Ply Gem Holdings' (PGEM) CEO Gary Robinette on Q2 2014 Results - Earnings Call Transcript

| About: Ply Gem (PGEM)

Ply Gem Holdings Inc (NYSE:PGEM)

Q2 2014 Earnings Conference Call

August 08, 2014 10:00 am ET

Executives

Shawn Poe - Chief Financial Officer, Vice President, Treasurer, Secretary

Gary Robinette - Vice Chairman of the Board, President, Chief Executive Officer

Analysts

David Goldberg - UBS

Rob Hansen - Deutsche Bank

Seth Yeager - Jefferies

Jason Marcus - JPMorgan

Patrick Murray - Credit Suisse

Jack Kasprzak - BB&T

Dennis McGill - Zelman & Associates

Bryan Krug - Artisan Partners

Operator

Good morning, ladies and gentlemen. Welcome to Ply Gem Holdings' Second Quarter 2014 Results Earning Call. My name is Jessica, and I will be your operator for today. At this time, all participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. (Operator Instructions)

As a reminder, this event is being recorded. This call is being hosted by Mr. Gary Robinette, Ply Gem's President and Chief Executive Officer and Mr. Shawn Poe, Ply Gem's Chief Financial Officer.

I would now like to turn the conference over to Mr. Poe. Please go ahead, sir.

Shawn Poe

Thank you, operator. Good morning. I would like to welcome everybody to today's webcast. Today's announcements and our comments may contain forward-looking statements and words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements.

These statements are based on the company's current plans and expectations, and they involve risks and uncertainties that could cause future activities and results to be materially different than those set forth in the forward-looking statements.

The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. For further information, I would like to refer you to the company's reports and filings with the Securities and Exchange Commission.

During today's webcast, in addition to discussing results that are calculated in accordance with Generally Accepted Accounting Principles, GAAP, we will refer to Ply Gem's adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of GAAP to non-GAAP information is included in our earnings press release, which was issued earlier this morning. Management believes that this non-GAAP information is important to investors' understanding of our business.

Now I would like to turn the call over to Gary Robinette, Ply Gem's President and Chief Executive Officer. Gary?

Gary Robinette

Thanks, Shawn. Good morning. Thanks for your interest in Ply Gem. I would like to welcome everyone who has dialed into the conference call and those of viewing on our webcast. This morning, we issued a press release for our second quarter results and filed our 10-Q with the SEC.

All of these materials as well and they slide presentation for today's call are available on the Investor Relations portion of our website at ir.plygem.com.

Before we discuss the second quarter results, I wanted to first take this opportunity to provide some key statistics on our company, especially for our first time listeners, make some high-level comments on our recent trends and summarize the drivers to our business and our strategy in the current environment. Shawn will then discuss the financial results in more detail. Finally, I will wrap up with some commentary before opening the lines and answering your questions.

As a company overview, Ply Gem is one of the largest manufacturers of exterior building and home improvement products in North America. We generated approximately 54% of our net sales from our Siding, Fencing and Stone segment, where we have the leading market share positions and a consolidated market, and 46% from our Windows and Doors segment, where we have a mid-single-digit share of the more fragmented market.

The U.S. accounted for approximately 80% of the net sales and Canada represented approximately 20%. Overall, about 53% of our business came from the new residential construction market and the other 47% was driven by the home repair and remodel. At the segment level, our window business continue to be driven by new construction, which accounted for approximately 80% of our net sales, while the repair and remodel market account for the remaining 20% during the quarter. Within our Siding business, approximately 65% was from the repair and remodel market and 35% was from the new construction market.

Overall, I am pleased with the improvements that we are seeing in our U.S. window business with improved product mix, increased average selling prices and a more stable operational performance. In fact, July represented the fifth month in a row in which our U.S. window business demonstrated improved operating performance with an adjusted even for March through July being up $7.6 million versus the comparable prior year periods.

Despite the uneven nature of the housing market recovery and operational weather-related challenges in the recent quarters, we remain optimistic about the market potential. We think there is a significant opportunity for Ply Gem, to drive net sales growth and generate meaningful operating leverage and profitability as end market conditions stabilize and our business scales up.

