Masonite International (DOOR) Q1 2020 Earnings Call Transcript

Masonite International (DOOR)
Q1 2020 Earnings Call
May 06, 2020, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Masonite's first-quarter 2020 earnings conference call. [Operator instructions] Please note that this conference call is being recorded. I would now like to turn the call over to Joanne Freiberger, vice president and treasurer.

Joanne Freiberger -- Vice President and Treasurer

Thank you, and good morning, everyone. We appreciate you joining us today. In light of the COVID-19 pandemic and various stay-at-home orders, we've prerecorded our call and have team members dialed-in from multiple locations to support the live Q&A session. Joining me on the call today are Howard Heckes, Masonite's president and chief executive officer; and Russ Tiejema, Masonite's executive vice president and chief financial officer.

We also have Tony Hair, president of global residential; and Randy White, senior vice president of global operations and supply chain, joining us for our Q&A session. We issued a press release and WebEx presentation after market closed yesterday, sharing our first-quarter 2020 results. These documents are available on our website at masonite.com. Before we begin, I would like to remind you that this call will include forward-looking statements.

Each forward-looking statement contained in this call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears in the section entitled Forward-Looking Statements in the press release that we issued yesterday. More information about risks can be found under the heading Risk Factors in Masonite's most recently filed annual report on Form 10-K and our subsequent Form 10-Qs, which are available at sec.gov and at masonite.com. The forward-looking statements in this call speak only as of today, and we undertake no obligation to update or revise any of these statements.

Our earnings release and today's discussion include certain non-GAAP financial measures. Please refer to the related reconciliations, which are in the press release and the appendix of the WebEx presentation. Our agenda for today's call includes a business review from Howard with a specific focus on COVID-19, followed by a review of the first-quarter results from Russ along with some finance specifics related to COVID-19, and then closing remarks from Howard and a question-and-answer session. And with that, let me turn the call over to Howard.

Howard Heckes -- President and Chief Executive Officer

Thanks, Joanne. Good morning, and welcome, everyone. As Joanne mentioned, before I review our outstanding results for the quarter, I'd like to address the No. 1 issue facing all of us right now, COVID-19.

First, I want to acknowledge that our thoughts are with those most affected by the pandemic, including first responders and medical professionals working on the front lines of the crisis. With respect to Masonite, I'll provide an overview of our response to date and how it has impacted us over the last two months. Then I'll briefly provide the current state of affairs for the company and what's happening in our markets. On Slide 5, we've laid out a time line with some key dates related to the COVID-19 situation and how we've responded to those events starting on March 1.

While our sourcing team had taken actions to protect our supply chain in Asia prior to this date, the first week of March was the beginning of COVID-19's impact on our primary end markets. Given our foremost priority is employee health and welfare, the first thing we did was to communicate to our employees the CDC guidelines for reducing the spread of the virus and posted them in our facilities. A few days later, we followed up with a business travel band of those countries where the CDC and the U.S. State Department had issued a Level 3 travel health notice.

As the COVID-19 situation rapidly progressed in early March, so did our efforts to protect our employees, operations and finances. We promptly formed a cross-functional COVID-19 response team to assess potential business impacts and implement mitigation strategies. This team has been meeting daily since March 12 with a weekly update to Masonite's Board of Directors. By the middle of March, research indicated that social distancing is an important step in reducing the spread of the virus.

Accordingly, we took a two-pronged approach to enable social distancing at Masonite. For those individuals whose work allows it, we asked them to work remotely. For production-related employees in our factories, we modified work procedures and facilities to support social distancing. We have also adjusted attendance and vacation policies to provide greater flexibility with the goal of helping employees manage personal demands that may arise during this crisis.

Around the same time, we recognized the need to expand the COVID-19 response team into work streams focused on specific areas, each with a senior leader in the organization overseeing the efforts. These work streams are employee welfare, supply chain and operations, customer engagement, financial stability and communications. In late March, we temporarily idled three Canadian and in one Chilean facility. Shortly thereafter, we temporarily idled our U.K.

and Ireland manufacturing facilities. I won't go into detail on each idling and reopening over the last six weeks. Instead, I'll provide a framework for our approach to navigating this situation. We take the health and safety of our employees seriously.

