Good afternoon. My name is Jessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Resideo Hardware First Quarter twenty eighteen Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session for financial analysts.
Thank you. Mr. Richard Lois, President and Chief Executive Officer, you may begin your conference.
Thank you. Good afternoon, ladies and gentlemen, and welcome to Israel's conference call for the first quarter ended February 2838. With me is Antoine Eau Claire, CFO. As usual, note that some of today's issue include forward looking information, which is provided with the usual disclaimer as reported in our financial filings. At our Annual General Meeting held this morning, it was a pleasure to highlight the fiftieth anniversary of Richelieu and the twenty fifth anniversary of its listing on the TSX.
We are off to a good start with our first quarter marked by higher results notably by a strong sales growth in our manufacturers and retailers market both in Canada and The U. S, Thanks to the ongoing contribution from our twenty seventeen acquisitions, our market development and innovation strategies, we are pleased with our performance, especially for our first quarter, which is historically the weakest period of the year. On February 26, we closed the acquisition of Cabinet and Top Supply, a distributor of specialized products based in Fort Myers in Florida, which became our main distribution center in this important market. This new acquisition will add annual sales of approximately $4,000,000 in U. S.
Dollar. As of February 28, our financial position was excellent. And this morning, the Board of Directors approved the payment of a quarterly dividend of $06 per share. Now let's look at financial highlights. First quarter sales reached $222,000,000 up by 13.2%, of which 6.2% from internal acquisition and 7.1% from acquisitions.
At comparable U. S. Exchange rates to 2017, sales growth would have been 15.3%. Sales to manufacturers stood at 183,400,000.0 up by 11.3%, 2.8% from internal growth and 8.5% from acquisitions. At comparable U.
S. Exchange rates to 2017, the internal growth would have been 4.8%. In the hardware retailers and renovation superstore market, we achieved sales of $38,600,000 up by 24%. In Canada, sales amounted to $143,700,000 up by 14.4%, of which 5.6% from internal growth and 8.8% from acquisitions. Our sales to manufacturers reached $113,600,000 up by 15.3%.
As for the hardware retailers and innovation superstores market, sales stood at €30,200,000 up by 11.4%. This growth is due mainly to market share gains and the addition of new customers. In The U. S, sales totaled $62,200,000 in U. S.
Dollars, up by 17%, 2.7% from internal growth and 4.3% from acquisitions. They reached $78,300,000 in Canadian dollars, an increase of 11% and represented 35.2% of the total sales. Sales manufacturers reached 56,000,000 up by 10.6%, 6% from internal growth and 4.5% from acquisitions. In the Hardware retailers and in Innovation superstores market, sales grew by 123% in U. S.
Dollar. This increase is the result of our market development efforts, including significant cyclical sales in the first quarter compared to the corresponding 2017. First quarter EBITDA reached $19,800,000 up by $1,500,000 or 8% over the 2017. Gross margin was down from the 2017, mainly influenced by lower gross margin of recent acquisitions due to their different product mix as well as a higher level of direct sales made in the first quarter. These factors, combined with the increased costs incurred during the quarter related to market development, the reorganization of certain distribution centers and the implementation of a new technology also affected EBITDA margin, which stood at 8.9% compared to 9.4%.
Amortization expenses for the 2018 was up by $600,000 resulting mainly from major investments in capital assets and business acquisition made in 2017. First quarter net earnings attributable to shareholders totaled €12,700,000 up by 5.9%. Diluted earnings per share rose to €0.22 compared with €0.20 for the 2017, an increase of 10%. First quarter cash flows from operating activities before net trends in working capital balances amounted to $16,200,000 or $0.28 per share, an increase of 8.3%. During the first three months, we paid dividend of $3,500,000 up by 5.4% over 2017 and repurchased 148,000 shares for 4,500,000.0 We also invested €4,700,000 of which €2,000,000 for a business acquisition and 2,700,000.0 to purchase new equipment to improve operational efficiency and IT equipment.
As at February 2838, cash totaled €3,200,000 and our working capital was €204,400,000 for a current ratio of 4.7 to one. Turning to our outlook, Creating synergies through acquisitions and optimizing their potential will remain priorities in the coming quarters. We continue to focus on product information and innovation, market development, operational efficiency and new acquisitions. Opportunities in the new acquisition opportunities in the North American market. We are confident we will achieve a good performance in upcoming periods.
That concludes my overview. Thank you for your interest. We'd now be happy to answer your questions.
