $7.3 million, compared to $2.4 million, as reduced by a LIFO valuation adjustment of $1.1 million

Full Year 2021 Highlights (compared to prior year)

• Net sales increased 18.4% to $937.8 million compared to $792.3 million
• Gross margins increased to 22.2% compared to 20.1%
• Gross margins were reduced by a LIFO valuation adjustment of $18.3 million and $2.4 million, representing 195 basis points and 30 basis points, in 2021 and 2020, respectively
• Net income from continuing operations was $49.1 million compared to a net loss of $0.9 million, after $9.5 million goodwill impairment and $1.5 million restructuring charges
• Adjusted EBITDA was $55.1 million, as reduced by a LIFO valuation adjustment of $18.3 million, compared to $20.1 million, as reduced by a LIFO valuation adjustment of $2.4 million

“I am extremely proud of our 2021 performance and record results,” said Jon Vrabely, President and CEO of Huttig. “We generated adjusted EBITDA of $55.1 million, despite the impact from an $18.3 million LIFO charge. The continued execution of our business plan and the dedication of our associates to serve our customers have largely contributed to our success in sustainably changing our financial model.”

Results of Operations

Fourth Quarter 2021 Compared to Fourth Quarter 2020

Net sales were $230.4 million in the fourth quarter of 2021, which were $45.8 million, or 24.8%, higher than the fourth quarter of 2020. The increase was attributable to a number of factors including a continued strong residential construction market along with an inflationary environment elevated by demand-driven pricing with higher input costs, such as labor and materials, which are reflective of challenges the supply chain and labor markets experienced throughout much of 2021. A nearly 70% increase in sales of our Huttig Grip fastener line and growth in our focus product categories supported the Company’s sales growth. Despite ongoing supply chain challenges, sales increased in all three of our product classifications.

Millwork sales increased 27.7% to $112.8 million in the fourth quarter, compared to $88.3 million in the fourth quarter of 2020. Although impacted by restructuring activities completed in 2020, and by continued supply chain disruption and labor shortages, millwork sales benefited from improved market pricing. Demand for our value-added millwork products continued to exceed supply, creating an input-constrained ability to produce. Building products sales increased 21.1% in the fourth quarter of 2021 to $100.4 million, compared to $82.9 million in the fourth quarter of 2020. Building products sales increased due to consistent high levels of demand for certain product lines within the category, including certain strategic product lines such as Huttig Grip fasteners, offset by supply chain disruption and product rationalization activities related to our focus on higher-margin, non-commoditized products. Wood product sales increased 28.4% in the fourth quarter of 2021 to $17.2 million, compared to $13.4 million in the fourth quarter of 2020. Wood product sales benefited from higher market prices on a year-over-year basis.

Gross margin was $50.2 million in the fourth quarter of 2021, compared to $37.1 million in the fourth quarter of 2020. As a percentage of net sales, gross margin was 21.8% in the fourth quarter of 2021, compared to 20.1% in the fourth quarter of 2020. The increase in gross margin percentage reflects the favorable impact of our focus on higher-margin sales opportunities, as well as effective pricing management. We also benefited from increased purchasing incentives in 2021. The increase in gross margin percentage from these actions more than offset the impact from a disproportionate increase in lower-margin direct sales in 2021 compared to 2020.

We use the last-in, first-out (LIFO) inventory valuation method to value inventories. In the fourth quarter of 2021, this resulted in gross margins that were $7.3 million lower, representing 3.2% of net sales, than if the first-in, first-out (FIFO) inventory valuation method had been used. In the year ago comparable period, the LIFO inventory valuation method reduced gross margins by $1.1 million, representing 0.6% of net sales. For the previous ten years, on an annual basis, the LIFO inventory valuation method resulted in an average reduction in gross margins of approximately 0.2% of net sales as compared to the FIFO inventory valuation method. The significant impact in 2021 as compared to historical levels reflects pricing inflation within certain product lines as well as higher inventory levels to support increased levels of demand as compared to 2020.

Operating expenses increased $4.0 million, or 11.1%, to $40.1 million, or 17.4% of net sales, in the fourth quarter of 2021, compared to $36.1 million, or 19.6%, of net sales in the fourth quarter of 2020. Personnel costs increased $4.4 million as a result of increased variable incentive compensation from improved operating results, wage increases and reinstatement of compensation and other cost reductions taken in 2020 as a result of the pandemic. Non-personnel costs decreased $0.4 million primarily benefiting from a $2.1 million class action settlement received during the fourth quarter related to interior doors, mostly offset by higher contract hauling, supplies and travel costs. Overall, our cost structure was levered against higher sales volume.

Net interest expense was $0.5 million in the fourth quarter of 2021 compared to $0.6 million in the fourth quarter of 2020. The lower interest expense in the fourth quarter of 2021 reflects both lower average debt outstanding and moderately lower interest rates.

Income taxes were $2.2 million in the fourth quarter of 2021 and $0.1 million in the fourth quarter of 2020.

As a result of the foregoing factors, we reported net income from continuing operations of $7.4 million for the quarter ended December 31, 2021, compared to net income of $0.3 million for the quarter ended December 31, 2020.