We also take our commitment to customers and the broader community seriously. In most areas where stay-at-home orders or the equivalent have been issued, we are exempt because we are considered an essential business. Beyond serving the obvious need for residential housing, which in itself is typically defined as essential, an important vertical in our architectural business is hospitals and healthcare facilities. We received several orders for temporary hospitals, and our doors are being actively installed in facilities that are helping respond to the COVID-19 crisis.

Accordingly, we remain committed to running our operations in such a way that prioritizes the health and safety of our employees, while servicing our customers and other stakeholders in a responsible manner. With this time line in mind, let's discuss where we are today in the current state of affairs. Starting with employee welfare, it's important to note that all additional safety actions implemented at facilities remain in place. As mentioned, in mid-March, we took steps at our manufacturing facilities to support social distancing, such as modifying work schedules to reduce employee contact during shift changes and adjusting break times to limit the number of employees on break at any given point.

We've also made physical changes to further protect employees, such as creating additional break areas to help reduce employee density and switching from biometric time clocks where employees needed to make physical contact with the device to time clocks, which utilizes a swipe card. Additionally, we successfully secured personal protective equipment, or PPE, for manufacturing employees and instituted temperature checks at our facilities. I am pleased to say that for those employees whose roles allow remote work, 100% of those individuals are now equipped to do so. This is a testament to our IT organization's flexibility and resourcefulness.

They quickly took action and ensured our network and data systems could support the increased traffic and helped enable us to work remotely. Overall, we are proud of the steps we have taken, and we believe these precautions have helped minimize exposure and virus spread within our facilities. Moving to supply chain and operations. In one way or another, all of our facilities have been impacted by COVID-19.

Even before we idled our first facility, the additional measures we implemented to protect employees had an impact on productivity. Currently, our North American facilities are operating within the guidelines of the different stay-at-home orders from their respective jurisdictions, which are often unique and can change quickly. While we initially saw a spike in the rate of absenteeism, we have subsequently seen that number stabilize. We understand that employees are facing personal challenges and changes to their daily lives because of COVID-19.

And as a company, we want to support them. Beyond adjusting attendance and vacation policies, as mentioned earlier, we have also made attendance voluntary at locations where Masonite's operations are exempt from applicable stay-at-home orders and continue to operate. To date, our U.K. operations and our Ireland spacings facility remain idled with only a small handful of employees working remotely to meet administrative needs.

Lastly, our supply chain remains secure, largely due to the exemplary effort of our global sourcing team. Shifting to the right of the slide on our customers and markets. Since late March, all indications point to a meaningful decline in U.S. residential construction, confirmed by our regular conversation with builders and distribution partners.

While these numbers can vary meaningfully by company and region, some of these declines are significant. At the end of March, some U.S. homebuilders had indicated that cancellation rates were multiples of historical norms. These cancellation rates also differ greatly between builders, which speaks to the uncertainty and regionality of the impacts, but all these factors have begun to adversely impact demand in the wholesale channel.

We have also seen some softening in retail POS, although it remains volatile. While big-box stores are open in most areas, many retail locations have imposed restrictions on the number of customers allowed inside at any given point or the stores have been ordered to sell only essential goods, thus impacting demand for our products. On the architectural side of the business, we see many existing projects progressing. However, the Architectural Billing Index saw a historic 20.1-point drop in March, indicating a likely future contraction in the demand for our products.

We continue to closely monitor U.K. builders, and some are now starting a phased reopening of building sites. We will resume operations at the appropriate time to support customer demand, while protecting the health and welfare of our team. We began to recall people this week in preparation for restarting limited production next week.

While our focus is on managing through the current uncertainty, we are also taking actions to ensure that we position ourselves to emerge even stronger. We have created a separate growth and momentum team that has been tasked to prioritize investments and resources to build upon the momentum we were enjoying in the fourth quarter of 2019 and the first quarter of 2020. Additionally, this team is focusing on new and different opportunities that might present themselves in a post COVID-19 world. By keeping one eye on the future, we believe we can stay ahead of the competition and capitalize on opportunities going forward.

