NCI Building Systems' (NCS) CEO Norman Chambers on Q4 2014 Results - Earnings Call Transcript

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NCI Building Systems Inc. (NYSE:NCS) Q4 2014 Earnings Conference Call December 10, 2014 9:00 AM ET

Executives

Layne de Alvarez - VP of Investor Relations

Norman C. Chambers - Chairman, President, and CEO

Mark E. Johnson - EVP and CFO

Analysts

Winnie Clark - UBS

Lee Jagoda - CJS Securities

Trey Grooms - Stephens, Inc

Alex Rygiel - FBR Capital Markets

Scott Schrier - Citigroup

Brent Thielman - D.A. Davidson & Company

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the NCI Building Systems Inc Fourth Quarter Earnings Conference. During today's presentation, all parties will be in a listen-only mode. This conference is being recorded December 10, 2014.

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

Layne de Alvarez

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

To access a taped replay of this call, please dial 1-888-203-1112 and enter the pass code 5189329 and the pound sign when prompted. A replay will be available approximately two hours after this call and will remain accessible through December 17, 2014.

The company's fourth 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 we 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 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.

Additionally we made available CENTRIA acquisition supplement posted 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.

Norman C. Chambers

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

I’ll make some initial comments about our performance in the CENTRIA acquisition. Followed by Mark who will provide some additional color around our financial results, then we’ll open the call for questions.

I am very pleased to report that our second half performance is the best we’ve achieved since 2008. That puts us on a trajectory to maximize profitability as we continue to optimize our operational and organizational structure. I believe 2014 should be viewed as a tail of two halves. The first half was plagued by extreme weather, supply chain disruptions, stymied economy that resulted in our earnings declining 40% year-over-year. Despite that challenging start, the men and women of NCI kept their focus on delivering the highest quality products and service to our customers.

In the second half we grew revenue by 5.2%, generated over $61 million of adjusted EBITDA, a 30% year-over-year improvement. Even though the market for buildings five storey’s and less reported by McGraw Hill grew only 2% in volume year-over-year, and historically, seasonally stronger second half. Full year volume growth for five storey's and less as well as two storey's and less are market sweet spot hovered around 4% year-over-year. And it is fairly significant decline from 2013's growth rate of 9.8% for buildings five storey’s and less.

As we stated many times in the past, we cannot rely entirely on market growth alone to drive the financial performance we are committed to achieving. Beginning with the reorganization and manufacturing in November 2013, we have taken steps to realign our organization, to accelerate efficiency and profitability. We achieved significant improvements in manufacturing efficiencies in the buildings group this year that resulted in level loaded facilities, declining back orders and shop calls, and most importantly a meaningful decline in manufacturing cost as a percentage of revenue.

We expect to see improvements continue in our components and insulated metal panel plants as John Kuzdal and his team continue to strip out cost and power self directed work teams and optimize our geographic footprint in order to deliver the highest quality products with timeliest delivery to our customers across all of our business segments.

As our results driven plans continue, I am pleased to announce that Don Riley has joined NCI as President of Group Business Segments. A new position created to help our team drive profitable growth across all of our divisions. Don’s focus will be on specific brand strategies, sharing best practices, further developing shared services to reduce costs, and bring the best solutions to our varied customer segments.

This new structure will enhance our brand leader's focus on customer relationships, sales and service. Don brings over 20 years of experience of delivering results that have consistently driven top and bottom line growth. I welcome him to the NCI family and look forward to reporting on his progress over the next year.

It is a fact that as a seasonal industry we generate the majority of our earnings in the second half. But as was evident in 2014 it is the first half of our fiscal year that determines whether we achieve our plans in full year. I can assure you that our full year earnings fell well short of our plan and a significant achievements of a second half would not be as evident if we were to only compare sequential full year results. Our second half year-to-year growth in revenue was up about 10% and an EBITDA up about 40%

To maintain that momentum we are currently focused on what we are referring to as line of sight. NCI’s management is committed to taking every action to deliver quarterly results that are consistent with our published mid-cycle recovery expectations of EBITDA levels at 4 to 5 times our 2013 $71 million result.