Thank you. Your first question comes from the line of Leon Aguizarian from National Bank Financial, Baier Procedes. Please go ahead.
Hi, good afternoon guys. Just can you break down some of the sales by region? I mean, I'm trying to see if Western Canadian versus Quebec, Ontario and then as well as the by segment, I. E, your kitchen cabinet manufacturers, a vis residential, etcetera?
Yes, In Eastern Canada, our sales increased by 2.7. In Ontario, sales increased by 7.6%. Then I can give you the details. The industrial sales were up by 6.5%. Sales I mean sales to manufacturers were up by 6.5%, while the sales to other retailers were up 10.5%.
Western Canada sales were up by 6.7%, which is composed of 2.5% for the manufacturers and 26% for the retailers. So as a total in Canada, kitchen cabinet manufacturers sales increased by 4%. The commercial woodworking business increased by 6%. Residential furniture increased by 8%. Office furniture about 1.5 let's say that altogether the account of 10% in the increase and the retailers as you already know increased by 11%.
It seems to be pretty balanced throughout either the whether it's the country and whether it's by segment. I mean, it's fairly evenly spread out, I guess. I guess my question is like, what's the main reason for that? I mean, what's the competitive landscape looking like? Is that affecting in any way how you're seeing the business out there?
The business out there regarding the manufacturer seems to it's I would say it's okay in Ontario and Eastern Canada. And Western Canada, we see that still have an increase for the manufacturer at 2.5%, which is I think it's very interesting considering the circumstances and how the retailer is at. For the time being, it's a booming market for us.
On the press release,
you highlight that the winning of new customers and market share gains in Canadian retailers. I mean what's been driving that? Is it new business? Can you talk to us a little bit more in detail as to what kind of market share gains that is?
We continuously, year after year, made a good investment in order to improve our sales to hardware retailers. We have gained the Lowe's business across Canada last year. We have gained many other customers in other market segments like for builders' hardware, for decorative hardware. So many new customers as well in Western Canada, independent retailers that now are with us that used to be without our U. S.
Competitors. So basically, we did a very good job both in terms of displaying the products and selling the products to those customers by convincing them that they're to do they're going to make more money selling our products than the products of anybody else.
Are you seeing any difference with what you're seeing at U. Retailer level? Mean, published a pretty strong number in terms of U. S. Retailer.
Can you maybe talk to us a little
The number, very, a bit strong in The U. S. Again, most of the sales that the increase of sales is due to direct sales and cyclical sales, which is higher than usual, much higher than usual. So it's good news for us, but it's also the result of additional customers. And fortunately, with those cyclical sales, those help the quarter.
And in the future, we actually we see a gain we've gained probably another probably $3,000,000 that's going to come later on during the year to our retailers in The U. New customers like true hardware, like Mills and Farm Supplies and we what's the other one? So to them. So to them, you know, those are not very well well known name here in Canada, but in Canada, you know, Mills and and So to them, they each have 100 stores. So basically, us, it's the type of the development that we like.
It's not a huge amount of business, but it also spread our risk in this market. So basically, we're quite happy to have gained those new customers. And we're going to start delivering them some in the third quarter and some in the fourth quarter of this year.
There's been you've had some, I guess, you call them, initiatives where you've been spending some cash in terms of automating certain factors certain distribution centers, pardon me, in The U. S. I mean, you just talk to
us a little about some of this
near term pressure? Like how long should we expect some of those costs to be in the year? I'm just trying to look ahead to see what we should be looking for in terms of margins.
Yes. We're in the process of installing an auto store here in Ville St. Laurent. It's an investment the value of the equipment is about $6,000,000 I guess the installation at one would be something like a couple of million dollars. So I would say that you still have we still have at least a quarter to go with more expenses because actually things are doing fine.
I have visited the warehouse here last week with Antoine and the thing really smooth actually. The system is functioning very well. What we're left with actually is the reorganization of the space that we have sales because of that new machinery. Now we have to reorganize a part of the warehouse. So I guess we're going to have those expenses finished at the end of the second quarter, so which we should be back in normal at that time.
Okay. I appreciate that. And then one final one, I guess, we did see a very small tuck in in Florida as it pertains to some more M and A. I mean, what's your pipeline looking like? Any change to what you've been seeing recently in terms of, I guess, pricing or more opportunities that way?
