JELD-WEN Holding, Inc. (JELD) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the JELD-WEN Holding, Inc. First Quarter 2020 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Karina Padilla, SVP, Corporate Planning and Analysis and Investor Relations. Please go ahead.

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 will be referencing during this call. I'm joined today by Gary Michel, our CEO and John Linker, our CFO. Before we begin, I would like to remind everyone that during this call, we will 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 forward 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, 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 Gary.

Thanks, Karina. Good morning, everyone, and thank you for joining us. First, I'd like to share that our thoughts are with everyone who has been impacted by the COVID-19 pandemic and especially those frontline workers in essential roles in our communities. Our focus at JELD-WEN is the health and safety of our associates, our customers and partners during this unchartered and a challenging time. Equally important is meeting our customers' needs and ensuring business continuity. When the pandemic first appeared, we implemented a comprehensive response plan focused on safety and business continuity. We took swift and decisive action to protect our workforce and assure business continuity in line with government mandates so that we could continue to meet customer demand. I'm incredibly proud of our leadership team and all of our associates for rallying together as we manage through this crisis. Fortunately, only a small number of JELD-WEN associates have been diagnosed with the virus and all have or are recovering. We wish them the very best as they return to health. Please turn to Page 4 for a brief summary of our first quarter results. Despite the pandemic, we continued to carry the momentum from 2019 into 2020. The COVID-19 impact on first quarter results was limited, and I'm pleased to note that we delivered first quarter EBITDA margins of 7.6%, slightly ahead of our previous outlook, even though revenue was slightly below expectations. As a company, we achieved the sixth consecutive quarter of favorable price versus cost inflation. Also of note, our North America segment delivered core revenue growth for the second consecutive quarter and Europe delivered core margin expansion for the third consecutive quarter. Net revenue decreased 3.1% to $979 million due primarily to a 3% reduction in core revenue. First quarter cash flow performance was in line with normal seasonality. Although we are well positioned to navigate through the uncertainty of the current market environment, given the fluidity of the pandemic and its unknown longer term economic and social impact, we are withdrawing guidance for the full year. We have a strong liquidity position with no near-term debt maturities or standing maintenance financial covenants. We recently issued an opportunistic new debt offering in the form of senior secured notes that provides us with additional financial liquidity should we need it and positions us to grow in the future. We will give more detail later in the call on the offering and other steps we've taken to enhance our cash position and improve our financial flexibility. In the first quarter, orders and demand activity were largely in line with expectations, despite some temporary production shutdowns due to localized COVID-19 actions. Our focus was and is on meeting the demands of our customers, even as we enhance safety measures. Fortunately, we experienced minimal supply chain disruption that had no impact on our Q1 results. We are proactively evaluating alternate supply sources and qualifying new suppliers and new products from our suppliers to assure continuity and minimize risk of supply chain disruption. Page 5 highlights the actions we've taken in response to the pandemic. First and foremost is our priority to protect and ensure the safety and health of our associates and business partners. We've implemented enhanced safety measures based on guidelines from the World Health Organization and the Centers for Disease Control and Prevention and those mandated by local jurisdictions. Our response included adjusting manufacturing operations to allow for social distancing, enhancing cleaning protocols and sanitation frequency and establishing daily health self-assessment for employees and visitors reporting to our work sites. Our JELD-WEN Excellence Model, or JEM, is being utilized to help us implement new standard work at our operating locations. We've established and are sharing enterprise standard work incorporating COVID-19 best practices to minimize exposure risk, hosting regular webinars and other communications with our operational leaders to share updates and learnings. Let me share with you some examples of standard work now in place. We have enhanced visual management within our facilities. Sites are using visual cues throughout our facilities to remind associates of the need to maintain social distancing. They've reconfigured work streams, placed posters in common areas and taped floors to assure safe physical separation. Increased hygiene and sanitation measures have been adopted by every location. Associates are provided with cleaning products to wipe-down their workstations, computer screens, shared tools and equipment prior to starting their shifts each day and after returning from breaks and lunch. Increased use of engineering controls, that is, installing barriers and dividers, plexiglass screens, plastic guards and the like within and between workstations. We are also providing face shields and creating separate sound booth type platforms with plastic guarding for employees who need to communicate closer than within six feet. Common areas are cleaned with increased frequency and additional sanitizer is readily available. To enforce social distancing, breaks are staggered, some chairs have been removed from break rooms and break room floors are taped to visually demonstrate six-foot distances. In addition to associates assessing their own wellness before the start of each shift, we also conduct temperature screening. Sites are establishing either drive-up or single-line flow screening processes so the associates are evaluated for healthy temperature before they are permitted to enter the facility. In the United States, the CDC has recommended use of face coverings while out in public and some locales have mandated it. Where mandated, we are also requiring use in our facilities. In all other locations, consistent with CDC guidelines, we are encouraging all associates to wear face coverings. From a business perspective, servicing our customers has been and continues to be a priority. We have weekly global leadership team meetings to regularly evaluate pandemic status and operational impact, and we formed regional response teams that meet daily to respond real-time as the pandemic evolves across countries. We're in constant contact with our customers to understand their outlooks and serve their demand, and we are proactively working with our supply chain partners to mitigate any potential disruptions. Operationally, in most markets, we've been deemed an essential business as we directly support residential and commercial construction and service other businesses that do as well. Therefore, we continue to operate in all regions. In some locations, we temporarily suspended production based on government mandate. In Europe, while operations in the U.K. and France were suspended for a period of time, our France operations are back up and running, and we expect our U.K. facilities to come online in the coming weeks. Our Malaysia operations were idled in mid-March and reopened May 5. Just a few locations in the U.S. have been idled, and we were able to continue to meet customer demand. In line with our values and consistent with our desire to support the communities in which we operate, all JELD-WEN operating locations around the world are supporting COVID-19 crisis response efforts, centrally funded and executed in a manner best decided at local levels. Through our locations around the world, our associates have donated to food banks and homeless shelters and provided needed personal protective equipment to hospitals. In our hometown of Charlotte, we're dispatching food trucks to serve prepared meals at 14 hospitals and police and fire stations as a gesture of thanks and appreciation for those on the frontline, and to support these local businesses as well. Page 5 also highlights some of the proactive and comprehensive measures we are taking in the second quarter to reduce expenses and preserve cash to enhance liquidity. These actions include compensation reductions for senior management and the Board of Directors, furloughs for management and staff and other mandatory time-off, reducing discretionary expenses and delaying nonessential capital investments and project work. In March, we also took the prudent step of enhancing our financial flexibility by drawing down $100 million on our existing credit facility which has since been repaid through funding from a very successful senior secured notes offering. John will walk you through more detail on our liquidity and these austerity measures in a few minutes. We ended the first quarter with a healthy view of our customer orders for April, a solid backlog, but the longer term demand forecast remains unclear. The Q2 demand drivers and pandemic impacts are different in each of our geographic segments, which I'll discuss on Page 6. Each of our three operating segments are facing different stages of near-term COVID-19 related challenges, some due to reduced demand and some due to facilities that are closed due to government mandates. We are expecting to see further demand deceleration of our products in waves from the lag effect of stay-at-home orders in many of our markets, impacting demand for future R&R and new construction in the future. In the meantime, pockets of our business continue to see strong demand into April, and we are working to meet that demand while prioritizing the safety of our associates. We have analyzed a variety of hypothetical demand and stress test scenarios to prepare for this uncertain time. Our teams have already reduced costs and cash deployment in advance in this uncertain environment, and we've identified other levers for our cost structure so that we can execute in response to tier changes in demand. We will also position our business from a cost and service perspective to capture additional growth and market share as demand begins to recover. As we manage through this uncertainty, we are urgently attacking our cost structure while also maintaining the ability to accelerate share gains and drive profitable growth. These efforts, combined with a strong liquidity position and balance sheet flexibility, should position us for long-term success. We intend to come out of this pandemic a stronger JELD-WEN than before. In North America, first quarter price increases took effect in March as planned and are holding. Residential new construction demand largely continues, though homebuilder orders and new starts are slowing. We expect reduced demand and other delays as the second quarter progresses, though the impact may not be fully felt until later in the year due to lag. While retail stores remain open and even with an uptick in online demand and in-store stock POS, we expect the North America repair and remodel market to weaken for doors and windows and continue to trend toward more stock SKUs and lower volume on special orders. Combining the weakening demand outlook with a handful of North America sites that are either closed or operating at reduced capacity, we expect second quarter volumes to be down in the mid- to high-teens percentage versus last year. In Europe, order demand remains healthy in Germany and the Scandinavian markets. However, government-mandated shutdowns of our manufacturing facilities in the U.K. and France impacted operations there. April results will be impacted by these facility closures, and we expect activity to improve as the second quarter progresses and these plants restart operations. Overall, we expect volumes in Europe to be down in the low- to mid-teens percentage for the quarter compared to prior year. To date, COVID-19 impacts in Australasia have been limited. Construction markets remain open although activity there was already below prior year due to the ongoing housing contraction. Direct-to-builder revenue is showing signs of slowing further and showroom traffic in our design centers is also declining. Showings are now available by appointment only in response to COVID-19. We expect volume for second quarter to be down in the high teens as a percent versus prior year. Operationally, both plants in Malaysia were closed in mid-March due to government mandate and reopened May 5. We continue to assess pandemic related and general market conditions in each region. And we will adjust business operations as needed to operate safely and to meet the eventual market demand upswing post COVID-19. As always, we remain in close contact with our customers and are working together to be opportunistic and finding new ways to add value to their businesses and our relationships as we move to an expected market recovery stage. As we adapt our business to address the pandemic and associated market dynamics, our foundational strategy remains the same. We continue to deploy the JELD-WEN Excellence Model across our operations and functions and to execute on the footprint rationalization and modernization program to improve our operations, delivery, productivity gain and rightsizing our cost structure, particularly for the uncertain future demand environment. With that, I'll pass it over to John Linker to provide a more detailed review of our financial results for the first quarter of 2020.