I am pleased to report that this attention to line of sight should result in our abilities to achieving a level of profitability in November that surpasses the total earnings of their entire first quarter of 2014. And components, opened orders, and material margins are trending meaningfully higher than last year. And the code is we will grow external sales profitably. While one month does not make a quarter, November is off to a very good start. Bookings for November up 27%, each of our segments is positioned to take the necessary steps to meet the performance expectations of our leadership team, our Board of Directors, and most importantly our shareholders.

Before I comment on the outlook for 2015 I will say a few words about CENTRIA. And as some of you know we have been focused on CENTRIA and the opportunity it provides for a number of years. We recently announced an agreement to acquire CENTRIA, the market leading manufacturer for architectural insulated metal panels and are currently working through the regulatory requirements with plans to close the transaction at the end of January 2015.

Based on NCI's fiscal 2014, the combination would have created a combined IMP business of approximately $380 million in revenue and $38 million in EBITDA with leadership positions across all three IMP sectors; cold storage, commercial and industrial, and high-end architectural applications.

Metal Span is a market leader in cold storage, IMP, as well as commercial and industrial applications. And with CENTRIA in our portfolio we will accelerate our architectural panel expansion initiative which began in July when we opened our new facility in Richmond, Virginia. We believe that the insulated metal panels market in North America has the potential to grow faster than the overall non-residential construction market. We estimate that the North American market remains underpenetrated at approximately 4% as compared to Europe with a penetration that is approximately five times the penetration rate in North America. We believe that the market for insulated metal panels will continue to grow because they offer an energy efficient, aesthetically pleasing, and sustainable alternative to traditional building materials at a competitively attractive total installed cost.

CENTRIA's unique market position compliments our current family of businesses because there is little overlap with our existing market segments. In addition CENTRIA's coil coating business has complimentary proprietary coating capabilities for niche types of customers not currently served by NCI.

As the market recovers to mid-cycle levels, we expect to achieve normalized EBITDA margins for CENTRIA of 12% to 14% before synergies. The synergistic opportunities to leverage our manufacturing footprint and supply chain is significant and represent approximately another $6 million in annual cost savings for the combined businesses.

Additionally the tax structure is highly efficient creating approximately $200 million in asset step-ups that will be tax deductible as they are amortized. Net of tax step-up benefit but before the synergies, NCI is paying a 7.8 times multiple for business based on forecasted 2015 EBITDA. We will fund the acquisition with a bond offering that will increase our net debt leverage ratio from 2.2 to 4.3, a reasonable level for a company our size.

We remain committed to paying down debt and entering the next business cycle with very little net debt. We are very excited to add CENTRIA to the portfolio of brands and expect them to be accretive to our earnings by the fourth quarter of fiscal 2015.

Now before Mike dives into the numbers I would like to share some thoughts about the upcoming year. I believe we are poised to generate meaningful improvement in our operating performance in the first half that will set the stage for a significant step up in earnings for fiscal 2015. Despite choppiness the non-residential market continues to improve, leading indicators remain positive.

Importantly we have gained traction on the initiatives that we have been working on for the past several quarters. Our current building backlog is up 9% year-over-year and margins remain healthy due to the commercial discipline we have maintained throughout the year. Our new organizational structure will provide additional opportunities to streamline our operations while improving sales and service across all of our brands as we elevate our integration to the next level. Taken together I am encouraged that we will maintain 2014 trajectory of the second half and achieve for 2015 performance we and our stakeholders expect.

Now Mark will take you through the details of the fourth quarter.

Mark E. Johnson

Thanks Norm and good morning to everyone joining us on the call. We’ve provided a review of our fiscal fourth quarter operating results in both the earnings press release and the CFO commentary posted on the website. I’ll now take a few minutes to add some additional color to those results. Let me begin by highlighting the significant improvement in our financial and operating results in the second half of our fiscal 2014 when compared to the first half. As you will recall the first half of the year was negatively impacted by severe winter weather which generally affected most facets of the domestic economy.

