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NCI Building Systems, Inc. (NYSE:NCS)

F1Q 2014 Earnings Conference Call

March 12, 2014 09:00 AM ET

Executives

Layne de Alvarez - Vice President, Investor RelationsNorm Chambers - Chairman, President, Chief Executive Officer

Mark Johnson - Chief Financial Officer, Executive Vice President, Treasurer

Analysts

Bob Wetenhall - RBC Capital Markets

Winnie Clark - UBS

Alex Rygiel - FBR

Lee Jagoda - CJS Securities

Robert Kelly - Sidoti

Jack Kasprzak - BB&T

Brent Thielman - D.A. Davidson

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the NCI Building Systems, Inc First Quarter Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, March 12, 2014.

I would now like to turn the call over to Layne de Alvarez, Vice President of Investor Relations. Please go ahead, Layne.

Layne de Alvarez

Thank you. Good morning and welcome to the NCI Building Systems' call to review the company's results for the first quarter of fiscal 2014.

To access the taped replay of this call, please dial 1 (800) 406-7325 and enter the pass code 4668423 and the # sign when prompted. The replay will be available approximately two hours after this call and will remain accessible through March 19. The replay will also be available at the company's website at ncigroup.com.

The company's first quarter results were issued last night in a press release that was covered by the financial media. In keeping with SEC requirements, I advise that during this call be will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied. For more detailed discussion of the risks and uncertainties that may affect NCI, please review our SEC filing, including the 8-K filed last night.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statements to beyond what is required by applicable securities laws. In addition, our discussion of operating performance will include non-GAAP financial measures. A reconciliation of these measures with the most directly comparable GAAP measures is included in the earnings release and the CFO commentary, both of which are available on our website.

At this time, I would like to turn the call over to NCI's Chairman, President and Chief Executive Officer, Norm Chambers.

Norm Chambers

Thank you, Layne, and good morning everyone and welcome to our first quarter 2014 conference call. Joining me this morning are, Mark Johnson, our Chief Financial Officer; Todd Moore, General Counsel, and Layne de Alvarez, our Vice President of Investor Relations.

Our first quarter earnings were released last night, so hopefully you all had time to review the numbers. We would like to spend most of our time this morning answering your questions, but first I am going to briefly comment on the quarter, and Mark will provide some additional color on our financial details.

After the impact of the most severe winter the country has experienced in decades, we are in much stronger position today than we were this time last year. First, we continue to outpace the market. During the first quarter, our sales were up 4.4% while low-rise non-residential new construction starts declined 5.5% on a year-over-year basis.

The market where our sales have been historically the most robust, two-story and less declined 10.6% year-over-year according to McGraw-Hill data. These declines in new construction starts have been largely attributed to the winter weather. Our performance reflects our customer support as we worked to provide the highest quality products, combined with exceptional customer service during even the most challenging seasons.

We appreciate our customer support of our, in fact of our initiatives to improve the value of products provided to them. Our first quarter bookings for our Buildings group were up 11%, and the Buildings backlog was up 4% on a year-over-year basis. You will recall that both, bookings and backlog had unfavorable year-over-year comparisons from November 2012 through July of 2013.

Bookings and backlog have improved year-over-year in both, fiscal fourth quarter 2013 and fiscal first quarter 2014. Additionally and indicative of the success of our value pricing initiatives, the growth of dollar value was up 190 basis points higher than the growth in volume for the last seven months and that improvement is reflected in our current backlog. This is an important reversal of last year's trend in which volume grew faster than value. We expect quarterly improvement in bookings and backlog to continue throughout 2014 as the economy improves.

Second, key market indicators continue to demonstrate the momentum we began to experience in late 2013 is expected to accelerate through 2014 and beyond. Industrial vacancy rates continue to fall and 2013 ended with the strongest quarterly absorption figure since 2005, supporting the notion that tightening supply will necessitate new construction as the recovery advances.