Thanks, Gary, and good morning, everyone. I'll start on Page 8. For the first quarter, net revenues decreased 3.1% to $979 million. The decrease was driven primarily by a 3% reduction in core revenues and a 2% headwind from foreign currency, which were partially offset by a 2% contribution from the VPI acquisition. The decrease in core revenues was driven primarily by the sequentially weaker demand conditions in Australasia and, to a lesser extent, COVID-19-related plant closures, partially offset by positive core growth in North America. Adjusted EBITDA decreased 16.5% to $74.5 million. Adjusted EBITDA margins declined by 120 basis points in the quarter to 7.6%. Margins performed largely as expected despite limited headwinds in March from COVID-19. Compared to prior year, margins were impacted by lower volume, unfavorable mix, unfavorable foreign exchange, partially offset by improved pricing. Page 9 provides detail of our revenue drivers for the first quarter. Our consolidated core revenue declined 3%, comprised of a 5% headwind from volume/mix, partially offset by a price benefit of 2%. Favorable pricing in North America and Europe enabled us to deliver our sixth consecutive quarter of positive price/cost realization. The 5% volume/mix headwind was primarily driven by our Australasia segment due to sharply lower new construction demand from ongoing housing market challenges in Australia, unrelated to COVID-19. Europe's decline in revenue was mainly driven by softness in commercial markets in Scandinavia and government-mandated plant closures in the U.K. and France during March. Please move to Page 10, where I'll take you briefly through the segment detail performance for the first quarter. Net revenues in North America for the first quarter increased 3.8%, driven by a 3% contribution from the acquisition of VPI and a 1% increase in core revenues. Notably, this is the second consecutive quarter of core revenue growth in North America. We saw good momentum building in both volume and price across our North American business as the quarter progressed. Europe revenue was down 6.2% and down 3% in core revenue. The primary driver was softer demand in the North region and some impact from government-mandated plant closures in France and the U.K. Australasia revenue was sequentially worse as expected, down 23.6% and down 18% in core revenue. As we exited March, we had good line of sight globally to healthy order books in April. But we anticipate the impact of reduced demand related to COVID-19 to accelerate as the year progresses. We find ourselves in unprecedented times and as such have implemented aggressive cost control measures that I will speak to in more detail in a few minutes, which we believe will help offset volume weakness. Moving to Q1 earnings. Adjusted EBITDA margins declined by 120 basis points compared to prior year, slightly better than we had projected in our last conference call. The decrease was primarily due to unfavorable volume mix and FX, partially offset by positive pricing. Europe delivered its third consecutive quarter of core margin improvement due to strong productivity and favorable price cost. In North America, while our operations improved sequentially, core margins declined compared to prior year, primarily due to expected headwinds from windows and unfavorable volume mix. Moving to Page 12 on the balance sheet. I'll note that our cash usage in the first quarter was consistent with our expectations due to the seasonal nature of our working capital cycle. We exited Q1 with net leverage of three and half times, slightly up from year-end, primarily due to the seasonal working capital build. Over the next two pages, I'll provide an update on our strong liquidity position and balance sheet, highlighting the key aspects which give us operating flexibility to weather the uncertainty of COVID-19. The key highlights to recognize are our ample cash balance, our significant available borrowing capacity under credit facilities, the lack of any near-term debt maturities and the nature of our covenant-light debt agreements. Beginning on Page 13, we show our recent history of our available liquidity, dating back to the first quarter of 2018. As you can see, our liquidity at the end of Q1 was already high relative to recent history. At the end of the first quarter, we had total liquidity of $431 million, comprised of $214 million in cash, $204 million available under the ABL revolver and $13 million available under the Australia-based revolver. We further bolstered our liquidity position with our successful issuance of $250 million of senior secured notes, which closed yesterday. The proceeds of these notes were used to pay off the outstanding balance on our ABL revolver and add cash to the balance sheet. Additionally, just recently, we reached an agreement to increase the size of our Australian credit facility by approximately $20 million. Pro forma for the recent senior notes offering and the increase in the Australian credit facility, our liquidity at March 28 would have been nearly $700 million. We believe that our ample liquidity is sufficient to help us weather the anticipated temporary slowdown in construction activity from the impact of the COVID-19 pandemic. The liquidity from these actions give us additional insurance should demand slow longer than anticipated and provides us additional operating flexibility to pursue our key strategic investments. Turning to Page 14. I'll highlight the key aspects of our balance sheet and debt structure that give us flexibility to deal with the uncertain future operating conditions. Aside from our ABL revolving credit facility that matures in December '22, we have no significant debt maturities until December of 2024, which is the $556 million remaining on our Term Loan B. Beyond that, our nearest significant maturities are the senior notes which mature in 2025 and 2027. In addition to the lack of near-term debt maturities, a key aspect of our flexible debt structure is the absence of any standing maintenance financial covenants on the Term Loan B, existing senior secured notes or newly issued senior secured notes. Our ABL revolver does have a springing maintenance financial covenant or fixed charge coverage ratio, but that only applies in circumstances where the revolver is almost fully utilized. With our recent senior notes offering, however, our revolver is now undrawn and we have a substantial cash balance, so there's significant operating cushion that prevents the revolver's springing covenant from being a concern. As a result of this covenant-light capital structure, we have the flexibility to withstand a short-term drop in earnings without concerns of facing maintenance financial covenants. On Page 15, I'll walk through the details of our comprehensive austerity measures in response to COVID-19 that we expect will reduce our second quarter SG&A and overhead expenses by at least $15 million compared to the same period last year. We have taken a number of steps to reduce cost and cash usage while also maintaining our ability to service customers and quickly respond to changing market conditions. Early on in this disruption, we took actions to reduce many forms of discretionary spending, including restricting travel, implementing hiring freezes for nonofficial positions, delaying merit pay increases and suspending all noncritical investments such as certain marketing initiatives and other discretionary projects that could be delayed. However, given the uncertainty on the COVID-impacted demand, these measures alone would not be sufficient, so we also took aggressive cost actions in our salary base for Q2. Starting at the top of the organization, our executive leadership team and Board of Directors elected to reduce their second quarter compensation by 25%.In addition to these measures, we have implemented a series of actions to reduce our overhead salary costs globally through short-term furloughs or through the usage of accrued leave. These actions will have an immediate positive impact on our cost structure during the second quarter, while helping the whole enterprise improve safety, maintain business continuity and emerge from this in the strongest possible manner. Additionally, we are working with our supply chain to identify areas to reduce our spend as global commodity prices see near-term deflation. In addition to cost savings, we've also put similar controls on cash and liquidity management, including the suspension of all non-business critical capital expenditures. On the working capital side, we are closely watching our accounts receivable exposures and customer credit limits while working with our key supplier partners to extend our payment terms. In the area of taxes, we are taking advantage of COVID-related government stimulus programs to defer certain payroll and income taxes to later in 2020 or in some cases into 2021. In addition to these cost reduction measures I mentioned, these comprehensive cash management measures will provide liquidity benefits to the next few quarters. Please turn to Page 16 as we wrap up our prepared remarks.

