Core Natural Resources, Inc. (CNR) Q2 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the NCI Building Systems' Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Darcey Matthews, Vice President of Investor Relations. Thank you, Ms. Matthews, you may now begin.

Thank you, Rob. Good morning and welcome to NCI Building Systems call to review the Company's results for the second quarter of fiscal 2016. The Company's second quarter results were issued last night in a press release that was covered by the financial media. In keeping with SEC requirements, I would like to advise that during the call, we will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied. For a more detailed discussion of the risks and uncertainties that may affect NCI, please review our SEC filings, including the 8-K that we filed last night. We undertake no obligations to update any forward-looking statements beyond what is required by applicable securities laws. In addition, our discussions of operating performance will include non-GAAP financial measures. A reconciliation of these measures with the most direct comparable GAAP measures are included in the earnings release and the CFO commentary, both of which are available on our website. At this time, I would like to turn the call over to NCI's Chairman and Chief Executive Officer, Norm Chambers.

Thanks Darcey. Good morning, everyone. As you know our second quarter earnings were released last night. I will provide a few brief comments before I turn the call over to Mark, who will offer more details on our second quarter financial performance. After that we’ll be happy to take your questions. So I’ll start by sharing with you key highlights from our second quarter. First, I’m pleased to report our value chain of commercial manufacturing supply chain management delivered meaningful year-over-year improvement in gross profit margin and earnings in our second quarter. Gross profit margins expanded 290 basis points and adjusted EBITDA increased over 60% year-over-year. Because CENTRIA is now fully included in both our current year and prior year comparable quarter, our results more clearly demonstrate the continued year-over-year improvement in operating performance. Our teams did a very good job managing steel cost volatility and quite extensive flooding in the central U.S. The commercial team has ratcheted up, our commercial pricing discipline as we face rapidly rising steel cost. Something that we have dealt with successfully many times in our business, most notably in fiscal 2004, 2006, 2008, 2011. Second, and not only like past - the past several quarters, our performance was a result of our focused and integrated execution across our commercial manufacturing supply chain activities. As a result of our restructuring efforts, our organizational changes over the last 18 months, our supply chain management focus has enabled us to collect, analyze, take data driven actions with better clarity and speed to enhance our commercial opportunities to improve margins. Third, our year-over-year volume increased by 15.8%, far exceeded to 3.4% growth in revenue as lower year-over-year steel cost prevailed during the second quarter. All three of our segments performed well relative to our internal expectations. Our components business was particular strong due to increase demand for both our legacy single-skin components and insulated metal panel products. Likewise the coating segment continues to benefit from the base loading of the coating plants with internal volume. Our building segment also had strong year-over-year improvement in gross profit. We remained focused on taking advantage of our operating leverage created by volume increases that drive greater manufacturing capacity utilization. Manufacturing was a significant contributor to improve margins by lowering total manufacturing cost per ton by 6% on a quarterly year-over-year basis. Last but not least, we continue to generate above market growth in insulated metal panels IMP. In large fact, we believe driven by substitution from traditional building products resulting from stricter energy codes well [ph] much of North American. Demand for CENTRIA proprietary architectural form panel has elected good growth of this high value product as a percentage of its bookings and backlog. Additionally, external and internal intercompany demand from the large market segments, industrial commercial and institution which is called ICI and cold storage has driven 25% growth and Metl-Span’s bookings which has added nicely towards a press of a backlog during the first half of our fiscal 2016. We accomplished all of this against our background of uneven at modestly strengthening growth in non-residential construction markets. Our Buildings groups bookings in April and May have shown encouraging year-over-year improvement with high single-digital growth in April, well by double-digit growth in May. We believe part of this increase likely resulted from rising steel price cost and concerns about restricted steel supply. Now a word about the immediate future. The leading indicators that correlate most closely to actually volumes of low rise new construction starts, the residential single family starts, ABI mixed use index and leading economic indicator. Taking together, these industries continue to suggest 4% to 6% growth for low rise constriction starts in fiscal 2016 with the majority of that growth occurring in the second half of our fiscal year and consistent with a slow growth economy. In closing, our overrunning objectives continued to be, one, take advantage of the market leading potions in our legacy business while accelerating higher growth IMP through our multi-sales channels. And two, expand our gross margins through our internal initiatives around commercial discipline, manufacturing efficiencies and supply chain management. Now Mark will take you through the second quarter financials.