The latest Fed Senior Loan Officer Survey showed an ongoing easing in lending standards, which tends to lead capital spending by 4 to 6 quarters. The ABI index has been up 15 of the past 17 months, which also reflects the stabilization of the economy.

Our outlook for fiscal 2014 remains positive. Although the second quarter continues to be negatively affected by the same weather-induced impacts to shipments, February recorded weather that was even more disruptive than January. We believe once the weather improves, we will be able to take advantage of the strengthening non-residential market.

We anticipate that we will benefit from significant pent-up demand although we are likely to be challenged to recover all of the loss work from the first half of our year. Keeping in mind that historically 60% to 90% of our earnings are generated in the second half of our fiscal year, we are not deterred by the slow start. While we still have work to do to improve our transportation costs, we are already been benefiting from the reorganization of our manufacturing operations, which will become even more important as volumes improve and operating leverage kicks in.

We have seen meaningful and measurable improvement in certain aspects of our manufacturing cost per ton and expect those efficiencies to be reflected in expanded margins by the second half of the year. The Buildings group recorded an improved total manufacturing cost per ton with January registering a 7% year-over-year improvement. Improving our delivery times to our customers, completeness and erectability of our buildings is fundamental to their success and ours and the changes we have made to the Buildings group manufacturing team are committed to do just that.

Historically, our industry has tied pricing almost solely to the rising steel costs. However, we operate in an environment of ever-increasing costs, ranging from transportation to healthcare, to increased regulations and to improving wages for our employees, and most importantly supporting our customers' success with systems and additional services. Therefore, we will continue to periodically and thoughtfully raise our prices in a coordinated effort with our customers.

When the weather improves and our mix is normalized, we expect to see greater benefits from price improvements. Finally, despite the challenges we and our customers have faced this winter, I remain confident as do they that we are well-positioned to take advantage of the strengthening non-residential construction market and look forward to reporting improving performance through fiscal 2014.

Now I will turn the call over to Mark, so he can add some color to our financial results.

Mark Johnson

Thanks, Norm, and good morning all. In our press release and in the CFO commentary both, of which are available on our website, we have provided discussion of the key elements of our financial results. I would like to take a few minutes to provide some additional color.

We were pleased to report a 4.4% increase in revenue during the quarter, despite the fact that non-residential construction was down during that period, particularly for low-rise construction. However, we were unable to drive more profits to our bottom-line. Unfortunately, weather and mix were the biggest culprits combined with continued investment in some key growth initiatives.

Let me walk through some of the impacts that the severe weather conditions had on our operations. First, during the quarter, we had 17 plant closure days versus only seven last year. These disruptions, combined with the mid-week holidays, resulted in inefficient production schedules throughout December and January.

Second, our supply chain was disrupted. Material costs and production efficiency were impacted by shortages caused by waterway and road transportation issues associated with the weather. Also, just like our operations, our suppliers experienced difficulties in meeting production and delivery commitments.

Third, extended cold temperatures resulted in higher utility expenses and impacted the efficiency with which chemicals are utilized in our insulated panel facilities. The unusual temperature variations increased the amount of scrap and rejected material related to the insulated metal panels.

Fourth, our transportation costs were higher due to the disruption in traffic caused by the major snowstorms as well as the impact of manufacturing delays. In some cases, we were able to ship production within our geographic footprint to meet customer requirements, but incurred higher transportation costs as a result.

Fifth and possibly most important, our product mix and volume of business was negatively impacted. Poor construction site weather delayed many planned projects, because site preparation or foundation work could not be completed as scheduled. As a result, our product mix shifted towards product that are interior in nature and therefore less disrupted by exterior weather conditions.

Partially as a result of weather, we filled record orders for cold storage insulated panel, because they tend to be interior products. Altogether, we estimate that the combined effect of the disruptions to our supply chain, manufacturing schedules and business mix, negatively impact our gross margins by approximately 110 basis points.

With weather having had a significant impact on our performance in the first quarter, and signs that the weather is continuing into the start of our second quarter, I want to reflect on the seasonality of our business. Like most businesses with exposure to construction, we are highly seasonal and historically between 60% and 90% of our annual EBITDA has been earned in the last half of our fiscal year.

