Good day, ladies and gentlemen, and welcome to the Gibraltar Industries First Quarter 2014 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to your host for today, Mr. David Calusdian from the Investor Relations firm, Sharon Merrill. Please proceed.

Good morning, everyone, and thank you for joining us. If you have not received a copy of the earnings press release that was issued this morning, you can find it in the Investor Info section of the Gibraltar website, gibraltar1.com. During the prepared remarks today, management will be referring to presentation slides that summarize the company's first quarter performance. These slides also are posted to the company's website. Please turn to Slide #2 in the presentation. Gibraltar's earnings release and this morning's slide presentation both contain non-GAAP financial measures. Reconciliations of GAAP to adjusted measures have been appended to the earnings release. Additionally, the company's remarks contain forward-looking statements about future financial results. The company's actual results may differ materially from the anticipated events, performance or results expressed or implied by these forward-looking statements. Gibraltar advises you to read the risk factors detailed in its SEC filings, which can be also accessed through the company's website. On our call this morning are Gibraltar's Chairman and CEO, Brian Lipke; and its Chief Financial Officer, Ken Smith. At this point, I'll turn the call over to Brian.

Thank you, David. Good morning, everyone, and thanks for joining us on our call today. I'm going to start with some highlights on our business for the first quarter. Ken Smith will then review our financial results and guidance. And then I'll close on our prepared remarks with some thoughts on the outlook. And at that point, we'll open the call to any questions you may have. With that, I'll ask you to turn to Slide #3 in our presentation titled Overview. Gibraltar's first quarter was a slower-than-expected start to the year. Revenues and adjusted EPS came in below our most recent guidance and prior year results. This was mainly due to a prolonged winter season in most parts of the country that delayed orders within the quarter but also delayed the normal seasonal ramp-up we see in our shipping rates toward the end of the quarter as customers prepare for the spring selling season. However, based on the positive trends expected in the majority of our end markets, we believe the fundamentals remain in place for sales growth and improved profitability in 2014. In addition, we've experienced improving sales order rates in April, particularly for centralized postal and parcel products and customized fabrication for large products in -- projects in industrial markets, such as mining and petrochemical processing. As a result, we're maintaining our guidance for 2014 despite the shortfall in the first quarter. Looking at our results for the first quarter. Net sales were down 3% from the first quarter of 2013. Our adjusted net loss was $1.7 million or $0.05 per share compared with adjusted net income of $1.2 million or $0.04 per share diluted in the first quarter of last year. This was a quarter of seasonally lower sales but weaker due to more harsh and…

Thanks, Brian, and good morning. Now let's turn to Slide #4 titled Gibraltar. First, I'll remind you that I'll be discussing adjusted income and margins, excluding special and nonroutine transactions. So starting with the consolidated first quarter results and comparisons, revenues decreased on the headwind of harsher winter conditions. The 3% decrease in consolidated revenues was comprised of a 2% volume decrease and a 1% pricing decline. Each reporting segment experienced the same proportional effects from the volume and pricing. And I'll provide more color on the relative strength of marketing conditions when I discuss each segment. The first quarter's adjusted operating margin decreased by 240 basis points, primarily on a lower gross margin resulting from the weather-driven decrease in sales volume, a less favorable product mix in 1Q 2013, pricing adjustments and a raw material inflation for resins. Regarding the weather, certain winter storms caused short-term closures of multiple facilities, which led to among other effects, inefficiencies in production plus increased fuel costs for transport delays and longer routes. DEPS comparison from last year's earnings of $0.04 per share to a $0.05 loss this quarter resulted from an $0.08 decline from lower demand for our Residential Products, driven by the prolonged harsher winter weather, which depressed reroofing activity throughout much of the U.S., plus pricing reductions and increased resin costs, which affect certain ventilation and postal [ph] products. The $0.06 decline from the Industrial & Infrastructure Products segment, largely attributable to lower volume including the weather-driven delays at construction sites causing contractors to postpone certain deliveries beyond the first quarter. This segment's profitability was also hurt by a less favorable mix of sales from the first quarter last year. And the combined segments' decreases were partially offset by a $0.05 improvement from lower compensation expense. While our previous guidance…

