Greetings, and welcome to the JELD-WEN Holding Second Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. John Linker, with JELD-WEN Holding. Thank you. You may begin.

Thank you. Good morning, everyone. We issued our earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website, which we’ll be referencing during this call. I’m joined today by Kirk Hachigian, our Chairman, Gary Michel, our CEO; and Brooks Mallard, our CFO. Before we begin, I would like to remind everyone that during this call, we may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results or statements regarding the expected outcome of pending litigation. Additionally, during today’s call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measure calculated under GAAP can be found in our earnings release and in the appendix to this presentation. I would now like to turn the call over to Kirk.

Thank you, John. Good morning, everybody. I am very pleased to formally introduce to you all JELD-WEN’s new CEO, Gary Michel. But before I do that, I want to take a moment and highlight a few developments from the quarter and update you on some topics I discussed with you in our last conference call. While we delivered the lower end of our adjusted EBITDA guidance range in the second quarter, I would characterize our overall financial performance as mixed. On the topline, we delivered strong revenue growth of 23.6%, driven by our recent acquisitions as well as core growth in all three segments. However, we did not realize the full benefit of operating leverage on the increased revenue, due to inflation on materials and freight, as well as some commercial investments we are making to support future growth. Both Gary and Brooks will comment on these details in a few moment. You’ll recall, on the last quarterly call, I highlighted some near-term priorities for the business. We made some good progress across all areas that set us up well for accelerating momentum in the back half of this year. First, over the last six months, we stabilized the North American leadership team by filling key operating physicians and driving a new operating cadence. At this point, all major positions have been filled and I feel very good about the talent we’ve brought on board. I expect continued improvements in this newly upgraded team as they gain traction, under Gary’s leadership. Second, we continue to focus on using price to offset continued inflation in material and freight. Again, we previously told you that we would take pricing actions sufficient to more than offset the inflation in the second half of the year. While this is still true on the inflation…

Thanks, Kirk, and good morning to you all. Thank you for joining us. I’m thrilled to be at JELD-WEN and excited about our opportunities for growth and margin expansion. During my first 45 days, I spent most of my time traveling to see our facilities, meeting our customers and getting to know our associates. I see a lot of similarities between JELD-WEN and my previous business experience that Kirk just highlighted, and expect to deliver the same type of improvements here. I’ll highlight some of my early observations at JELD-WEN and near-term priorities beginning on page six. First, I believe that we have a fantastic set of assets comprised of a well-known portfolio of brands, a broad product offering, and an unmatched global operating platform that allows us to service the needs of our customers. Second, we have the right strategy, operating models and team to unlock the profit potential of this business. While I will certainly have my own style as well as some new initiatives and areas of focus, I don’t have any plans to change the existing operating playbook put in place by Kirk and the leadership team. We know what we need to do, we just need to focus more intently on execution. Third, I see a substantial runway to improve the margins of this business. While the team is off to a good start in its drive towards productivity, using the tools of the JELD-WEN Excellence Model, I would say that we are still very early in the journey, and there’s more work to be done to build a mature productivity culture that drives consistent, predictable, and recurring results. This substantial opportunity for margin improvement is one of the key reasons, I have confidence that we will achieve our long-term financial target of EBITDA margins…

Thanks, Gary. Starting on slide nine. For the second quarter, net revenues increased 23.6% to $1.2 billion. The increase was driven by the contribution of recent acquisitions, core growth in all three segments, and a small favorable impact of foreign exchange. We reported net income of $35.5 million for the second quarter, a decrease of $11.2 million. The decrease in net income was primarily due to increased legal expenses and a higher tax rate than the same quarter last year. For the quarter, diluted earnings per share was $0.33 per share and adjusted diluted earnings per share was $0.45 per share. Adjusted EBITDA increased 7.7% to $135 million. Adjusted EBITDA margins decreased 117 basis points in the quarter to 11.5%, as margins were unfavorably impacted by recent acquisitions and compression in our core business from a lag in pricing to offset inflation in materials and freight as well as temporary investments to support longer term core growth. Our core business adjusted EBITDA margins decreased approximately 120 basis points. Additionally, I’ll note that SG&A expense increased $31.3 million to $175.2 million due to higher legal costs, acquisition costs, and an increase in SG&A expense from the acquired companies. Our tax provision in the quarter includes the full impact of the GILTI inclusion on our foreign taxable income, as well as approximately 3 million of distinct items of the quarter. For the full-year, we continue to expect our 2018 effective book tax rate of 31% to 35%. Excluding the impact of GILTI, our effective book tax rate would be 23% to 27%. Slide 10 provides a buildup of our revenue drivers. Here, you can see that not only did we deliver core growth in all three segments but we realized positive price in all three segments as well. On a consolidated basis,…

