PGT, Inc. PGTI provided an update on the previously announced WinDoor acquisition, stating that its Enterprise Resource Planning (ERP) implementation is in its final phase. The company also raised its fourth-quarter guidance. Moreover, the company has achieved its highest annual sales in its 35 years of operations by surpassing $372 million dollars this week. PGT shares gained 5.5% on these news to close at $11.71.
Update on WinDoor Acquisition
On Nov 30, 2015, PGT had announced the acquisition of Orlando, FL based high performance windows and door maker, WinDoor, in a deal valued at $102 million. The acquisition will be accretive to earnings within 12 to 18 months. It will diversify PGT’s portfolio and enhance its leadership position in the growing impact-resistant window and door industry.
For over 15 years, WinDoor, from its 320,000 square foot facility, has been manufacturing high-performance, impact-resistant windows and doors for five-star resorts, luxury high-rise condominiums, hotels and custom residential homes.
Venice, FL-based PGT is a leading manufacturer and supplier of residential impact-resistant windows and doors. The acquisition will add the WinDoor brand to its trusted brands, namely, PGT Windows & Doors and CGI Windows & Doors. All three units focus on serving the impact-resistant window and door industry. The acquisition is in sync with PGT’s plan of growing strategically while boosting earnings growth through targeted acquisitions of complementary specialty products.
The acquisition will combine PGT’s breadth of capabilities and resources with WinDoor’s specialty expertise in areas such as thermally-broken products and award-winning doors. This will allow the company to present an unmatched impact-resistant product offering to consumers, builders, and architects, thereby adding to its competitive edge. PGT will have a stronger foothold in the commercial and high-end fenestration markets and it will help strengthen its ability to compete against national suppliers and other storm protection systems.
The acquisition will strengthen PGT’s strategic position in the core Florida market. On the other hand, it will provide geographic diversification outside of Florida such as thermally-broken products for commercial, residential high-rises and colder climates.
PGT expects potential cost synergies from the acquisition such as enhanced purchasing power for input materials, distribution savings, and SG&A savings and balance sheet synergies of reducing working capital and capturing other efficiencies. Moreover, this will lead to increased free cash flow generation that will enhance the company’s options for accelerating growth, retiring debt and returning capital to shareholders
Pursuant to customary closing conditions, the transaction is expected to close in the middle of first-quarter 2016. Upon completion, WinDoor will become a wholly-owned subsidiary of PGT. WinDoor will continue to manufacture products from its Orlando, FL facility as a separate brand.
Update on ERP Implementation
PGT stated that it is currently in the final phase of a multi-year ERP implementation, which will help improve the management of in-process raw materials, automate the multi-facility functions for transfers, invoicing, and reporting and to streamline business management processes and operations.
The new capabilities are in line with the company’s vertical integration requirements. Given that it will enhance operational, management, and executive reporting and decision support, it has a crucial role to play in growth and expansion.
During the first phase, all support departments which included functions such as Accounting, Accounts Receivables, Accounts Payables, Purchasing, Order Entry, were moved into the new system in advance of the three primary manufacturing areas and are fully operational on the new system since Sep 2012. The Main Glass Processing portion of the implementation, which includes cutting, laminating, and tempering, has been completed and fully operational since Jan 2015.
PGT stated that difficulties experienced with the sequencing portion of the Insulated Glass implementation which had impacted third-quarter operations, have now been resolved. Furthermore, given that no new system functionality remains to be introduced and testing in Vinyl and Aluminum Assembly has been in a live environment for almost a year, no material risks remain for execution. Also, both the legacy and the new ERP systems are currently running in parallel which allows for the remaining unit volume in Insulating Glass (30%) and Assembly (55%) to be gradually converted. PGT stated that considering the vast majority of the implementation is complete, and successful performance completed in each functional area, the remaining implementation can be carried out without significant risk to the business.
Hikes Q4 Sales Guidance
PGT increased its fourth-quarter sales guidance to $90???$92 million from its previous guidance of $88???$92 million given recent strength in orders. The guidance reflects a year-over-year increase of 6-9%.
PGT also noted improvement in other metrics such as average shipments per week which were at $7 million (up 6% from September), increased daily production in its new WinGuard Vinyl and EnergyVue lines up to 350 per day. The company stated that its third laminating line is up and running, increasing laminating capacity by 50%. Key scrap metrics has all shown improvement over the past six weeks. PGT expects fourth-quarter adjusted gross margin to be approximately 30.5%.
PGT is poised to benefit from improving production flows, a decrease in lead-time and increase in backlog. The company also aims to expand its glass capacity with the addition of more glass cutting and tempering equipments.
PGT currently has a Zacks Rank #4 (Sell). Some better-ranked stock in the sector are Gibraltar Industries, Inc. ROCK, Quanex Building Products Corporation NX and Masco Corporation MAS. While Gibraltar Industries and Quanex sport a Zacks Rank #1 (Strong Buy), Masco holds a Zacks Rank #2 (Buy).
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