Thank you, John. There remains a lot of uncertainty related to potential impact from COVID-19 on our markets and our business. We've developed and planned for several potential future outcomes generally expecting a near-term downturn in demand as described earlier. We completed sensitivity analyses for multiple demand scenarios, some of which were even more severe than the global financial crisis and created playbooks to adjust our business as needed. As we've discussed, we've already taken cost reduction and liquidity actions, and we expect that near-term decremental margin will benefit from these and our pricing actions. Because the pandemic situation is still fluid, we are prepared to take additional austerity measures if needed as the second quarter progresses. For the full year, we expect that these measures will result in solid full year free cash flow performance under various scenarios. Our near-term capital allocation plan is focused on maximizing liquidity and minimizing risk so that we are poised to meet customer demand, capture share and improve our competitive position post COVID-19. As we emerge from the pandemic, I am confident that our talented team and dedicated associates will be ready to meet market demand as it returns to sustaining levels. They have proven to be agile and adaptable, and I am proud of what they've accomplished thus far and look forward to what's ahead. Before I open the line for questions, I would like to provide an update on current litigation with Steves & Sons. Regarding the original antitrust case, we are in the appeals process and originally were scheduled to be heard in May. Due to COVID-19, these hearings are being rescheduled. We believe we have a strong position. The second piece of Steves' litigation relates to a recent contract dispute over door skin, driven by high levels of market demand. The parties have resolved the issues underlying the preliminary injunction ruling from April, and we are operating currently under a commercially agreed upon solution pending trial in July. We vehemently deny the allegations Steves have made. Because these cases are working through the legal process, we are unable to take any questions about them. With that, I'll turn the call over to the operator for questions and answers.