Thank you, Norm. As usual, we have provided a review of our 2016 second quarter financials in both the earnings press release issued yesterday and the CFO commentary posted on our website. I’ll now take a few minutes to add some additional inside to those results. Overall, the second quarter results came in at the top end of our guidance ranges and slightly above consensus expectations. Our business segments are collectively benefiting from the past two years of improvement initiative as well as our manufacturing and operational restructuring efforts. The key drives of our second quarter performance continue to be both volume growth and margin improvement. As Norm mentioned, our gross margin expanded by 290 basis points to 24% which was at the upper end of our guidance range. Our improved margins point to the positive result of optimizing our manufacturing footprint and enhancing our supply chain management while at the same time remaining focused on our commercial discipline. We have continued to refine our raw material sourcing strategies and practices which is servicing us well as we navigate through notable swings in cost for our primary raw material steel. We are purchasing steel with more precision and managing our inventory quite well. In addition, we have progress our manufacturing reorganization plans which we have previously said are expected to result in annual cost savings and efficiency improvements between $15 million and $20 million annually that will be faced in through the end of fiscal 2018. Production and other logistic efficiency improvements resulted in an estimated 80 basis point improvement in our gross margin during the second quarter versus the prior year comparable period. As part of our plan, we also recognized a $900,000 gain on the divestiture of an ideal manufacturing plan which increased our gross margin by 25 basis points versus the prior year period. Partially offsetting these items, we also incurred costs and inefficiencies in ramping up our recently acquired Canadian insulated panel plant as well as closing and relocating operations at another of our insulated panel facilities. These incremental costs associated with our manufacturing and restructuring reduced our gross margin during the period by an estimated 65 basis points. Our adjusted EBITDA rose by 60.8% or about 9.6 million during the quarter from the same period last year. About 7 million of this increase was attributable to underlying volume growth and about 4 million resulted from margin expansion. Offsetting these positive items were approximately $2 million of costs and inefficiencies from the previously mentioned transitions in our insulated panel facilities. Now I’ll turn to our operating results. In the 2016 second quarter, our consolidated revenues increased by approximately 12 million or 3.4%. The year-over-year revenue improvement was primarily driven by volume growth across all three business segments but particularly strong growth in our components and coater segments. Total external sales volumes measured in tons on a consolidated basis rose by a total of almost 16% included a 16.4% increase in components external volumes, a 26.3% increase in coaters external volumes and 2.8% increase in buildings external volumes. Notably, the Components group not only saw increase demand for insulated panels but also strong demand across virtually all of our legacy metal component products. The Coaters group benefited from not only strong external demand, but also saw similar increases in internal volumes to support the components in building segments. Our building segment which is historically seen more activity in industrial and manufacturing end markets and the other two segments has experienced more subdued growth rates as a result of weaknesses in those end markets. Despite these volume increases, lower steel prices also impacted our revenues during the quarter. As you probably know, steel prices have declined over 20% from the second quarter of last year and the pass through of these lower cost to our customers, reduced our revenue by approximately 17 million to 20 million compared to last year’s second quarter. Steel costs are now increasing steadily and the negative impact on our revenues were less than significantly in our third quarter and will not - and will likely not be a negative factor on our fourth quarter revenues. The SG&A expenses increased slightly by approximately 1.6 million during the second quarter in the same period last year, primarily because of higher underlying volumes and incremental incentive compensation costs on higher earnings. Overall, we remain pleased with the level of bookings in coating activity across our three segments so far this year and we’ve seen no discernable trend to change our expectations for moderate new non-residential growth for fiscal 2016. Our consolidated backlog stands at 533.4 million which is up 5.7% versus the comparable period of the prior year and is up 11.6% sequentially. Now I’ll take a brief look at some items on our balance sheet. We ended the quarter with a cash balance of 77.9 million compared with 73.8 million at the end of the first quarter. Free cash flow for the second quarter defined as adjusted EBITDA minus net CapEx and net changes in working capital was approximately 31 million for the quarter compared with only 2 million in the year ago period. During the second quarter, we paid down another 10 million of long term debt which takes us to 20 million repaid in the first half of 2016 and we continue to anticipate paying down a total of 40 million in fiscal 2016. Our net debt leverage ratio at the end of the second fiscal quarter was 2.3 times, so we are getting very close to the pre-CENTRIA acquisition level of 2.2 times. In addition, as previously reported, we spent $7.4 million during the second quarter as part of our stock repurchase plan. Turing to our third quarter outlook, we continue to outperform the low-rise construction markets as reported by Dodge in terms of volume growth and delivered material year-over-year improvements in both gross margin and adjusted EBITDA in the first two quarters of fiscal 2016. More importantly, our ongoing restructuring and reorganization efforts over the past two years are beginning to contribute to our earnings growth. Over the reminder of this year, we will continue to further these initiatives and look for opportunities to trim costs, eliminate redundancies, identify synergies and align our capabilities with our customers’ needs. In the third quarter, we estimate consolidate revenue will range between 435 million and 455 million with gross margins ranging between 23% and 25.5%. As per our normal seasonal cycle and consistent with past patterns, we expect our revenue and adjusted EBITDA in the second half of fiscal 2016 will exceed the first half. Further, as we have previously stated, we continued to expect for the full year fiscal 2016 will be a better year than 2015 in terms of both gross margin and adjusted EBITDA. Finally, as a reminder, we have provided additional financial guidance for the third quarter in the CFO commentary posted on our website. And operation, I will call back over to you for questions.