We continue to remain focused on our strategic priorities, to grow our business while driving our gross profit margin improvements and increase earnings.

I would now turn the call over to Shawn Poe, Ply Gem's Chief Financial Officer, to review some of our key financial highlights. Shawn?

Thank you, Gary. I would now like to walk you through our second quarter results. Our net sales grew by $41.1 million or 11.2% during the second to $409.2 million, driven by 14.4% growth in our Siding, Fencing and Stone segment and 7.3% growth in our Windows and Doors segment. While 24% of our net sales growth in the second quarter was attributable to the Gienow and Mitten acquisitions, which occurred in the second quarter 2013, we experienced organic net sales growth of 5.3%.

Our organic net sales growth was largely attributed to the impact of increased average selling prices within both our business segments. As we mentioned on our previous earnings call, we announced a price increase during the first quarter for our U.S. and Canadian window and door products as well as our siding and related accessories, effective mid-March 2014. As noted, we have experienced some positive impact from these price increases. However, due to the normal product pricing cycle, we expect the more meaningful impact of these price increases to benefit our results in the second half of 2014.

Gross profit expanded by $13.1 million or 17.07% year-over-year, due to the contribution of the Gienow and Mitten acquisitions, increased average selling prices, operational efficiency improvements in our U.S. window business and cost savings achieved at Gienow and Mitten through raw materials sourcing and other operating improvements, partially offset by near-term integration and restructuring costs related to the consolidation of our two window manufacturing facilities in Western Canada.

As a percentage of net sales, our gross margin expanded by 120 basis points from 20.2% to 21.4% in the second quarter 2014. Operating earnings increased by $30.6 million to $31.2 million compared to the second quarter 2013. This was mainly a result of $23.5 million of initial public offering cost incurred during 2013, as well as improved operating performance in our U.S. Window business. The operating improvements were partially offset by near-term integration and restructuring costs associated with the consolidation of our two manufacturing facilities in Western Canada.

Interest expense decreased by $7.6 million or 30.7% compared to the second quarter of 2013. This was mainly a result of the debt refinancing that we successfully completed in January 2014, resulting in a 300-basis point decrease in our weighted average interest rate and resulting in $21.7 million in annual cash interest savings.

Adjusted EBITDA was $44.3 million for the second quarter 2014 compared to $41.1 million for the second quarter 2013, or an increase of 7.8%. As of June 28, 2014, Ply Gem had cash and cash equivalents of $15 million. We ended the quarter with $40 million borrowed against our $250 million ABL revolving credit facility and $5.7 million of other commitments under our revolver, which gave us $204.3 million of contractual and borrow base availability. When we combine the borrowing base availability with the cash on hand, Ply Gem had significant available liquidity of over $219 million.

Our capital expenditures for the quarter were $4.3 million, bringing our six-month total capital expenditures to $10 million or 1.5% of sales.

Next, I will provide some detail surrounding the second quarter results of our two business segments. Starting with our Windows and Doors segment, net sales for the second quarter increased $12.3 million or 7.3% compared to the second quarter of 2013, largely due to higher average selling price within the segment that resulted from our announced selling price increase and improved product mix.

Our overall U.S. Window average selling price increased 7.2% in the second quarter compared to the prior period, which favorably impacted our gross profit as well. Our sales increased despite the relatively flat market conditions that continued to persist. According to the U.S. Census Bureau, single-family housing starts were estimated to have declined 1.7% in the first quarter of the year relative to the prior year, with only a modest increase of 3.5% in the second quarter relative to the prior year.

As many of you know, our Window and Siding products typically go on the home 90 to 120 days after the start of the home, so the market decline in the first quarter single-family housing starts directly impacted demand for our products in the second quarter.

Our gross profit for the second quarter improved by 270 basis points from the second quarter 2013. The gross profit expansion was driven by 470-basis point margin improvement in our U.S. Window business, due to improve pricing and product mix and operating efficiency improvements in our U.S Window business resulting from a number of actions, including our continued implementation of our enterprise lean initiative.