Thank you [Operator Instructions]. And our first question comes from the line of Tim Wojs from Baird. Your line is open.

Just I guess my first question, and thanks again yes, thanks for all the detail on just the decrementals. But how should we think of what the, I guess, volume-related decremental would be? And then it sounds like from there, in terms of a bridge, we would add some of the near-term cost savings and then pricing on top of that. So if you could just expand a little bit or kind of frame how we would think about just the volume-related decrementals, I think would be helpful.

I guess the way to think about decrementals here in the second quarter is to really think about the for us, we think about the all-in impact of the volume and the mix, the pricing actions that we've already taken as well as the cost savings actions. And so what I would say is in the second quarter, we would expect so all-in EBITDA decrementals to be in the high 20s to 30%. And had we not put some of the cost-saving actions in place and certainly had we not have the benefit of some of the pricing actions from that we put in earlier in the year, I think those decrementals would be probably significantly higher in the mid-30% range.

And is there any, I guess, variance by region? Just trying to think of if Europe and North America had variant impacts just due to pricing and just the overall geographic dispersion?

Yes, I think the Australia segment typically has the highest leverage deleverage just given the nature of their cost structure, so we would typically that, that would be the most skewed, and we've been seeing that over the last few quarters as they've had the market-related volume headwinds down there. The impact on EBITDA from a drop in volume is more significant than you'd see in Europe or North America, but that's probably the only thing I would call out to mention versus company averages.

And then my followup question is really just on what you're seeing by channel. So I'm just curious if you could kind of run through maybe what you're seeing from a retail perspective and then maybe also just in the distribution channel, and any kind of key differences that you're seeing between those two customer bases?

So in North America, particularly, I mean retail has stayed open. We've seen some pretty good performance in the retail channel up through now. We are seeing a skew, if you will, toward stock-type SKUs as opposed to special orders going forward. We're starting to see that some decline there. We, in our traditional channels, are probably seeing more expediting up to now. We do expect to see some softening as building residential building construction slows down probably in the quarter. But as you think about where we are in the cycle, Tim, we've still got some backlog. We had backlog coming in. Those projects are going to get finished up. Our products getting moved into there and then as we look forward, what we're watching is new home sales and starts, which will then probably delay any pull out kind of later into the year.

Our next question comes from the line of Truman Patterson from Wells Fargo. Your line is open.

This is Trevor Allinson on for Truman. First, I appreciate the color on the price increases, and it's good to hear that they're remaining firm. Hoping to just get your thoughts on with weaker demand going forward, do you think there's any risk that you could see some of those prices not stick or see less of the pricing stick as we continue throughout the year?