One of the key determinants of the level of seasonality we see in any given year is the severity of the winter weather and its impact on construction site conditions. Therefore, we believe it is reasonable to expect that given the severity of the weather so far this year, our second half earnings in 2014, will be closer to the higher end of the historical 60% to 90% range.

Now I would like to provide an overview of our consolidated results for the quarter and touch on some of the key aspects of our segment results. Despite adverse weather and declines in new construct starts, each of our three segments achieved revenue growth. However, gross profit was lower than the prior year, due primarily to the impact of the items I just discussed.

Further, the SG&A expenses while lower as a percent of sales increased by $1.9 million over the prior year, our expenses this year included $700,000 related to the secondary offering completed in January and an incremental $1.2 million in our Components group to further invest in key growth initiatives.

As a result, we incurred an operating loss of $3.2 million compared to operating income just over breakeven in the prior year. Adjust EBITDA for the quarter at $8 million was $5.5 million lower than the prior year. In addition to the decrease in operating income, adjusted EBITDA was negatively impacted by the exclusion of the $1 million gain on insurance recovery and a $900,000 negative swing in other income and expenses, which was primarily driven by foreign currency losses due to the recent devaluation in the Canadian currency.

Now, I will provide some highlights for each of our three segments. Our Coatings segment operating income increased by nearly $1 million over the prior year and increased the operating margin from 11% to 12%. While this division was impacted by the various descriptions of adverse weather, these issues were offset by the 10% growth in revenue and a $1 million non-recurring insurance recovery gain.

Third-party external revenue grew nearly 28% as a result of our new Middletown facility, which became operational in January of last year. Our Components segment operating income declined by $2 million from the prior year, revenue grew 2.8% driven by growth in insulated panels, offset by small declines in traditional component products.

Margins were lower, primarily due to weather-induced operating inefficiency and unfavorable mix. The mix issues is primarily the result of lower commercial and industrial insulated metal panels and higher cold storage insulated panels which typically have a lower margin contribution. The operating expenses for this segment were higher than in prior year, primarily due to $1.2 million in incremental cost to pursue key growth initiatives, expand our sales and service capabilities and distribution channels.

Our Building segment operating income declined by $2.4 million from the prior year, revenue grew 3.2%. Half of the revenue growth came from the incremental erection services, while increased volume and prices accounted for the other half. This revenue mix shift reduced the operating margins by approximately 60 basis points, while the weather-induced inefficiencies accounted for an addition 100 basis points.

Now, I'll turn to some highlights on our cash flows and balance sheet. We used approximately $34 million in cash from operations during the first quarter compared to $13 million in last year's first quarter. This is consistent with our typical historical pattern, where we invest in our working capital in the seasonally weaker periods following the fourth quarter peak.

The cash investment this year is higher than last year due to the timing of accounts payable payments between our seasonally stronger fourth quarter, into our seasonally weaker period, and increases in inventory related to increase in steel cost and lower than anticipated shipments to-date.

Keep in mind that we generate the bulk of our operating cash flow in the second half of our fiscal year and this year is likely to be even more seasonally weighted to the second half, as discussed earlier.

We used approximately $23 million in financing activity this year compared to $10 million in the prior year. This increase resulted primarily from the repurchase of approximately $20 million of common stock in connection with a secondary offering completed in January of this year compared to a $9 million reduction in long-term debt last year.

Turning now to our outlook, Norm has already commented on our positive outlook for fiscal 2014. I want to focus on our second quarter specifically. In the CFO commentary available on our website and filed as an 8-K, we have provided specific expectations for our second quarter for the SG&A expenses, interest expense, effective tax rate, the weighted average diluted share count and capital expenditures.

In addition to these items, the severity of the weather conditions seen in the first quarter, have continued so far into our second quarter. One measure we have for this is our own plant closures due to inclement weather. We have had 10 plant closure days so far in our second quarter compared to a total of only three of the entire second quarter last year.

