Good day, everyone and welcome to this American Woodmark Corporation Conference Call. Today's call is being recorded. The company has asked us to read the following Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that may be beyond the company's control. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission and the Annual Report to shareholders. The company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. At this time, I would like to turn the call over to Glenn Eanes, Vice President and Treasurer. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to this American Woodmark conference call to review the results of our first fiscal quarter which ended July 31, 2012. Thank you for taking time to participate. Participating on the call today from American Woodmark Corporation will be Kent Guichard, Chairman and Chief Executive Officer; and Jon Wolk, Chief Financial Officer. Jon will begin with a review of the quarter and concluding with an outlook on the year. After Jon's comment, Kent and Jon will be happy to answer any of your questions. Thank you. Jon?

Thanks, Glenn. This morning we released the results of our first quarter ended July 31, 2012 of our fiscal year 2013 that will end on April 30, 2013. Our earnings release contain the following highlights: Net sales for the first quarter were $148.3 million, representing an increase of 13% over the prior year's first quarter. Net income, excluding restructuring charges, was $1 million or $0.07 per diluted share. These results compared favorably to the prior year's first quarter net loss of $2.7 million, or $0.19 per diluted share, which included an immaterial amount of restructuring charges. Exclusive of restructuring charges, the company's net income improved by $3.8 million above prior year levels on a sales increase of $17.1 million. Last December, we announced several restructuring actions to reduce the company's manufacturing capacity and cost structure. These actions included permanently closing 2 manufacturing plants, placing a previously closed plant up for sale and realigning our retirement program. The 2 plants ceased operations in April and May of 2012, respectively, and the retirement plans were modified as of April 30, 2012, as planned. The company's results for the quarter ended July 31, 2012, included restructuring charges related to these initiatives. The net of tax impact of these charges for the first quarter was $0.5 million, or $0.03 per diluted share. Net income including restructuring charges was $0.6 million or $0.04 per diluted share. When we commenced fiscal year 2013, we provided the following assumptions about market activity and our related expected performance. Regarding the remodeling market, we stated our expectation that existing home prices would finally bottom and begin to slowly increase as the fiscal year progressed. We also stated our expectation that cabinet market remodeling sales would correlate with this activity and be roughly flat for our fiscal year 2013. Regarding…

[Operator Instructions] And we'll go first to Robert Kelly with Sidoti & Company.

I just had a question on the comment you made in your prepared remarks regarding the percent of benefit you received from the cost initiatives. You said that it was pushed out a few months, so you got 1/2 of the benefit that you had expected. So do we see the full benefit in the second half of your fiscal '13 or at me part in the second quarter?

I think, Bob, that it did get pushed out by several months because of the volume pressures that we saw in the first quarter. We're actively working on getting those efficiencies that we expect to have. In terms of exactly when they come through, I think we'll see a bit more in the second quarter, but I think probably at the second half until we really see the bulk of them.

Okay. And then just as far as the commentary on the fundamentals and how the cabinet market will behave, I mean, the period we're entering is a seasonally strong period for you, could you just talk about your order book or backlog, whatever you see demand on hand at the end of your fiscal first quarter, how that looks?

Yes, this is Kent. It's kind of consistent with what Jon talked about. On the remodel side, of course, it ebbs and flows with promotional activity. And the summer, particularly the late summer is a period where that -- there's just not a lot of consumers out in the marketplace, so we see lower promotional activity. That will start to come back here as we get into the back half of September and then certainly October and up until Thanksgiving will be heavy promotional periods with the fall selling season. So we're kind of in a little bit of a lull right now, but on a seasonally adjusted basis, I think it continues to support what Jon talked about, which is, flat to maybe just slightly up remodel activity. On the new construction side, we've continued to see very strong demand pretty much across the board. We can't find a region in the country that we go to either on a direct or through our distribution network that aren't experiencing -- continuing to experience pretty strong demand for new construction. One of the things that's encouraging is it does not appear to be speculative as they open up lots, as they start to build the houses, they have contracts on them. We're not seeing high cancellation rates. We're seeing -- they're building basically 2 sold orders, so it doesn't look, from our perspective, from the data we have that we're building another mini bubble in terms of spec housing. We think there's actually demand for this housing. So our backlog is in good shape. Certainly enough to keep our plants operating at the level that we've been operating at here for really the first quarter, going on 4 months now. And we're trying to work it down a little bit before we get to the fall selling season, but the backlog and order demand is consistent with what Jon talked about which is, again, flat remodel and continued strong growth on the new construction side.