There's always that challenge. I mean we've seen pricing, particularly, we're talking about North American door pricing where the biggest moves happened on your holding. Certainly, in terms of what our price lists look like as well as our price in retail, those are stuck at this point. Probably more what we would see in that is really just a mix shift, which is, as I said in the previous question, we're seeing more stock SKUs, particularly in retail, being picked up as opposed to some of the more profitable special orders, but we'll see that. But for the most part, the way that pricing works in our segments is it's typically set on a 12-month basis. It's been now in place since earlier this year, certainly first quarter, and we're seeing that hold up pretty well. Where we need to make some changes and where things softening, we'll obviously watch that. But at the same time, we're taking cost out of the business.

And then following up on North America, margins fell about 100 basis points on slightly down volumes. I was hoping you could just discuss the drivers of the margin decline. Maybe break that out between what were some of the operating inefficiencies? Or were there some COVID-19 related costs in that number?

Yes, within North America, we did have some operating inefficiencies, some that we knew going into the quarter, we have had just from the continued lingering effects of the windows business getting back to being operationally healthy. So, on a year-over-year basis, there was about a $7 million EBITDA impact to North America results in Q1, as margins were down. Sequentially, the margins, they were less down than they were in Q4, so we're continuing to see that improvement that we had talked about previously. We expected operationally that business is back to healthy lead times and feel like we're we've got all the hard work behind us there, but there was still a lingering impact in the quarter. There was a little bit of maybe a couple of million dollars of EBITDA impact in Q1 in North America related to just inefficiencies of temporarily having some plants shutdown and or absenteeism. And then the last impact I'd call out that impacted North America in Q1 was a mix shift. As the quarter progressed, we did see a higher mix toward stock SKUs in our retail channel versus special order SKUs, and those carry a lower margin profile than the special order SKUs. And so I'd see that three of those things combined is kind of what drove the North America year-over-year margin compression.

Our next question comes from the line of Reuben Garner from The Benchmark Company. Your line is open.

Maybe starting on the actually, on the savings front, is there any possibility that you could kind of I don't want to say, take advantage, but volume really going to be impacted in the near term? Can you pull forward any of your long-term savings initiatives, whether it be on the productivity side? I know that might be harder to do, but any of the facility moves that you plan to make over the next couple of years? Is there the possibility that you can offset volume declines beyond kind of Q2 with pulling some of those moves forward?

As John pointed out earlier, we made some short-term cost actions that we felt were adequate to offset to volume. But when we talk about our modernization and rationalization programs, over the last really couple of years, one of the things we've said is we set that up on flat volumes and assuming that we had price offsetting inflation over that period of time. And I've always said, I really didn't want to get challenged too much on the revenue side, but certainly, we have and I've always said that these are the types of programs and the type of projects that we would you would do in a downturn regardless. So the fact that we've actually got a jump-start on, on these projects programs is good. We're well into the rationalization and modernization program and starting to see results in the areas where we've deployed. We are looking at every single one of our projects. We have a pipeline of programs that we've had teed up, and now we're just looking at what's the right priority, which are the ones that will give us the biggest bang for the buck. And we do plan on continuing to work that program as well as to accelerate any opportunities we have to take permanent cost out and drive productivity within the business.

And then just a follow-up on the decremental margin comments you made on in Q2. So just to be just to clarify, you're saying that high 20 to low 30% range for Q2 decremental EBITDA margins, and that's kind of an all-in inclusive number with all the puts and takes for the quarter?

Yes, that's correct. The only thing I would call out is I'd not apply that same decremental to the FX impact. We had about a 3% revenue FX impact in Q1, but given the strong dollar, that sort of 3% revenue impact to FX will probably continue in order of magnitude into Q2 and I would not apply that same decremental to that to the FX portion of that, but to the core revenue decline of volume/mix sort of price impact? Yes, that's sort of an all-in adjusted EBITDA figure that I was giving you.

How just a quick follow-up on that, how big of a drag is mix kind of baked in to that? I just it seems like maybe that's a little high just considering you have positive price, you have the savings that you've taken out. Is there some offset to the positives in the quarter other than volume? Or is volume deleveraging truly well north of 30%? That's I guess that's the question.

Yes, I mean the mix piece is significant. It's the same thing I talked about impacting Q1. I mean as you think about our business, certainly, special orders, particularly special orders going through the distribution channel for new construction would certainly carry a higher margin profile than sort of a standard type of SKU product that would be going to stock and retail channel. And so embedded in sort of our view in Q2 is that there'll be some continuation of sort of a higher mix shift of retail stock SKUs versus special orders. And so, yes, there is a bit of a mix impact on the deleverage in addition just to the volume drop. And that's just a matter of where the activity is right now. Our retail customers remain open for the most part whereas on the distribution side, some of our distribution customers are dealing with markets where construction has been was temporarily halted or slowed down or job sites that have been had to be pushed out due to COVID restrictions and things like that. So there's definitely a mix component embedded in there as well.

Our next question comes from the line of Matthew Bouley from Barclays. Your line is open.

Hey, good morning. Thanks for taking the question. I hope everyone is doing well. I wanted to ask about the volume trends. You guys highlighted that the impacts of COVID are going to accelerate, I guess, as the quarter progresses. And it sounded like, Gary, you mentioned potentially into Q3 as activity lagged. So and my question is just if you could outline or perhaps even quantify how volumes did look in March and April? And therefore, what is that level of deceleration that you're assuming within the outlook?

