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American Woodmark Corporation (NASDAQ:AMWD)

F2Q09 Earnings Call

November 25, 2008 11:00 am ET

Executives

Glenn Eanes - Vice President and Treasurer

Kent B. Guichard - President, Chief Executive Officer, Director

Jonathan H. Wolk - Chief Financial Officer, Vice President, Secretary

Analysts

Analyst for Eric Bosshard - Cleveland Research Company

Analyst for Peter Lisnic - Robert W. Baird & Co., Inc.

Joel Havard - Hilliard Lyons

Sam Darkatsh – Raymond James

Operator

Welcome to the American Woodmark Corporation conference call. Today’s call is being recorded.

The company has asked us to read the following Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that may be beyond the company’s control. Accordingly the company’s future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include but are not limited to those described in the company’s filings with the Securities and Exchange Commission and the annual report to shareholders. The company does not undertake to publicly update or revise its forward-looking statements even if experiences or future changes make it clear that any projected results expressed or implied therein will not be realized.

Now at this time I would like to turn the conference over to Mr. Glenn Eanes.

Glenn Eanes

Welcome to this American Woodmark conference call to review the results of our second quarter of our fiscal year 2009. I’d like to thank you for taking time out of your busy schedule to participate.

Participating on the call today from American Woodmark will be Kent Guichard, Chief Executive Officer and President, and Jonathan Wolk, our Chief Financial Officer. Jon will begin with a review of the quarter and year concluding with an outlook on the future. After Jon’s comments Kent and Jon will be happy to take answer your questions.

Jonathan H. Wolk

This morning as Glenn mentioned we released the results of our second quarter of fiscal year 2009 that ended on October 31, 2008. In case you’ve not had the chance to read our earnings release, here are a few highlights.

Net sales for the quarter were $134.9 million down 16% below the prior year’s second quarter. Net income for the quarter was a loss of $0.5 million as compared with net income of $1.2 million in the prior year’s second quarter. Diluted earnings per share was a loss of $0.03 for the quarter as compared with income of $0.08 per diluted share in the prior year’s second quarter. The company generated $2.1 million of free cash flow during the second quarter, down slightly from the $2.4 million generated in the prior year’s second quarter.

For the six months ended October 31 net sales were $274.1 million down 16% versus the prior year’s first six months. Net income was a loss of $0.3 million down from net income of $6.3 million in the prior year’s first six months. Diluted earnings per share was a loss of $0.02 compared with earnings per diluted share of $0.42 in the prior year’s first six months. The company generated free cash flow of $9.5 million up from $8.2 million in the first six months of the prior fiscal year.

Regarding our second quarter sales performance, net sales for both the second quarter and for the six month period ended October 31, 2008 were 16% less than in the comparable periods of the prior fiscal year.

In new construction total residential housing starts sank to below 0.8 million on an annualized level or 32% below their prior year levels on a calendar year-to-date basis which at this point last year were still over 1.2 million housing starts. Starts of single family homes for the first 10 months of the calendar year fell by an even greater 40% during the same period to their most recent annualized level of only 531,000 homes down from nearly 900,000 at this time last year.

In comparison our new construction sales were down approximately 20% during both the three and six month periods that ended October 31 evidencing the share gains we’ve made in this difficult market.

The short-term outlook for the new construction market continues to be negative as evidenced by the recently released NAHB Wells Fargo Housing Market Index which registered another all-time low earlier this month as well as by the lowest building permit levels recorded since the statistic began to be tracked nearly 50 years ago.

Despite the weak new construction market we continue to aggressively bid and win new business focusing on companies that we believe have the staying power to outlast the downturn. These share gains have not been as a result of buying business through reduced prices but rather by increasing penetration with existing customers and securing new customers based on our total package of service products and pricing. These share gains have come at satisfactory margins that we believe will be sustainable over time.

In the remodeling market several factors have combined to continue the negative sales momentum. Existing home sales, a leading indicator for home improvement spending, have continued to hover at or below the 5 million annualized level since September of last year and calendar year-to-date existing home sales are down 16% below prior year levels. Inventories of existing homes for sale which ranged from six to nine months in the first half of calendar 2007 have consistently ranged from 10 to 11 months during 2008.