Thanks, Ken. Before we open the call to your questions, let me offer a summary as outlined on Slide #9. As Ken discussed, we expect 2014 to be Gibraltar's fourth straight year of improved performance on the top and bottom lines, driven primarily by growth momentum for our Residential Products. Despite the slow first quarter, we believe the U.S. housing market will continue its long-term recovery as 2014 progresses. We not only anticipate booking orders that were deferred in the first quarter, but we also believe sales of our Residential Products should benefit from an uptick in repair and remodeling activity as the nation recovers from a harsh and damaging winter and recent tornado damage in the central portion of the U.S. Equally important, we're encouraged by the progress we're making on our internal growth initiatives. As evidenced by the success of our postal and parcel storage product line, we believe these initiatives will enable us to continue driving sales regardless of the ebb and flow in the underlying end-market activity. The leading indicators for new housing construction and repair and remodeling point to a year of favorable end-market conditions, including an increase in residential reroofing as household balance sheets continue to improve. In our Industrial & Infrastructure Products segment, the first quarter marked our second consecutive quarter of year-over-year growth in industrial product sales in North America and Europe. Nonetheless, industrial demand remains more choppy and inconsistent than we would like. We believe some of this is related to weather impacts on manufacturing and industrial facilities construction over the past few months, but some is due to cyclical conditions as well. In our transportation infrastructure business, federal funding for the nation's much-needed bridge and highway repair and upgrade priorities will remain in limbo for the most part until federal…

[Operator Instructions] Our first question is coming from the line of Ken Zener with Keybanc Capital Markets.

The 2Q guidance, very much appreciate it. The 20% year-over-year growth in residential, could you guys kind of break that down between the roofing and mailbox contribution, so we can get a sense of how much of it is the mailbox versus the roofing coming back in?

It's a split of 2/3, 1/3, the weighting of 2/3 coming from the market acceptance of our parcel and postal delivery products and the 1/3 coming from seasonal growth and overhang from the first quarter on roofing-related products.

Good. That's impressive and very much needed guidance. When you look at the industrial component, and again it's good that you're breaking out these 2 segments, could you talk about the kind of product mix drag you're going to have from the transportation product? It sounds like projects that didn't get finished in 1Q are actually going to be kind of extended for the more than 3 months. And if you could kind of talk about that dynamic a little bit since it seems to be impacting you.

Well, that customer-requested delay of that nearly $3 million of project equipment is going to shift largely in the second quarter. So it's merely a shift in quarters. What we entered -- what we also said in our remarks that the first half of 2014 is unfavorable to the very strong first half of last year, and that's a reflection of diminished funding. We entered the year of this year with a bit lower backlog influence because there's less certainty in a shorter window at that point for federal funding. So planning by states on particularly larger-sized projects became diminished, leading to smaller orders, shorter durations, smaller backlog. And we've -- I think some of the states that have been most notable in raising funds from their state residents, like Pennsylvania, where we have good penetration, that will -- that's beginning to affect the planning and release of orders going forward. So it -- does it happen -- raise $1 billion dollars in Harrisburg, and then immediately apply it for construction spending in the following quarter. So those appropriations raised by states are going to have a delay of anywhere from a few quarters to several years for the lag of drawing our products into those projects.

I think, Ken, a little more color on that. Federal funding flows from the federal government in Washington back to the states and -- but the issues about bridges being out and roads not being repaired really rest on the shoulders of the state and local elected officials. And as those people who vote for them have delays because bridges aren't serviced properly or roads aren't functional, that has a direct impact on how voters vote in those local communities. So as a result of that, that's why the states are now saying, "Boy, we just can't hope the federal government is going to give us more money. We've got to come up with dedicated revenue sources, so we can shoulder some of the burden ourselves or more of the burden ourselves going forward." So it's a recognition of a need to spend more money that is driving the states to look for additional dedicated revenue sources for supporting bridge and road construction and repair. So it's -- I'm glad there is focus coming there. As Ken said, it won't necessarily be immediate. But long term, it bodes very well.

