Continental Building Products (CBPX) Q2 2018 Results - Earnings Call Transcript

Continental Building Products, Inc. (NYSE:CBPX) Q2 2018 Earnings Call August 2, 2018 5:00 PM ET

Executives

Rodny Nacier - ICR LLC

James W. Bachmann - Continental Building Products, Inc.

Dennis Charles Schemm - Continental Building Products, Inc.

Analysts

Matthew Bouley - Barclays Capital, Inc.

Philip Ng - Jefferies LLC

Garik S. Shmois - Longbow Research LLC

Marius Morar - Deutsche Bank Securities, Inc.

Matt McCall - Seaport Global Securities LLC

Michael Dahl - RBC Capital Markets LLC

Joshua K. Wilson - Raymond James & Associates, Inc.

Keith Hughes - SunTrust Robinson Humphrey, Inc.

Scott Schrier - Citigroup Global Markets, Inc.

Trey H. Grooms - Stephens, Inc.

Operator

Greetings, ladies and gentlemen, and welcome, and thank you for calling in to listen to the Continental Building Products Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

It is now my pleasure to introduce your host, Mr. Rodny Nacier of ICR. Thank you, sir. You may begin.

Rodny Nacier - ICR LLC

Thank you for joining us today for Continental Building Products second quarter 2018 earnings conference call. I'm joined by Chief Executive Officer, Jay Bachmann; and Chief Financial Officer, Dennis Schemm.

Before we begin, I'd like to remind you, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include statements regarding our industry, business strategy, and expected performance, such as expectations related to revenue, gross margins, operating income and cash flow, as well as non-GAAP financial measures such as adjusted EBITDA.

These statements, which may occur during our prepared remarks or during the question-and-answer session, may be identified by words such as expect, should, anticipate, intend, estimate, believe, or similar expressions that are used in connection with any discussion of future financial and operating performance. Forward-looking statements represent management's current estimates in light of currently available information, and the company assumes no obligation to update any forward-looking statements in the future. Forward-looking statements are subject to uncertainty, and we encourage you to review the company's past and future filings with the SEC including, without limitation, the company's Form 10-K and 10-Qs, which identify the specific risk factors that may cause actual results or events to differ in a material way from those described in these forward-looking statements.

In addition, during the call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles referred to you by the Security and Exchange Commission as non-GAAP financial measures. We believe the non-GAAP financial measures assist management and investors in evaluating our performance and preparing period-to-period results of operations in a more meaningful and consistent matter, as discussed in greater detail in our earnings release. Our earnings release also includes a reconciliation of these measures.

I will now turn the call over to Jay.

James W. Bachmann - Continental Building Products, Inc.

Thank you, Rodny. Good afternoon, everyone, and thank you for joining us today for our second quarter 2018 earnings call. Today, I will discuss our strategy, operating highlights and business activity. Dennis will then discuss additional details on our financial results, balance sheet and outlook. After our prepared remarks, we will open up the call for your questions.

I am proud of what our team has accomplished. Net sales were up 16%, EBITDA improved to $41 million, up 21% and we had near 100% conversion of EBITDA into operating cash flow at $39 million. The achievement in the quarter is a testament to the hard work and dedication of all our associates at Continental.

More importantly, this dedication has been shown quarter-after-quarter to get us to where we are today. This month marks the five-year anniversary of Continental Building Products becoming a standalone company. Over that period, we have achieved great strides in safety, developed an even stronger customer relationships and generated significant shareholder value. This value creation over the past five years is reflected by total shareholder return of 115%.

Our success over this time is rooted in a steadfast commitment to safety, operational excellence and exceptional customer service.

Today, this commitment is stronger than ever and has become part of the fabric of daily life at Continental. This fabric extends to our Bison Way effort, which has empowered our employees to strengthen our culture of continuous improvement and operational rigor, while cementing a reputation in the market as a best-in-class operator. This allowed us to grow second quarter sales by 16% and EBITDA by 21% through the strength of our low-cost manufacturing capabilities and high level of service that our teams provide our customers.