Okay, great. And then just 2 more, one on the promotions. You talked about, they remain elevated, but it doesn't appear that the intensity is increasing, is that a fair way to characterize it?

Yes, I think that's a pretty fair way to characterize it.

And then, you talked about the -- we heard what Depot and Lowe's said about remodel spend, consumer discretionary spend, it seems like you're doing better in your remodel business due to dealer share gains? Could you just kind of talk about that, how that's trending and why the dealer is offsetting what's going on in the big-box channel?

Yes, I mean, our big-box business is okay. It's not like it's -- I mean, it's basically flat to down a little bit. It's pretty consistent with what our major customers obviously have reported. At both of our major customers, in their announcements, their cabinet business did outperform the stores. So to me, the big-box stuff for us is about flat. As we've talked for the last couple quarters, as we got into this year, we looked on the dealer side for that to actually start to move the needle. And as we start to build --emphasize that channel, we start to build a little bit of kind of base there. We get to really some critical mass. We're certainly starting to see that. So if you go from say, a remodel market, it was down a couple of points, maybe 2 to 3 points versus us being flat, the majority of that is in fact from our dealer initiatives to start that business up. So it's starting to move the needle in the first quarter. Again, it was probably 2 or 3 points.

2 or 3 points of growth?

Yes.

Yes.

And next we'll go to Scott Rednor with Zelman & Associates.

On the new residential construction side, where you guys have clearly taken share, can you just talk whether you think that, that share growth is a function of who you're partnered with, be it the big builders or whether you guys are going out and winning new builder accounts?

Yes, it's all of the above. I mean, certainly, as Jon mentioned, we're seeing increase in overall market activity. The starts, generally speaking, have been up around 20%. July fell off a little bit, but they pulled a lot of permits. So generally speaking, we were in the 40% kind of range on the new construction side, about 1/2 of that is just market growth. The rest of that is from our market share gains, and it comes from really kind of 2 general areas, one is our partners. We have put ourselves in a position to partner with the builders that are growing, not just the nationals, but the regionals and occasionally some locals, too. But we've done I think a good job of identifying and partnering with those builders that are gaining share in their markets. And then within those builders, we penetrated and gained share either on a -- within subdivision or a number of subdivision levels. So our growth is really kind of the cumulative effect of all 3 of those. We are getting good market growth. Our customers are growing faster than the market, and we've gained share within those customers.

Great. It's very helpful. And then on the dealer side, can you guys just allude to the fact of -- clearly, you're making nice progress, what do you guys bring to the table that's differentiated versus the competition? Or if you guys could go into a little bit more depth, whether it's on the product or service side that you guys think differentiates yourself from your competitors?

Yes, we think it's our -- basically our service model. It goes all the way from the beginning to the end. It's concentrated around our customer care organization. We just think that we have a model that's built better than a lot of the players out there in terms of providing service, overall kind of cradle to grave service for the small dealer.

Great. And then just lastly, Jon, is there a tax rate that we could use for the model for the full year?

Yes, I think, Scott, that because it was great to have a profit, but it was a relatively small profit. I think that results are fairly close to breakeven, so I think that we're going to have kind of an erratic effective tax rate as the year progresses. But I think it's going to be a little bit north of 40% because of those factors and because we're using some NOL from prior years which also reduces the number of permitted deductions or differences that we can take that are favorable to us this year.

[Operator Instructions] And we'll go next to Joshua Pollard with Goldman Sachs.

I wanted to get a quick update on what portion of your business at this point is remodel versus new co? Also, Home Depot and Lowe's, 68% of your business, but what's the mix of dealers and new construction? And I do have a quick follow up.

Well, traditionally, it's been sort of a 2/3, 1/3 for remodel to new construction. During the depths of the housing downturn, it was slanted more toward remodel than new construction because new construction fell off so much. I think we're getting closer to a more traditional mix. If anything, new construction is over-indexing just a little bit compared to that, but it's still sort of 65%, 35%.

Okay, great. And then the mix of dealers in new construction of that remaining 32%, that is not Depot/Lowe's?

Well, the Depot/Lowe's has been the vast majority of the modeling business that we would cite and when we talk about dealer business, we consider that remodeling as well, so that's included in our remodeling numbers.