Thank you. We will now be conducting the question-and-answer session. [Operator Instructions] Thank you. Our first question is from Bob Wetenhall with RBC Capital Markets. Please proceed with your questions.

Hey, good morning, very nice quarter.

Thank you.

Hey - you know Norm, I wanted to jump in to insulated metal panels, I think IMP is probably a quarter of sales and more than 4% EBITDA, you got a year of CENTRIA under your belts, so it’s clearly a big piece of the business. I wanted to ask, is the business lived up to your expectations in the past 12 months and what are your expectations for revenue growth for IMP specifically during the balance of the year?

So I think that the opportunities that we have in insulated metal panels across the product offering that CENTRIA has on a high end and Metl-Span has in terms of the industrial commercial and cold storage is unprecedented. And we continue to see opportunities to improve our distribution through our network of builders, through our components, sales channels and frankly through the great customers that both CENTRIA and Metl-Span have. So we really like what we have going on there Bob. We like it even more; we have better great leadership team in both companies, manufacturing is doing very well. And our focus on maximizing the value we can bring to our customers by being disciplined about our sales channels is another kind of fundamental thing we are doing. So we are really happy with the well explained in our growth and expect that to continue.

Any view on growth rate for that as well?

You know I think it’s going to continue to grow at a pace that’s you know that’s greater than the market. And that’s largely driven by the substitution of products driven by energy codes. That’s a great opportunity for us to expand our penetration into markets and replacing what traditional kinds of building products. And that’s a great opportunity for us.

That’s very exciting. I mean it’s a good tailwind. Mark, I was hoping on steel prices, if you could just spend a minute you know it sounds like the headwind from steel prices declining is going to recede as you go into the back part of the year, can you walk us through segment by segment how higher steel prices will impact revenue performance and segment profitability? And also just in conjunction, Norm spoken about a natural hedge. How should we think about revenues and margins performance in each segment in constant with this natural hedge commentary in a rising steel price environment?

Sure, great question. The first and foremost thing to understand about our business in particular is that everything we sell, everything we make is made to order by a customer, so there is no manufacture product to sit in on a shelf and wait for customer to buy it. Customer is determining the price point well before we ever start manufacturing it. So steel prices changes, steel price volatility flows through very rapidly in our industry. And we have the advantage of having three separate business segments that all react differently as steel prices move. And those three reactions tend to fall 50% on one side of the equation and 50% on the other where, as rising steel prices or as steel prices rise, we tend to be able to expand margins in some parts of our business and as steel prices decline, we tend to see some challenges in other parts of our business. But on a consolidated basis, we tend to see a very consistent gross margins produced by the consolidated companies. So that is a unique advantage we have by the three integrated business segments that we have.

So if prices rise, can you walk me through coatings, components and buildings, what’s going to happen top line and what’s the margin impact just so we can kind of get a more specific view as we go into 2H?

So the most important to take away from this is that our coating Components groups are able to by the short sales cycle to stay in stride with steel price increases. And they will largely be advantaged from steel price increased. The Buildings group will ultimately be advantage but there will be a period of compression of their margins because of the longer sales cycle that they have, okay. And that is a very normal occurrence. So we would expect to see some pressure to the buildings growth in their margins in Q3 and Q4.

