Although the coronavirus (COVID-19) pandemic has had a negative impact on net sales for Huttig Building Products in the third quarter, the company said its COVID-19 response plan has driven an overall improvement in operating results relative to initial pandemic forecasts. St. Louis-based Huttig reported net sales decreased 1.4% on a year-over-year (YOY) basis in the third quarter to $212.7 million, according to the company’s quarterly earnings report.
Huttig said the decline in net sales was attributable to pandemic-induced supply chain disruptions and labor shortages, which have increased lead times to customers for value-add production sales. The distributor said COVID-induced changes to the operating environment accelerated planned restructuring activities, resulting in Huttig closing branches during the third quarter. The distributor also has commenced a broader product rationalization project designed to strengthen Huttig’s focus on core and strategic products. While the plan will initially result in lower sales as Huttig forgoes replenishment or promotion of certain items, the company expected the rationalization will ultimately generate higher margins and sales of focused product categories.
Huttig reported millwork sales decreased 8.8% YOY to $90.8 million in the third quarter while building products sales increased 5.7% YOY to $106.1 million. The distributor said sales growth in the building products category was mitigated by product rationalization activities related to focusing on higher-margin, non-commoditized products. Wood product sales increased 0.6% YOY in the third quarter to $15.8 million.
The company reported gross margin decreased from $44.7 million in the third quarter of 2019 to $42.7 million in the third quarter of 2020 and gross margin decreased 60 basis points on a YOY basis to 20.1%. Huttig said gross margins were negatively impacted by product sales mix as higher-margin, value-add categories were affected by supply chain disruptions and labor shortages. Margins were also pressured by sales from branch closures and product rationalization activities. The distributor said the majority of restructuring activities are complete, but such activities will continue through the fourth quarter.
“As devastating as the impact of the COVID-19 global pandemic has been on our country, economy, and way of life, it was the catalyst for many of the changes we made to our business, contributing to our improved financial performance in the quarter,” Jon Vrabely, president and CEO of Huttig, said in a news release. “
Huttig reported net income in the third quarter increased $4.5 million on a YOY basis to $6.1 million. The company’s adjusted EBITDA was $8.5 million for the third quarter of 2020, compared to $5.3 million for the third quarter of 2019.
Huttig said with the exception of closing branches in Columbus, Ohio and Selkirk, N.Y., as part of its restructuring efforts, all of its branches remain open and “capable of meeting customer needs” during the pandemic. The distributor said wage reductions that were enacted at the onset of the COVID-19 pandemic have largely been lifted, though higher-salaried employee, senior management team members, and members of the board of directors continue to have reduced compensation.
The company said its board of directors is currently reviewing Mill Road Capital Management’s revised expression of interest to acquire all the outstanding common stock of Huttig for $4.00 per share. Huttig said the board will determine the course of action “it believes is in the best interests for all its stockholders.” The company said it does not intend to disclose any updates regarding its review of Mill Road Capital’s proposal until the board makes a determination.