Okay, and then you said there's going to be a few additional months to get to that all-in $4 million to $5 million a quarter, could you talk about -- and the reason you gave for that was the increase in demand, my quick thought process would be that the increase in demand would get you there quicker? So could you explain why the increase in the amount of time it will take you guys to get to that overall $4 million to $5 million a quarter?

Yes, this is Kent. When you get that kind of an increase, a sudden increase in demand, that puts a lot of pressure on the factories and the material flows. And so, a lot of the efficiency -- inefficiency that Jon referred to, is we had to work a lot of overtime in order to keep up with that. That was related to the transition because during the transition, you do lose a little bit of capacity because we did move equipment around. So the inefficiencies came from a variety of places. We did keep some of that equipment going a little bit longer than we wanted, but it was also, we lost capacity, because it was out of commission as it was being derigged, moved and rerigged in the new location as an example. So we had to make up for that with overtime and actually expediting some of our material flows. So our trucks that were going around between our plants were on a more frequent cycle, and they were not loaded as fully as they would be in a normal environment because we had to keep material moving. But the real big impact, quite frankly, was we had to work a lot of overtime in order to keep up with the demand from the customers in a period when we were moving some of that capacity around.

How long before that's corrected?

I think it really depends upon the pace of sales growth from here, as well as our hiring efforts that are ongoing at this point. So I think as I said, I think we'll see a bit more of the efficiency in the second quarter, but it would really be the second half of the year until you start to see more of it.

Okay. And then my last sort of 2-part is, last quarter, you talked about hard capacity, you could bump up your sales an additional 50%, but as you look at -- but as you look at your soft capacity some of things you were saying to my previous question suggests that there may be some soft capacity issues? So can you talk about how much in soft capacity you guys would have to add in order to get to -- in order to get to that 50% of additional sales if we were to get there in any quick fashion?

Well, yes, I think that we're -- from a soft capacity, say from a crewing standpoint, we're basically crewed at our production level. So those would be kind of similar numbers. Now of course, it's a moving target. Over the last 90 days, we've increased our capacity, our practical capacity in terms of what we're actually making and shipping each day. So the 50%, it's not 50% because we've increased capacity a little bit here over the last 90 days and plan on continuing to do so over the next 90 days. So that 50% is down a little bit. But generally speaking right now, we are crewed to what we are producing and shipping each day and so those are going to be pretty similar numbers.

Okay, last question. Based on your internal information, are you now the lowest cost producer in cabinets after you've taken out some of your higher cost capacity?

Well, I'm not sure what low-cost producer kind of means, and you'd have to look at it by product, you'd have to look at it by price points, some of those types of things. I mean, what I would say is that, we feel that we are competitively -- we have a competitive cost at the layer of the market that we're in. We don't believe that we're at a cost disadvantage. Beyond that, I suppose you'll get different viewpoints from different people, but we believe that we have a cost base at our price points that allows us to provide value and be competitive.

And next we'll go to David MacGregor with Longbow Research.

Just a couple of questions. I guess first of all, just want to explore in the SG&A, how much of the savings was from the reduced spending on sales promotions and product displays, and does that come back next quarter?

Well, there's a seasonal aspect to that. We have product launches a couple of times a year and some of the costs we were gearing up for the upcoming product launch that's in the fall. So I think you'll see cost trend up a little bit from a seasonal perspective in the second quarter. They normally do compared to our first quarter. But there are a fair amount of savings from the retirement plan changes that we made as well, so I think that obviously those will be ongoing savings.

Okay. Have you broken those out separately?

No, we've not.

Okay. The contribution margins, it looks like you had about a 34% drop in the first quarter, how does that play out over 2Q, 3Q and 4Q?

Well, it gets back to some of the things that we talked about earlier in the call that some of the earlier participants have been questioning us on, which is really the rate of the efficiencies that we expected to gain as a result of the restructuring. And as Kent explained, we had quite a number of premium cost in the first quarter that we incurred because of production volumes being higher and some of the transition effort being a little bit more complicated than we originally planned on. So I don't know that really the first quarter is the right quarter to sort of look at contribution margin because it was kind of a noisy quarter with a lot going on.

Is there any way you could speak quantitatively about what you expect that to do over the balance of the year?