Given the continuation of these conditions and the expectation that we will incur approximately $1.1 million in incremental year-over-year cost related to our growth initiatives, we currently expect our second-quarter operating income to improve sequentially, but it will be challenging for us to produce meaningful improvement in operating income over the prior-year second quarter.

As I described earlier, we anticipate that the level of seasonality which is fundamentally a function of weather will be at the higher end of our historical range and the vast majority of our annual EBITDA will be earned in our second half.

As Norm highlighted earlier, give the investments we have made to streamline and enhance our operations, we look forward to leveraging our operations as we move into the less disruptive second half of the year as projected low-rise construction starts to pick up and our capacity utilization improves.

Now, I would like to turn the call back to the operator for the Q&A.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) First question is from the line of Bob Wetenhall with RBC Capital Markets. Please go ahead.

Bob Wetenhall - RBC Capital Markets

Hi. Good morning.

Mark Johnson

Good morning, Bob.

Norm Chambers

Morning.

Bob Wetenhall - RBC Capital Markets

I was hoping, Mark, maybe you could provide a little bit of color in helping us think about gross margin performance in 2Q. Obviously it sounds like you are overall bullish on the backend and the full-year outlook, but how do we think about absorption in a low-volume environment in second quarter?

Mark Johnson

That's a great question. I think the primary challenge to our margins in the first quarter was that level of disruption we had associated with weather and we have seen that continue through February and into the early part of March, so we do anticipate that despite the fact that we have had price increases throughout all of our segments, we expect the product mix to still be challenged in our second quarter and some of those disruptions to also continue to occur, so we look to our margins being in the neighborhood of the margin that we had in the prior year, but do not expect that we will see meaningful improvement.

Norm Chambers

Bob, one of the things that I think that is encouraging is that we actually have had more disruption in February than we did in February last year. From one standpoint of, if we can stay in the range of the margins that we had in the second quarter last year than that would mean we really made some recovery.

Bob Wetenhall - RBC Capital Markets

Got it. That makes sense, and I was also hoping you could give us a little bit of color. It seems like you guys are outpacing the market which is great, taking some share, but hopefully what's going on in terms of pricing? You spoke a lot about pricing trends in response to offsetting raw material costs, just kind of the traditional paradigm, but you are also trying to cover some other expenses. What's your full year outlook by segment for pricing improvement? Thanks a lot and good luck.

Norm Chambers

Thanks Bob. Yes, so I think that the 190 basis points that I talked about in terms of the growth in the value in our bookings over the growth in volume in our bookings which is really inverse to last year. In a positive way it is also as I think I said reflected in our backlog, meaning, our margins are up, so at the end of the day, if we can continue to keep that level of spread going forward then that would indicate meaningful improvement in our Buildings group.

Now, that's the only place we have this measurable situation because the bookings and backlog, but I'll tell you that all the both, our Coatings group and Our Components group are equally focused on their margins and profitability and pricing, and they are trying to do in a very thoughtful way, but nevertheless as we all understand the importance, so we are looking for improvement throughout the year both in our pricing as well as in our margins that will be reflected in the earnings in Q3 and Q4, in particular and it will help to some extent overcome the weather disruption in Q2.

Operator

Thank you. Our next question is from the line of Winnie Clark with UBS. Please go ahead.

Winnie Clark - UBS

Good morning. I was hoping that you could give us some color on what you are seeing by end market? Are there any particular segments that seem to be driving the improvement you are seeing and particularly relative to the outperformance that you realized in the quarter, which was pretty meaningful versus the underlying end market?

Norm Chambers

Yes. We definitely have seen a meaningful improvement in the warehousing and the storage facilities and I think that this is in part a growing representation of the improvement in overall in the commercial part of the economy, right. The warehousing piece is up about 40%, which is a good indication.