The consumer confidence index as reported by the Conference Board was reported at an all-time low last month. The medium sales price of existing homes continues to trend lower as foreclosures and other distressed sales have recently comprised an increasing portion of houses sold and our two primary remodeling customers reported accelerated declines in their comparable sales during their third quarters that ended in October.

Our remodeling sales declined in the low teens during both the three and six month periods ended October 31 driven entirely by reduced market performance in our product category. We continue to expect that the remodeling market will be flat to down until credit availability, housing prices and the associated media cover settle down.

We remain bullish on the housing market’s long-term viability so we continue to invest company resources to pursue additional share gain initiatives. We believe that our market share gains and our market position as the value provider of goods and services positions us particularly well during these days of the housing cycle.

Regarding our gross profit, gross profit for the second quarter was 14.4% of net sales below the 17.3% we generated in the second quarter of last year. Gross profit for the six month period ended October 31, 2008 was 15.2% down from 19% in the prior year. The primary drivers to our decline from prior year were increases in overhead and freight costs in relation to sales caused by the impact of lower sales volumes as well as significantly higher fuel prices that increased our freight and materials costs.

Turning to SG&A, total SG&A expense was 15.2% of net sales in the second quarter of fiscal 2009 as compared with 16.5% of sales in the prior year’s second quarter. SG&A expense was 15.6% of sales in the first six months of the current fiscal year, down when compared with 16.3% in the prior year. Total SG&A expense for the second quarter was lower than prior year by $5.8 million or 22% on a sales decline of 16%. Total SG&A costs for the six months were lower than prior year by $10.6 million or 20% also on a 16% decline of sales during that period.

Selling and marketing expenses were 11.2% of sales in both the second quarter and the first six months of the current fiscal year down from 12.2% in the second quarter and 11.9% in the first six months of the prior year. The savings in sales and marketing costs resulted from careful management of the company’s spending focusing on reducing costs that are not essential to servicing customers or maintaining customer touch points which remain central to the company’s strategy of protecting its customer relationships and continuing to gain market share.

Cost reductions occurred across several categories of spend including lower volume driven costs such as sales commissions, sales promotions, model home installations, promotional literature and to a lesser extent reduced headcount levels compared with the prior year.

General and administrative expense was 4.0% of sales in the second quarter of fiscal 2009 down from 4.9% of sales in the second quarter of the prior year. G&A expense was 4.4% of sales during the first six months of the current fiscal year down slightly from 4.5% in the prior fiscal year. G&A expense declined by $2.4 million during the second quarter compared to the prior year primarily reflecting a reduction in bad debt expense of $1.3 million.

Regarding our capital spending, the company’s capital expenditures and promotional displays deployed in the second quarter and first six months of the current year were $3.2 million and $7 million respectively, below the company’s capital spending levels in the prior fiscal year. The company spent less on capital expenditures in line with reduced capital needs associated with lower levels of production. The company deployed fewer promotional display units in line with reduced numbers of new home center stores opening. The company expects to continue to fund its capital spending from a combination of operating cash flow and existing cash on hand.

Regarding the balance sheet, the company’s financial position remains outstanding. Long-term debt levels declined slightly to $25.8 million and its debt-to-capital on a book value basis was 10.8% as of October 31, 2008 which was in line with prior year levels.

The company generated free cash flow of $2.1 million as compared with free cash flow of $2.4 million in last year’s second quarter. Free cash flow for the first six months was increased to $9.5 million from $8.2 million in last year’s first six months.

The company returned $1.4 million to shareholders during the second quarter of the current fiscal year primarily by maintaining its regular quarterly dividend.

The company ended the quarter with $61 million of cash on hand an increase of $1 million over its most recent quarter and $4 million more than the beginning of the current fiscal year.

In closing, we continue to improve the quality and breadth of the company’s products and services and to invest to drive market share gains and future growth during this industry downturn. We continue to manage the business with the objective of creating long-term value for our shareholders.