Now let's briefly take a look at our first-quarter results before I hand the call over to Russ. Our first-quarter 2020 financial results were very strong. Most importantly, our North American pricing strategy had taken hold. Net sales increased 4% year on year in the quarter, primarily due to base volume growth in our North American residential segment, along with continued gains in AUP across all segments.

We saw our fifth consecutive quarter of year-on-year adjusted EBITDA margin expansion, delivering margin expansion across all business segments. COVID-19 had a modest financial impact on the company in the quarter. Russ will provide a little more color on this shortly. Finally, as mentioned in our March 27 press release, we have temporarily suspended our share repurchase program to preserve cash and protect liquidity.

Moving to the right side of the slide, we've noted some of our business and operational highlights in the quarter. We had a good start to the year operationally with another strong quarter of MVantage operating system execution and deployment across the company. The sourcing organization continued to perform exceptionally well. In addition to help mitigate potential supply chain issues due to COVID-19, they delivered sourcing savings in excess of inflation and tariffs for a second consecutive quarter.

We saw increased savings in the first quarter from our previously executed restructuring. These savings were in line with our expectations for the quarter, and we believe we are still on track to realize savings of roughly $10 million for the full year. As mentioned, we did begin to see operational impacts related to COVID-19 starting in the back half of March. Subsequent to quarter end, we are feeling a more significant headwind.

Our consolidated net sales in April were down nearly 25% year on year, influenced primarily by the fact that our U.K. and Ireland operations were idled for the entire month. The balance of the business was down low teens compared to prior year due to a combination of capacity constraints impacted by temporary plant closures and absenteeism and reduced demand. Before I hand the call over to Russ, I would just like to add that as I approach my one-year anniversary of joining Masonite, I am very proud of our team's accomplishments during that time, and want to thank the roughly 10,000 Masonite employees focused on executing our strategy.

Our first-quarter results were exceptional, reflecting a glimpse of the business' potential and serving as a proof point that the strategy was working. While the near-term will be overshadowed by the pandemic, we will stay focused on developing solutions to these immediate challenges with a keen eye on regaining this first-quarter momentum following the COVID-19 crisis. With that, I'll turn the call over to Russ to provide more details on our financials. Russ?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Thanks, and good morning, everyone. Similar to Howard, I'll briefly address the first quarter but focus the bulk of my comments on COVID-19. Let's turn to Slide 10 for a summary of our financial results in the first quarter of 2020. We had net sales of $551 million, up 4% as compared to the first quarter of 2019.

Average unit price growth of 4% was the largest contributor as we saw year-on-year AUP increases across all three of our business segments. Despite an estimated net sales headwind of roughly $9 million or 2% related to COVID-19, base volume contributed an additional 2% as our North American residential business returned to positive year-on-year growth in the first quarter. Segment growth was partially offset by a 2% decrease from the combined impact of divestitures and unfavorable foreign exchange. We had exceptionally strong gross profit and gross margin performance.

Gross profit was up almost 20%, with gross margin expanding 330 basis points versus the prior year to 24.4%. This growth was primarily driven by AUP, along with the benefit of excellent results with our material cost savings projects. SG&A spending was up $2 million, compared to the prior year, more than explained by a $3 million increase in legal costs related to the GRUB lawsuit. Absent those higher legal costs, SG&A as a percent of net sales would have dropped by approximately 70 basis points.

Net income for the first quarter was $30 million as compared to $4 million in the first quarter of 2019. Diluted EPS was $1.19, while adjusted EPS was $1.24, excluding the impact of $1 million in charges related to previously announced restructuring plans. This compares to $0.81 of adjusted EPS in the first quarter of 2019, which excluded the impact of $17 million in charges related to restructuring and the U.K. divestitures.

Adjusted EBITDA increased over 24% to approximately $82 million, while adjusted EBITDA margin expanded 250 basis points to 14.8%. Shifting to the right of the slide and our adjusted EBITDA bridge. AUP was again the primary driver of growth this quarter, although we also realized a meaningful benefit from higher volume in the North American residential segment. Material costs were a net tailwind in the first quarter.