During the quarter, we expanded gross margin by 390 basis points to 29.4% and improved net income by 77% to $22 million. As a result, we grew EPS by 84% to $0.59 per share, supported by the accretive benefits of our sustained share repurchase activity. We were especially pleased with all these financial accomplishments, despite the backdrop of an inflationary environment led by tight trucking and higher freight costs.

We also delivered cash from operations of $39 million, representing a 63% improvement over the prior year quarter. Our high cash generation and strong balance sheet, with net leverage at 1.3 times, gave us confidence to deploy $18 million of cash into value-enhancing investments in the quarter. This includes the repurchase of $10 million in shares in the second quarter, bringing our year-to-date repurchases to $25 million. Year-over-year, this represents more than 2% of our fully diluted average share count.

As we have demonstrated since 2015, we expect share repurchases to be a key part of our value creation. Our ability to execute against our $300 million program is supported by our outlook to generate significant cash flow as construction markets continue to expand. We are buying our stock while also directly investing in our continuous improvement measures and high-return capital spending. Year-to-date, we have spent $6.5 million on high-return capital projects.

Since we began deploying capital into high-return investments in 2017, we have directed over $20 million in spending to automation, energy reduction, and raw material and finished goods handling projects. For the first half of the year, we benefited from $2 million in cost savings associated with this spending, in line with our expectations to see $5 million of P&L savings during the full-year 2018.

These savings will be bolstered by a significant environmentally-friendly and energy-reducing project that started construction last month. The project will be the State of New York's largest rooftop solar array consisting on a 2.4-megawatt system spread across 250,000 square feet of rooftop space at our plant in Buchanan, New York.

While the project is expected to deliver significant electricity savings to the plant, it has the upshot of supporting the broader New York community through lower electricity bills and helping the environment by producing a cleaner form of energy.

As we move forward, we expect to continue executing our high-return capital investments to drive additional savings, further extend our low-cost leadership, and blunt the impact of future inflationary pressures.

Turning to operating metrics, our wallboard volumes were up 12%, which is consistent with industry performance in our primary markets. The underlying fundamentals in our end markets remain quite favorable, and we are encouraged by the pace of wallboard demand that we experienced in the second quarter.

In recent discussions that I have had with our customers, they remain positive on construction trends for the balance of the year which is in line with what we are seeing in new housing, as well as in the repair and remodel segment. As a result, we now expect industry wallboard volume to grow for the full-year 2018 to be at 3% to 4%, which is the higher end of our previously announced range.

Our total mill net price for the quarter was up 2.4% year-over-year and 1.5% sequentially. This positive performance reflected the continued overall strength of the January 1 price increase, along with favorable mix in the quarter. At the time of the January price increase, we informed customers of a potential second increase midyear. Given the higher demand, tight trucking and persistent inflation, we implemented the second price increase on July 1 and we are encouraged by the pace of business that we are experiencing during the third quarter already.

In summary, the strong performance we saw during the quarter is a direct result of our employees executing across our strategy and focusing on safety, exceptional customer service and continuous improvement through the Bison Way. For five years now, Continental team has committed to a relentless focus on operational discipline, allowing us to reach new highs and establish a business model that consistently delivers industry-leading margins, generate strong operating cash flows and return significant shareholder value. I look forward to celebrating our five-year anniversary with our people and thank them for their tremendous accomplishments.

I will now turn over the call to Dennis, who will provide additional details on our financial results, balance sheet and outlook.

Dennis Charles Schemm - Continental Building Products, Inc.

Thank you, Jay, and good afternoon to everyone on the line. I will first detail results for the quarter, then provide some comments on the balance sheet and liquidity. I will conclude by providing some additional perspective for the full-year 2018.

Net sales increased 16% to $139.3 million. This result was primarily driven by an 11.6% increase in wallboard volumes to 722 million square feet, and by higher average mill net pricing of $153.88, up 2.4% year-on-year. On a sequential basis, average mill net price was up 1.5% compared to the first quarter of 2018.