This margin expansion was partially dampened by margin contraction in our Western Canadian Window business, due to near-term integration and restructuring costs that we experienced during our manufacturing plant consolidation and unfavorable foreign currency exchange rate as the Canadian dollar has weakened against the U.S. dollar relative to the prior year.

As a result of the Gienow acquisition, we had two manufacturing facilities in the same market and we were able to rationalize our footprint by consolidating into one facility at the beginning of the year. As you may remember from our prior calls, we accelerated this integration of the two manufacturing facilities by roughly a full year. Although we have successfully consolidated our Western Canadian operations in one facility, we incurred integration in restructuring costs which negatively impacted our gross margins and operating expenses. We consider these to be near-term costs, which will be offset by the permanent realized cost savings and synergies of consolidating these operations.

Now, I will discuss the quarterly results of our Siding, Fencing and Stone segment. Net sales for the second quarter increased $28.8 million or 14.4% compared to the second quarter 2013, and included $20.6 million favorable impact for the Mitten acquisition, which was completed on May 31, 2013.

Organic net sales increased for the Siding business by 4.1% during the quarter, due to higher selling prices and increase sales of metal accessories. As previously stated, the Siding business announced price increases in mid-March 2014, based on a normal selling price cycle we typically receive the benefit of selling price increases between 30 to 90 days, after the pricing announcement. As a result, we expect an uplift in selling prices during the second quarter and second half of the year as we expect to fully benefit from these announced selling price increases.

Gross profit for the second quarter declined by 50 basis points, driven by higher raw material, namely, PVC and aluminum and freight cost not yet fully offset by our March selling price increase. The higher costs were partially offset by announced selling price increase in cost savings and synergies such as raw materials sourcing and other material improvements experienced in Mitten.

SG&A expenses related to our Siding business represented 9.3% of net sales during the quarter, which was slightly higher than the prior year second quarter of 8.2%. This increase as a percentage of net sales is directly related to the Mitten acquisition and we expected based on the business model used in Canada. Our Canadian operations maintained company-owned distribution facilities which typically results in higher gross profit margins, but also carry higher SG&A cost to support the distribution facilities. Excluding Mitten, our SG&A expense was 8.2% of sales, which was consistent with the prior year.

I would now like to provide you with a brief update on our synergies and cost savings activities related to the prior year acquisition of Gienow and Mitten and our status of margin initiatives of our Windows and Doors segment.

As you may recall from our prior earnings call, we expect to realize cost savings and synergies of $18.1 million related to the combined acquisition of Gienow and Mitten. These cost savings and synergies will be obtained through raw material sourcing, manufacturing efficiencies and improvements and SG&A a reductions from duplicative positions. The savings we have realized to-date are within our expected range and we are comfortable in achieving the remaining savings over the second half of 2014.

We are pleased to see the improvements in the gross margins of our Windows and Doors segment from our margin enhancement initiatives. Our enterprise lean initiatives are continuing to be implemented in our U.S. Window facilities and we are comfortable that we this will result in improved manufacturing flexibility and savings as we go forward.

Our enhanced sales and operations planning process has been rolled out to all of our U.S. Window facilities and we continue to train and integrate this tool within our business decision-making process at our facilities.

Lastly, since the selling price increase cycle typically takes a quarter to be implemented, we expect to see the full effect of our March 2014 price increases within our Window business during the second half of 2014. We believe these initiatives are necessary to drive improvement in our window business and return to historical margin levels.

With that, I will now turn the call back over to Gary. Gary?

Gary Robinette

Thanks, Shawn. I am pleased with the continued improvement and traction we are making in the operating performance of our U.S. Window and Doors business and the progress we are making in other businesses related to selling prices, operational improvements and our ability to deliver the expected $18.1 million in cost savings and synergies from our Gienow and Mitten acquisitions of last year.

We have experienced and expect to experience some additional near-term integration challenges of combining our Western Canadian Window operations a year early. However, we are confident that those challenges are short-term and the integration is a strategic priority of our Windows and Doors segment.

I am also pleased with the traction we continue to make with our recently introduced products, cellular, PVC trim and moldings and [panels].