Well, I think a couple of others have attempted to get me to quantify that, and what I'd say is that until we settle down some of the things that we're still working on, it's hard to specifically lay that out. We do expect some incremental improvement in the second quarter, although not as much as we expect in the balance of the fiscal year.

Okay. Raw materials, to what extent -- is there any way you can quantify the first quarter gross margin impact? You called it out in the prepared remarks.

Yes, it's definitely rising. We'll have that in our 10-Q that comes out in about a week or so, and that talks about a little bit more. But it's rising, I'd say that we're not under a period of stress with regard to raw material cost, but it's a constant factor, and it is causing us to deleverage just a little bit.

Okay. Is there any opportunity to pass any of that through in this kind of a promotional or competitive environment?

Yes, I mean, I go back to -- for those who have followed us for some time, I think the industry over time for inflationary increases in inbound materials and raw materials that is permanent and embedded in the material flows that the industry has proven an ability to recover those. But generally speaking, there's a lag there that can be 6 to 18 months. So what we're seeing, to Jon's point, what we're seeing isn't extreme enough I think to kind of have the industry get that passed through. It's been relatively minor and when we do start to get it, there'll be a lag impact before we can get it from the industry. So if you're talking about the next couple of 3 quarters, even the balance of our fiscal year, to the extent that we do get material inflation, it's going to come out of the manufacturers at this point. I wouldn't look for that to be passed on to the consumer, probably until next summer.

Okay, great. And then just on the CapEx, I mean, how much CapEx do you expect you're going to need to deploy in the recovery phase of the cycle? Is there any way you can quantify that over kind of an intermediate term?

Well, we haven't really gone out beyond this year. What we said 3 months ago is that we expected total CapEx, including promotional displays that we deploy out with customers, to increase by about 40% over last year's level. So last year's gross expenditures were about $10 million, and we expected this year's to be about $14 million, and I think we're still tracking with that expectation.

Okay, last question. You had mentioned that one of your strategic goals was just expanding channels of distribution, are you talking about just picking up more builders or could you maybe elaborate a little further on that aspiration?

Yes, the biggest one is, historically, we've been very active in the new construction side, both on the direct basis and through our distribution network. Obviously, we've also been very, very active and involved in the big box. The real big channel of growth for us that we're really starting to emphasize, historically, we've had some accounts, but put a lot more emphasis on was the dealer business, which would be people will say 1 to 4 outlets in a fairly local area. That's a huge part of the industry. It's probably 1/2 of the remodel business, and we haven't really focused on that in the past. That's really what our initiative over the last year to 2 years has been. So that's really what we're talking about when we talk about new channels of distribution is that dealer network.

Can you say what your share of that is today and what you'd like to get it to? Just give us some sense of...

Well, we begin -- because we haven't emphasized it, our share is negligible, and we would like to make it significant. I'll just leave it at that.

And next we'll go to Peter Lisnic with Robert W. Baird.

Jon, I guess first question, if I could, on the plant closure impact? Is there a way of calling out what the impact there might be on the gross profit or gross margin line in the quarter?

Yes, we have -- I guess the best way to do it, Pete, would be to say that we had thought we'd get about 2/3 of the transition benefit, we only got about 1/3, so I guess work the math, that's the most convenient and easiest way to do it.

All right, that's helpful. And then when you're talking about sort of this push out and those cost saves from the 2/3 to 1/2 kind of run rate, does that do anything or should it do anything to our confidence that you can get to that $18 million annual run rate? And then, part 2 of that question is, at this point, is labor just a bottleneck there or are there other, what I'd call operational things that you need to take care of to get to that $18 million run rate?

Yes, let me try to kind of clarify a little bit. The $18 million runway in terms of those savings is fine. I mean, we've got that. What we have is we have some partial offsets to that. So we're very confident about the $18 million. And in fact, the $18 million is in there. If you look at what we did between the plant closures and those savings, and we look at what we did on our retirement programs, that savings is there. What we have is we have some net offsets to that, that come from, again, additional transportation, that comes from a lot of overtime. It comes from hiring cost as we hire people and get them into the system. They're not productive for a period of 60 to 90 days. They got to go through our training programs. When you start to run that heavy and overcapacity, you do end up unfortunately with some additional scrap and those types of things. Again, because you're running the machines, you're doing it with employees that are less experienced. So the $18 million is there, and we're very confident that those are solid numbers. What we're experiencing right now is some offsets to that, based on trying to keep up with the demand from the marketplace. And so it's a question of how quickly we can get those employees in place, get them trained, get the system calmed down, get the overtime out of the system and start working regular hours, whether it's daily, overtime or on the weekend. So I don't want to leave you an impression that -- which maybe you guys, as I look back from our remarks that there's any of the $18 million that's delayed. There's none of the $18 million that is delayed. All of that stuff is there. What we're experiencing now is some offsets to that.