Our global sourcing team continues to execute very strongly against their initiatives to drive material cost savings as an offset to inflation. This allowed us to more than offset commodity inflation of approximately 2%, inclusive of tariffs. The second quarter of 2020 will be the last quarter we see the year-on-year impact of the Section 301 tariffs as we will lap the final 15% implementation date in May. Factory costs were higher in the quarter due principally to ramp-up and relocation costs.

Savings realized from our restructuring initiatives, along with favorable labor productivity, were sufficient to fully offset wage and benefit inflation and the impact of volume deleverage we incurred late in the quarter due to COVID-19 facility disruptions. Distribution costs remained higher versus the first quarter of 2019, due to the shipping lane changes that we noted on prior calls to better service existing retail customers on the West Coast. Turning to Slide 11 and our North American residential segment. Net sales increased by almost 9%, compared to the prior year, primarily due to a 5% increase in base volume and over 3% higher AUP.

Strong end market demand, not only supported stronger base volumes, but also helped drive higher AUP. Given that we successfully implemented our new pricing strategy on February 3, the strong demand throughout the quarter helped us realize more price following the increase than originally anticipated. The segment delivered another exceptional quarter of adjusted EBITDA performance, which was 34% higher than the prior year, with margins increasing 350 basis points. Margin expansion was primarily due to higher AUP, coupled with solid operations and supply chain performance as the segment benefited from our global sourcing teams savings projects.

We had roughly $2 million related to 2019 restructuring savings, which more than offset new factory start-up costs in the quarter. Moving to Slide 12 and our Europe segment. Net sales decreased by approximately 16% year on year driven primarily by a 9% decline from the impact of divestitures. Base volume declined 8%, roughly half of which was directly related to the impact of COVID-19 in the later part of March, and the remainder driven by weaker demand in the U.K.

builder channel. Foreign exchange contributed approximately 2% to net sales declines in the quarter. AUP growth of 3% was a partial offset to these headwinds. Despite the meaningful decline in net sales, adjusted EBITDA in Europe was down only slightly, delivering another quarter of strong margin expansion.

Adjusted EBITDA margin for the quarter was 13.7%, 180 basis points higher than the same period last year, reflecting the benefit of prior-year divestiture of noncore U.K. businesses, as well as higher AUP. Turning to Slide 13 and the architectural segment. Net sales increased by 7% in the first quarter, principally due to AUP, which continued to benefit from higher pricing on projects quoted in the first half of 2019, as well as a richer product mix from more complex, higher value projects.

While higher product complexity is generally beneficial from an AUP standpoint, it can absorb greater production capacity. We observed this in the first quarter with base volumes down approximately 2% as we delivered more complex projects in Canada. This base volume headwind was largely offset by slightly higher sales of door components. Architectural delivered strong adjusted EBITDA and adjusted EBITDA margin in the quarter.

Adjusted EBITDA was 40% higher than the prior year with margin increasing 270 basis points. Margin expansion was primarily due to higher AUP, partially offset by the relocation costs I noted earlier as a result of moving two existing quick-ship operations to larger facilities. This is an example of our continued investment to enable further growth in higher-margin areas of the business. Lastly, we made solid progress on the operational issues we experienced in the fourth quarter of 2019.

On our last earnings call, we laid out a number of actions we had taken to address the issues. While it's too early to claim victory, we were pleased to see direct labor productivity improved sequentially across all four of our large U.S. architectural assembly plants in the quarter. On Slide 14, you can see we exited the quarter with a strong balance sheet.

Total available liquidity, including unrestricted cash and accounts receivable purchase agreement and our undrawn ABL facility was $315 million or approximately 14% of our trailing 12 months net sales as of March 29, 2020. Net debt was $677 million, and we ended the first quarter with net debt to adjusted EBITDA leverage at 2.3 times. Prior to temporarily suspending our share repurchase program on March 18, we repurchased 567,000 shares, totaling approximately $35 million in the quarter. Now I'd like to shift focus and speak about COVID-19 and our thoughts on navigating the current environment.