We are maintaining our touch points in our customer basing jobs and despite some headcount reductions we are maintaining adequate manufacturing and field installation capacity to ensure adherence to our stated service levels. Customers continue to validate our strategy as we gained additional market share during the quarter.

Although we experienced a slight loss during the second quarter, this quarter represented the third consecutive quarter in which we operated at essentially a break-even level. Our break-even level of production is 30% lower than it was two years ago which has enabled us to achieve these break-even results and generate positive cash flow despite enduring sales declines of 16% compared with one year ago and 37% compared with two years ago.

As we look forward to the remainder of our fiscal year 2009 we continue to see a long-term housing environment that is underpinned by sound population growth and demographic trends but as overshadowed by the combined impacts of inventory overhang, falling home prices and consumer confidence, and the credit crunch. We believe these factors and their associated media coverage have contributed to a reduced ability and desire for buyers to obtain mortgage financing. We believe the outlook for the housing economy will remain uncertain until the credit crunch is resolved and housing prices have stabilized.

From a market perspective for the remainder of our fiscal year we expect our remodeling customers will continue to experience weakness as compared with prior year comps driven by declining consumer confidence and increasing unemployment levels.

Existing home sales will approximate present levels of 5 million homes per year down mid-single-digits from the 5.2 million homes sold during our previous fiscal year. We expect total housing starts will approximate 0.8 million during our fiscal year that ends April 30, 2009 down approximately 33% from the 1.2 million starts during our fiscal year that ended April 30, 2008.

During the quarter we continued to win a greater share of business from some of our existing national homebuilder customers that have solid credit worthiness. In addition we continued to gain market share at the national home centers. Because of our strong competitive position and focus on continuing to enhance and differentiate our value from that of competition, we believe we will continue to achieve market share gains.

Our partnerships with the big box retailers positioned our company to capture a growing share of remodeling activity. Our market position as a provider of superior products and services at competitive price points is extremely competitive in a more challenging retail sales environment and many of our new construction customers expect to continue to gain market share. Our partnerships with these national and regional builders position us well to maintain and grow our market share with them.

This concludes our prepared remarks and we’d be happy to answer any questions you have at this time.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Analyst for Eric Bosshard - Cleveland Research Company.

Analyst for Eric Bosshard - Cleveland Research Company

I know you don’t give quarterly guidance but can you at least walk through maybe what you’ve seen in new construction and remodel to this point in November?

Kent B. Guichard

Maybe a little bit broader view than that in terms of the market. Maybe this’ll get hold of several people’s questions.

If you go back really in September, about mid-September we saw a real tipping point not only in our industry but I think pretty much across the board from everybody we’ve talked to. Whether it was the Lehman event, who knows what it was but really sometime around mid-September the world pretty much took a step function down. We certainly saw that entering October in both new construction and remodel.

Of course there’s been a lot of confirmation as companies’ calendar third quarters have been coming out. Circuit City is obviously an example on the electronic side. Circuit City went into 11 and Best Buy who I think everybody agrees is the leader in the category also came out with some information about lack of consumer activity and dropping their forward look. GM of course had almost a 50% drop in sales during that same period.

There was something that happened or a combination of events that happened in mid-September that really took on a broad base everything including our industry on both the new construction and remodel side down another step function.

Since that time there’s really been no significant change. The election didn’t give a lift; certain other things haven’t given a lift. So kind of the overall economic activity again including our industry on both new construction and remodels has pretty much stayed where they went to in late September.

Analyst for Eric Bosshard - Cleveland Research Company

Can we assume that to this point in November remodel sales are continuing to run down low double digits and new construction down 20% or has it changed since?

Kent B. Guichard

The market of course is running at a worse rate than what you just stated. New construction is down 30% to 40% and remodeling appears to be by a greater percentage as well.

Analyst for Eric Bosshard - Cleveland Research Company

How should we think about gross margin going forward? What do you see in terms of your costs? Where are the positives? Where are the headwinds? How should we think about the gross margin rate going forward?