In addition, I am delighted to announce that we have entered into a distribution agreement with our newly developed engineered slate roofing product. Initial sales of this product commenced with shipments into the mid-Atlantic and Northeast markets during the third quarter. As we look ahead to the third quarter, we expect moderate improvement to the macro-housing outlook with continued choppiness in the market.

Ply Gem has an attractive position in the marketplace and we will continue to strengthen our position as underlying macro trends improve and our business response accordingly. We remain somewhat cautious on overall market demand given the continued uneven performance of the broader housing sector, giving current market forecast for the U.S. housing industry and R&R spend, we expect third-quarter EBITDA in the range of $50 million to $55 million.

Operator, we are ready to open the lines and take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from David Goldberg from you UBS. Your line is now open.

David Goldberg - UBS

Good morning, guys, and congratulations on a good quarter.

Gary Robinette

Thanks, David.

Shawn Poe

Thanks, David.

David Goldberg - UBS

My first question was, I was wondering if you could give us some insight into how the Windows rollout at Depot was going. You know, obviously, now kind of getting more into the final at some point and kind of how margins are and how that's progressing relative to your expectations?

Gary Robinette

Well, I guess, I'll say it's going well, David. If we look at our unit volumes are up in the mid-to-low 30% range for the first half of this year versus the first half of last year. Obviously, as we talked about last year, they started the rollout with the aluminum window and then rolled out the vinyl in the second half. Our average selling price through the six months is up almost 20%, David, so it's a combination of units up and prices up, so I think it's going well.

David Goldberg - UBS

Just to I make sure I understand, would say maybe the margins are a little bit lower just given that you are going through Depot, but the overall returns in that business are based somewhat on what you are doing in the overall Windows business?

Gary Robinette

Ultimately, it will be comparable to our base business.

David Goldberg - UBS

Great. Then just my follow-up question was on cash flow and debt repayment. I think we talked about earlier after the IPO and everything on kind of where we are in terms of cash flow generation relative to expectations and how you are thinking about leverage now over the coming quarters and priorities for cash flow.

Gary Robinette

I think, as we said the business, as the housing market improves going forward, does generate. Our expectation is that it will generate a significant free cash flow and we do expect to de-lever the business and that was one of the positive things about the refinancing in January, with a portion of our long-term debt being in that term loan which is a effective way to pay down debt.

David Goldberg - UBS

No change in terms of cash flow priorities? Are we kind of still in the same place we were is a good summary?

Gary Robinette

I don't think anything from a priorities and consistency with what we have talked in the past.

David Goldberg - UBS

Okay. Thank you again.

Gary Robinette

Thanks.

Operator

Your next question comes from Nishu Sood from Deutsche Bank. Your line is now open.

Rob Hansen - Deutsche Bank

Thanks. This is Rob Hansen on for Nishu. The first question I had, was just on the Windows business. I think mix price boosted sales by like 7.2% and organic sales up to 5.3%, so it was a little bit of negative volume or share lost, so I wanted to see if you could kind of talk about what type of business - my assumption is kind of you are essentially kind of walking away from it. What kind of business you are kind of you are walking away from there and how you kind of think about share?

Shawn Poe

Well, I will jump on that. First of all, as you look at the title unit breakdown, our R&R unit window units were up 55%. Some of that is obviously the Home Depot, and the new construction for the quarter was down around 7%, but if you take out all of that as an aluminum windows, so if you followed us last year for five or six consecutive months, we had 100% increase in aluminum volume month-after-month for a year-over-year basis and that is the business that we either decide to rationalize or and most of it is in the south. The vinyl and new construction was up higher than the market actually, so they were up around 6% and 5%.

Rob Hansen - Deutsche Bank

Got it, so it's more of the aluminum that…

Gary Robinette

The share, if you want to look at it the way you are looking at it, as a shareholder, it really is the aluminum windows in mostly Florida.

Rob Hansen - Deutsche Bank

In Florida? Okay. Got it. Then Siding, PVC prices, I think, you guys mentioned they are up 8.7% year-over-year, how much of this have you been able to recover so far and how much should we expect to get covered, how much is left you have to get covered in the next quarter or two here?