Gross margin in the quarter extended by 390 basis points to 29.4% versus the prior year quarter. This was attributable mainly to higher net sales, lower input costs and cost savings from high-return capital projects that were partly offset by higher freight and labor costs.

For the quarter, we saw cost of goods inflation of 3% led by double-digit increase in freight and higher gypsum and labor costs, partly offset by lower paper costs. Looking forward, we expect overall cost inflation to increase as labor and freight move higher, along with higher gypsum cost as we tap deeper into our secondary sources to meet rising demand.

We expect paper cost to be the lower, but the benefit will dissipate as we begin to anniversary lower paper costs experienced in late-2017. Our cost savings from high-return capital investments are expected to help mitigate these higher overall inflationary costs. For the full year, we expect to capture $5 million in 2018 P&L savings from our high-return investments.

SG&A, as percent of net sales, decreased to 7.5% of net sales, compared to 7.6% in the prior year quarter, mainly due to disciplined cost controls. Interest expense decreased for the 18th consecutive quarter to $2.7 million, compared to $3.1 million in the prior year quarter, reflecting higher investment income and capitalized interests offset by the rise in LIBOR.

Second quarter effective tax rate was 20.1%, compared to 33.9% in the prior year quarter. This is primarily the result of the federal government's tax reform activities.

Moving to the balance sheet and liquidity metrics. On March 31, 2018, we had cash on hand of $84.4 million; total debt of $270.2 million; and $73.4 million of availability on the credit facility. Our leverage ratio at the quarter end was an all-time low of 1.3 times.

During the quarter, we generated $39 million in cash flow from operations and invested $7.4 million in capital assets. Given no major debt maturities for the next five years, putting us in a great position to deliver on additional value-enhancing opportunities. With our stable debt balance and leverage ratio, we continue to emphasize share repurchases to return value to shareholders. During the quarter, we repurchased approximately 345,000 shares of common stock at an aggregate value of $10 million and an average purchase price of approximately $29.

I will now provide some select insight regarding expectations for the full-year 2018. We expect our volumes to be in line with industry wallboard volume growth of 3% to 4%, which represents a high-end of our previously announced range of 2% to 4%. SG&A is expected to be in the range of $39 million to $40 million.

Cost of goods sold inflation per unit is now expected to be in the range of 3% to 4%, partly offset by $5 million in savings from high-return investments. Our revised inflation assumption compares favorably to the prior range of 3% to 5%, primarily due to lower paper costs.

Total capital expenditures are now expected to be in the range of $29 million to $33 million, including high-return capital spending, which we expect to be in the range of $15 million to $18 million. Appreciation and amortization is expected to be in the range of $43 million to $45 million. Effective tax rate is expected to be in the range of 21% to 22%, down from the prior range of 22% to 24%.

In summary, while we are pleased to realize the benefits of executing against our long-term strategic objectives, we continue to work hard to further augment Continental's industry-leading EBITDA margins through our commitment to the Bison Way and through the deployment of our high-return investments.

We have a solid plan in place that addresses our near-term challenges and a long-term focus that is bolstered by strong financial discipline and a solid balance sheet. We are excited to continue driving exceptional value to customers and delivering solid returns to shareholders.

Thank you again for joining us today. Operator, we are now ready to take any questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. Our first question comes from the line of Matt Bouley with Barclays. Please proceed with your question.

Matthew Bouley - Barclays Capital, Inc.

Hi. Thank you for taking my questions, and congrats on the results this quarter. Jay, you gave some comments on early traction on the July price increase. Could you give some commentary on how mix tends to play out in the third quarter, would you expect that to be additive or an offset to the price increase?

And then I just, I guess more broadly, are you now more confident that the wallboard industry can support two price increases per year going forward? Thank you.

James W. Bachmann - Continental Building Products, Inc.

So, thank you, Matt. So when you take a look in terms of where we were at the beginning of the year with the price increase, we feel good to your point as to where we've gone to today, and part of that is if you look at the utilization rates for the industry, they were above 80% in the second quarter.

And then the other impact has been the continued inflation, so we had inflation last year that we weren't able to catch up for. And then when you have the trucking issues that have been faced by us and others, that has put additional pressure.