During the second half we achieved year-over-year revenue growth in all of our business segments despite the fact that 2014 included one less week of operations than 2013. We also experienced substantial gross margin improvement in the second half which increased 140 basis points over the second half of last year. We attribute these improved results over the past six months to four main items.

First, continued growth albeit slow growth and new construction starts estimated to be about 2.2% for low rise construction five storey’s and less as reported by McGraw Hill. Second, expanding margins from commercial discipline combined with our value pricing strategy and manufacturing reorganization that began in the third quarter of 2013. Third, the growing impact of our business growth initiatives and finally, better internal management of our project scheduling.

Now I’ll go over some brief highlights of the fourth quarter of 2014 and then we’ll quickly review our annual results. In the fourth quarter our consolidated revenues fell slightly by 1.9% from the same period last year but increased 8.5% sequentially. The year-over-year comparison was impacted by the inclusion of an extra week in last year’s fourth quarter based on our 4/4/5 calendar. As you know every five years there is a 53 week year and that catch up was made in the 2013 fourth quarter.

Adjusting for the impact of that extra week, our consolidated revenues increased by approximately 6.2%. Led by better pricing across the board from our commercial discipline and value pricing initiatives as well as external market volume growth in our coater segment with the addition of new customers and increased marketing efforts.

Gross margin in the 2014 fourth quarter increased 200 basis points from the same period last year, again reflecting our focus on commercial discipline, value oriented pricing, and manufacturing operations. Over the course of this year’s earnings conference call, we have highlighted the margin improvement embedded in our incoming orders and the results of the past two quarters illustrate those improvements flowing through our shipments.

Our manufacturing reorganizations have improved our plant scheduling, load balancing which has resulted in improved quality and on time delivery performance, and built the foundation for improved manufacturing efficiency. Our ESG&A expenses decreased by another 3.8% in the fourth quarter to 68.4 million which was at the low end of our guidance range of 68 million to 71 million. As a percentage of revenues the ESG&A declined by approximately 30 basis points to 17.4%

The ESG&A cost we have been incurring for our growth initiatives have now stabilized and the initiatives are beginning to contribute top line and margin growth. As a result of our revenue growth and margin expansion, our fourth quarter operating income increased 31% and our adjusted EBITDA grew 21% over the same period last year.

Our reported net income in the fourth quarter was 14.3 million up 72.3% or $0.19 per share compared to $0.11 per share reported in the 2013 fourth quarter. Both years had non-recurring items which are reconciled in our earnings release tables. The recent quarter included a 3.5 million pretax charge or $0.03 per share for the strategic development cost which included the acquisition related cost for CENTRIA.

Last year's fourth quarter included gains from insurance recovery and unreimbursed business charges. On an adjusted non-GAAP basis, our recurring earnings in the 2014 fourth quarter were $0.19 compared to $0.10 in the prior year's fourth quarter.

Also during the 2014 fourth quarter, we reported a $2.7 million tax benefit related to the reversal of a deferred tax valuation reserve associated with our Canadian subsidiary Robertson Building Systems. This reversal resulted from the trend over the last three years of achieving taxable profits in our Canadian operations and we determine that the valuation reserve which had been initially established years ago was no longer required based on our expectation for continued taxable earnings in Canada.

Now I will discuss some highlights from our operating segments. Our building segment total revenue fell 3.8% from the fourth quarter of 2013. Adjusted for the extra week however, revenue grew approximately 5.2%. On a similarly adjusted basis, volumes measured in tons were down approximately 3.3% due to the choppiness in non-residential activity in our fourth quarter and our commitment to commercial discipline on project pricing.

Despite the decline in volumes, our building segment operating income grew by 114% over the prior year and our operating margin for this segment grew 550 basis points. Our focus on commercial discipline, combined with value oriented pricing and manufacturing process improvements have led to expanding margins.