The uncertainty around the depth and length of the pandemic's economic impact led us to temporarily withdraw our annual outlook. Our intent is to provide an updated full-year outlook when we have better visibility to the timing of an economic recovery and how quickly demand can rebound in the end markets that we serve. Despite near-term uncertainty surrounding these factors, we believe that the meaningful changes made at Masonite, since the last downturn, positioned the company to effectively deal with the present situation. On Slide 15, we've outlined a number of factors that illustrate how Masonite has changed since that time.

First, we have a considerably leaner footprint compared to 2006 before entering the prior housing market downturn in North America. Following the Great Recession, we reviewed our global footprint and took purposeful actions to take capacity offline and exit operations in countries where we did not have a path to establishing a leadership position. This decision led to the shuttering of numerous North American facilities, we also closed or divested almost all of our operations in Continental Europe, while building a much stronger platform in the U.K. The result of these actions and others is a 28% decline in the number of manufacturing and distribution facilities, as well as a 56% decline in the number of countries we operate in.

This reduced footprint, coupled with our focus on leveraging MVantage to yield more efficient operations, has reduced our global headcount by more than 23% over this period. Similarly, our financial position has greatly improved by virtue of a much stronger balance sheet. Our long-term debt currently includes $800 million of unsecured bonds, with two tranches that mature in 2026 and 2028, respectively. This represents a 60% reduction in total debt outstanding, and cash debt service costs that are over 75% lower than in 2006.

Another key difference is the state of the overall housing market and our position within it. Housing starts were considerably higher going into the Great recession, peaking at over 2 million units on a seasonally adjusted annual rate in 2005 before resting at approximately 1.8 million units in 2006, just ahead of a dramatic downturn in 2007. We believe the environment today is quite different with current demand trends not indicative of cyclicality in the housing market. We also believe there is still a fundamentally robust platform for further growth in housing as evidenced by strong growth in housing starts in the first quarter this year, ahead of health concerns and the broader implementation of shelter-in-place orders that impacted buyer behavior.

Finally, our broader portfolio of offerings better position us to weather uncertainty. In addition to our efforts to build out our U.K. business, we executed a similar strategy to better serve nonresidential construction markets in North America by leveraging acquisitions to create our architectural segment. We believe these actions have transformed the business in a way that strengthens us to compete across various verticals within each market and across economic cycles.

Turning now to Slide 16. Let's recap some of the cost management actions we've taken to date and future actions contemplated as part of our scenario planning. As governments around the globe began to restrict activities and travel to reduce the spread of the virus, it became apparent that the global economy would be negatively impacted. With both health and cost in mind, we halted all travel spending and eliminated nonrequired training expenses, except essential safety and compliance training.

We reviewed our capital spending and prioritized critical maintenance, safety and regulatory projects, and all other capital investments will be carefully scrutinized. We deferred merit increases for our salaried employees and we limited hiring to prioritize critical open positions. As we entered April, we saw the effects of the pandemic spread more broadly to the economy and have a larger impact on our business. Accordingly, we implemented more stringent cost actions to preserve liquidity and cash flow.

These actions included a temporary base pay reduction of 20% for all U.S.- and Canadian-salaried employees, not directly engaged in our manufacturing operations. This reduction was implemented across all levels of the organization, including the cash retainers paid to the board of directors. Given the decision to temporarily idle our U.K. and Ireland manufacturing facilities, we furloughed the vast majority of our employees in those countries, while providing partial wage continuation.

Additionally, our business segments and corporate functions revisited their spending plans to identify all operating expenses, which could be reduced or deferred. While these decisions were difficult given the impact on our employees, we feel they were appropriate steps to maintain financial stability in the face of very uncertain market conditions. Our finance team has modeled business conditions across a number of scenarios. We understand that no one knows the ultimate depth or length of the economic downturn, thus developing a playbook for a variety of potential outcomes is prudent.

With that in mind, our business and functional leaders created a sliding scale of incremental cost actions, as well as triggering events that would lead us to implement those actions. In broad terms, scenarios we considered range from a rapid recovery beginning later in the second quarter to a deep and protracted downturn that impacts the demand for our products for an extended period. In each, we would take actions appropriate to scale the size and capacity of the business for the demand outlook. To be clear, we would refrain from taking drastic actions too quickly and risk impacting the company's ability to rebound with the recovery in our end markets and return to the revenue and margin growth trend we delivered in the first quarter.