Rob Hansen - Deutsche Bank

We announced price increases already in our Siding segment back in March, in the, call it, the 6% to 8% range. That will continue to roll in. A portion of it began, I'll say, in the May and June, but we will see the full effect of that in the third quarter and that price increase is intended to cover the PVC resin increase that we talked about in the second quarter. It's really just a timing issue there.

I will also comment that, on aluminum, we put through price increase there earlier in the year in response to aluminum commodity cost increases, while PVC resin is expected to be relatively flat to down in the back half of the year. Aluminum is forecasted to go up and we have actually announced a pricing increase that goes into effect in early September for our aluminum accessories products, so I think what you hear there is that we will continue to respond appropriately in the marketplace with pricing in relationship to our input costs.

Rob Hansen - Deutsche Bank

Okay. Got it. Then, with all these price increases have you generally seen competitors follow you in that aspect?

Gary Robinette

Yes. I think, historically with the vinyl siding industry being as consolidated as it is it's acted very rational and nothing's really changed, I don't think materially, on that front. The positive note, I think, really and I think we have led the way is in the window industry, which during the downturn at least the new construction window industry, did not see a lot of pricing and we have really, I think, as I said led the way beginning at the end of 2013. On a positive note, a number of our other major competitors in the window space have also announced price increases during this year.

Rob Hansen - Deutsche Bank

All right. That's all I had. I appreciate it, guys.

Gary Robinette

Thank you.

Operator

The next question comes from Seth Yeager from Jefferies. Your line is now open.

Seth Yeager - Jefferies

Hi. Good morning. Thanks for taking my questions. Nice quarter. When we look at the Siding business, did the market pretty much absorb the price announcements that are out there? Sounds like you are pretty or a little more bullish on the pricing in the second half. Just based on the comments on resin, should you start to get some gross margin expansion or is that basically just sort of offsetting the higher pricing year-on-year?

Gary Robinette

Yes. I would, Seth that typically with what you mentioned is correct, that we should get some expansion. Although the PVC producers, at this time of year they should have already been lowering their prices, they are trying to hang on to that, so I think PVC is predicted to come down by the end of the year. I think there will be a lag on that, which means there could possibly be a lag on the expansion side of it. What was your last question?

Seth Yeager - Jefferies

Okay. No. I think that pretty much covered it. Thank you. On the Windows side, it's nice to see the gross margin expansion there. You had mentioned - I know the industry lost a lot of pricing peak to trough. Are there any new announcements out in the market or do you have any plans for additional increases?

Gary Robinette

We don't. First of all, we went out again in March, and those increases - to understand the industry, which I think you all do is that don't announce an increase and it starts right away, because it is new construction, so we don't sell directly to the builder. Our customer does and they have contracts or terms, so lags and so the March increases will start to roll in maybe in June and we will see those as we go here through the summer.

We don't have any intention although we are evaluating all of our product categories i.e. an example would have been the aluminum in Florida to make sure that our pricing, even with all the increases we have announced are in the right direction.

Seth Yeager - Jefferies

All right. That's helpful. Just last one for me, just following up on an earlier cash flow question. Can you maybe give us an update on additional cash restructuring charges that you anticipate and maybe your CapEx budget for the year.

For cash generated above and beyond, it sounds like you may be looking at the term loan. How do you weigh that against paying down the ABL? Thank you.

Gary Robinette

Yes. Frankly, the easiest thing you will probably see us do, first I will take that last question First and that's we will generally use our excess cash flow to pay down the ABL first. As I said, we had $40 million drawn on our ABL at the end of the second quarter.

As I think you also know, Seth, the second half of the year is where we have historically been a cash generator, so that is I guess, a positive going into the back half of the year.

From a standpoint of restructuring charges, on the Mitten acquisition, there frankly is very little. The restructuring charges are really associated with the Western Canada, with the taking two manufacturing plants and companies that were 20 minutes apart and consolidating them in the one and a meaningful portion of that really occurred in the first half of the year.