Our bookings for the quarter in terms of dollars adjusted to a comparable number of days grew approximately 11.3% over the prior year. Our buildings backlog at 296 million finished 9% higher than the year ago period and our bookings for November, the first month of our 2015 first quarter were 27% higher than a year ago.

These items combined with continuing elevated year-over-year order margins are indicative of a continued favorable earnings trend for the building segment. Our coating segment achieved a 5% increase in total sales for the quarter, reflecting a 12% increase in external third party sales as we continued to expand our activity level in our Ohio facility which opened in 2013.

Despite the increase in revenue, the segment operating income decreased by approximately 1.3 million. The decrease relates to several items including the prior year net $500,000 non-recurring gain on insurance recoveries, lowered internal margins on coated heavy gauge material to approximate current market prices, and lower external margins from weaker product mix as we continued to fill our new Ohio facility.

Looking at the performance of our components divisions, reported revenues were down 2% to 197.3 million. A 6% increase in our internal sales was offset by a 3% decline in third party sales. Adjusted to a comparable number of days, total revenue grew by approximately 5% and external revenue grew 4.8%. Operating income for the component segment declined by 2.7 million and operating margins fell 120 basis points during the quarter.

In addition to the effect of lower volumes driven by fewer operating net days, the decline in operating income resulted from approximately 1.1 million in incremental costs associated with the ramp up of our new architectural panel facility. We expect these incremental costs to decline with the successful acquisition of CENTRIA as we integrate our operations and the new facilities utilization increases.

Lastly, we have seen sequential improvement in our product mix and margins in our IMP business which as you know have been challenging earlier in the year. While improved, the margins and mix were still less favorable than the prior year for our fourth quarter. Based on our incoming orders and backlog for IMP products, we expect to see continued improvement in both the mix and margin in early 2015.

Now I will turn to some key highlights for our 2014 fiscal year. Annual consolidated revenues reported for fiscal 2014 increased by 4.8% over the prior year. Adjusted to the comparable number of days, the year-over-year increase in sales was approximately 7.3%. During the same period, McGraw Hill reports new construction starts measured in square feet to have grown 7.6%. Within that, low rise construction five storey's and less grew 4%.

Gross margin for the year grew slightly to 21.3% from 21.1% last year. This reflects the net impact of the challenging first half where margins had declined to 130 basis points from the prior year, and then rebounded in the second half with year-over-year margins growing 140 basis points driven by commercial discipline, value pricing, and manufacturing improvements.

Operating income included unusual non-recurring and non-operational items in both years. These items included a gain on insurance recovery, costs associated with the secondary offering, and strategic development cost including acquisition related cost.

Our adjusted operating income for the year excluding the identified unusual and non-recurring items grew by 10.9 million or 58.2%. All of this improvement occurred in the second half of the year and primarily resulted from the expanding gross margins. Our reported net income for fiscal 2014, was $11.2 million or $0.15 per diluted share compared to a reported net loss of $12.9 million or $0.29 per diluted share last year.

Adjusted for the previously mentioned non-GAAP items in both years, the net income for a fiscal 2014 was $11.9 million or $0.16 per share compared to a virtual breakeven in the prior year. Turning to our balance sheet and liquidity, we ended the year with $66.7 million in cash and equivalents compared to $77.4 million at the end of 2013. And our $150 million ABL credit facility remains undrawn at the end of the year.

Cash flow generated from operating activities in 2014 was $33.6 million compared to $64.1 million last year. This decline is primarily related to an increase in working capital particularly, a decrease in accounts payable. As we commented last year, the prior year accounts payable balance was elevated due to unusual timing of inventory receipts and vendor payments. Our capital expenditures were $18 million which was well below our guidance of $22 million to $25 million as several of the items planned for the fourth quarter were deferred into 2015.

As you already know we will most likely be financing our acquisition of CENTRIA with approximately $250 million of new senior unsecured notes which will increase our debt levels. We expect our combined net debt leverage ratio to be approximately 4.3 times after completing the transaction. Following the acquisition our annual objectives will include reducing our debt levels from utilizing our growing combined free cash flow. We expect that over the next few years our net debt leverage ratio will decline to a level at or below the current 2.2 times.