In all scenarios, we're focused on threading the needle between managing costs in the near term with maintaining an appropriate level of investment for the long-term health of the company. Let's move to Slide 17, where I'll provide further context on the cost structure of our business, as well as capital and liquidity considerations related to COVID-19. Beyond the actions taken to proactively manage expenses, we are fortunate to have a highly variable cost of goods sold structure. Using our full-year 2019 results as a guidepost, approximately 52% of our COGS is direct material, while approximately 15% is direct factory labor.

Thus, two-thirds of our COGS would be considered almost fully variable with production levels. Approximately 20% of COGS is associated with overhead costs, including noncash expenses such as depreciation, majority of which would be fixed. And the remaining COGS would be distribution expense, a majority of which is variable. In total, we estimate that roughly 80% of our cost of goods sold is therefore variable.

This cost structure affords us the ability to effectively react to changes in demand over time, recognizing there can be delays in flexing certain labor and overhead costs upon rapid changes in production. As I noted earlier, we've modeled a variety of scenarios to develop our cost management playbook. We also developed detailed cash flow projections from these scenarios to stress test our balance sheet and liquidity. Our analysis indicates it would likely require a full idling of our companywide operations and zero revenue for as long as a full quarter, a scenario, we believe, is highly unlikely at this point to yield a cash burn rate that would prompt us to seek alternative sources of liquidity.

Shifting to the center of the slide, it's important to note that a majority of our capital spending is typically focused on strategic and growth-related projects. Affording us flexibility to meaningfully reduce it if required. That said, we plan to be thoughtful about maintaining at least some strategic spending where possible as our goal is to strengthen our position during the downturn and regain momentum quickly as we emerge from the COVID crisis. In addition to the temporary suspension of our share repurchase activity, we also suspended discretionary contributions to our U.S.

pension plans, which totaled $5 million in both 2018 and 2019. Shifting to the right, some additional detail regarding our liquidity profile. We've taken significant steps to create a strong foundational capital structure, knowing that would serve us well during a cyclical downturn or uncertain times such as these. Our bonds are unsecured and covenant-light, which in combination with our undrawn ABL, leave us with no secured debt outstanding.

While our current scenario planning indicates it's highly unlikely we would need to access the capital markets further, we believe we are well-positioned to do so, should we decide that is prudent. Before I close out my section, let me offer some additional perspective on how the business performed in April. As Howard noted earlier, we saw net sales slow meaningfully across the company, but more dramatically in our Europe segment due to the temporary idling of most operations in that region. That said, despite the impact to our top line, we were able to maintain double-digit EBITDA margins in April, in part, due to the quick steps we took to contain costs.

As we progress through the quarter, it's only reasonable to assume it may be more difficult to retain margins at this level, particularly if we experience growing volume declines and weaker decrementals as a result. We exited April in an even stronger position from a liquidity standpoint with our ABL remaining undrawn and total available liquidity of $384 million, up 22% compared to the end of March. So in summary, we feel good about the levers we have to manage the cost and capital structure of the company and the flexibility our balance sheet provides to weather the current storm. With that, I'll turn it back to Howard for closing remarks.

Howard Heckes -- President and Chief Executive Officer

Thanks, Russ. I'm extremely proud of the organization's first-quarter performance and the resilience and grit our team continues to show as we navigate this health crisis. Our first-quarter results were strong with solid year-on-year sales growth and continued adjusted EBITDA margin expansion. These results validate that our North American pricing strategy was a success and coupled with a strong operational start to the year, helped us build continued momentum in the first quarter.

The current global pandemic has clearly presented us with a larger challenge in the near term. With safety as our priority, we are doing everything we can to protect our employees' health and welfare. Our employees are our greatest asset, and taking care of them creates the foundation to help us continue to service customers and create value for shareholders over the long term. We entered this pandemic from a position of strength, growing margins, improving AUP, operations running well and with a strong balance sheet.