Adjusted EBITDA was $9.7 million for the fourth quarter of 2021, compared to $2.4 million for the fourth quarter of 2020. The LIFO inventory valuation method reduced adjusted EBITDA by $7.3 million and $1.1 million in the fourth quarters of 2021 and 2020, respectively, compared to what operating results would have been using the FIFO inventory valuation method. Adjusted EBITDA calculations are non-GAAP measurements. See reconciliation below of non-GAAP financial measures.

Fiscal 2021 Compared to Fiscal 2020

Net sales were $937.8 million in 2021, an increase of $145.5 million, or approximately 18.4%, compared to $792.3 million in 2020. Net sales in 2020 were significantly affected by the onset of the pandemic. Our net sales growth in the fourth quarter of 2021 was 24.8%, representing strong growth as compared to a growth rate of 16.4% for the nine months ending September 30, 2021. Our 2021 sales growth, although moderated by restructuring activities announced in the second quarter of 2020 and by our 2020 product rationalization activities, was driven by an improved residential construction market, a favorable pricing environment, including elevated levels of inflation, and by growth in certain strategic product categories. The inflationary environment was elevated by demand-driven pricing with higher input costs throughout the channel, including labor and materials, and is reflective of the challenges within the supply chain and labor markets experienced throughout much of 2021.

Net sales in our major product categories changed as follows in 2021 from 2020: millwork sales increased 15.5% to $412.2 million, building product sales increased 18.2% to $447.9 million, and wood products increased 38.0% to $77.7 million. Millwork sales, although most impacted by the disruption in our supply chain and by our 2020 restructuring and product rationalization activities, performed well and benefited from improved demand and market pricing. Demand for our value-added millwork products exceeded supply, creating an input-constrained ability to produce. Building products sales increased due to consistent high levels of demand for certain product lines within the category, including certain strategic product lines such as Huttig Grip fasteners; however, sales growth in this category was also affected by supply chain disruption, and by product rationalization activities related to our objective of focusing on higher-margin, non-commoditized products. Wood product sales benefited from higher market prices on a year-over-year basis.

Gross margin increased $48.6 million, or 30.5%, to $208.0 million in 2021 as compared to $159.4 million in 2020. Gross margin as a percentage of net sales increased to 22.2% in 2021 compared to 20.1% in 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. We also benefited from increased purchasing incentives in 2021. 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 2021 compared to 2020.

We use the LIFO inventory valuation method to value inventories. In 2021, this resulted in gross margins that were $18.3 million lower, representing 2.0% of net sales, than if the FIFO inventory valuation method had been used. In 2020, the LIFO inventory valuation method reduced gross margins by $2.4 million, representing 0.3% of net sales. For the previous ten years, on an annual basis, the LIFO inventory valuation method resulted in an average reduction in gross margins of approximately 0.2% of net sales as compared to the FIFO inventory valuation method. The significant impact in 2021 as compared to historical levels reflects pricing inflation within certain product lines as well as higher inventory levels to support increased demand compared to 2020.

Operating expenses, increased $10.2 million, or 7.0%, to $155.8 million, or 16.6% of net sales, in 2021, compared to $145.6 million, or 18.4% of net sales, in 2020. Personnel expenses increased $10.4 million, reflecting increased variable incentive compensation from improved operating results, wage increases and reinstatement of compensation and other cost reductions taken in 2020 as a result of the pandemic. These increases were partially offset by lower medical costs and a $1.5 million Cares Act Employee Retention Tax Credit. Non-personnel expenses decreased $0.2 million in 2021, primarily benefitting from a $2.1 million class action settlement received during the fourth quarter related to interior doors, as well as an improved bad debt provision, mostly offset by higher fuel, insurance and tax costs. Overall, our cost structure was levered against higher sales volume.

Operating income in 2020 includes a restructuring charge of $1.5 million and goodwill impairment charge of $9.5 million. There were no charges recorded for these items in 2021.

Net interest expense was $2.5 million in 2021 compared to $3.6 million in 2020. The lower interest expense in 2021 reflected both lower average outstanding borrowings and lower interest rates.

We recognized income tax expense from continuing operations of $2.2 million for the year ended December 31, 2021 compared to income tax expense of $0.1 million for the year ended December 31, 2020. Income tax expense was mitigated in 2021 by utilization of $41.4 million of federal tax loss carryforwards.

As a result of the foregoing factors, we reported net income from continuing operations of $49.1 million in 2021 as compared to a net loss of $0.9 million in 2020.

Adjusted EBITDA was $55.1 million in 2021 and $20.1 million in 2020. The LIFO inventory valuation method reduced adjusted EBITDA by $18.3 million and $2.4 million for the years 2021 and 2020, respectively, compared to what operating results would have been using the FIFO inventory valuation method. Adjusted EBITDA calculations are non-GAAP measurements. See below reconciliation of Non-GAAP Financial Measures.

Balance Sheet & Liquidity

Cash provided by continuing operating activities was $28.3 million in fiscal 2021 and $42.8 million in fiscal 2020, a decrease of $14.5 million. A significant portion of the year-over-year difference in cash provided from operations was from an increase in inventory in 2021 compared to a reduction of inventories in 2020 as part of our restructuring and rationalization of non-strategic product lines. Total available liquidity was $166.5 million as of December 31, 2021 compared to $59.3 million at December 31, 2020. At December 31, 2021, total available liquidity included $3.3 million of cash plus $163.2 million of availability under our credit facility. At December 31, 2020, total available liquidity included $0.3 million of cash plus $59.0 million of availability under our credit facility.

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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.