Huttig Building Products Inc. (NASDAQ:HBP) Q2 2020 Earnings Conference Call - Final Transcript
Aug 04, 2020 • 11:00 am ET
Jon P. Vrabely
was available at the time, we developed a comprehensive plan and financial model for the second and third quarters of 2020. The plan and financial model drove the actions we executed in the month of March and April. We acted quickly, aggressively and decisively to adjust our cost structure and working capital levels across the entire organization to mitigate an anticipated precipitous decline in sales related to the COVID-19 pandemic. Our actions focused on rightsizing personnel levels; reducing overall personnel costs; suspending all nonessential discretionary spend, including plant capital expenditures; and reducing our inventory levels. Our second quarter operating results were significantly better across every key metric than our initial internal COVID-19 financial model and also reflect marked improvements over the prior year quarter in terms of net operating results, working capital and liquidity. In light of the serious pandemic-related challenges to the U.S. economy that we continue to suffer as well as all of the pandemic-related challenges we have faced, we are generally pleased with our second quarter performance, and we'll make necessary adjustments as the environment continues to evolve.
I will now turn the call over to Bob to discuss our second quarter operating performance.
Thank you, Jon. Good morning, everyone. I will provide an update on our operational sales initiatives and discuss specific factors that affected our second quarter performance. Phil will then discuss our overall financial performance for the quarter. From an operational perspective, we are very proud of our associates in the way they responded in a very challenging environment. As Jon stated, these are unprecedented challenges faced throughout our entire organization from both a professional as well as a personal perspective.
Turning to our operating results. Our sales decreased $26.5 million or 12.1% in the second quarter of 2020. After a nearly 3% increase in net sales in the first quarter, the second quarter decline was caused primarily by changes in the operating environment created by the pandemic. The impact on our sales was further pronounced as certain key suppliers experienced pandemic-related supply chain disruptions.
The challenging environment slowed momentum from our strategic sales initiatives, though we did achieve growth in certain key product categories. As discussed in our most recent earnings call, in addition to our national growth strategy, we have established branch-level sales initiatives based on local market opportunities. These initiatives are designed to generate profitable sales growth while addressing the needs of our locally based customers. Our sales in strategic categories are generally at higher margins as compared to other categories, and our efforts to shift product mix toward non-commoditized products are generating the overall desired results. Though total gross margins were down 10 basis points in the second quarter as compared to last year, this reflects the shift in sales mix, including a higher proportional level of direct sales. The shift in sales mix was in part driven by supply chain disruptions in certain product categories. On a year-to-date basis, our gross margins have increased 60 basis points to 20.2%.