Right, and I'm just wondering whether or not those offsets, it sounds like they go away, but the confidence that they do is kind of -- I guess the other way of asking the question based on your response.

No, I'm very confident they're going to go away as soon as we get the system calmed down, and again, we the capacity up with trained employees on a regular time basis. The question is, how quickly can we get the whole system calmed down. And again, we've made a lot of progress, we made progress sequentially through the quarter each month. We've made more progress in August. But we continue to -- expect to experience some of that net during the second quarter. Hopefully, as we get into the third quarter, we'll get a little bit of help, we'll get a seasonal slowdown as we get into mid-December which will again allow us to catch up and get some of the more training done and the labor force kind of settled down in terms of people and doing the right things in the right places. So we get through the third quarter and fourth quarters, I think Jon mentioned, we expect all of that to be out of the system, but here for the next quarter or so, 1.5 quarters, we expect to continue to experience some of it.

Got it. Okay. And then by extension for the longer term, it doesn't necessarily -- what we saw here in the first quarter it doesn't necessarily really impact that targeted gross margin range that you've talked about of 21% to 23%, if I remember the numbers right?

Yes, no, it doesn't. It doesn't impact that at all.

Okay. All right, fair enough. And then Jon, just quickly on the G&A number, $5.6 million, it's down about $1 million run rate-wise versus last year, is that kind of the run rate to use as we look forward from a G&A cost structure perspective? Maybe a little help on fixed versus variable in that piece of the income statement would be helpful.

It's relatively fixed. The thing that varies in there is the incentive compensation part of it, Pete. And that was down a little bit because of our performance in the first quarter. Again, it wasn't quite as efficient as we had expected when we did our plan. But it's relatively fixed, and I think that certainly the retirement plan changes are embedded in there and will be an ongoing savings. I think that to the extent that this line varies in the future, it's really going to be the incentive comp line that varies the most.

And next we'll go to Jeffrey Matthews with RAM Partners.

My questions have been answered. Thank you very much.

And we'll go to Sam Darkatsh with Raymond James.

Most of my questions have been asked and answered, Jon, when you mentioned that you had increasing expectations or increasing confidence that you'd be profitable through the rest of '13, is that each of the next 3 quarters? Because I know that you're going to have a seasonal soft patch in the wintertime or is that you're talking about the entirety of the year?

A little bit of both, Sam. I think we have the opportunity to be profitable for each of the quarters. It's really going to depend upon, as Kent mentioned earlier, the seasonal ordering patterns and to what extent we can keep the factories running and especially in the third quarter.

And my last question, could you talk about how the quarter progressed, that there seemed to have been some choppiness at the remodeling side throughout the quarter on a month-to-month basis, was it fairly steady or did you see a fair amount of volatility?

Sam, you're talking about from an order perspective?

Both. Yes, orders and shipments. But yes, mostly on an order perspective at the home center level.

Yes, I mean, kind of the new construction was strong, kind of beginning to end. What we saw on the remodel side was a normal pattern, and that is coming off to the end of the spring selling season at the end of April, into the first week or 2 of May. And then you get a slow down in June which is the natural slowdown, and then it picks up in July, you get a kind of a surge in the July as our customers really close out some of their promos back down in August and then picks up again in September. So that was kind of the pattern, but that's a normal seasonal pattern. We didn't see anything that was unusual or different than what the normal seasonal pattern would be through the quarter that would lead us to believe that remodels going to be anything other than about flat once you kind of even out all the ups and downs.

So if I could put words in your mouth, so on a year-on-year basis, there wasn't a whole lot of change from month-to-month throughout the quarter?

No.

[Operator Instructions] And Mr. Eanes, it appears we have no further questions.

Well, since there's no additional questions, this will conclude our conference call. Again, thank you for taking time to participate. Speaking on behalf of the management of American Woodmark Corporation, we appreciate your continuing support. Thank you and have a good day.

And that does conclude today's conference call. Thank you, everyone, for your participation.