Moving to our financial outlook on page 16. We’re providing outlook for the third quarter of 2018 as well as updating our outlook for the full year. For the third quarter, we expect adjusted EBITDA of $143 million to $153 million compared to a $128.2 million in the third quarter of 2017. Third quarter adjusted EBITDA is expected to benefit from the contribution of recent acquisitions as well as accelerating margins in the core business from pricing, volume, and productivity. For the full year, we now estimate net revenue growth of 16% to 18% compared to our previous outlook of 17% to 19%. At the midpoint, our assumptions for full year core growth and acquisition contribution are unchanged at 3% and 13%, respectively. The only change to our revenue growth outlook is from updated assumptions for foreign exchange rates, which reduces the contribution from FX at the midpoint from 2% to 1%. Our outlook for adjusted EBITDA for the full year 2018 is now $500 million to $520 million compared to our previous outlook of $505 million to $535 million, and $437.6 million for 2017. The midpoint of our guidance assumes that core adjusted EBITDA margin will improve approximately 70 basis points, which is approximately 10 basis points lower than our previous guidance assumption of 80 basis points. The reduction in our guidance is due solely to the flow through of the impact of updated FX rate assumptions on the revenue line and the expected unfavorable impact of recent tariffs. We expect capital expenditures of $100 million to $120 million in 2018 compared to 2017 of $63 million. The increase is primarily the result of the phasing of certain projects that moved out of 2017 into 2018. Finally, we expect to deliver free cash flow in excess of adjusted net…

[Operator Instructions] Our first question comes from the line of Stephen East with Wells Fargo. Please proceed with your question.

Thank you. And welcome, Gary. Maybe we’ll start with what you talked about in your press release and you touched on little bit in the call. In the press release, you said, you need to improve service levels, drive out cost, discipline on price and share, substantial opportunities for core growth, et cetera. Maybe if you could, could you just elaborate on the key points on each of those and what you, your first 45 days, sort of that conclusions you’ve drawn, and what you think you all need to be doing a bit more specifically than you’re prepared remarks?

Sure, Stephen. Thanks a lot for the question. Yes. I’m 45 days in. I’ve had a great opportunity to go see our people, talk with our customers and really get a good feel for where we are, and spend some time with our relatively new leadership team as well. What I’ve seen is we’ve got good market fundamentals for this business, strong brands, good people, and we’ve got the beginnings of a really good business operating system around JEM. Really, what we need to do here is focus on our execution, focus on the deployment of JEM across the Company, looking at how we build productivity pipeline, how we deliver on productivity and how we put standard work into our operations. We’ve greatly improved our service levels on windows, which was a problem for us last year. We’re starting to see that benefit and we need to start to getting that business back on the windows side. Some ins and outs on doors, but holding our own there. And really, it’s about execution, getting this productivity pipeline stronger and deployed, and really focusing on how we can build that out for the rest of the year and into the future.

Okay, I appreciate that. And then, the second half implies some pretty big acceleration to hit your EBITDA margin targets. I guess, if you could maybe bucket each one of them, price versus volume and why you’re so confident that you’ll have the price to offset the raw materials and transportation inflation?

Yes. So, if you look at the second half where we’ve got price that has basically been put in place, we started to see that, show some positive results in the end of the second quarter. We’ll get the full benefit of that in the third and the fourth quarter. We’ve got the benefits from the M&A activity that we did in the first half, we’ll fully realize that, plus we’ve got productivity programs which take a little bit of longer to come to fruition. But, the beginnings of that was put into place the first half of the year, we’ll see the benefits of that going into second half of the year. We’ll build more of that productivity out, we’ll focus with discipline on price to offset inflation and these tariffs, and we’ll continue to work the synergies on our M&A.