Now before I turn the call over to questions I wanted to remind you that in the CFO commentary available on our website and filed as an 8-K, I provided some supplemental commentary on our performance and guidance on certain financial items. Now operator, I’ll turn the call back over to you for questions.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions]. Our first question is from Winnie Clark with UBS.

Winnie Clark

Good morning.

Norman C. Chambers

Good morning.

Winnie Clark

So while your initiatives set the impact it seems like the demand recovery in the second half of the year was slightly slower than you anticipated going into the year, can you talk a bit about how the non-res market trended through the second half of 2014 and then what your expectations are for the low rise construction market next year?

Norman C. Chambers

To really I think get the real picture so, what we actually shift in the fourth quarter was largely booked in the first half of the year. So, we are seeing the results and frankly some of the indications earlier of the leading indicators pointing so there maybe some headwind in the second half of our fiscal year, okay, in terms of -- I am sorry in terms of our shipments. So we -- that was kind of the result of the weaker market in the first part of the year, in terms of bidding activity.

Now what occurred is that in the second half we actually saw a pickup particularly in the fourth quarter, a pickup in activity in terms of the jobs, the scope of the jobs across both our buildings group and our components group. And fortunately in our insulated metal panel piece as well. So the actual bidding and forward-looking aspects of the fourth quarter meaning the work we are bidding to do in the future really did improve which reflected in the buildings group 27% bookings growth, that’s right. So, it is the case that we shipped a bit less than we expected to ship in some of our business but at the end of the day we saw our activity levels that really turned quite well for the future.

Winnie Clark

Okay, great, that's helpful. And then price mix and commercial discipline added a pretty impressive number to EBITDA in the quarter, was there anything unusual that magnified the tailwind or is this some type of level of contribution we can expect from these initiatives going forward?

Norman C. Chambers

Well, we certainly expect to continue to perform well. I would say that we had 15 of our 18 brands show really nice year-over-year improvement in the second half. And three of those brands did not. So we still have work to do in terms of improving our performance. But I would say that we certainly saw very good improvement with very obvious in the numbers and buildings group, that was very -- it was very clear. But natural fact, one of the best performance was our legacy components group. They had a really good fourth quarter. In fact it was the most profitable part of our business in fact for the entire year.

Winnie Clark

Great and I guess that is positive for the outlook as I guess that’s a good leading indicator, so thanks so much.

Norman C. Chambers

Yes, thank you.

Operator

Lee Jagoda with CJS Securities. Please go ahead with your questions.

Lee Jagoda

Hi, good morning.

Norman C. Chambers

Good morning.

Lee Jagoda

Norm, can you just touch a little bit more on the sustainability of the operating margin improvement in buildings, maybe talk about utilization rates and then discuss whether or not you are at the point where you can walk away from some lower margin opportunities and did that contribute to some of the volume headwinds in the second half?

Norman C. Chambers

So, I think that the commercial discipline is very much both a process as well as a behavioral kind of thing, right. So what I mean by that is that we clearly from August of 2013 on really made a concerted effort to put our price across all of our businesses and we are very successful in the buildings group, really quite successful in the components group with the exception in insulated metal panels which had a backlog that we had to work our way through. And starting to see improvement in the Ag business in the components group. So that was all good.

But I will tell you that that at any given moments in time where there is the, I won't say the pressure but desire to win more work in a certain area. And so we always have to manage the competitive approach to vying to win more work or still trying to maintain a level of discipline. So the bottom line of all this is that we will continue to be disciplined in terms of valuing the price more than volume. And going into the year we were prepared to lose market share as a result of that and have found during the course of the year that we probably didn’t lose maybe even a percentage point of share. So we are pleased with the results in terms of what we are able to achieve.

Lee Jagoda

And then can you just touch on the utilization rates in buildings and how it compares to let's say a year ago?