Kent B. Guichard

For us the biggest impact has been volume. There are definitely cost pressures. There have been cost pressures and cost pressures continue. But volume has been far and away the biggest impact upon our gross margin performance. When sales are down 16% year-on-year and down by 30% over two years, there’s not going to be enough cost savings that are going to offset those kinds of volume declines.

In addition as everybody knows we’ve had headwinds in terms of diesel fuel which has begun to abate at this point although it has a lagging favorable impact for us as well as material costs which were running up really during this entire calendar year for our company. I think in terms of gross margin the key aspect going forward is going to be sales volume far and away. Cost pressures will continue to be there although at the moment at least for fuel oil they’re abating.

Operator

Our next question comes from Analyst for Peter Lisnic - Robert W. Baird & Co., Inc.

Analyst for Peter Lisnic - Robert W. Baird & Co., Inc.

Could you talk on gaining share on the new home front and also within the remodel segment? How much of that is a result of your investments and maintaining your selling force versus just gains in the stock cabinetry relative to say custom or semi-custom?

Kent B. Guichard

That would all have to be feeling and anecdotal. There’s no way for us to really split that up and attribute particular portions of share gains to particular things. I think that we continue to have a favorable wind at our back just because we’re the value point price player. So the people that are out there to the extent that they’re more budget conscious even though they’re going ahead with the remodel job that has a tendency to move them towards our product in the stores. I certainly think that’s a measurable amount.

We also as you heard on previous calls think that some of the things that we’re doing on the service platform and quality and some of those other types of things are starting to get some legs and have an impact.

The split between the two; who knows. I would say that [inaudible] into sometime say two or three years from now that some of the market share that we’ve gained particularly over the last three to six months, some of that will go back to the market based on just a recovery in the economy and not quite having the wind at our back. But we do think that a significant portion of the market share gain that we’ve earned is sustainable.

Analyst for Peter Lisnic - Robert W. Baird & Co., Inc.

Regarding the balance sheet or cash flow and also your bad debt expense, is that something where you’re just picking your customers well with that falling off or just monitoring them closer? It looked like at the end of last year you took down your days’ sales outstanding a little bit. Should we expect you to bring that down in the back half of this year also?

Kent B. Guichard

I think in terms of bad debt expense it’s a little bit of everything. It’s of course continued vigilance and close contact with our customers working to ensure that they’re current in paying us and that we’re current in our service requirements to them, which in turn helps them to be current with us. It’s continued good choosing by us and by them. They’re choosing the best provider; we’re trying to choose the best customers. So I think you’re seeing some of that.

In terms of DSO we continue to work very closely with all of our customers and make sure that our processes are very much in alignment with theirs. I think that you’ll see us perform as we traditionally have in terms of our days’ sales outstanding which tends to be at the top of the industry.

Analyst for Peter Lisnic - Robert W. Baird & Co., Inc.

Looking back as you indicated in September things took a step function down in terms of demand and since then you’ve seen a number that was in the single digits. The environment is clearly worse than you guys were probably anticipating this time a year ago and yet the strategy hasn’t changed really. Is that something where you’re continuing to be comfortable with it even at these levels? It sounds like you are and I just want to confirm that.

Kent B. Guichard

Strategy from what perspective?

Analyst for Peter Lisnic - Robert W. Baird & Co., Inc.

Maintaining investment through the downturn.

Kent B. Guichard

Do you mean in terms of our planned infrastructure?

Analyst for Peter Lisnic - Robert W. Baird & Co., Inc.

Yes.

Kent B. Guichard

A couple of things. One is there have been changes. The two comments I would make on that is one, the math continues to change. We went through a period and we’re still there to some degree although as Jon mentioned diesel has come down a little bit. It’s still significantly where it was a couple years ago and other petroleum-based products we haven’t seen really much easing on the price pressure on those materials coming in.