So, those factors continue into the second half of the year, I would say, so that's why it's something that when we went to our customers and asked for the second price increase, they understood why we were asking for it. As to ultimately where that comes out, we'll be happy to talk about it in our next quarter earnings. So, I look forward to speaking about – you back then.

On the mix effect, it really is a -- very much a regional product mix that comes into play there. So if you look in the quarter, we had double-digit demand in the Middle Atlantic region in the quarter versus last year. That certainly means that you have more 5/8-inch board, which is a higher price board, so that impacted the mix effect there. It's hard to say if you go in the second half of the year how it all plays out. Certainly, if you have higher growth in the southeast, that would weigh down on it a little bit.

Matthew Bouley - Barclays Capital, Inc.

Okay. That's helpful. Thank you for that. And secondly, just do you think, or are you able to quantify if any pre-buy occurred during the second quarter and how that would play out into the cadence of volumes in the second half within your overall guide? Thank you.

James W. Bachmann - Continental Building Products, Inc.

Sure. No, thank you. So if you look at the quarter, we estimate you probably had around 15 million square feet or so of pre-buy that occurred, so that our growth in the quarter in volumes was around 12%. So a couple of percentage points of that was likely on the pre-buy side.

That said, when you look at where we are going into Q3, we still are seeing growth and that growth is in line with the 3% to 4% volume guidance that we're giving for the year.

Matthew Bouley - Barclays Capital, Inc.

All right, great. Thanks. Thanks for all the details.

James W. Bachmann - Continental Building Products, Inc.

Thank you.

Operator

Thank you. Our next question comes from the line of Phil Ng with Jefferies. Please proceed with your question.

Philip Ng - Jefferies LLC

Hey, guys, congrats on the quarter, the cash flow profile was quite impressive. Growth in the east has been really strong for the industry this quarter even in places like the Mid-Atlantic. So just curious and we're seeing that in other industries, like the roofing market as well. So, just curious what's driving the strength?

James W. Bachmann - Continental Building Products, Inc.

I missed the beginning of the question, I apologize. Can you just repeat that?

Philip Ng - Jefferies LLC

Sure. Growth in the east has generally been pretty strong for the industry, even in places like the Mid-Atlantic and we've seen it in other industries like roofing. So just curious what's driving the momentum you're seeing right now?

James W. Bachmann - Continental Building Products, Inc.

Honestly it has been across the board, so single-family housing has definitely come back. The multifamily has not fallen off as much as even we expected it would. And so I think those are the big drivers. Repair remodel continues to be good. I mean, if you take a look at how prices, home prices have moved up, it has made people feel more comfortable putting more money back into their homes.

And then commercial, I'd say still -- we still have some good projects that when you take a look at some on the education side, office side, lodging. But I think it's really the repair remodel, single-family home sales that have been the big driver.

Philip Ng - Jefferies LLC

Okay. Have you seen any lift on the storms? I know you guys obviously have exposure in the Florida area?

James W. Bachmann - Continental Building Products, Inc.

There's some impact there. And so, I think there's a – the piece of it is the rebuilding. But to be honest, a lot of it is just the overall strength in the underlying market that you're seeing coming in now.

Philip Ng - Jefferies LLC

Got it. And then, have you seen broad-based support for this wallboard industry for July? The reason why I'm asking is because it sounds like the distributors are seeing increased competition, they're citing some pushback. So do you think you'll be able to get pricing if these distributors struggle to get traction on their end?

James W. Bachmann - Continental Building Products, Inc.

For pricing, as well as those things, we will talk about it after it's in place. So next quarter, we'll be happy to go into details as to what we've realized. What I would say is that in the conversations I've had, everybody agrees there's still inflation there, everybody agrees that there is tight transportation. Those factors are continuing into the second half of the year. So I think there is an understanding of why we are asking for this increase.