Yes. This is Brooks. The one thing I would add in there too. When you look from a year-over-year perspective, if you remember, the second half of 2017 that we were down from a margin perspective and that was our -- the toughest part of 2017. And so, we’re going to run up against easier comps, both from an operating margin perspective and also from a inflation perspective on both freight and materials, because you start to see those creep in, in the second half of 2017. So, our comp should be easier from a year-over-year perspective.

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

I wanted to start with a question around North America, kind of following up on a couple of those points. It seems like there has been continued divergence between windows and doors with some of the operational issues in windows. And one thing that would be helpful, and hoping you could quantify. Just, what is the relative margin profile today of North American windows versus doors. I think, it’s important -- and if you can give us some quantification just to help investors get comfortable with, okay, doors is kind of more or less on track. Here is the delta on windows and here is kind of what we need to do. And just give people a better sense of what that gap is and how you can close it.

This is Brooks. Let me take that one since Gary is still relatively new. Historically, when you look back, and we’ve talked about this before, windows was more profitable than doors, and it was better bought, 200 to 300 basis points in the past. As we’ve improved doors and then as we struggled with some of our windows issues, that’s really flipped somewhat to where doors is better than windows, probably by this 200 to 300 basis points delta. Having said that, there is certain parts of our windows business that perform very well. Certainly at the target level of EBITDA that we want to achieve and then, there is other places where we know we need to make up ground. And that’s where we’re focused -- we’ve focused our efforts. And so, we believe over the long-term that both doors and windows can be our at targeted EBITDA margins of the mid-teens that Garry had talked about earlier. And there is several ways that we inform the decision. One is, when we look at acquisitions in both spaces, we see targets that are at that mid-teen level. So, we know that there’s lots of businesses out there that are able to achieve that. And then, secondly, when we look at the pipeline of what we’re doing from a new product perspective and a productivity perspective, and then some of the longer-term things that Gary was talking about, we feel like we see a path toward mid-teen EBITDA margins for both businesses. But, but right now, I would tell you that windows is definitely lagging doors.

Okay. That’s helpful, Brooks. And then, as a follow-up, and hopefully, Gary, you can shed some light on your views on this part. On M&A strategy, as to the prior point, there are targets out there in the markets that have been mid-teens. Yet, if we look at the contribution from recent acquisitions, it’s been below Company average margins. And I think part of the story was using M&A as a way to make higher margins, understand every deals different, but certainly the ones that have come through on average have been lower than company margins. How do you think about M&A strategy and kind of discipline around whether you look for that immediately accretive margin or whether it’s more of a let’s buy good friends with turnaround strategies. Just what’s your focus there and how do you balance that?

Listen, our M&A strategy is going to continue to be the same. It’s going to around strategic bolt-ons that really support our core business around doors and windows, and kind of the accessories and ancillary products right around that. And we’ve done that. That’s clearly what was done in the first quarter. I’d say that if you look at -- we may diverged a little bit of that with some of the channel plays, looking at distribution. Distribution margins are going to be fundamentally a little bit lower. But, there are other things that we like about those businesses that we believe we can get those margins to be accretive. So, as we look at M&A, we’re going to be looking for the strategy first, we’re going to be looking for, like you said, good brands that will fit into our business, and we’re looking for accretion certainly within the first year. I don’t know if you want to add anything to that John.

I’ll add. This is John. We’ve done 12 deals in the last three years. Some of those deals have been 15%, 20% sort of EBITDA margin profile, it just happens here since the IPO. Several of deals we’ve been doing have been in the mid to high single digit range. But, it really does start with the strategy. I mean, each one of those deals, there is a very clear strategic fit, either filling a gap in the portfolio or a gap in our channel access. And we’ve got business cases that get those deals up to company margin levels. In some cases, it might take us a year or two to do that. But, if we look at sort of over a four, five-year period, if we think the earnings CAGR and the revenue CAGR is going to be a lot stronger, by virtue of having those deals in the portfolio, and improve the core business, we’re willing to make that trade in the short-term. But, you’re right, here recently -- it just happened, the last few deals we’ve done have been below company margin average and understand that that’s, I guess, the short-term headwind to the longer term EBITDA margin targets.