Florida Florida is interesting because actually we really are very well positioned with nine distribution centers in Florida. Our market share will increase. Actually, I'm very happy with how things are going in Chicago and other areas of The U. S. Actually where we are we see that things are taking shape in terms of traditional culture and increased sales as well.
Regarding the opportunities for acquisition, maybe Antoine you can you have more details you can add to that.
Yes, Leon. The pipeline is still very healthy either in Canada and The U. S. So we have a few files opened and it's pretty much standard pipeline. So yes, we still have nice opportunities in front of us.
Are they all of the tuck in variety of this type of size? Or are you seeing any other opportunities like larger ones potentially in The U. S?
It's between, I would say, 3,000,000 and $10,000,000 This is what we have in hand actually.
Okay. So nothing larger than that. Okay. Thank you. I'll turn it over.
Thank you.
Your next question comes from the line of Jose Desjardins from BMO Nesbitt Burns. Please go ahead.
Yes. Good morning, everybody, and congratulations again on your results. I'm very happy to be a shareholder of Richard Yu. And I have just a little question regarding the recent behavior of the share on the market. We've seen a dip like close to 14%, and this is the largest dip since we have been shareholders of the company.
And we see positive results, positive growth, nice margins. But our clients are like saying a bit, what's going on? Is it The U. S? What's going on with Mr.
Trump? Or is it maybe the conditions with the hardware that you are dealing with, like Home Depot or other people like that? So how would you comfort your investors saying that maybe it's a buying opportunity at the current level around $29 when we come from $35
The best way to comfort investors is to make the clear demonstration to you guys that we are doing our job. We have the growth. We continue to invest and that those investment results in the fabulous sales increase. That's the way that we have to work when we're in charge of a company. So it's to generate a go to smart investment.
Regarding the price of the share, unfortunately, we don't have any control on that. That's up to the people that own the share that decide to sell for whatever reason. Some read the papers and they get scared because the the stock action is going down. Some are making profit because they're they're losing they're losing some money somewhere else. You know, I I can't have many many arguments like that, but my job is not to argument on the price of the share, but to convince you that we can continue to drive this company in the right direction and bring the results that we are used to see.
Okay. So you still have a buyback program in place for Yes, sure. Okay. So I thought maybe with the buyback program, the stock would hold a bit higher, but I'm comfortable with your answer. We believe in your company, and thank you for keeping up the good work in the industry.
Thank you very much. Thanks.
Your next question comes from the line of Scott Karzkalin from Mackenzie Investments. Please go ahead.
Yes, hi. I just wanted to expand a little bit further on the margin question. You touched on some of the additional expenses that you were putting in place for, I guess, new technology in the warehouses. Looking back to your last quarterly conference call, the fourth quarter conference call,
you had mentioned a couple
of things. One, that you were planning to announce some price increases in the second quarter and third quarter. And you also said you expected to see twenty eighteen margins getting back to hit the historical levels. Are those two items still relevant still the case?
Regarding the gross margin, yes. The price increase for the retailers will take place is taking place somewhere in March, April 1, I think is the date. So we're going to start to see the result part of the result in the second quarter and the rest in the third quarter. This is why we also have a big increase in our sales for the retailer market in Canada. It's because we have announced the price increase for the March or April.
So in the first quarter, have literally placed some orders, they have increased their inventory because they wanted to benefit from the price before the increase. So that's one of the reasons why the sales increased so much. But regarding the gross margin as well, we have those cyclical sales, which means some direct sales. In the retailers in that type of market, you have to do some what we call yearly bookings. For example, the retailers, they buy they buy their schools at this time of the year.
And sometimes for this for this this year, we sell more than than ever for whatever reason. Maybe our price is too low. I don't know. But we see our margin as being reasonable in the circumstances. But that does affect our gross margin, but it does not show much about the EBITDA because those are the result of direct sales.
But what else could we add to that, Antoine? What did I forget to mention?
For sure, Scott, by adding acquisition like we've concluded with Weston, this will have an effect on the gross margin because it's a product category that brings lower gross margin. So that can also dilute the percentage of margin.
Right.
Acquisition, are you able to see if their margins are comparable to Richelieu's? Are they lower?
No, no. They're comparable to the other DCs we have in The U. S, lower. But that's the name of the game.
Great. Thank
you very much.
There are no further questions at this time. Mr. Law, I will turn the call back over to you.
There's no more questions. Thank you very much for attending this call, and we'll be always pleased to talk to you if you have more questions. Bye bye.
This concludes today's conference call. You may now disconnect.