Winnie Clark - UBS

Okay. Great. That's helpful. Then just specifically in terms of the lost work that you have realized or you have seen due to the weather what would you say - and I know you might not expect to see it all this year, but is there some way you could quantify what portion of that you think could be recaptured in the second half of the year. Then, would you expect to recover all of it or is there a portion of that business that could potentially be gone more permanently?

Norm Chambers

Okay. When we broadly think about this, we think about that we probably saw an erosion of $10 million in revenue in the quarter from our expectations. I know that our teams are working diligently to stay on plan, which means to work to recover that, but from experience I can tell you that that I know that that's a really difficult task, not because the work isn't there, but in part because we have a situation where the people that distribute and build our products kind of can only do a finite amount of work without adding lots of people, so there is a number of aspects that go into whether or not we can capture that, but I will say that I think that we will be able to give more indication at the end of our second quarter call, because we would expect to see some evidence if we are able to start to recover that and we can talk about that in the second quarter call.

Winnie Clark - UBS

Okay. Great. Thanks so much.

Operator

Thank you. Our next question is from the line of Trey Grooms with Stephens. Please go ahead.

Unidentified Analyst

Yes. Good morning, Norm. This is actually [Mike] [ph] stepping in for Trey this morning. My first question is on the top line which actually exceeded our expectations in the tough winter environment this quarter and we understand that February was rough at all, but considering the decent booking, should we expect any level of pent-up demand and therefore a year-over-year increase in the top line for the second quarter or more or like you have kind of alluded to is that all back half weighted?

Norm Chambers

Unfortunately, you were breaking up a fair amount on that question, but I think you were asking whether we are going to see in the second quarter an improvement. Is that correct? In the top line?

Unidentified Analyst

Yes. That's right.

Norm Chambers

Yes. I mean, we are expecting to see some growth in the top line, I mean, in fact on a sequential basis.

Unidentified Analyst

Then lastly, with your expectation for demand to be up mid-to-high single digits for the full-year, should we start to see any improvement in March and April if the weather cooperates? I was just trying to get a feel for how quickly any pent-up demand could be flowing through. That's all I got. Thanks.

Norm Chambers

Yes. I mean, as I think I said, - well, I tried to say with some clarity that I think if you take the fact that February is completed, and if you take into account the fact that we've had much worse weather than a year ago, but yet are still saying that we will be around not materially below or above our second quarter 2013 margins then that means we are getting some improvement and that's the point I tried to make to Bob as well. I mean, we are seeing some improvement and we are seeing improvement in pricing, we are seeing improvement in our margins as well.

Unidentified Analyst

All right. Thank you.

Operator

Thank you. Our next question is from the line of Lee. Lee just dropped off.

Norm Chambers

Okay.

Operator

We have Alex Rygiel with FBR. Please go ahead.

Alex Rygiel - FBR

Good morning, gentlemen. Norm, can you help us to gauge the pent-up demand out there? Also, help us to better understand your confidence that backlog will be improving?

Norm Chambers

Well, so my confidence that backlog will be improving is fundamentally in relationship to bookings. As I think you know, the way that bookings work with backlog, is that we start with our backlog at the beginning of the period, we subtract what we have shipped, we track what we have canceled and that's usually older jobs that are in our backlog that we try to take out and then we add what we have booked, and that gives us the relationship between bookings and backlog.

Our view is that that with the increase in the last the last seven months and we have had, with all the necessary adjustments, adjusting meaning the smoothing, that we would see as a result of periods that were slower. I mean, we still ended up with a 9.3% improvement in bookings, in the seven-month period, in value and about a 7.4% improvement in volume, so my point is that we continue to see improvement in spread, we continue to see improvement in backlog.

Now I will tell you, as I said before I think that we are still at a modest level of recovery. Anything in the 4s, 5s and 6s is a modest annual growth. If we see bookings materially increase and backlog increase, something on the order of the 7%, 8% or 9% or 10%, would, for me, be a robust recovery and we are not there yet, so we think that the modest recovery will be the case, but as you can imagine, we are probably a tad more conservative than McGraw-Hill. If McGraw-Hill, and view which is about 12%, you know, that would be a beneficial deal for us in the second half.