So I'll start with April, the April part of the question. We're still in the closing process, so the numbers are preliminary. But I would look at April revenue as being in line with what we've talked about for the quarter. We're in different waves of the pandemic across the globe, depending on where we're doing business. Europe was probably the most impacted, but now we'll be coming out in the quarter as our plants in the U.K. and France are open back up, and we continue to grow there. North America, probably, as I said earlier, we're seeing some backlog and we're still working through that, but we would expect that North America demand in the quarter probably will decline progressively on demand side. And then Australia has kind of been down for a period of time now with the softness in residential new construction. They've been managing the pandemic piece of it pretty well. We did see our plant in Malaysia was our plants in Malaysia were closed and down but are back up and running now. So, we'll see that coming through. But I think more of the effect there in Australasia is related just to the softness that we've already seen in the residential new construction piece with a little bit of the COVID there. So, we'll expect that eventually to hit bottom and stabilize this year. So, hopefully, that was helpful in looking at the various regions. But again, Europe probably coming out sooner than the other two regions.

And then secondly, I just wanted to follow-up on the rationalization and modernization, and thank you for the detail earlier you gave on that, Gary. But I know you had the previous target to hit a run rate of third of the $100 million in rationalization savings this year. And I guess some of the JEM savings flowing through as well. Is there an actual update to that cost savings target for the year? Or is it unchanged?

So, I think the it's unchanged at this point, the projects that we're going to deploy. We're still deploying the same projects. We're still working through that same pipeline of projects. The actual savings might push out a quarter or two depending on really depending on demand and volume. We have spent a little bit more time in the last, call it, four to eight weeks looking more at making sure that our plants are operating safely. We've had to make some changes in our operating dynamics to make sure that we've got social distancing and sanitation and that type of thing to make sure that our associates are able to operate in a safe and a healthy manner. That being said, we are looking at projects within rationalization and modernization to accelerate our deployment, to take out costs. When the demand piece is softer, it's a little easier to do that without risking any customer demand issues. So when we have that opportunity, we will do that. But as far as the pipeline goes, we're still on track. We like the pipeline of projects that we have, and we're still deploying resources, and we'll make investments in those programs as they make sense.

Our next question comes from the line of Susan Maklari from Goldman Sachs. Your line is open.

This is Charles Perron. I'm filling in for Susan. First, I just want to come back on the 20% to 30% decrementals you expect in Q2. Do you think they also provide a good overview of how we should think for the full year 2020 as well? Or do you think those should improve as you implement those cost-cutting initiatives that you talked about throughout the year?

So I'm going to not try and look too much toward Q3 and Q4 at this point. I mean given the uncertain volume environment, it's challenging for us to say exactly what decrementals are going to be given how quickly the revenue environment is changing. Clearly, if revenue drops off or we got another wave of the virus, that could have a disproportionate impact on our decrementals in the back half of the year. What I'll tell you is what Gary mentioned in the prepared remarks is, we've got playbooks for sort of different levels of demand. We executed on one playbook for Q2 based on what we were seeing, which included the compensation reductions and furloughs and eliminating travel and things like that. It looks like demand is going to be more severe in Q3, we've got a playbook for that and we'll execute on that level of cost savings. And so certainly, the hope would be to minimize impact on decrementals and as the steeper volume decline gets, obviously, the harder it is to absorb the fixed cost base. But I'd just say that we are prepared to act to sort of minimize decrementals from getting significantly worse, but I want to stop short of sort of providing anything specific on Q3 and Q4 at this point.

And second, I just want to turn to the balance sheet. And can you discuss your plan to tightly manage your working capital in this environment and control inventory payables and receivables specifically? And at the same time, if you expect to maintain a certain level of growth capex in your outlook to finance maybe some of the projects you have going on in this environment? Or if you expect it to kind of maybe just do the maintenance capex for year-end? If you can give the details on that as well, it would be great.

So on the balance sheet, we're very closely watching all aspects of our working capital. On the AR side, we're looking at credit limits and making sure we're staying on top of any activity there. We have not yet seen any issues significant issues around significant past dues or customer delinquencies, but it's certainly front of mind for our credit and collections team. On the payables side, we're absolutely working with our supplier base to seek support from them to allow us to extend payment terms where possible. We had some good success with that in 2019, which is a nice tailwind to our working capital for the year. On the inventory side, I would say we're going to be very selective and judicious about what we do here. We've got very substantial liquidity at this point. We want to be prepared to support our customer base and come out of this in a position to support our customers and take share, and really grow with customers who are ready to grow with us. And so I would say on the inventory side, we're going to keep levels of inventory that makes sense to be able to support what we expect to be a recovery outside the back side of this downturn, and we've got the liquidity to be able to do that. I would say outside of kind of the working capital and the CapEx front, we had originally guided to a CapEx number for the full year in the $140 million-ish range, I think, at the midpoint in our last call. We are not going to officially guide to a new number here just because, again, we're taking in the CapEx decisions on a day-by-day and week-by-week basis. But what I can tell you is if we needed to toggle down that CapEx pretty meaningfully by 30%, 40% this year, we could do that, and we would still be able to keep a lot of our major initiatives and major projects on track. Obviously, we may push out some of the productivity-related projects if we had to. But we've got the ability to sort of toggle down that CapEx number and still fund the really key business-critical investments that we need to, but we'll just make that decision depending on what the demand environment looks like.