But the math has kind of changed particularly on the transportation side where moving things around is very expensive, whether it’s maintaining capacity, you’re not able to fully either weight or cube out your trucks so the per piece transportation cost continues to rise. We continue to model that and see what the real numbers look like but it’s not quite as obvious or maybe intuitive as you think it might be when you get in there because of the significant increase in overall transportation costs.

The other comment I would make really relates to the infrastructure. From our point of view we have made a conscious decision and it really is in the gross margin as Jon mentioned, we have made the conscious decision really over the last year or year and a half to under-absorb our fixed overhead associated with our capacity. We continue to do that.

Our kind of view of what’s going on is there is a lot of infrastructure, there’s a lot of capacity that’s being dismantled not only in our industry but in building materials in general but certainly in our industry. Again if you go back and look at historical recovery markets, it takes about three years to get back to what you would consider a decent market, but the first year is about half of that. You go about a 50% recovery in the first 12 months and then you get two 25% recoveries after that.

One of the things that we continue to try to position ourselves for is that first bounce-back. So we’re trying to maintain all the capacity and infrastructure we can, particularly in light of the fact that we see a lot of infrastructure being either mothballed or just outright dismantled in the industry.

We will as long as we can continue to pursue a strategy where we basically break-even as Jon mentioned; make a little money, lose a little money but you basically break-even. We continue to be cash positive on a free cash basis and we’re able to hold on to that capacity to service our customers. When the market comes back we’ll continue to do that.

Again if there’s something significant that changes again, that doesn’t allow us to continue to keep that capacity in light of the market condition, then we’ll look at our alternatives at that point. But right now we think that we’re going to be able to continue on this strategy.

Operator

Our next question comes from Joel Havard - Hilliard Lyons.

Joel Havard - Hilliard Lyons

Jon, first of all thanks for that sunny macro housing overview. Secondly, and this is for both of you, I recall that the closure of Minnesota last Q3 still entailed some carry-over costs into this year. Is that still the case or has that really all been absorbed bits and pieces or is there a chunk yet?

Jonathan H. Wolk

The way the accounting goes nowadays you can’t just make the accrual all upfront and anticipate all the costs you’re going to encounter, so we do still have a little bit of seepage of those costs into current results but it’s very minor.

Joel Havard - Hilliard Lyons

Can you quantify what was in Q1 and/or 2 and what might be left then?

Jonathan H. Wolk

You’re talking immaterial amounts. They won’t move the needle for you.

Joel Havard - Hilliard Lyons

That’s good. We were thinking it could be as much as another $1 million.

Jonathan H. Wolk

No. Far less.

Joel Havard - Hilliard Lyons

That was in total?

Jonathan H. Wolk

Far less in terms of ongoing impact on a quarterly basis. You’re not even cracking six figures on a quarterly basis at this point.

Joel Havard - Hilliard Lyons

On the flip side of the Minnesota equation, that facility is still held for sale and do you feel comfortable that you’ll realize something into the maybe very low million dollar range on it eventually?

Jonathan H. Wolk

We feel that the asset value is recoverable.

Joel Havard - Hilliard Lyons

On the capacity reduction I know over the course of fiscal ’08 that was a big part of that 30% or so ratcheting down. Has there been meaningful headcount reduction in the first half of this fiscal year from where you were at end of fiscal ’08?

Jonathan H. Wolk

First, let’s get to the first part of what you said. The way we’ve been able to get our break-even down is not through capacity reduction. We still have virtually all the facilities, save for the one you just referenced in Minnesota that is no longer operational, but all the other facilities continue to be operational. The way we’ve been able to reduce to break-even point is essentially by focusing on enhancing the quality and enhancing efficiencies in our operations.

There have been large headcount reductions over the last three years that we have quantified on prior calls related both to a product category that we exited as well as to the downturn of the market. But in terms of significant headcount reductions this year, no. The headcount has been relatively steady this year although it has been declining at a low rate.

Joel Havard - Hilliard Lyons

Just sort of allowing natural attrition there?

Jonathan H. Wolk

Primarily.

Joel Havard - Hilliard Lyons

Are you currently running four-day weeks or short shifts or any sort of tactical mechanisms?