Understood. And I guess there's one follow-up on the mail that I forgot to ask. How long should -- do you expect this acceptance to be a strong or outsized contributor versus the long-term trend? And then if you can also update us on management searches, if you could comment on that.

Relative to the postal products portion of our business, we've got a number of initiatives going on, some of which relate to parcel delivery and secure parcel delivery for homes as well as for commercial buildings, office buildings, condominiums, hotels and facilities like that, where they are seeing an increase in packages arriving at their doorstep and they're looking for ways to deal with -- a secure and convenient way for people in those facilities to know that their packages are being securely stored and yet giving them access to them 24 hours a day, which is a key component of what our solutions provide. We've had a number of products out in the marketplace for a period of time now. And the feedback that we're getting is they're working well and we're getting feedback that could we consider modifying the design a little bit and having a longer, narrower box, which could be used for delivery of dry cleaning and such. And we're also hearing that in major metropolitan areas, where food stores deliver, that there's talk that maybe we should look at building a refrigerated storage unit so that groceries could be delivered. People can come home from work, have the groceries in their box, take it upstairs and cook dinner without having to stop at the supermarket on the way home to cook dinner. Those are just 2 examples of the kind of opportunities that we see developing for this product line going forward. So we think that this is not a short-term, this is a longer-term opportunity for us, will involve some creative thinking and some creative design work. But we're very optimistic that we see long-term trends in this product category that will provide growth and enhanced profitability as we go down the road. Relative to the search, it's continuing and ongoing. We're narrowing the field and we're ambitiously and aggressively looking for as close to the perfect candidate as we can possibly find. And that's probably why it's taking a little bit longer than we thought. But in the final analysis, our effort is focused on getting the best possible person for the job, and we're closing in on that.

The next question is coming from the line of Robert Kelly with Sidoti & Company.

A question on the quarter just ended. It seems like you had a pretty good handle on weather being an adverse headwind in your fourth quarter report. What happened in the time since? Was it all related to the industrial side of the business?

Well, certainly, we didn't expect that $3 million of revenue delay for contractors that unexpectedly came to us in March. So it affected the Industrial & Infrastructure segment and transportation products specifically. But also we didn't expect and didn't factor in ice and particularly ice storms and the snowstorms to extend so far and so long into March. And so we had continuing delays. And we had some channel partners that took a kind of a wait-and-see mode, to say, that are putting in seasonal orders and taking seasonal receipts of our product in March. They took a wait-and-see mode and -- to see how end user pull-through through their stores and inventories were going to behave. So we didn't get any what we thought were going to be some seasonal upticks for March deliveries as a consequence.

I'm just trying to reconcile the March, April kind of demand improvement or order improvement versus the fact that things didn't really play out for the last 6 weeks of the quarter the way you would have thought. So it's just a matter of timing is what you're saying as far as the orders...

Well, certainly, timing is a factor. And certainly, we expect to pick up some of the volume in the second quarter that we didn't get in the first quarter. But I think more importantly, we are actually seeing an order rate increase in the industrial area and in our retail area as well as in the postal products area. An actual order rate increase has clearly distinguished itself in April compared to what we were booking in the first quarter month-by-month.

Great. That's encouraging to hear. Now yes, as far as it applies to the second quarter, good revenue growth, particularly on the res product side, yet no margin expansion. Could you just help us understand that?

Well, I'm going to put some color to the remarks in the assumption column for slide -- I guess it's Slide 8, across from margin. With that 20% volume growth, that would normally draw with a 30% contribution margin. It would raise the -- well, normally be expected to be an operating margin for that segment in the second quarter of about 15%, which would've been an improvement over the last year's second quarter, which is about 12.5%. But the headwinds, as cited in those remarks, comment section, is that we've got some pre-agreed pricing reductions that we made last year after the second quarter of last year for certain Residential Products that are going to pull down a percentage point. We also have some ramp-up of variable production expenses for meeting the growing shipment delivery schedule for these postal products. We've got to train workers and hire workers and getting other capabilities in place. And we still have some continuing raw material inflation for resin that's about -- worth about 0.5 point. So that's how I would reconcile last year's margin plus the contribution from the increased volume, and then back down about 2.5 points to our flat expectation. However, and I would say as a follow-on, we are expecting, once we get into the third quarter, we will see continued strong quarter-over-quarter, Q3-over-Q3 last year, sales growth in this segment as well as a more significant and notable margin expansion.