Philip Ng - Jefferies LLC

Okay. That's fair. And just on that freight piece, freight inflation is pretty broad-based, everyone's seeing. Wasn't super obvious just looking at your numbers that you saw much inflation during the quarter on the freight side of things. Can you provide a little perspective like sequentially or year-over-year, how much freight inflation you saw? And does that headwind potentially pick up in the back half? I'm just not sure how your contracts are set up, spot versus contract.

Dennis Charles Schemm - Continental Building Products, Inc.

Hey, Phil. This is Dennis. Inflation, especially when it comes to freight inflation, it's going to be part of the business going forward. We clearly saw – year-over-year, we saw double digit inflation. And we fully expect that that will be a significant headwind here in Q3 and Q4 as well.

Philip Ng - Jefferies LLC

Okay. Thanks a lot.

Dennis Charles Schemm - Continental Building Products, Inc.

You bet.

James W. Bachmann - Continental Building Products, Inc.

Thank you.

Operator

Thank you. Our next question comes from the line of Garik Shmois with Longbow. Please proceed with your question.

Garik S. Shmois - Longbow Research LLC

Thank you. Congratulations on a nice quarter. Just wanted to follow-up on the pace of inflation that you cited. Just want to be clear, is the expectation with some of the paper cost benefits rolling off that the pace of the inflation could be a little bit more moderate in the third quarter, but could potentially accelerate in the fourth quarter? Just wanted to get the pacing clear.

Dennis Charles Schemm - Continental Building Products, Inc.

No, it's a great question. The way we're looking at it, basically we have about 3% to 4% inflation in the first half of the year and we're looking at a very similar rate going forward for the back half. The mix of that is going to vary a little bit. So freight will be the primary driver of that inflation. OCC starts to tail-off, the good guy that we're seeing starts to tail off in Q4. But then there are some offsets a little bit with some of the other raw materials that we're looking at.

Garik S. Shmois - Longbow Research LLC

Okay thanks. And then just a follow-up on costs. As it relates to capacity utilization, you mentioned the industry is running around 80% during the quarter. And then coming out of the last call, you talked about how your effective capacity was high. Seems like the industry is running at a higher effective capacity.

You're operating all of your lines. I'm just wondering how we should think about the effective capacity going into 2019 and what that might mean for your fixed cost buckets if you're going to have to see a step-up in labor or some other fixed cost items to meet demand if effective capacity remains tight?

Dennis Charles Schemm - Continental Building Products, Inc.

Sure, Garik. So if you take a look, we would still expect to see volume growth honestly in our mind into next year, which will mean that you are correct, you'll start to see us incrementally having some labor there to be able to support that.

Now again, the way we do that is we often go ahead and we'll use overtime as a way to meter that in. We'll hire some staff and basically try to work its way in so that as that volume is going up, we're more meeting it as it goes up in a way that is not seen or not very visible to the outside.

Garik S. Shmois - Longbow Research LLC

Okay, that's helpful. Best of luck. Thanks, again.

Dennis Charles Schemm - Continental Building Products, Inc.

Thank you.

James W. Bachmann - Continental Building Products, Inc.

Thank you.

Operator

Thank you. Our next question comes from the line of Nishu Sood with Deutsche Bank. Please proceed with your question.

Marius Morar - Deutsche Bank Securities, Inc.

Hi. This is actually Marius in for Nishu.

James W. Bachmann - Continental Building Products, Inc.

Hi. How are you today?

Dennis Charles Schemm - Continental Building Products, Inc.

How are you?

Marius Morar - Deutsche Bank Securities, Inc.

Good. Thanks for taking my question. Just wanted to ask regarding CapEx. You've lowered the guidance a little bit. I was just wondering, are you able to get the same projects done for less or is there any push into the next year?

Dennis Charles Schemm - Continental Building Products, Inc.

It's a great question, Marius. So we're still committed to our $25 million to $35 million of high-return CapEx over the 2018-2019 period. What this guidance is, is a firming up of our view as to what will actually be spent and commissioned this year versus next year. So in all likelihood, here we'll spend between $15 million and $18 million in 2018 and then another $10 million to $17 million in 2019.

Marius Morar - Deutsche Bank Securities, Inc.