Kent B. Guichard

We’re meeting customer demand. Through our network as a vertically integrated manufacturer, depending on the mix that comes in both regionally and product, we may have certain facilities that have curtailment time at any given point. We really kind of balance our throughput to whatever the customer demand is but we’re getting reasonable throughput.

By and large if you look at it across the platform, we’re pretty much right sized in terms of our daily production. Where we’d like to produce every day, generally we might have to throw like I said a curtailment or down day here or there but generally our crewing is consistent with the throughput that’s required to take care of the customer demand.

Joel Havard - Hilliard Lyons

It was encouraging to hear that you do still believe that that recovery is out there somewhere. I use the word whenever in my notes. Is there a philosophical tolerance for how much you’re willing to lose from a net income basis or from a cash flow basis where you would start to think about, “Maybe we need to take down one more chunk of capacity”? By that I do mean plant or a more meaningful headcount reduction.

Kent B. Guichard

Well, I’m not sure what that question really was Joel. There’s not a hard line in the sand that we’ve drawn. There are certainly things that we look at, certainly if you start to lose money on a consistent basis you have to I think evaluate that. If you start to get to a point where you’re using cash as opposed to generating cash, I certainly think that’s a big break point where you need to go in and think about what you’re doing.

But, with the longer term in mind because we do believe it is going to come back, we believe that all the long term demographics are there so as we’ve talked about before, in terms of the industry this is just a cycle and it’s a dosey of a cycle, it’s a big one but still in our mind just a cycle.

We want to protect our core assets, we want to gain share, we want to run the business, we want to continue to invest in the future and that’s why we built the balance sheet that we’ve built and that’s why we have the cash position and that’s why in the boom time we didn’t recapitalize the balance sheet and do some of those other things was that we can continue to invest in the future and try to maximize the shareholder’s long term value in light of this market.

We think that this market presents a lot of opportunities as difficult as it is, we think it presents a lot of opportunities. Those are things, you lose money, you use cash, you’ll look at those but we’re not going to be in a reactive mode where one month or one quarter something happens and we’re going to go in and flip the switch and do something drastic. We’re going to do it on a very disciplined and controlled basis with our strategy and the long term market in mind.

Operator

Your next question comes from Sam Darkatsh – Raymond James.

Sam Darkatsh – Raymond James

Jon, just a housekeeping question, how should we look at tax rate going forward? It jumps around a little bit obviously with the new accounting regulations but how should we model that going forward?

Jonathan H. Wolk

It’s a little bit tricky Sam, we’re operating so close to breakeven now that you get your permanent tax differences and they’re going to make you jump around a little bit on these very small denominators of taxable income so that’s really the challenge there. I think for the rest of this fiscal year we’re looking at approximately 40% effective rate that we’ve got baked in and that’s what I would use.

Sam Darkatsh – Raymond James

The sales down 16% in the quarter, could you parse out for us what pricing and/or mix represented versus unit volume or what trends you’re seeing in pricing or mix?

Jonathan H. Wolk

We give that in the 10Q but essentially it was entirely volume.

Sam Darkatsh – Raymond James

Was it more than entirely volume meaning was pricing down?

Jonathan H. Wolk

Pricing was pretty much flat for the whole company. You’ve got some different trends going on in different parts but the overall impact of pricing was virtually flat.

Sam Darkatsh – Raymond James

Do you anticipate pricing getting more difficult since the mid September second leg down or do you anticipate Kent that the industry remains pretty rational?

Kent B. Guichard

I think there’s two questions there one is what we’re seeing is the industry has remained rational that doesn’t mean that there isn’t competition of course out there but there just isn’t a lot of excess margin certainly in the upstream part of the industry. So, at this point people are I think being very rational about the balance between having to keep your factories running and having to live with whatever deals that you make.

We haven’t seen very much irrational behavior. We think that the industry from a pricing perspective is behaving very rationally. In terms of us, our mix is pretty stable. We really don’t get a lot of movement in our mix and again, with the value price point that we’ve talked about and those types of things, when people come in to our category and they pretty much come in with the budget they come in with and they buy what they buy.