I do think you will continue in the second half the year to see our operational efficiencies improve. They probably won't be at the level they would have been right before the taken two plan and take them into one, but will continue to make progress on that front in that regard. What was your third question, Seth?

Seth Yeager - Jefferies

Just on CapEx budgets.

Gary Robinette

Yes. CapEx. Yes. I think, we I think we have given guidance earlier in last quarter somewhere in the maybe the 2.25% of sales range. Obviously through the first half of the year it had only been at 1.5%. You we would probably be a little bit lower than that guidance. We do typically spend more in the second half of the year, so we will probably see that number being closer 2% percent give or take a little bit, but certainly still at a relatively modest CapEx use.

Seth Yeager - Jefferies

Okay. Great. Good luck. Thanks a lot.

Gary Robinette

Thank you.

Operator

The next question comes from Michael Rehaut from JPMorgan. Your line is now open.

Jason Marcus - JPMorgan

Good morning. It's actually Jason Marcus in for Mike. First question has to do with siding sales. Obviously, I think the weather had a huge impact on the first quarter sales. I was wondering if you could kind of talk about the different regions that were most impacted during the first quarter and kind of what you saw in the second quarter if you saw more of a rebound in some of those regions? Then also just in terms of what the year-over-year sales progression was throughout the quarter and into July, if you have that.

Gary Robinette

Let me jump on the first one. I will let Shawn take the second. As you may know that the Northeast and the Midwest regions are the strong hold for vinyl siding, where they have a predominant share and those markets in the first quarter were down high 20% year-over-year because of the weather.

In the second quarter, we did see that improve although there are still couple the states, but it has mitigated a little. April was still a tougher market and we have see that improve into June and then - actually June and not to give you forward guidance, but July with normal month for us and have improved dramatically.

Shawn Poe

Yes. I think, the only thing I think I would add to that is, as Gary said, following what was really a tough first quarter impacted by the weather, which was extraordinary. We saw April and May. June, we actually saw not a pullback in overall end-use demand, but I think we saw some of our customers taking their inventory levels down at the end of June, so our sales, while they were up for the month of June, they were less than what April or May's rate was, but then we saw that rebounded in July. They were up almost 10% in July, so it kind of blend on pace with where we are at.

The demand levels that we saw in July were continuing to see at least early on in August, order rates and demand rates continuing to be positive, so maybe that's a positive indicator for the big ticket repair remodeling dollars beginning to turn in the right direction.

Jason Marcus - JPMorgan

Thanks. Then the next question on tax rate, I think it came in a little bit higher than what we were looking for the quarter, so if you could give any guidance as to what we should expect.

Gary Robinette

Yes. Absolutely. I would say the expense and rate for the quarter was higher than what it would typically be. As we disclosed in our tax footnote in our Q, which was put out earlier today, we recorded about $7.6 million valuation allowance for our Canadian business related to be in a three-year cumulative loss. That's a non-cash and I fully expect at some point in the future those reserves ultimately get released. If adjust for that, actually our EPS would have been, I think, well ahead of the consensus, so does that help you, Jason?

Jason Marcus - JPMorgan

Yes. For 3Q and 4Q, would you expect it to be kind of bit more of that low-teens rates?

Gary Robinette

I won't get into exact rates, but I would say it would be the valuation reserve we booked in the second quarter was really more of a one-time adjustment.

Jason Marcus - JPMorgan

Okay. Great. Thanks.

Gary Robinette

Thanks.

Operator

Your next question comes from Mike Dahl from Credit Suisse. Your line is now open.

Patrick Murray - Credit Suisse

Good morning. This is Patrick Murray on for Mike. Thanks for the color on the Western Canada windows integration. Just want to get a little more color on that on when we should expect to fully flow through? Maybe if you could give us any color on where you think the gross margin would have been without the inefficiencies this quarter?

Gary Robinette

I will take that one. First of all, let me start with the synergies there. They are rolling through and I feel very good and very confident about it, because a lot a number of the synergies had to do with headcount reductions and that is taking two plants close essentially closing one and consolidating into another Patrick, so I am confident in the dollars we are achieving there.