So the incremental margin should normalize in the second half of the year for res because you'll get the variable expense -- I mean, does the mix issue go away? No, right? And then the variable expenses you get under control and -- do you recover raw material inflation? I'm just trying to figure out why, if revenue growth even accelerates -- I'm sorry, if your revenue growth is positive in 3Q, 4Q for res products, why those 3 issues won't be a drag on the incremental margin in the second half.

We're anticipating that we may take pricing action on resin-based products, plus we'll get full production of volume over the initially installed variable cost for producing larger and larger quantities of [indiscernible].

Got it. So you absorb some hits in 2Q that should even out in 3Q. Got it.

Yes, exactly.

The industrial processing improvement order flow, I think I heard you say 50% quarter-over-quarter for bar and metal grating as a result of quoting activity and projects moving forward in the, I believe you said, industrial processing arena. Is that right? And is that a higher mix product for you? Is that going to be beneficial to the second half of the year for industrial, the fact that those orders will then ship?

Well, the quoting activity extended to not only, let's say, standard-sized grating and sheets of expanded metal but also to generally more higher value-add and margined, fabricated set of projects on the quoting activity. [indiscernible]

Were the fabricated products also up 50% quarter-to-quarter? Or was that just the standard?

That was a part of the improvement in quotation activity, yes.

Okay. So that's a combined number. So you're finally seeing some movement in that area of the economy after being pretty weak for a long time?

Yes. And then what's positive about the actual incoming order rates is that that had greater weighting to orders for fabricated products. So yes, higher margins come with that. However, that's got a longer delivery schedule to it, hence it doesn't benefit the first half but should benefit our second half of 2014.

And then 2015 as well?

Yes.

Right, okay. Just as far as the full year guidance, you have on the slide a segment margin of 8.3% to 8.8%. That doesn't include, I guess, corporate expense?

Correct.

Where do you expect corporate to be for the year? And then can you give just like a quarterly run rate as well for 2Q and '14 [ph]?

In our remarks -- our remarks said that corporate expenses for the year would be about $18 million, which [indiscernible] I think close to 2% of sales.

Okay. And then will it be fairly even throughout 2Q, 3Q, 4Q as far as the spend? Will it be similar to 1Q's spend rate for corporate?

Yes.

Okay, great. And then one final one. I mean, I understand the puts and takes of the order inflow and the potential margin expansion. But what's the difference between hitting the low end and the high end of your full year EPS guidance range? Is it price mix? Is it volume as well? I mean, can you just talk about what needs to go right for you to hit the higher end of the range?

To hit the higher end of the range, as you've got some pricing improvement anticipated in the second half for our industrial and infrastructure markets as volume and market restoration occurs. And we have suspicion based on April rates that that may be underway. So we're -- we've anticipated some pricing improvement in the second half. We're also expecting that our efforts on infrastructure transportation projects, that we are going to capture an increasing degree of orders that will call for delivery in the second half. And over on Residential Products, we have anticipation that the repair and remodeling activity is going to be -- for the full year is going to be in the mid-single-digits. And should that be short of that for some reason, as homeowners generally don't undertake such projects, then we could have some softness in that assumption.

I think, Robert, the key thing here is we look at both the information we're getting directly from our various customers and various distribution channels and we couple that to the prognostications that come from the various industry groups. And there are 5 or 6 of those that relate to different portions of our -- of the end markets that we serve. And we try to correlate between what we're hearing directly from our salespeople and directly from our customers with what those prognosticators are saying about the balance of the year. As we all know, it's been difficult in the last 6 or 7 years for any of these organizations that do the forecasting to get it exactly right every time. And so we try to fine-tune what they're saying based on information that we're getting directly from our customers through our sales department. And that's why we give the range that we give. And it probably sounds a little bit strange to say this, but we try to be conservative because we'd rather overperform than underperform, even though we didn't do such a good job in the first quarter. But there, nobody took into consideration the unknown of an extremely long and difficult winter season. So we try to give a very realistic and achievable range based on the best information that we can synthesize.