We don’t have a real wide variation in our mix. We’re not somebody at the top end of the scale that goes all the way up to whatever, we have pretty finite price points in the category in terms of where we’ve made our business so we just don’t see a lot of swings in our mix.

Sam Darkatsh – Raymond James

Two more quick questions if I could, you’re talking a lot about your capacity and I promise I won’t ask you when or by how much you’re going to take capacity down but give us a sense if you could of what your blended average utilization rates might be? I know it’s going to be different by plant and by function but if you were to blend a ballpark utilization rate companywide?

Kent B. Guichard

I’ll give you two, one is real practical utilization which is driven primarily by your crewing and when I answered Joel’s question we’re pretty much crewed to what our throughput is at this point. In terms of brick and mortar, you may have to do some things with machinery or equipment within but if you’re talking about brick and mortar we can probably double our output without having to do any significant brick and mortar additions. Again, we might have to do some equipment, that kind of stuff but in terms of the physical footprint of facilities, we’re probably about 50% of what that ultimate output could be.

Sam Darkatsh – Raymond James

So you’re running roughly what a shift and a half blended so you could add another shift and a half and hit full capacity? Is that how we should look at that?

Kent B. Guichard

Again, it’s going to be by facility, some of our facilities are highly automated where you can run on three shifts, some are less automated where you don’t necessarily run on a three shift basis even at full capacity. You bring in all the math in terms of transportation and those types of things but I think the message is that we could probably double our output without having to do any brick and mortar additions.

Sam Darkatsh – Raymond James

Last question, based on your price point and end market and geographical footprint, Kent what’s the average time between a housing start and when you begin to ship your cabinets?

Kent B. Guichard

Well again, that’s going to vary greatly by region and the builder that you’re dealing with but I would say that if you just kind of want a rule of thumb a large production builder will probably build a house in 100 days plus or minus and we would be near the end of that process. We would probably be two thirds, three quarters of the way through the process, we’re one of the last people to go in obviously because pretty much everything else has to happen.

Now, there are markets different in Texas, cabinets go in earlier than they do in some other parts of the country but generally speaking you can go through and run that generally speaking between the housing start, assuming that it’s a real start that they actually do start moving dirt and putting a foundation in until our product actually goes in is probably a couple of months.

Sam Darkatsh – Raymond James

That’s still running that level, that hasn’t lengthened out over the past six months on a meaningful basis the best you can tell?

Kent B. Guichard

No, I think the builders have done a very good job about controlling it up front whether it’s the fact that they actually just don’t build the house on spec or the spec inventory – if you look at the month supply of new construction out there, it’s still pretty long it’s still 10 or 11 months but that I think is driven as much if not more by the low level of activity. If you look at the actual total number of units the builders have actually done a pretty good job of getting that number down.

If you were to run on say a 1.4 to 1.5 sales rate, they would be down there around three months of inventory. They’ve got it well below 400,000 units, or a little below 400,000 units. So, they just don’t build a house. Now, you can get a cancellation and something like that but generally speaking when they’re starting a house now they’re going to complete that house so they’re actual production schedule once they start a house really hasn’t moved out at all. They haven’t elongated their time lines.

If anything, what they’re trying to do is they’re trying to shorten them so that a buyer doesn’t become disqualified between the time they sign the contract and the time they actually close the house so they’re actually decreasing – if anything, they’re probably decreasing their cycle times to build a house. So, we really haven’t seen that push out at all.

Operator

At this time there appear to be no further questions. I’d like to turn things back over to management for any additional or closing comments.

Glenn Eanes

Since there are no additional questions, this does conclude our call and again, thank you for taking time to participate. Speaking on behalf of the management of American Woodmark, we appreciate your continuing support. Thank you and have a good say.

Operator

That does conclude today’s conference call. Thank you for your participation. You may disconnect at this time.

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Source: American Woodmark Corporation F2Q09 (Quarter End 10/31/08) Earnings Call Transcript
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