The other thing that in terms of the margin and we called that out in our slides, which hopefully give you additional color when we breakout our U.S. Windows and our Canadian Windows, but about half of the margin compression that you saw in the second quarter was really related to the FX exchange rate. That impacts our Western Canadian business more so than East, because a meaningful portion of their material buy comes. It's US-based, so essentially they have lower purchasing power, most of the glass and vinyl.

Shawn Poe

Yes. Currency is going to fluctuate from time-to-time, so that over time will normalized. The other piece was about 1 million or so of integration. I would expect that impact to dampen as we flow through this year and I expect to go onto next year on a normal footing.

Patrick Murray - Credit Suisse

Okay. That's very helpful. Thank you.

Gary Robinette

Thank you.

Operator

Your next question comes from Jack Kasprzak from BB&T. Your line is now open.

Jack Kasprzak - BB&T

Thanks. Good morning, everyone. I want to make sure I understand the cadence of the $18.1 million of synergies. How much of that do you think you have achieved and I think you said you would basically realize it all by the end of the year, is that a full realization or just the run rate by the end of the year?

Gary Robinette

That's what we expect to realize in the year, Jack. I would say through the first half of the year we've realized about, I will call it between $8 million to $9 million of that.

Jack Kasprzak - BB&T

Okay.

Gary Robinette

Obviously, it's stepping up our third quarter, will be a meaningful piece and then followed by our fourth quarter. Yes. I would say we still feel very good about that. Some of those synergies on Mitten one as I think we said will actually occur in our U.S. Siding business, because we will become, our U.S. Siding business will become a supplier to Mitten for some of the products that they previously were purchasing from outside third-party suppliers still dollars in savings and synergies for Ply Gem. It's just U.S. versus Canada.

Jack Kasprzak - BB&T

Okay. Great. I guess, also on the windows business are there any other restructuring or cost-saving opportunities that you might see off on the horizon or will this kind of move we are making be the last one, if you will, at least in the short term, where 2015 is more a the year were you just see where the market takes us in terms of volume and you hope to achieve the usual operating leverage?

Gary Robinette

I would say Jack that in essence that statement is correct, but what the opportunity we still have is that Enterprise Lane, which is the platform of product simplification.

We are still probably maybe only 50% complete with that, that when fully rolled out which goes probably into ['16] will bring more opportunity, so a little bit on Enterprise Lane is that the savings were x amount of dollars per unit for material and x amount of dollars per unit for labor

Obviously, if you get more units, you get more savings and as the unit grows with the market, we would achieve that for Enterprise Lane. Thing I would add to that Jack is, we tried to be pretty clear in our comments that the price increases that we put in the first half of the year and so on so forth those are going to roll through the balance of the year, so that on a year-over-year basis you would expect to get some uplift in 2015 from both, a top-line as well as marginal performance basis.

Jack Kasprzak - BB&T

Yes. Okay. That's great. Thanks for your help. I appreciate it.

Operator

Your next question comes from Dennis McGill from Zelman & Associates. Your line is now open.

Dennis McGill - Zelman & Associates

Good morning. Gary, maybe same question a little different way, on the windows side, you mentioned 50% sort of weight there in ERPs. If you think about the inefficiencies, ERPs, some of the things, the challenges you have with labor and getting the right labor in place and trained. If 10 means you are fully ready to leverage volume, whatever that volume might be, when do you think the business is at that. What is your goal as first getting the business to that level?

Gary Robinette

Well, I think it's several things. One bad thing was really the first one to have a ramp-up of units, because we took a lot of share in the downturn, Dennis, so we get them on the job training last year. As you probably know, if you check other window companies, they have had the same issues after us. It's two-fold. Had we had enterprise leaned already 100% installed that would have mitigated some of that issue, because it's a virtual manufacturing, you are producing the same product at different plants, so you can adjust your capacity unit wise, but we were rolling it out.

Productivity tends to grow and that will help on the labor side. When you are rolling out a new platform that's what you are seeing Western Canada for the other part of the old Ply Gem business. The new platform is hard for a plan, but the other thing that we have done is the S&OP, which again gives us more data on what was coming at us, because remember as you know we don't sell to the ultimate customer and we are fine-tuning that as well as Shawn mentions slowdown to every plant.