Thank you. Our next question comes from the line of John Lovallo of Bank of America Merrill Lynch. Please proceed with your question.

Hey, guys. Thank you for taking my call. Gary, the first question for you. I mean, you indicated that the strategy is going to be basically unchanged from what’s been in place. I guess, we’re curious, what gives you confidence that this is the right strategy? I mean, why do you think that it hasn’t really worth to plan so far? And you mentioned maybe some nuances that you would bring to the table. Maybe you could help us understand some of those as well.

Thanks, John. Yes. When I -- as I said earlier, I’ve had 45 days to really dive into the business deeply, meet the people and see some of our operations. I’ve certainly got plans to do more of that going forward here in the next several weeks and months. I also had some time to kick the tires, prior to joining the Company as well. What I like is, fundamentally, the markets are good for this business, and we have strong brands and strong positions within the markets that we play. That’s a good thing. We’ve been able to get priced here in the short-term, because of those brands and because of the positions that we have within the markets and the channels. That’s a good thing as well. The fact that JEM is the -- our operating system called JEM, the JELD-WEN Excellence Model is in place, is a good thing. We’re very early in the appointment. But the tools are there. We’ve got leaders that understand what it looks like. And we’re going to be able to really accelerate the deployment of JEM across the Company and use that as our standard work and our standard model for building a culture around problem solving, around productivity. You can see the opportunities wherever you go. And that’s really what I like about it. I can see it. I’ve seen this before in the businesses that I’ve been involved in. And I know the benefit that deploying this type of a model will deliver. And I can tell you that over the next several weeks and months, we will be deploying elements of JEM deeply. We are looking at operations and improving those as well. But, I think you’ll start to see the productivity pipeline building as well as the execution there. To me, this is an execution, is a classical execution. I won’t call it quite a turnaround but implementation. So, if we can get execution across the organization across we know we need to do, I see the returns coming.

Okay. That’s helpful, Gary. And then, Brooks, maybe on the North American margin being down 270 basis points year-over-year. I think you indicated that about 180 basis points was from the core margin. Could you just help us kind of dimension the impact within that 180 basis points of freight materials and then the investments.

It’s about half and half. So, when you look at inflation, we’ve seen the freight inflation, especially accelerate -- continue to accelerate. And it’s hitting us not just from a rate perspective, but from a driver availability perspective. It impacts your efficiency in terms of how you’re able to use freight, the different companies you have to use and different things like that. So, it’s kind of a multi-tiered from a freight perspective. And then, on all the investment side, like I said, I think, it’s about half. So, if you think of last year, we took cost out in the first half. We’re not ramped up from a seasonal perspective as we needed to be as we entered the busy season. And then, that really caused us some problems in the second half. And so, I think we’ve been more thoughtful in terms of the cost that we deploy to make sure that were able to ramp into the busy season this year.

Thank you. Our next question comes from the line of Susan Maklari with Credit Suisse. Please proceed with your question.

The first thing I wanted to discuss was your comments around the tariffs. And I guess, can you give us some color around your ability to get pricing as it relates to that, how its different perhaps relative to some of the inflation pressures you’re seeing? And then, I guess, as you think longer term and maybe bigger picture about it, are there any thoughts around shifting any of the supply or making changes in order to also help offset some of this.

Yes. So, I will start out with -- the answer is, yes, absolutely, we’re working on offsetting the effective tariffs, as we would with any inflation with price. We’ve been successful to-date with the programs that we put into place, in the late second quarter, which are starting to take hold now. We will see some of that. The new tariff is announced next week. We’ve got to react to those. And obviously, we will pass those. So far, there has been a good disciplined approach in the market place. And we’ve seen price picking around those items in most of our channels. As far as looking at our supply chain, we’re always, always looking at that and we will -- we’re obviously accelerating that to move around our supply chain in order to get the best possible price position that we can. As I mentioned earlier, we will be doing some work on our footprint rationalization, along with that will come the supply chain rationalization as well and looking at the best opportunities. We’ll also build productivity programs around our key materials and commodities in order to benefit from that as well.