Alex Rygiel - FBR

Secondly, based upon your historical experience and what now, do you have any concerns that there is going to be oversupply possibly due to a lot of these - the winter weather and if that could lead to any kind of pricing erosion in the very short-term?

Norm Chambers

Well, I mean, the markets are competitive, but I'll say that what you generally find is that, that if the opportunities are in the pipeline and those opportunities are growing, which is the case of a recovering market, you find that pricing pressure often times it takes. What you find is that when it goes the other way and there is a slowness in the growth in the market, then you can see some aggressiveness. That's what we saw in last year's point and that was kind of the fundamental point we tried to make is that gee, this year is so much different than last year, because last year we were still seeing a decline in both, opportunities, and booking and backlog and that is not the case today. It was not the case last week. We saw our bookings for last week. You know, we are quite pleased with what we are seeing.

Mark Johnson

One of the other things we see with disruptions like this is compression in schedule, because of the disruptions that we are seeing in the first half, it will compress schedules into the second half of the year and therefore meeting timelines and delivery commitments becomes that much more important and much more of a value add for our customers.

Alex Rygiel - FBR

Very helpful. Thank you.

Operator

Thank you. Our next question is from the line of Lee Jagoda with CJS Securities. Please go ahead.

Lee Jagoda - CJS Securities

Thanks. I think all my questions have been answered.

Norm Chambers

Okay, Lee.

Operator

Thank you. Next question is from the line of Robert Kelly with Sidoti. Please go ahead.

Robert Kelly - Sidoti

Hi, everyone. I might have missed this. The bookings growth year-on-year, how much was pricing responsible for the growth?

Norm Chambers

What we said was that the weather to bookings, we are up, I'd say 11%?

Mark Johnson

Yes. 11%.

Norm Chambers

11% in the Buildings group, which drove a 4% increase in their backlog.

Robert Kelly - Sidoti

How much was price responsible for the 11% growth?

Norm Chambers

We saw about a 200-basis point improvement in price, so it drives a portion of the growth, but the majority of the growth is volume.

Robert Kelly - Sidoti

Okay. By the time we hit the second half given the price increases that you implemented in 4Q, what will be the benefit to top line from price?

Norm Chambers

In the second half or the?

Robert Kelly - Sidoti

Yes. Second half third quarter, once the price increases anniversary, what's the benefit to the top line?

Norm Chambers

So, where we saw the price increases impact was in approximately the 150-basis point to 250-basis point, depending on which segment you are speaking to, so we expect to see that level of improvement coming in our second half.

Robert Kelly - Sidoti

So, 2% [pricing] across the board?

Norm Chambers

Yes.

Robert Kelly - Sidoti

Okay. Thanks.

Norm Chambers

Go ahead.

Robert Kelly - Sidoti

Then just as far as, I mean, you seem pretty optimistic on the second half based on what you are signing up. What's the margin trend for the second half of the year? You have given us pretty decent color around where you think 2Q will be, but given what you signed up; you have about six to nine months of visibility with your backlog. Where do you see margin shaken out for the second half of the year whether it'd be EBIT or gross?

Norm Chambers

Well, we expect to see that we have our margins improved and we would like to see as much of the margin improvement if its 200 points is embedded in the backlog, won't see as much of that come up at tailpipe as we can and that's primarily why we made the changes in manufacturing. Particularly in the Buildings group, we are seeing some good improvement, but that's the game that we have to play in the second half and that's capturing the margin that's in the backlog and getting it to the bottom line.

Robert Kelly - Sidoti

What would preclude you from capturing the margins that are in the backlog, in the second half?

Norm Chambers

Poor performance, things that are in our care, custody and control then that we [decide] what weather or hurricane or anything like that, we have Bob, I think the point I am trying to make is that we have in our care, custody and control everything we need to do to get this done, so short of a disruption to a plant or fire or something like that, then we will be working to get as much as that that improvement as I said that we see is embedded in the backlog.