But you’re going to get a tailwind on coatings and components offset the weakness you get in building, so is that the right way to think about it from a margin standpoint?

As Mark said, it really balances out.

Okay. Well congrats on terrific execution, you guys have made big progress in a pretty short amount of time and I think you deserve to be recognized for that. And good luck with next quarter.

Well thank you much, I appreciate that.

Our next question is from the line of Matthew Bouley with Credit Suisse. Please go ahead with your question.

Hi, thanks for taking my questions. Norm, I just wanted to start up with maybe a high level question for you because you know while you are still taking about of being somewhat slow on the event recovery, I think some of first of all the revenue growth this quarter and our volume growth this quarter, the guide for the third quarter and then some of the bookings numbers gave for April and May, it does sound like there may be a bit of an upgrade in your expectations for end markets. Can you kind of - well is that the case and can you walk us through kind of where the puts and takes have been relative to maybe earlier this year?

Yeah, so I try to in the press release to actually talk about that in terms of end markets that are showing growth in areas that we had showing growth on a year-over-year basis. And I think that by virtue of choosing those and not choosing others, you can kind of tell - that isn’t the case in some other areas. You know certainly when we think of the broad definition of manufacturing that has clearly been slow in the last six months in a year-over-year basic driven both by oil and gas and a number of other things that are going on. So when we look at our shipments and our bookings, you know our industrial commercial side are still the biggest part of our business but manufacturing it has been slower. That has been counted though by commercial, but healthcare and by - and our use of broader term kind of the amusement you know an entertainment area. So for incidence, we do a lot of work in sports arenas from a community you know currently to NFL team. And those have been very good to us. So, again as you know, we’re very diversified, we don’t have an end market that’s greater than 5% of our sales; we don’t have costumers 2% of our sales. So that really is an advantage at times when we see certain places where there is you know the headwind we’ve seen in manufacturing.

Got it, that’s helpful. And then Mark, shifting gears, you know the progress around deleveraging has been pretty tremendous over the past year and your back of that what’s more of a comfort level around just over two times. Can you just talk about as you get pass the $20 million of additional debt repayment this year, how you are thinking about capital allocation?

Sure. I would describe it as being very committed to the debt reduction plans that we’ve spoken to and continuing though and maintaining the right amount of flexibility and focus on returning value to all the stakeholder of the company. And balancing that you know to all types of cycles, all types of period, so maintaining optionality, maintaining flexibility is really our current stands.

Okay and any thoughts specifically relating to executing on the remaining buyback?

That’s something that’s definitely been approved by our Board of Directors and remains firmly in view.

Okay, thank you.

Thank you.

Our next question comes from the line of Lee Jagoda with CJS Securities. Please proceed with your question.

Hi, good morning.

Good morning, Lee.

So Norm, just wanted to start with the coating segment, obviously volumes were up 26% and it was the first time in I think six quarters then segments showed some year-over-year revenue growth. I guess the questions is what portion of that is a function of just the increase demand versus you internally getting pass some of the operational issues and taking on more business from your customers?

Hey I am going to tell you that’s - I am glad you asked that question because you know Don Riley and Dan Happel have really done an incredibly solid job of putting that business back together on a footing that is consistent with our very successful past and being selective and thoughtful about the customers that we wish to work with and taking advantage of the internal demand and just doing in a really solid methodical way. And it’s taken us you know a year or more to kind of get back to the position that we preferred to be in and we are there and I will say that the team is still very focused on you know some growth opportunities but a very mindful of a kind of customers that we need to work with.

And do you think we are at the point yet where we can say the business is back to a place where we can kind of see the historical margins from two, three years ago come back?

Yes, I do.

Okay. Just one more from me, in terms of the slop of steel prices since the quarters ended, it seems like the increase has been pretty deep in lot of the steel products. Are you seeing any problem in terms of either managing your customer orders with regard to steel price, or customers backing away temporarily saying they may want to wait for steel prices to come in a little bit?