Yes. And I would add to that, if you remember, one of the first things that we really got after in our productivity program was sourcing. And so, we’ve built out a fairly good sourcing program in terms of suppliers and in terms of cost out. So, we look at -- when it comes to tariffs and tariffs being implemented, we have multiple sources for things like steel and aluminum and things like that from different countries. So, we can move around some of that capacity as needed, based on what the prevailing winds are from a tariff perspective. So, we’ve built out a pretty good supply chain capability relative to sourcing. And we’ll continue to try to optimize that, based on the ever-changing tariff outlook out there.

Okay, thank you. That’s helpful. And then, just in terms of some of the sort of bigger changes I guess that are coming through. You mentioned the need to kind of reduce your footprint, reduce complexities, some of this permanent cost take out. How do we think about that coming through relative to JEM? I know, that you said that you’re continuing to rule JEM out. Do they need to be certain structural changes that are made before JEM can sort of fully come through and really see the benefits of that in the margin and in all these different parts of your business?

So, yes, I think that’s a great question, Susan. The deployment of JEM needs to be in a structured way, and we need to do it deep and across the entire organization. This is our standard work, this is our business operating system. This will be the way that we implement productivity, that we look at our footprint, that we look at our markets, et cetera. So, a good solid operating system that would be familiar to you from other companies and in industry. That’s what JEM looks like and it’s been developed by the leaders that have joined the Company and know what good looks like. So, that’s number one. When we look at our capacity and our footprint, today, we have plenty of capacity to grow. What’s great is we have the ability to look at these projects. And I’m in early days of looking at them. We have the ability to rationalize this footprint, not only to benefit our cost position, but while we’re doing that we’ll actually add capacity into our manufacturing footprint. So, it’s a -- you kind of win twice on that one. You get your cost down, and you improve your cost position, and you simplify the operations as well. So, JEM to me is the operating system. We’re teaching problem solving, we’re going to teach productivity pipeline and productivity execution. And we’ll use that as the basis for our footprint rationalization. To answer last part of your question, as we’re preparing to deploy this footprint rationalization program, we’ll provide you with the timing and the costs and benefits on an ongoing basis as we execute the different phases.

Thank you. Our next question comes from the line of Tim Wojs with Robert W. Baird. Please proceed with your question.

So, maybe just kind of going back to pricing. I just wanted to make sure I heard it right. So, did realization on pricing accelerate through the quarter, basically implying that the pricing contribution in the second half of the year should be better than it was in the second quarter?

Yes.

Okay. And then, just from a comparisons basis, I just want to make sure I’m set right. But, if I remember correctly, North America, the inefficiencies in windows last year, was that about a 100 basis-point negative impact that the North America margins in the second half last year?

It’s approximately correct.

Okay. And then, lastly, I just want to kind of sneak one in on Steves. I mean, there was a remediation trial last week. I think the judge stated that the divestiture is off the table. Is there any way that you can confirm or deny that?

We’re really not going to take questions on Steves today.

Okay. That, I tried. Thanks guys. Good luck in the second half.

Thanks.

Thank you. Our next question comes from the line of Michael Rehaut with JPMorgan. Please proceed with your question.

Gary, welcome. I wanted to circle back some of your earlier comments as well, specifically around Susan kind of remarking around some of the plans that you stated or hope to lay out regarding cost and footprint rationalization. You said that you’d be laying it out in phases. And obviously you’re just joined, first 45 days. But, I was hoping to get a sense of timing for expectations around when we might expect some type of announcement around this. And I’m kind of in particular interested in, if we’re to think of some type of announcement, perhaps in the second half of the year, but if this would be kind of a one shot announcement where we hear 2018, 2019, 2020 and kind of a longer runway or is this something that every 6 to 12 months we’ll here an additional phase and more details? Just to try and get a sense of how we should expect your plans in this area.

Thanks for the question. Yes. The way I would think about it is, as I said earlier, we will look at this in phases. Got some high-level idea at this point. We’re starting to put pencil to paper and eyes to the footprint, and really looking at where the opportunities are and where we can get the biggest bang and biggest opportunities. Again, it’s going to be around a disciplined approach, deploying the operating system and making sure that this consolidation and rationalization not only gives us the cost out that we’re looking for but also the productivity and increased capacity that we would need to grow. So, we’ve got to do that. I would expect that during the fourth quarter, we would tell you about phase 1 and kind of direction we’re going with the expectation that there will some execution on phase 1 in ‘19.