Robert Kelly - Sidoti

Just one final one, I believe the buyback related to the offering, what was around $18 million $19 million. On the cash flow statement, you are showing $23 million of treasury stock purchase. Are you buying over and above what you did with in conjunction with the CD&R offering?

Norm Chambers

Now, what you see there that we had a similar amount in the prior year $2 million of stock that's withheld from vesting of shares for employees, so it's where shares are withheld to pay taxes, so it's not an open market purchase.

Robert Kelly - Sidoti

Okay. At what price point would something like that be triggered or is that even in the plans in the near-term?

Mark Johnson

The buybacks happen typically on the vesting date and 99% of our vesting days are in December of each year, so it's based on market price at the time that the time that the vesting occurs.

Robert Kelly - Sidoti

Thanks, guys.

Norm Chambers

Thank you.

Operator

Thank you. Our next question is from the line of Jack Kasprzak with BB&T. Please go ahead.

Jack Kasprzak - BB&T

Thanks. Good morning, everyone.

Norm Chambers

Good morning, Jack.

Jack Kasprzak - BB&T

Just on pricing so there were price increases last year that will benefit you this year, are there more price increases, prospective price increases out in the market, and if so, do they figure into the 150 basis points to 250 basis points of expected benefit?

Norm Chambers

The benefit that we have now that we have said it is embedded in our backlog is consistent with the pricing improvements we've had since the middle of August of last year. There are currently pricing improvements going on in each of our three business groups and we would like to see that continue that improvement in margin, in the backlog through remainder this year and that's our goal. If we can maintain the 200-basis point spread or improve it a bit, that would be very good thing for us.

Mark Johnson

Retrospectively, there were price increases in August of last year. Then across our segments December and January had price increases as well.

Jack Kasprzak - BB&T

Okay. Great and just big picture, if the 12% McGraw-Hill forecast proves out and obviously that's a calendar 14 forecast, I guess.

Norm Chambers

Yes.

Jack Kasprzak - BB&T

You are more conservative than that right now in your outlook, but if the 12% proves out. I mean, just big picture, is that given your market share gains are growing faster than market right now, you would expect to grow faster than that number?

Norm Chambers

That without certainly be a very nice market growth and we have historically performed better the McGraw-Hill on both, the upside and downside, so it would be a market that that unless it was in a high-rise, that would be a market that would be beneficial for us, so no question about it. When you think about that usually call from our filings in and in our report, I mean, we talk about what we believe incremental 100million square feet of new construction does. In addition to that, we have the initiatives, so we continue to work in a way that is consistent with the model and the goals we have spoken about.

Jack Kasprzak - BB&T

Great. Okay. Thanks very much, guys. Appreciate it.

Norm Chambers

Thank you.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Brent Thielman with D.A. Davidson. Please go ahead.

Brent Thielman - D.A. Davidson

Good morning.

Norm Chambers

Good morning.

Brent Thielman - D.A. Davidson

Was the Components group more adversely impacted by weather this quarter than the other segments, because I am surprised by the margin erosion there even as you had, I think you had some of the price increases flowing through.

Norm Chambers

It was actually, the legacy products did very well in the quarter. The sole impact was the fact that we had shifted in an inordinate amount of cold storage material and the insulated metal panels and that's what's really what brought their margins down in the Components group.

Mark Johnson

The other thing that's worth talking about briefly is, a new architectural line that's being built for our Components group which should be operational next quarter are actually the start of our third quarter and it's very similar to the way the Middletown, Ohio new facility began in January of last year, where it had a drag on margins and earnings as it was ramping up and then was a contributor four quarters later. We expect something very similar to occur for our Components division on the insulated metal panel side. That new plant is a drag on earnings in the first two quarters of this year in the neighborhood of $1 million and then it begins to dissipate each quarter thereafter and becomes a contributor, although not fully leveraged, but a contributor to earnings in the first quarter of 2015.