Norman C. Chambers

So, Mark will the numbers on that, and I will say that it is one really clear aspect of utilization. And that is that the manufacturing team are hard at work at looking at ways that we can improve our utilization by looking more closely at our supply chain management and our footprint in manufacturing plants. And so there are some nice opportunities there. Mark, do you want to share.

Mark E. Johnson

So, the capacity utilization upticks very slightly from year-to-year. In our fourth quarter our utilization was about a percentage point higher than last year at about 39% for the building speed in rest. And for the components group we ended the year at about 45% utilization in the fourth quarter and in our coatings operation about 51% utilization.

Lee Jagoda

So balance across the whole piece?

Mark E. Johnson

Balance across the whole piece were in the mid 30s. So you can see we still have a lot to do and what that drives is a consideration about consolidation of our activities and consolidation of our plants which is a great opportunity to make a step change in our cost basis going forward.

Lee Jagoda

Great and two quick questions regarding CENTRIA. You touched on 6 million of potential cost synergies, in terms of where those cost synergies are coming from, whether its cost to goods or SG&A and a timeline for when you expect to achieve those and just as a follow up it looks like in the deck that CENTRIA appeared to have peaked about 12 months after your core business did. When was the drop [ph] in metal cycle and how did profitability settle out at the bottom?

Mark E. Johnson

Profitability set out to bottom pretty much at 10% EBITDA margin, okay, which we talked about in our trailing 12. One of the things is that their cycle is slightly different to us and primarily driven by the high-end architectural in the backlog that they build is quite large and long. So from that perspective I think that that’s the best way we can look at it. I will tell you that the synergies are largely around the purchasing of steel transportation and the opportunity to spread some cost over a wider group of assets. And that’s mostly in the cost of goods sold area.

Lee Jagoda

Thank you. And then from a sales perspective, from a purchase perspective was this an auction or was it privately negotiated?

Norman C. Chambers

It was a very competitive deal and we were competing to win it. And I will tell you that the seller of this particular asset is a fine man and he did a great job. But we are happy with where we ended up and certainly thrilled to have CENTRIA, as part of the family.

Lee Jagoda

Terrific, I’ll hop back in queue.

Norman C. Chambers

Thank you.

Operator

Trey Grooms with Stephens. Please go ahead with your question.

Trey Grooms

Hey, good morning.

Norman C. Chambers

Good morning sir.

Trey Grooms

First off Norm, I guess it was on the fourth quarter call last year you talked about your expectation for in market demand as you kind of looked into fiscal 2014. Do you think you could give us your thoughts or take a stab at your expectations for end market demand as you kind of look into next year?

Norman C. Chambers

We still see very strong growth in manufacturing across the country. Maybe bit more [indiscernible] but really very good manufacturing growth. Assembly and maintenance facilities again continue to look good for rail, road, and air. We see really still and this surprises us a lot of movement and change particularly in grocery stores. We’re seeing opportunities there. We are seeing opportunities in terms of assembly and distribution plants.

So the bottom line is that as time has moved on we continue to see a broadening on the recovery and it is then quite sold from a volume perspective but it continues to blossom and to fill out and that’s encouraging for us. And I want to say that one of the things that we have been benefiting from is oil and gas which I think we said before is less than above 5% or so. About 5% of our revenue and that continues, we have interrogated our backlog which is only about less than $10 million. And the jobs that we have are solid and shipping, we’ve cancelled a little work but it’s on the order of $1.3 million. So the potential headwind that might occur in terms of oil and gas shouldn’t have much effect on us.

Trey Grooms

Okay, that’s all very helpful and then I guess as a follow up just more housekeeping, Mark with the CENTRIA deal, you are definitely going to have a tax benefit or positive tax benefit, could you give us a little bit of color on how to think about both booked taxes and cash taxes as we looked into 2015?

Mark E. Johnson

Sure, so from a effective tax rate as we recorded on our income statement it will be somewhere between 37% and 40%, where the advantage will come in as the actual taxes that get paid, we will be benefiting from the amortization of nearly $200 million of step up in assets and intangibles that for tax purposes will be deductible. So that’s an advantage to the structure under which we’re able to purchase CENTRIA and it will significantly decrease the amount of cash that we’re using to pay taxes over the next 15 years really. And some of that, quite a bit of that will be accelerated. So I don’t know how to describe that any better to you other than to say as a significant component of our valuation considerations.