So there’s two things going on there and one is what we normally experience and one is not. So the first what we normally experience is in fact the reality of cost going up in the really short intermediate term and having to work with our customers to kind of get that. And the past years as you can tap on my script, I mean we’ve done this lot over the years as you know. And at the end of the day, what’s different about this one is that I can’t remember in my ten year here where we have outside forces like the tariff was having such an immediate and dramatic impact on the reduction of the availability of alternative steel during a semester steel price increase. And I’ll tell you that is a different deal because what happens is that the - if you were safety valve that a lot of components have had to reach out to foreign steel still simply isn’t there. And if it’s there, it’s had a much higher cost of it has. So I am very encouraged and frankly I myself firmly in the campus has higher steel prices are good for the industry and good for our suppliers, steel companies and are good thing for our customers because pricing compared to other materials is still very, very low and competitive. So there is room to grow.

So I think that’s the key point. Thanks very much, I’ll hop back in.

Thank you.

Our next question comes from the line of Steven Fisher with UBS. Please proceed with your question.

Hi, thanks, good morning.

Good morning.

I wonder if I could just follow-up on Lee’s question there on the Coatings group and the third party volumes. If you could just clarify what really did drive the volume there, I know you said you are sort of getting that organizationally back on track, was there a particular end markets, was there particular region and you know would you expect this kind of growth to be sustained or there maybe any kind of onetime benefit in the quarter that might now is?

You know there was no onetime benefit, it really is the result of hard work and realizing that in many incidences for the customers we wish to work with frankly, there is a trial period of which we are on trial to produce materials at the quality that they want, at the time that they want and the price they want. And Don and the team have been going through that in human like way and have really kept their patience and discipline and Don has been husbanding that and making sure that the guys don’t get anxious to try to get more work. And in that result is we’re end up with a customer base that is much more keeping with our tradition. So one of the advantages that we have is we have the Middletown facility. And that’s a new facility that is new from a standpoint of not - we didn’t have that facility during the last recovery but are very long time ago, 2003 to 2008. And at that extra capacity coupled with frankly more intelligent you know supply chain management that we have really gives us more opportunity to satisfy our internal needs which are important to us and to grow our business modestly with third party sales. So I think we got a good hand to play up there.

Okay, that’s helpful. And I wonder if you could just kind of give us your big picture thought on the cycle in sort of slow growth economy but kind of where are we now for kind of the lower rise products, you know what visibility do you have the growth in ‘17 at this point, kind of are there any particular place to where you think the market is still undersupplied?

So let me start there, Mark can give more detail. But one other things that’s still clear and you hear us taking less about it is that I am not sure we have cross a billion square feet yet right. I mean we’ve had relative week to slightly negative growth and that is largely been drive by the fact that low rise construction really has followed the normal pattern since 2011 of growing in line with the economy. What has been different is the midrise and high rises growing at a more rapid pace, it appears to me but looking to numbers that is still are very big part of the market but that rate of growth is decreasing some. So my point is that we still see frankly a lot of market left. We don’t see any impending reduction in the slow growth economy particularly when we look at the relationship of low rise non-res construction with single family starts. And man that’s still looks real good to us.

Yeah, I was going to add to that, we’ve done some work with our own teams on you know leading indicators for low rise construction starts to something we’re very tied to. And that gives us 12 to 14 months of visibility which extends into next year and we continue to see that, you know moderate growth continuing into next year. So that visibility that we do have.

Okay, terrific, thank you.

Thank you.

Our next question comes from the line of Alex Rygiel with FBR Capital Markets. Please proceed with your question.

Thanks, good morning, Norm and Mark.

Good morning, Alex.

Could you comment a little bit on capacity utilization rates right now? And then secondly, could you comment on gross margins in the quarter up kind of 290 basis points, obviously at the high end of your range so theoretically inside your range but any kind of positive or negative surprises relative to kind of what you are expecting coming in?

Sure. First with respect to capacity utilizations where of course higher than we were this time last year but 4 to 10 basis points in each of our divisions. Our Components group is approaching at 50% capacity utilization, our Coaters group is just over 50% and out Buildings group in this last quarter was just under 30% utilization. So still have significant amounts of capacity. With respect to our gross margins coming in at the higher end of our range, the really the big reason for that is that the volumes came in at the high end of our range, are just actually outside the top end of our range and that drove increased operating leverage across all three of our segments.

Very helpful and Norm, you sort of addressed it without addressing but clearly it sounds like sort of the South Central, South West, Texas, oil patch market little soft, I know it’s a smaller component of your revenue stream but any color or thought views there?