Sure, sure. I understand that. Well, it sounds like the optimism from your end customers has improved quite a bit so that's encouraging. Hey, one quick one if I can...

It is encouraging. And we've been waiting for that for a long time, as you know.

All right. As far as the plant consolidation, where -- what part of the business was that? And what kind of was the impetus to do that now in 2014?

These are projects that we planned a long time in advance, and...

Both are in the residential segment.

Both are in the residential segment.

Well, 3 are in the residential segment.

And we are doing them because we see ways to reduce our footprints, reduce costs, so we're moving operations from one facility into another, eliminating the overhead that goes along with the facility that's been closed but also to get operation and shipping efficiencies. We're shipping to the same customer from 2 different facilities. The freight costs are going to be higher that way than if we produce it in 1 plant and ship it to that same customer from that single plant location. And those are the kind of things that we're constantly looking for.

Okay. So what type of product does it make? I -- the real question was why hasn't it been done earlier?

These are roofing-related products.

Roofing-related products. And then I mean, you guys have done a ton of consolidation over the past couple of years. I'm just curious as to why in 2014 you're taking out capacity. This was manufacturing capacity.

No, we're not taking out capacity at all. We have had success, continuing success with lean manufacturing techniques. Applying those methodologies has enabled us to free up space in existing larger facilities, manufacturing facilities, that can accommodate the incoming production capabilities from these smaller locations that we've -- are consolidating.

This is about efficiency, not about capacity reduction at all. And in fact, in the consolidation that is taking place, we've actually expanded our capacity by doing this because you get faster throughput and more efficiency, yes.

You're more productive in the existing plant. Got it.

More productive, yes.

Got it. So how many more are on the board as far as potential cost savings over the next maybe year or 2?

It's to be determined as we review the ongoing successes of lean manufacturing efforts that all of our plants have undertaken and do undertake every year. So we'll see how those progress and how much space becomes available and how throughput rates improve.

And we do not anticipate taking any earnings charge for this consolidation effort. We're absorbing it through normal operating expenses.

[Operator Instructions] Our next question is coming from the line of Yilma Abebe with JPMorgan.

This is Andrew West for Yilma. I was looking for a little bit more color around M&A, maybe what segments you're looking at adding to and what kind of multiples you're seeing in the market right now.

Actually, at this point in time, we have the most robust list of acquisition opportunities that we've had in quite a while. And we're happy to see that. We're looking pretty much across the whole spectrum of our product line, although our focus is on looking for businesses that generate higher operating margins and returns than our targeted 10% operating margin. We're looking for businesses that can add to our existing product leadership positions or broaden the base of products that we're taking to specific markets. The size of the company and the margins that the business -- the acquisition generates play a role in dictating what the P/E multiple for that business will be. The bigger the company and the bigger the operating margin, obviously the higher the P/E would be. But we're seeing businesses now looking towards 7.5x to 8x, 8.5x P/E multiples.

And any color you can provide on what kind of leverage you'd be comfortable with for any of these acquisitions?

Well, we've been pretty consistent in delineating our comfort level with multiple -- or leverage. And we'd like to stay 3x, 3.5x even after having made acquisitions. Although it may be slightly higher immediately after making the acquisition, but we focus on paying the debt down before we lever it up beyond that.

At this time, we have reached the end of the Q&A session. I would now turn the conference back over to Mr. Lipke for any additional or concluding remarks.

Thanks, operator, and thanks, everyone, for being on the call today. We look forward to speaking to you about our second quarter and 2014 earnings results on August 5 of this year. Thanks again for your time, and this concludes our call.

Thank you. Ladies and gentlemen, thank you very much for your participation in today's conference call. You may now disconnect, and have a wonderful day.