All right. Thank you. And regarding the solar array that you mentioned, if possible could you share with us the cost and then any potential savings that might come from the project?

James W. Bachmann - Continental Building Products, Inc.

Yes, I'm really glad that you asked about that project. So it's a very, very exciting project for us and it's a true embodiment of the high-return CapEx projects that we're looking at to really reduce our cost in – and improve our low cost position overall. And this is a great – we've talked about three different ways of deploying our CapEx across high return. It was raw material handling, automation and energy. This is all about energy reduction.

We're driving double-digit returns from an energy reduction perspective. And on top of that, we're helping the environment and we're helping the community. And so this one from my perspective hits the trifecta and it is a great bolster for us in the community. So we feel really good about it.

Marius Morar - Deutsche Bank Securities, Inc.

And this is a project that is starting this year or next year?

James W. Bachmann - Continental Building Products, Inc.

Yes, we fully expect it will be commissioned here sometime in late Q3.

Marius Morar - Deutsche Bank Securities, Inc.

All right. Thank you.

James W. Bachmann - Continental Building Products, Inc.

You're welcome.

Operator

Thank you. Our next question comes from the line of Matt McCall with Seaport Global Securities. Please proceed with your question.

Matt McCall - Seaport Global Securities LLC

Thank you. Good afternoon, guys.

James W. Bachmann - Continental Building Products, Inc.

Good afternoon.

Matt McCall - Seaport Global Securities LLC

Dennis, I just want to make sure when you updated your inflation expectations, I think the next sense was the $5 million savings from the high-return capital projects. Is the reduction in the outlook due to the recognition of the savings, are you including that or are they separate items?

Dennis Charles Schemm - Continental Building Products, Inc.

They are absolutely separate items, Matt.

Matt McCall - Seaport Global Securities LLC

Okay, okay. Thanks for that. That's I think an important clarification for us. So I guess the next part of that is, so $5 million so far on the investment is what do you expect this year. It's like the investments are going to continue. What should we kind of bake in for the return on those investments as we move out into 2019?

Dennis Charles Schemm - Continental Building Products, Inc.

So Matt, we're going to continue to deploy as we talked about this $25 million to $35 million over that two-year horizon, and we're expecting and we're very confident that we're going to get a three-year payback roughly speaking on that $25 million to $35 million.

The timing of the commissioning though will depend on the guidance that we give you for additional savings or incremental savings in 2019. So, we're going to come back out with that probably around when we release and discuss Q4 2018 earnings.

Matt McCall - Seaport Global Securities LLC

Okay. All right. Great. And then I'm sorry if I missed this, but you talked about the actual source of the pressure and benefit. Was the paper decline – was that a change, I didn't understand whether you were saying that was what was different in your outlook, or what was different in your outlook that wasn't that?

Dennis Charles Schemm - Continental Building Products, Inc.

So paper declining more than what we expected changed my inflation guidance down to the 3% to 4%, from the 3% to 5%.

Matt McCall - Seaport Global Securities LLC

Okay. Perfect. Thank you, Dennis.

Dennis Charles Schemm - Continental Building Products, Inc.

You're welcome.

Operator

Thank you. Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question.

Michael Dahl - RBC Capital Markets LLC

Hi. Thanks for taking my questions and nice results.

James W. Bachmann - Continental Building Products, Inc.

Mike, thank you.

Michael Dahl - RBC Capital Markets LLC

I wanted to start with, going back to the discussion around the solar project, and so it's starting at Buchanan. I'm curious, is there something -- is there anything about Silver Grove or Palatka where you'd be prevented from doing this either from how the plants are positioned or just something else affecting return on capital standpoint? Or is this something that you plan to kind of trial at Buchanan, and then roll out to the other two.

James W. Bachmann - Continental Building Products, Inc.

Sure. So we actually look at each plant a little bit separately and it depends on where the best savings will come from. The reason solar was good and in Buchanan was, one, the state incentives that we got. And two, if you look at the cost of electricity, not surprisingly State of New York quite high. So this was a great way to go ahead and reduce that cost.