Brent Thielman - D.A. Davidson

Got you. Okay. Thank you. Then I think I heard you mentioned you had some unfavorable comparisons on backlog in bookings at least on a year-on-year perspective and I was hoping if you can kind of elaborate there, because when I think back a year ago, we had fiscal uncertainty, lack of clarity around tax consequences and as I recall that was kind of weighing on decisions to proceed with the projects, so I mean as the comments around unfavorable comparisons more just around the weather? A little bit more color there would be helpful.

Norm Chambers

Okay. Just to be clear, what we said is that the last seven months have produced growth in bookings and in backlog and that the growth in the value mean that dollars in both, the bookings and our backlog have shown a spread over volume of about 190 basis points to 200 basis points and that's a positive thing.

We want to see our value increase disproportionately to our volume. That's a positive and this is exact opposite where we sat this time last year. That's the point we are trying to make. Last year was negative, because everything was trending down; I think the biggest old guy for us, Hey, this year is different. Things are trending up and it's reflected in our bookings and our backlog.

Brent Thielman - D.A. Davidson

Okay. Thank you.

Norm Chambers

Okay.

Operator

Thank you. Our next question is from the line of Bob Wetenhall with RBC Capital Markets. Please go ahead.

Bob Wetenhall - RBC Capital Markets

Thanks very much. Norm, you mentioned that two-story and lower construction was up by nearly 11% and the overall market was down by 5.5%, while you guys are up 4.5%. Can you explain what's going on there and if you see a big difference between five-story below and two-story and below and kind of your strategy in the category. Thanks.

Norm Chambers

Yes. The two-story and below has been our sweet spot for many, many, many years, and if you think about manufacturing plants and warehousing, they can be very high, but oftentimes their classed as two-story, okay?

At the end of the day, smaller buildings are more disrupted by the weather than a high-rise or mid-rise, which is just structural steel and I think it's as simple as that. New construction starts meaning, means the ground is being broken and the construct starting. I think, what we saw was that the weather adversely impacted a very large portion of the of the low-rise construction reflected in McGraw-Hill's two-stories and less and it was pretty much across the board.

On the same token, we saw some growth, and while I'm bemoaning the margins in the cold storage, the heck of it is. We shipped a lot of coal storage and it was right - I mean, it was profitable, just wasn't as profitable as it is when we have a commercial industrial part of the market. Because those panels can be used internally, so they are not external. The buildings are already up.

Bob Wetenhall - RBC Capital Markets

Is part of what you are saying, I am just trying to understand this. The fact that 10% obviously speaks to your point about there being really disruptive weather. Is there any reason why when the ground pause you won't see a big reversal of this going into 2H? I mean, a maybe market, if you could speak to that, because I am just trying to understand.

In terms your CFO Commentary and soft guidance, we have a lot of downward pressure on the overall McGraw-Hill statistics. Should we get a recovery in 2H from a low comparison sequentially?

Norm Chambers

Yes, so we will see some recovery, and the way we are trying to explain this, is that we have already seen the negative impact in February. Okay? We have had vastly more disruption this February than we did in February of last year. Even with that disruption, we are still saying that margins for the second quarter this year will be on or around what we experience in the second quarter of last year. Meaning that in March and April, we expect to recover and to improve whatever the damage was - February as a result of weather, so we are going to see improvement.

When I look at shipping schedules and what not, there has been some encouragement. As our teams are doing a good job, there is clearly demand, but I would rather speak about retrospectively say gee, "We really did see some recovery from what we lost in the first quarter here it is what it was rather than speak to you now about what I think that number may or may not be. That's the point we are trying to make, Bob.

Bob Wetenhall - RBC Capital Markets

Totally understood. Thanks for the clarification.

Norm Chambers

Thank you.

Operator

I am showing no further questions. I will turn the call back to management for closing comments.

Norm Chambers

Thank you very much for attending the call, on our morning opening call, and look forward to reporting next quarter. Thank you.

Operator

Gentlemen and gentlemen, this concludes our conference. Thank you for your participation. You may now disconnect.

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