Trey Grooms

Okay and if I could just sneak one more in on the CAPEX, you mentioned earlier that you were looking for a range of 22 million to 25 million this year. But there was some deferral there so, what kind of range should we be expecting for 2015 Mark if you can give us a little color there?

Mark E. Johnson

Certainly, I do have it in my CFO piece as well but I gave a guidance range for 2015 of 22 million to 26 million.

Trey Grooms

Okay, sorry about that I overlooked it. Thanks guys and good luck.

Mark E. Johnson

No problems Trey.

Operator

Alex Rygiel with FBR we will take your question.

Alex Rygiel

Thank you. First off, could you give us a little bit better color on the timeline for synergies with CENTRIA and then secondly, maybe going through a little bit more detail on the strength that you saw in November, any particular geographies or product lines or anything like that?

Norman C. Chambers

So I will start with the last question first. We certainly have continued to see the manufacturing and assembly and distribution sector working quite well which many speak about in terms of the warehousing. We have seen a pickup in activity, in maintenance facilities and things of that nature. And those are spread across the country pretty evenly with a slight distribution to [indiscernible] line and right to work states.

I will tell you that one of the areas that I think speaks a little bit better of the consumer in the retail side is that we continue to see private storage units recover at a rate that is more reflective of the recovery of 2004 to 2008. And that gives us some sense that the consumer it is beginning to improve their position and we see that again reflecting some retail operations that we build particularly in the food industry.

So those are pretty good. I think the geographic spread is pretty interesting, it -- we probably saw a little slowness start to improve in the West Coast but I think the East Coast continues to look pretty good. And again we are talking relative to what has been a really struggling six years but we are seeing improvement across the whole country.

On the synergies question, we would expect to build up to that $6 million over a couple of years. By the end of the first year we would be at a run rate equal to half of that $6 million and then by the end of second year we’d be at a run rate equal to the first 6 million.

Mark E. Johnson

And I will say that’s before we actually start to work with the business. I am not suggesting that my colleague is being conservative but I am saying that we have opportunities that we will be looking for all kinds of ways of improving profitability.

Alex Rygiel

And I know you provided some color on your exposure to the oil and gas market but could you sort of enhance that a little bit more with regards to kind of your view on directionally where demand goes?

Norman C. Chambers

We are so having growing up in oil and gas I will tell you that I am still incredibly bullish in terms of what the opportunities are in NCI in terms supplying buildings for upstream, midstream, and downstream. But I also know having been in this that the cycle that oil and gas follows is different than the economic cycle.

And there is no industry better in terms of starting the spend money or stopping the spend money in the oil and gas industry. So when we see ourselves in a situation where we look specifically at that, I would expect to see some slowness. Now whether that slowness means that it is 2.5% of our revenue, that would be fine.

My point is that on a longer haul we still expect to see good growth over many, many years but when you boil it all down to not just oil and gas, we are still expecting to see mid single-digit growth in volumes in non res. And to the extent its better than that, fantastic that will be a problem we can deal with, but we are trying to manage our business as if it will be mid single-digit.

Alex Rygiel

Very helpful, thank you. Nice quarter.

Norman C. Chambers

Thank you.

Operator

Will Randow with Citi, please go ahead with your question.

Scott Schrier

Hi, good morning, this is actually Scott Schrier in for Will. First question, I noticed on the coating side on a sequential basis it seems like your revenues increased more than they typically do. Did you see it, were there any kind of trends or anything there that were driving that?

Norman C. Chambers

We had a situation there where we had the opportunity to approach our ramping up of Middletown in a way where we actually move some opportunities from Georgia to Middletown. If you actually look at the margins in Middletown they really were quite good. Georgia suffered a little bit as a result of that and I would say that, we are in the process of ramping up to not only the volumes of activities in coatings but the kind of work that we really want to have. Coat is in a unique position to benefit from the internal demand that our components and buildings group provide. Therefore we expect that team to be focused on value and pricing and I think we all have that message very clearly now. So we were happy to see some growth but what we want to see is growth for the bottom line.