Our next question comes from the line of Phil Ng from Jefferies. Your line is open.

Can you give us an update on how pricing in the wholesale channel is progressing? And can you remind us in the last downturn, when there was no line review, did you see any slippage in prices in the retail channel intra-year?

I'll take the first part first. The pricing, as I said earlier, was deployed late in 2019 for effect in the first quarter, it's all been deployed. Price lists have been set, and it's been holding pretty well. At this point, feeding off the backlog and any expedited orders to fill current building demand, particularly in the wholesale channel, is coming through at the new price levels. Most of that was probably in effect fully in March. So we're seeing that hold pretty well. As far as the last downturn goes, I wasn't here. I don't know. John, you weren't either. So I don't know that we know off the top of our head, but John, you if you looked at that?

No, I think I would just say we don't have the detail to be able to answer the specifics of what happened other than to say that we've got strong market-leading positions and a good brand and a good track record with our customers. And so that would be our intention to be able to continue to receive a price in line with the reputation that we have in the market and our track record.

And then can you remind us how does the door and windows business perform in a downturn, and as the market recovers, how does the category perform relatively?

Well, I think it's really important. If you look at us at JELD-WEN specific versus the last downturn, it's really apples and oranges, two very different businesses. Obviously, different leadership at this point, different structure and a different mix of businesses and in global. So it'd be really hard for us to compare directly to that period. That being said, the things that we're watching right now are the on the retail side, certainly, the mix of products between stock and special orders. When special orders start to come back in, that will show what the kind of lead time type business going forward will look like, and we're watching housing sales and housing starts as another indicator for ourselves. At this point, again, being somewhat late cycle in the residential new construction piece, we're seeing projects being finished, inventory being completed, and we will watch as sales and starts happen for the climb out. So different a little different in each region as well. As we said earlier, Australia has kind of been in that housing recession for quite some time. We expect that to level-off and stabilize. Again, Europe coming out of the COVID piece now. And we'll watch that closely, and then we'll watch when residential new construction or new sales start to improve here in the U.S.

Just one last one for me. On your windows business, over the years, you've had some operational issues when you see big swings on demand due to the labor intensity to business. So just curious, how are you managing through that in this current backdrop? And should we expect any near-term outsized impact on the profitability front? But it sounds like you got some great cost cutting measures in the near-term to kind of manage through some of that, but any color would be super helpful.

We've been real pleased with the improvement in our windows business. Third consecutive quarter of improvement there, while still down. We're seeing improvements in our operational capabilities, which is really what where the stumble was about a year ago. We like our position. We're sitting well in terms of our inventory versus demand, both for the retail and wholesale channels. So, we're seeing sequential improvement there. We're seeing on time type performance that we would expect from that business, and we continue to see margin improvement quarter after quarter. So, we look forward. We think we've turned the corner there. We like what we've done, and we're feeling pretty good about what the future looks like for the windows business.

Our next question comes from the line of John Lovallo from Bank of America. Your line is open.

The first one is, I think, one of the strategic focuses has been trying to drive additional pricing actions in Europe. Given what's going on with COVID, are you still on track to push those through in the near term? Or there's going to be some delay in those actions?

No, for the most part, our pricing around the globe has actually been in place. In Europe, in particular, is now in place. And certainly, that's what our new business those are the prices we're using for new business. So, I don't expect any additional change there. We will continue to look at pricing as there's some opportunities, particularly in Australasia, going forward to improve pricing as that state those markets stabilize and, particularly, as we're building the R&R model or the R&R piece of the business. So, we'll always look at those opportunities. But Europe, just specific to your question, much like your North America, pricing is set at this point. It's been announced and delivered and is now part of the ongoing business.

And then I was curious about the comment on absenteeism in the U.S., and I imagine that's related to COVID-19, but curious if the actions that you guys have taken internally to address the cleaner facilities and things of that nature, if that has helped fix the problem?

So absolutely, we've actually seen some improvement in factories. And once we get once we've been communicating, which we've been doing quite a bit, making sure that people understand that our primary focus is the safety and health of our associates. We've changed our working environment, our standard work to ensure that our environment is safe. Folks are starting to realize that and appreciate the work that we've done. For the most part, our factories and all our operations have remained open to support customer demand. We've had a couple of locations where we've had an associate test positive; very, very small number, by the way, across the enterprise. But where we did, we shut the plant down. We go through a sanitation type program and a delay in reopening to make sure that it is clean and safe. And we have some very detailed playbooks around doing that. Otherwise, the only places that we've been fully shutdown is based on government mandates. So the absenteeism, we've actually seen that improve in North American facilities as the weeks progress and people are comfortable with the actions that we're taking.

Our next question comes from the line of Michael Rehaut from JP Morgan. Your line is open.

This is Elad Hillman on for Mike. First, in modeling the $15 million in 2Q savings, should we be thinking about it as spread across your different segments in proportion with revenue? And how much of it would you say is in the corporate line?

I would say just proportionally across the business would be OK and similar with the corporate costs is the right way to think about it.

And my second question is just of the $15 million savings, how much would you roughly characterize as temporary versus structural? And I'm just trying to think about how we should think about the incremental margin if and when volume starts to recover?