Mike, I -- I was just going to add on. We’re looking at sort of capital allocation holistically here between the restructuring projects, M&A, share repurchases, where we can drive the greatest return. And we’re going to be having an eye to where and how quickly we move with some of these restructuring projects, would be looking at for the ROIC of these business units to make sure that we’re driving the best return out of each of the geographic segments that we can. So, that would be sort of the angle we would be looking at as well.

Just to clarify as well on this before I get to my second, if I could. When you talk about these costs improvement or announcements in the different phases, would this be kind of conceptually should we think about it as being more supportive of the adjusted long-term EBITDA margin target of 15% plus or sort of incremental to that?

No, I would say that this is supportive to that. We’ve got to take costs down to do that. But, I can see where that is. These projects are part of that. Building this general productivity type of culture here at JELD-WEN is the other part of that. We do those two things. We get there. You get the opportunity, the improvements off of those operational improvements as well help us grow above and beyond that kind of at that 15%.

Okay. And then, just secondly from a price cost perspective, I guess you mentioned that in the second quarter the pricing initiatives are still lagging the various cost inflation buckets, particularly freight but others as well. You mentioned that you expect a greater impact of price in the second half. I would assume if 2Q was about a 2% contribution, we’re talking about 3% to 4% perhaps in the back half. Brooks, I’m curious if that’s kind of the right way to think about it. And when would you expect to price cost to hit neutral?

Well, I would say, we have -- we’ve put in multiple price increases, as more information’s become available. Right? And so, most of our price increases are complete as of the end of the second quarter. However, there were some new tariffs that were announced kind of mid second quarter where we’ve got price increases that aren’t going to be effective until August. So, what I would say is, in Q3, we should at least achieve parity in terms of price costs. And in Q4, we should get more accretive, both in terms of run rate and in terms of year-over-year comparison. But, when the environment -- the external environment is changing the way it is, and you’re in an inflationary environment, you’re going to play a little bit of a lag in terms of trying to catch some of these bigger inflationary pressures. And some of these inflationary pressures are big swings. And so, we’ve got a good system in place from a pricing process perspective to react quickly. We’re able to get out to our customers and have discussions with them relatively quickly. But, it still does take some time to get those pricing measures in place. So, but to recap, net-net overall, we should be at least on par through Q3, and then accretive as we get into Q4.

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

Thank you. Question for Gary. We’ve talked about some upcoming changes. Getting out of product lines or getting out of individual countries, is that on the table or is this more just internal operations what we have now?

Yes. Hey Keith. One of the -- what we’ve been talking about so far is really about operations and the culture on productivity. We will continue to always look at market opportunities and product opportunities. None on the table at this point. This is really a classic operational improvement opportunity. So, it’s how we execute and how we look at our footprint going forward.

Second question on the -- you referred to the margin decline, half are materials. Can you just kind tick off, one, two, three, what were the biggest headwinds in the quarter.

Yes. I would say, our biggest headwind has been freight, probably from a percentage perspective, maybe not from a raw dollars perspective but from a percentage perspective. We’ve seen bigger freight increases than anything. And you’ve seen rate increases, not even including the efficiency, rate increases of 20% plus in the market. And then, secondly would be material and then, you always -- and thirdly, I’d say, you have your every year inflation that you have with labor. But, you’re probably seeing some more inflation, some carryon impact of the freight inflation and some of the materials inflation and some indirect materials and different things like that. So, you’re seeing a little bit more inflationary pressure across the cost statement, simply because some of these cost drivers that affect everything, are impacting our whole cost of goods structure.

Within the materials what were the top 1, 2, 3?

So, I would say resins and vinyl; and then metals, so, aluminum and steel; and then, thirdly, packaging.

So, the resins and vinyl, that’s not really a tariff issue per se, that’s more just...

It’s a combination of inflation, just regular material inflation and then also tariff impacts, which we view as inflation. So, whether you’re paying the tariff or whether you’re sourcing from somewhere else and paying a higher price, it’s still an inflationary pressures. Right?