I think the authorities, the training, what we have been able to institute after last year, it was 90 days for us to fully train and associate when they came on because of the new platform and some other techniques our HR people have developed, we've gotten that down the 30 days, so that will help as well so it's kind of a combination of all those. I think, if they are all at 100% and are they getting close. Then you have a ramp up, let's say but let's say that you go from instead of - 100,000 units, you 200,000 we will be better prepared with less inefficiency.

Dennis McGill - Zelman & Associates

Well, I think, that one makes a lot of sense and sounds like those are the issues have been very well pegged as far as where you need to get to. I guess, what I'm wondering, you kind of ended with if you get those to 100% or when you do is that something you feel as a goal you could be there by the end of this year or into next year? Is it something that realistically is not going to be fully there until sometime during 2015? Just trying to understand that.

Gary Robinette

Yes. I would say, I shared a screen shot for Shawn yesterday of the 1,500 Atlanta, which those lines went in right when we had the big ramp up last year, so think about it as this. You need to be at about 65 units an hour on that line.

When you rollout something new it takes a while, so say we've been averaging 40 units. I saw a screenshot from this week that we averaged almost to the 60, but that's just one week, so it just takes time to have the people fully trained on a new platform. That platform will allow us to manage capacity with the S&OP, so I would be disappointed quite honestly if it went into 2015, so we are going to be at 100% maybe I stated that wrong.

It's just a matter of taking the right, having the right principles and processes to make sure you do it right.

Dennis McGill - Zelman & Associates

Okay. That's helpful. Thank you very much Gary.

Gary Robinette

Jessica, we will take one more call. We have time for one more call.

Operator

Your last question comes from Bryan Krug from Artisan Partners. Your line is now open.

Bryan Krug - Artisan Partners

Hey, guys. How are you?

Gary Robinette

Hey, Bryan.

Bryan Krug - Artisan Partners

Got one question for you, maybe just a little bit, is there any way like size, the price increase that was realized in the June quarter. Then on the window side incremental amount that will flow through into the September quarter?

Gary Robinette

Announced price increase, and depended on the products, Bryan, but it was in the 5% range on vinyl and are so as high as 10% on aluminum products. I would say that for the one that was announced in March, there was probably not a lot that hit the quarter. The vast majority of that is really rolling in July-August timeframe, all right? We will…

Bryan Krug - Artisan Partners

We are talking Windows to be clear?

Gary Robinette

Yes.

Bryan Krug - Artisan Partners

Okay, so that this is really not much really rolled through the June quarter?

Gary Robinette

Not much in June, what did role through the June quarter and we had talked about previously was we did a price increase Bryan in October-November last year, we led kind of the industry on that and you continue to see the benefit of that price increase affecting our price and margins in the second quarter relative to the prior year.

Bryan Krug - Artisan Partners

Then how much of that price increase was announced in March, will then roll into the September quarter versus us waiting for the December quarter? I was just trying just to get a sense of timing.

Gary Robinette

I think the majority of that will be in the third quarter. The majority of what we are going to get and we do think we will get a meaningful piece of that will be in the third quarter, Bryan.

Bryan Krug - Artisan Partners

Okay. Great. Thanks so much.

Gary Robinette

Thank you. I want to everyone for joining the call. I guess, my closing comments would be that that even though the market is growing slower than any of us would've predicted, at Ply Gem we are trying to really go and grow faster with the initiatives we have and those are innovation, which we talked about the new products, the new territories and/or the new efficiencies in the Windows side.

Market share, we are now having 27 product categories on the outside of the house. We have tremendous runway to cross-sell all of those products to all of our customers.

I think, thirdly our adjacent strategies. We have top share positions in vinyl siding in new construction Windows and aluminum accessories, but we are really focused the adjacent products and growth those as well during this time. That would be the roofing our manufactured stone, PVC trim any new products and also R&R Windows.

With that, we thank you for your support and we look forward to discussing our business with you on the third quarter earnings call. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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