If you look at our other plants, Palatka or Silver Grove, there are other energy reduction projects that we have going on as a way to get the better returns there. So, I would not say this is a rollout everywhere, but certainly something that we've looked at.

Michael Dahl - RBC Capital Markets LLC

Okay. That's helpful. My second question just on the margins and the costs, and so helpful color around both the cost saves from these investments and also the inflation buckets. It seems like the missing piece is always then the underlying operational improvement initiatives.

I know there's a lot going on underneath the surface there. But could you give us kind of ballpark, how much are you benefiting from some of the additional operational improvement initiatives and how should we think about that for the balance of the year?

Dennis Charles Schemm - Continental Building Products, Inc.

It's a fair point. I mean we've not tallied up the number and given that publicly. There is a lot of effort going on. If you look at since inception, I think we've had close to 100 continuous improvement type events as a way to go ahead and make things better, and it's everything from quality, to process control, to even how we serve our customers better. So not ready to give a dollar amount yet, but certainly you are seeing it in the results. There is no doubt that there's a piece of that that is helping us out here.

Michael Dahl - RBC Capital Markets LLC

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Josh Wilson with Raymond James. Please proceed with your question.

Joshua K. Wilson - Raymond James & Associates, Inc.

Good evening Jay and Dennis. Thanks for taking my questions and congratulations on the quarter.

Dennis Charles Schemm - Continental Building Products, Inc.

Thank you very much.

Joshua K. Wilson - Raymond James & Associates, Inc.

Few quick ones here from me. One, could you talk about what your lead times look like now versus normal and how that might be evolving?

Dennis Charles Schemm - Continental Building Products, Inc.

So we don't give a lot of detail on lead time. Certainly when you look at normally how orders come in, there's not a lot of backlog. But there's no doubt that given -- just given the constriction that we've seen on some of the transportation side, that lead time is definitely more than a couple of days like it used to be last year.

Joshua K. Wilson - Raymond James & Associates, Inc.

And regarding the 2Q results, you mentioned some storm benefits potentially, but regarding 2Q weather itself, were there any areas where you had benefits or detriments from weather within the quarter?

Dennis Charles Schemm - Continental Building Products, Inc.

So I know that you did have some wet weather that definitely impacted the second quarter. Often that impacts the pouring of foundations though, so some of that impact is not felt until little bit later on. So I'd say that the demand is there. You could have a little bit of timing differences between the months, but the overall trend is still positive.

Joshua K. Wilson - Raymond James & Associates, Inc.

Got it. Good luck with the next quarter.

Dennis Charles Schemm - Continental Building Products, Inc.

Thank you very much.

Operator

Thank you. Our next question comes from the line of Keith Hughes with SunTrust Robinson Humphrey. Please proceed with your question.

Keith Hughes - SunTrust Robinson Humphrey, Inc.

Thank you. You had called out gypsum as being one of the inflationary periods, not new there. Is this something though that is going to run into next year? Are you going to continue to have to use these secondary sources based in your kind of 6, 12-month planning?

Dennis Charles Schemm - Continental Building Products, Inc.

Hey Keith, this is Dennis. And, yes, you are correct. We will continue to use secondary sources more and more. So we'll do that more this year as volumes continue to grow. And then, next year, we absolutely believe that we'll continue to see growth. And as we grow more, we'll be out further into our secondary network.

Keith Hughes - SunTrust Robinson Humphrey, Inc.

And are those contractually similar to the primary sources in terms of their relationship and how the pricing and everything works?

James W. Bachmann - Continental Building Products, Inc.

They are different. They are different, and we have a wide network of contracts across the different plants and are handled somewhat differently by plant.

Keith Hughes - SunTrust Robinson Humphrey, Inc.

Okay. Thank you.

Dennis Charles Schemm - Continental Building Products, Inc.

You're welcome.

Operator

Thank you. Our next question comes from line of Scott Schrier with Citi. Please proceed with your question.

Scott Schrier - Citigroup Global Markets, Inc.