And within the metals, your using aluminum obviously in some of those and using and using -- is it a cold rolled steel on some of the steel doors?

Yes. Steel doors. And then, we also used aluminum in Australia. Almost all of the windows we make are aluminum, 90% plus.

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

Margins in Europe were a bit lower than we -- the margin compression in Europe was a little larger than we thought. Can you provide some of the headwinds you saw? I would imagine that in market you’re not seeing as much freight headwinds but certainly raw materials broadly.

Yes. Well, there is -- certainly, the Domoferm acquisition has been dilutive overall to margins. And that’s probably the biggest driver. And then, I would say, overall, we’ve seen logs and lumber, both in terms of material cost and supply, particularly in the north where our supply chain is a little bit more complex really driving some of the margin compression, in that particular region. So, we’re out there trying to get price out in the market. And most of the supply concerns are past us. We’ve still got the inflation out there. But, that’s what’s really driving the Europe results, Domoferm and then Northern Europe, with logs and lumber supply.

But, you would expect some of that price cost dynamic to moderate in the coming quarters. Is that how we should think about it in Europe?

Certainly. Yes.

And then, for your windows business. I believe, you called out some relative weakness due to the operational issues from last year. Are you seeing any lingering operational issues this year or just more of just winning back share, after losing some of that business last year?

Yes. We’re seeing our operational -- we’re back stabilized around our historical service levels. So, now, it’s just about winning back the business that was lost during that issue.

Okay. That’s helpful. And just one last one for me. Brooks, you guidance for the full-year makes a ton of sense, but it implies a pretty big snapback in the fourth quarter. I suspect that’s part of some of the price increases you mentioned on the call that’s kicking in August. But, I just want to understand that dynamic little better? Thanks.

Yes. That’s correct. And then, also, from a run rate perspective and from a last year comparison perspective, Q4 was the toughest year that we had in -- excuse me, toughest quarter that we had in 2017 from a labor impact and from a margin dilution impact with some of the operational issues in windows. And then, also, that’s when we started to see the -- feel the full brunt of the material and the freight inflation that’s been hitting us over the past 12 months. So, when you think about what happened last year and you think about some of the tailwinds we should have as we head into fourth quarter this year, those are the big drivers.

Thank you. Our next question comes from the line of Matt Bouley with Barclays. Please proceed with your question.

Hi. Thank you for taking my questions. And welcome, Gary. You mentioned the commercial investments that are intended to drive longer term growth. It sounded like labor was highlighted there. But, if you could elaborate a little more on exactly what’s involved with these investments and how to think about the payoff on these? Thank you.

Yes. So, I mean, the primary investment there is to support new business that we got, primarily in retail channel, so labor to affect that and ensure that we have the ability to deliver on that. Additionally, there is some other startup costs around taking on that kind of business. But, it’s good business for us. It’s a creative business. And, we’ll start to see the benefit of that growth in the second half of this year. So, we’re pretty excited about it.

Okay, got it. Thank you for that. And then, secondly, just following up on the North American windows business and recovering share there, you mentioned your lead times are back to normal, you’ve made these labor investments and built some inventory as well. Can you just make any additional comments on kind of regaining that share and how to think about volume recovery in that side of the business in the second half? Thank you.

Yes. Listen, at this point, it’s about demonstrating our capability to our customers. We’ve got to -- it’s face time and then it’s saying what we can do and then doing it. And that’s really the essence of execution in general. But, for us right now on the windows side, it’s proving that we the service levels, we have the inventory, and the ability to meet their needs. And as we do that, and continue to do that we’ll earn back that business. At the end of the day, we still have a very strong brand, very strong brand in windows. We have a strong team with strong relationships within the channel. We disappointed them. So, now, we’ve got to bring them back and prove that we won’t do that again.

Thank you. Ladies and gentlemen, that concludes the time we have allowed for questions. I’ll turn the floor back to Mr. Michel, for any final comments.

Well, thank you all for joining us today. Really appreciate your time and interest in JELD-WEN. We look forward to following up with you throughout the day. And I’d look forward to seeing and meeting many of you later this week on our trip to New York and Boston. Again, thank you very much.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.