Scott Schrier

Got it, on the CENTRIA acquisition I noticed in the deck it mentioned it provides some opportunities in the mid to high rise space. Did you see yourselves attacking those opportunities to the CENTRIA acquisition or possibly using that to get into some other mid to high rise applications as well?

Norman C. Chambers

So we were really fascinated by the high-end architectural and have been probably almost last 10 years. But could not really get our heads around how we were going to break into an industry that was really higher end architectural and so we have looked as I said earlier a number of times if we could acquire CENTRIA. But at the end of the day we actually started initiative about a year ago which culminated in the opening of a plant in Richmond, Virginia. So my point is that the acquisition of CENTRIA really does provide us with an opportunity that they have that they are expert in, in terms of the higher end architectural which is not just for low rise but the mid rise and high rise as well. So we are really happy about that.

Scott Schrier

Great, thank you.

Operator

[Operator Instructions]. Brent Thielman with D.A. Davidson. Please go ahead with your question.

Brent Thielman

Hi, good morning. Sorry to beat on this, but just want to understand how you guys kind of flushed out the potential risk on the oil and gas side and I know the piece that you break out there is just pretty small for you specifically, your oil and gas piece but is there risk in the manufacturing and warehouse building areas you serve. I am thinking about those types of buildings around oil and gas infrastructure applications or is that fully included in the oil and gas?

Norman C. Chambers

That’s fully included. One of the things that we look at is we have certain brands in their positioning that they supply small building or buildings to third and fourth tier suppliers. So we clearly have seen that would have a probably a disproportionate effect on that particular brand which is one of our 20. But when you roll it altogether and consolidate it we are really spread in diversified across all aspects of the economy. And I must say I am all in favor of getting more oil and gas work but I also appreciate very deeply how that works in terms of if there is change, systemic change in price the oil and gas is going to spend a lot less.

Brent Thielman

Okay, and then I appreciate the commentary on the improvements in bookings and backlog in November that's helpful but can you kind of frame what you were seeing in the same month last year, were bookings backlog up or down or any operations. Just to get a better idea of the comparison?

Norman C. Chambers

Sure, Mark would do his best to pull that together in a second here but I will just say that when you think about what we were doing this time last year, we were coming through our first price increase which started in August of 2013. We were beginning to see some benefits from that and that benefit was more prevalent in a buildings group, a little less so in the components group, and slower in the coating group.

So as we went through that to the period that where we are at this time last year we still haven’t gotten probably two thirds of the benefit from pricing. So what you see now is not only an improvement in volume but an improvement in dollar values in the margins there, right. And that in itself is really good.

But I will tell you one of the things that we are watching very carefully is that our components group which is just in time delivery, very much short of lead times are really on a legacy part of our business and a bit more on the agriculture side are seeing some nice movements in daily sales and weekly sales. And we are encouraged by that and that kind of goes hand in hand with the position of the buildings group and that's why we are trying not to get over our skis [ph] but it is different than it has been for the last three years.

Mark E. Johnson

Looking back at last November, the bookings in November of 2013 grew 5% year-over-year. So, I think the fact that this year's November grew 27% is definitely good indicator, it indicates continued growth. Bookings are choppy. They do come in and block so, I don’t think you should read into that, but we expect 27% growth in revenue in the first quarter but it certainly is a good indicator.

Brent Thielman

That’s helpful. Thanks guys.

Norman C. Chambers

Okay, thank you.

Operator

Management, there are no further questions at this time. Please continue.

Norman C. Chambers

Well, thank you very much for joining us for the call and we look forward to reporting on first quarter call. Thank you.

Operator

Ladies and gentlemen this concludes the NCI Building Systems Inc fourth quarter earnings conference call. The conference centre would like to thank you for your participation. You may now disconnect.

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