So it’s interesting, we look at the seven production areas that are gas and fracking, and actually saw a pickup in Marcellus I believe. And so at the end of the day, from my perspective anything to do with our stream oil and gas is going to struggle for quite some time to come. So we are pleased, we are seeing manufacturing opportunities increase and it’s interestingly automotive side looks particularly interesting to us and that’s both good for our insulated metal panel as well for our - I am sorry - you know as well as it is our Building group. So we are seeing some brightness there. And the other thing is distribution centers, we really do very well in those and we’re seeing that not only from the bricks and motor economy but from a DOTCOM economy as well.

That’s great, thank you very much.

Welcome.

Our next question comes from the line of Brent Thielman with D.A. Davidson & Company. Please proceed with your question.

Hi, good morning, nice quarter.

Good morning. Thank you very much.

Hey Mark, you mentioned steel like we wouldn’t have an impact on overall revenue by Q4, should the lower steel prices still way on Buildings group sales into the end of the year given longer lead times?

They should not have an impact in the fourth quarter. We do still and expect some moderate level of impact in the third quarter.

Got it, okay. And then Norm, of those end markets you mentioned where internal bookings are gaining, is there something specific about those markets and your product offering that might be allowing you to take some share there or do you look at these gains as sort of consistent with the underlying growth of those markets?

So what I am seeing that would bear reflection of a change. It is that we are expected when we invested as heavily as we have insulator metal panels that we would be pushing those products through our building network and through our Components group in addition to the existing great sales channels that CENTRIA and Metl-Span have. And what we are finding now is that pushes, it is still there but we are getting a part, what do I mean by that is that because of our presence in insulator metal panels, we are being brought into some larger types of projects that we frankly wouldn’t have seen before. And then these cases, our insulator metal panels are providing us the opportunity to provide the whole building envelop. And that’s a kind of an exciting change. Now we’ll see how that plays out. They are still early days but we really like what we are seeing there.

Okay, great. Congrats again.

Thank you.

Our next question comes from the line of Scott Schrier with Citigroup. Please go ahead with your question.

Hi, good morning, thanks for taking my question and as everyone else said, good quarter. I wanted to ask about this 65 bps of our gross margin headwind from less favorable products and segment mix, perhaps with some other drivers where and how we should think about those trends going forward?

Sure. A lot of that has to do with just the relative wait amongst the three segments, the volume you noticed we had outpaced growth in the coaters and component segment relative to the building segment. Building segment has the highest gross margin, so its relative waiting came down. Also within our products, we have high end products and we have lower end more commodity based products. And at any point in time we can see some underlying shifts there. We saw some of that in the Components group during the period that lowered the mix related margins.

Got it, okay. And I got a follow-up on some of the margin question and specifically on the natural hedge, it looks like give your guidance and your margins that what you said you should have some pretty good incremental margins going into 3Q that’s count the building segment possibly having some headwinds. But when I look at components, it looks like that could suggest that you know because of CENTRIA you might have a structural change in margin to a level where you might not have seen in about five or six years in your business, so I just wanted to see if that’s fair to say, fair to comment to make?

So I think that the notion that the insulated metal panels are higher margin generally does help our legacy blend right and that’s for sure. So we would expect to see that you know play a role in the improvement of the margins and the Components group, but I also want to say which is frankly a very pleasant surprise for us and this is surprise for some extent. The execution of the legacy in a marketplace when steel prices were going down as they happened for last 18 months is a market that that part of our business has struggled with historically, let me tell you, they have been really well in the last 18 months both rolling volume top line and profitability largely by their incredible focus on sales and service. And the team led by Bill Coleman and Joe Wojcik is just on a first class job there. So we have some advantages, we wouldn’t necessarily expect to have in the market that we are in, but we are pleased with the investments that we made in insulated metal panels and roll that place.

Got it. Thank you.

Thanks.

Thank you. Our next question is from the line of Matthew McCall of BB&T Capital Markets. Please proceed with your question.

Good morning, everybody. This is Reuben in for Mat.

Good morning, Reuben.

Good morning. So I just want to see if you could give us a little color on your top line guide for Q3, can you tell us what your volume and mix and steel price assumptions are after - you know Q2, you had 16% volume growth that you had a little bit of segment mix impact, the price per ton I guess, can you talk about what you are assuming in your Q3 guide?