Hi, nice quarter. And a quick follow up on that last question, is there any way to get a sense of I guess how favorable or unfavorable – I know it goes, it's different by plant, but the contractual differences as we get into these other sources. And just to clarify again, there's no risk of not having enough to supply, it's just a matter of always just going out a little further to get it.

Dennis Charles Schemm - Continental Building Products, Inc.

Yes. We feel really good about our supply network and the contracts that we have in place, both with our primary suppliers as well as the secondary network. So very good long-term contracts and very good secondary supply that we've always been working with. But now, just more and more we're tapping into it as the volumes continue to increase.

Scott Schrier - Citigroup Global Markets, Inc.

Got it. And then I wanted to ask you on price. Obviously, sequentially it looked a little better than maybe some peers. And I'm curious if some of the sequential uptick was just due to the timing of the price increase being fully implemented. I know earlier you talked a little bit about some niche with some 5/8-inch board in the mid-Atlantic. I'm curious, are there any other geographic mix issues or maybe how pricing trended throughout the quarter, especially as we got into the pre-buy, just trying to think of the like-for-like cadence there of pricing in the quarter?

Dennis Charles Schemm - Continental Building Products, Inc.

That's a great question. And what we saw, we did see a 1.5% increase sequentially. That increase is clearly just a geographic mix where we saw more sales in the northeast, which is a 5/8-inch market. It has a higher mill net than the majority of our business. And so, that's why you did see the step up there in price.

Scott Schrier - Citigroup Global Markets, Inc.

Great. Thanks for that and good luck.

Dennis Charles Schemm - Continental Building Products, Inc.

Thank you.

James W. Bachmann - Continental Building Products, Inc.

Thank you.

Operator

Thank you. Our next question comes from the line of Trey Grooms with Stephens. Please proceed with your question.

Trey H. Grooms - Stephens, Inc.

Hey, good afternoon, gentlemen and congrats. Great quarter.

James W. Bachmann - Continental Building Products, Inc.

Thanks, Trey.

Dennis Charles Schemm - Continental Building Products, Inc.

Thank you.

Trey H. Grooms - Stephens, Inc.

Kind of a follow-up on the last one is, Dennis, with the bump in volume guide that you gave us and kind of looking back, Jay, to your last comment about the geographic mix and kind of what the impact was on the sequential pricing. When you're looking at the volume guide and what that means for the back half of the year, is there any significant geographic mix or product mix that we should be expecting in there, just impact one way or the other from either one geographic or product mix?

Dennis Charles Schemm - Continental Building Products, Inc.

Yes. It'll really depend on how the pace goes. So if you look, we obviously give guidance on more of a network basis. To the extent that the southeast grows at a much faster clip, obviously, that would have more of a negative mix impact. On the business, what's been nice and you saw this in the second quarter is you actually saw really all -- four of our five regions that we operate in at double-digit increases, and it just was good to see with the Mid-Atlantic how strong that was. So there could be some impact there, it's really hard to measure though.

Trey H. Grooms - Stephens, Inc.

Okay. And just with that, taking it up just 100 basis points there – was that – again kind of going back, when you look at that Mid-Atlantic that strength in backlog and things like that, has that continued to continue there or just trying to think because the backlog in that market I think you'd be able to have a little bit more visibility given the commercial nature of it, but maybe I'm off.

James W. Bachmann - Continental Building Products, Inc.

There is definitely strength in the market. I mean it's a benefit, obviously New York City, being there, you can see the construction that's going on with the amount of activity. But in terms of the way the backlog works, it's still very similar to all our plants. We don't get a lot of that -- a lot of those orders really coming in until very close to when the board is needed. So, we have a sense by talking to customers; beyond that, there's not a lot more detail.

Trey H. Grooms - Stephens, Inc.

All right. Well, that's super helpful. Congrats again. And that's all I had. Thank you.

James W. Bachmann - Continental Building Products, Inc.

Thank you.

Operator

Thank you. Ladies and gentlemen, at this time, I would like to turn it back to James Bachmann for closing comments.

James W. Bachmann - Continental Building Products, Inc.

I appreciate everybody for joining the call and look forward to catching up with you in the next quarter. Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.