Yes. I mean, in some cases, these are cost savings that we have temporarily just put a stop on travel. So that hopefully would we'll see what that looks like as COVID sort of recovers. And so that's something we can toggle on or off. The salary compensation, furloughs, leaves, all of that. I mean that's something that, again, can be toggled on or off. There is an element of the Q2 cost savings that is more discretionary projects that we pushed out until later in the year, and we'll reevaluate then. That those would be things like marketing investments or IT projects that we just have discretion over when we execute on those. They would have a return on them at some point. But I would say that that's probably the minority of the $15 million. The majority of it is would be sort of the true cost that we can sort of turn on or turn off depending on how the conditions permit.

And our next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is open.

John thanks for the comments, so far in the detail. I wanted to follow-up on some of the commentary around kind of the cost actions, but also just plant operations and with business is somewhat labor-intensive, particularly on the windows side, Gary, as you've alluded to, if we consider kind of sanitation, social distancing, all else equal, the cost of operating a plant goes up. And so I was curious if you've taken a look at, prior to implementing these cost cutting actions, what the longer term impact is in terms of your cost or margin profile if we assume that these measures are kind of the new norm in terms of social distancing and enhanced sanitation on kind of an annual basis if you looked at it that way?

So I think that's a great question. I think we're right in the middle of writing these playbooks and deploying them at this point and trying to understand what they mean to cycle time, what they mean to throughput and what they might mean to staffing and the way we actually operate. So we've kind of got a number of variables that are feeding into it, not the least of which is the demand profile as well. So as we're building these playbooks, which we tend to build based on actual demand first and then we figure out kind of the cycle time required, the type of material, type of staffing, etc., to operate. You throw into that social distancing and the actual number of people that we can have in a plant at a particular time in a particular place, obviously, it's going to change the cost structure a little bit. But the opportunity to look at that is now, it's on our radar and we understand it. To date, kind of the bigger question has just really been to make sure that we're able to meet customer demand, which we've been able to do, and do it effectively with the health and safety of our associates being the primary objective. The cost to do that on an ongoing basis will be part of what we look at. But at this point, it's I don't have a definitive answer for you other than to say it will play into how we staff, what our throughputs look like, and as we continue to use JEM as the underlying business operating system. It's no different. We're using the same tools. We're using the same type of management and leadership capabilities. So we'll use that to drive what our cost position would be as well.

Yes. I appreciate that. It's still early here. And then second question, just to put a finer point on some of the commentary around the sales cadence and understanding there's really limited visibility today. But I guess when we're thinking about the comments on kind of some accelerating pressures through 2Q and then some of the lead times in your businesses, if we were to assume kind of conditions, again, all else equal, or only modest recovery in housing over the next couple of months, is some of this commentary meant to suggest that the top line declines we see in 3Q could actually be greater than 2Q? And appreciate you're not giving formal guidance, but just want to understand some of that directional commentary a bit better.

We're not going to give guidance on the full year, or third quarter or fourth quarter at this point. But generally speaking, what we're watching is in particular is the POS data that we get in retail and what we're seeing what we will see from new sales and new starts and residential new construction, and that will certainly drive the timing that we will see orders for our products to go either into projects or into new homes. Clearly, we are in different ways around the world. So we'll see different phases of recovery. Like I said, in Europe, we're our operations are now back open, and we would expect customer likewise, customers are hoping, which is why we're opening. So we would expect to get a vision of what that demand will look like coming out, and it will probably be a little bit indicative of what we see in North America as well. Again, Australia is maybe a little bit of a different color as the residential new construction piece there has been soft for a while now, we've been expecting that to stabilize, which we do expect to see. But short of giving any guidance on when we think that would any of this would happen and the things that we are watching would be point-of-sale and mix changes toward back toward specials in retail and residential sales and residential starts.

[Operator Instructions] Our next question comes from the line of Alex Rygiel from B. Riley. Your line is open.

Can you come back to supply chain disruptions? It sounds like there weren't too many, but can you dig a little bit deeper into that? And if there are any small ones or you could anticipate any, what product categories could there be in?

So, we haven't seen too much disruption in our supply chain. It has been pretty well managed by our team. We stayed pretty close with our suppliers. Where we've seen any slight disruption at all, it's been kind of similar to what we've talked about where closures of factories might have been impacted by governmental demand. But for the most part, we've been able through inventory, either that we maintain or inventories that our suppliers have maintained, we've been able to keep up with our demand at this point. That being said, we tend to source in the we tend to source a manufacturer in the markets where we sell our products. So we tend to be pretty localized there. We are able to move around supply between regions and look at alternative supplies when necessary. So we're managing those as real-time as we are the playbooks for our own factories. But to date, it's been fairly limited in any respect. And where we saw some limited issues, we've been able to actually see recovery in those suppliers or alternate supplies being set up to ensure that we would be able to meet demand.

Thank you. We have no further questions in queue. I'll turn back to the presenters for closing remarks.

Well, thank you all for joining us today, and we do appreciate your interest in JELD-WEN. I just we will continue to focus on the safety and health of our associates and our partners as we work to meeting our customer needs and product demand and ensuring that our business continuity, which is built on an already strong foundational financial foundation, will continue. We look forward to updating you in future quarters, reporting our results. And I hope that all of you stay safe and healthy. Thank you again for joining us.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.