So I think you know broadly we are expecting a similar blend of work as we had in Q2, we don’t see a big change there. And we see as Mark as said, we’ll still have a bit of a headwind on steel cost but it will the less. And we have experienced in the first half and that as you can imagine is a kind of linear approach meaning that by the fourth quarter that will be gone completely. So over the course of the third quarter, we will see you know that headwind decreasing. Aside from that the reality is that we go through this and have for decade or more the notion and working with our customers to pass all that on. So that will - that’s backed into our view with our future and making sure we don’t get ahead of ourselves in terms of how quickly we can get all that through. And so that’s all kind of whelmed together in what that guidance is.

Okay, great. And then the gross margin guidance, the midpoint it looks like it’s about flat year-over-year you know you guys just expanded close to 300 basis points and it look you had what I assume is a near term drive from those plants start up and lying down the cost. Can you just talk about the puts and takes from the low end to the higher end of your guidance and how you can all put that?

Sure. I think the best think to understand about the gross margins is we are now in our third quarter going to lap some significant improvements over the last several years most notably though the third quarter of last year was a substantial uptick in our margin and we’ve maintained those higher margins since then. So we’re basically getting too higher comparable. You combine that with any level of uncertainty there would be around the steel prices they are normally just taking through creates a little bit wider range than we’d used in the last couple of quarters, that provides for that variability.

Okay, those very helpful. And I could sneak one more and you’ve talked in the past a little bit about ESG&A opportunity and maybe some accelerated savings last quarter, did you realize any this quarter, do you have any expectations for the next year or so that you can quantify on that one?

Well I would tell you that each of our businesses is very focused on all of the different reorganization efforts and while we have reductions in certain areas, certain other areas we’ve seen some expansion in. Overall, our expectation is that our ESG&A as a percentage of our revenue will be coming down each year and we will see that this year, we will see that again next year in a meaningful way. But beyond that I couldn’t quantify anything for you.

Okay, great, thanks guys.

Thank you.

Thank you. [Operator Instructions] The next question today comes from the line Trey Grooms with Stephens. Please proceed with your question.

Yeah, good morning, Norm and Mark, this is Drew Lipke for Trey.

Good morning.

Congrats on a good quarter.

Thank you. I appreciate that.

I was curious, you mentioned earlier that you guys have faced rapidly rising steel prices many times in the past and I am curious when you see a short term spike or jumping steel prices like we have, have you seen a level of call it maybe pre-buy activity from your customers in coatings or components ahead of that price increases, any kind of frontload there historically?

And I think I said in my script that we saw some bookings in the Buildings group in both April and May. And single digit growth in April and double digit growth in May. And I wouldn’t be surprised a little of that was getting ahead of the steel price increases that a normal occurrence. And what’s also normal is that in the past and when we’ve had serous steel price increases, there have been a number of increases. The steel have in a serial way increase their prices over a period of time. And we certainly have seen some of that this time. So what happens is that event of pulling ahead somewhere kind of continues on every time there is steel price increase. Now I will tell you that I like that structure because it gives a chance for the market to react to it and to adjust to it and to more on. So what I am seeing in the market is consistent with the better if you will better steel price improvements in the past years.

Okay, thanks, that’s helpful. And then on the Buildings group looking at the volumes there in the quarter, I am guessing the reason that underperformed segments was partially maybe due to weather which you referenced in your prepared remarks. I am curious, could you quantify the weather impact you guys saw in the quarter and what you’ve seen here recently?

Yeah, I’ll you, during the day we are trying to get out of the weather business and I will tell you what helped us though is having Easter in March, having five weeks in April was a great thing because we had some really - I know weather in the Houston area but we had a recover from that. So you know we are kind of trying to get beyond the notion of impacts on weather and trying to really encapsulate that in how we work. But I will say that we have seen all of our businesses across the entire things we do really be very focused, very focused on the job they are doing, communicating and making sure that things don’t fall between the cracks and that’s make an hell of an difference.

Alright, thanks guys, I appreciate it.

Thanks Drew.

Thank you. I’d like to turn the floor back over to Darcey Matthews for closing comments.

Thank you, Bob. And we thank everyone for joining us today. The company will be participating in two non-deal road shows this month. The second week of June, we’ll be heading to Boston and the Mid-Atlantic region with Citibank and the following week, we will be with CJS Securities in Chicago. So we hope to meet you on one of these trips or some of our upcoming conferences later in the summer. Again thank you for joining us and have a nice day.