Importantly, our team has tasted success, and that inspires us to lean in and to do more than just manage through the crisis. We are working hard to ensure we take the right actions at the right time to successfully emerge from this. During the past six weeks, people have spent a lot of time in their homes, and we believe that in the long term, the home comes out of this as a winner. Without diminishing the near-term tragedy of the pandemic, we need to remember that there will be better times ahead.

No one knows how consumer demand will change as a result of COVID-19, but preferences will change and new needs will develop. As people stay home and rediscover the sanctuary a home provides, we plan to adapt to the ever-changing needs and to provide them with doors that do more. Before I open it up to questions, I'd like to remind you that we are dialing in remotely from separate locations for this call. As such, I will hand off questions to various team members by name to avoid us talking over each other.

Hopefully, this will make the Q&A session go smoother. Operator?

Questions & Answers:

Operator

Thank you, Mr. Heckes. [Operator instructions] Our first question is from Tim Wojs from Baird. Please proceed with your question.

Tim Wojs -- Baird -- Analyst

Hey. Hey, good morning, everybody. Nice job on the quarter, and hope you're safe.

Howard Heckes -- President and Chief Executive Officer

Good morning, Tim. Thank you.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Thanks, Tim.

Tim Wojs -- Baird -- Analyst

I guess, first question I had was, maybe if you could just, Russ, add a little bit of color on what we should think about for kind of the initial decremental margins on volume. And I'm just trying to kind of run through a bridge maybe, if you could, on just how we should think about the decrementals on volume and then how we should add back things like price and some of the restructuring initiatives that you've done?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

OK. Thanks for the question, Tim. Let me start here. Let me take you back to some of the commentary that we offered on our Q4 call, where we laid out our outlook for 2020.

And at that time, we acknowledge that there was a certain amount of uncertainty around volume with respect to how the market would react to the new pricing strategy that we've put in place. And as a result, we acknowledge that if we were to see a sharp and rapid downturn in volume, it would likely take us some time to flex out our direct labor and overhead cost in line with that. And as a result, we would expect to see decrementals that are much higher. We typically have guided to an incremental volume alone of approximately 25%, but we've acknowledged that it could be much greater than that on the downside, again, depending on how quick volume comes out and where that volume is regionally based.

And in fact, I even think we said, it could be as much as a 50% decremental. We're still evaluating what the market situation is here. Clearly, we were very pleased with our results in April. We did not experience decrementals to speak of in the month as witnessed by my prepared comments around our margin performance in April.

But that said, I don't want people to read that through to the balance of the quarter because we took very rapid cost action to take cost out of the business. We also saw the full benefit of our pricing actions in April. And so at this point, it's really going to depend on what volume does the balance of the quarter in response to market conditions, and what we can do to adjust our cost situation between now and the end of the quarter. I guess, the last point that I would add is that we're going to be really thoughtful about taking incremental cost actions that fundamentally pull resources out of the business.

Because our viewpoint is, is that this is an exogenous shock to the industry, it's not in any way indicative of cyclical demand cycles. And as a result, when this thing passes, there will be, we believe, a rebound in the market. We want to make sure the company is positioned from a capacity and headcount perspective to rebound with it.

Tim Wojs -- Baird -- Analyst

OK. OK, that's helpful. I appreciate that color. And then, maybe just kind of switching to sales trends.

Could you maybe expand a little bit on what you're seeing specifically in North America? And I'm not sure if you could break it out by channel, but I think that would be helpful.

Howard Heckes -- President and Chief Executive Officer

Yeah, Tim, I'll start with that, and I'll turn it over to Tony, who's on the call as well. I assume you're talking about April specifically?

Tim Wojs -- Baird -- Analyst

Yeah, please.

Howard Heckes -- President and Chief Executive Officer

Yeah. Sure. Obviously, we were temporarily idled in our European segment, which essentially meant we had nearly zero revenue out of Europe. And so that nearly 25% decline in April was largely driven by what happened in Europe.

In North America, the combined businesses were down low teens. And that was really a combination of both, we believe, some softer demand, as well as some capacity constraints that were in our system based on some of the tenants policies and absenteeism and things like that that we saw in our factory. So Tony, would you like to add any additional color there?

Tony Hair -- President, Global Residential Business

Yeah, Howard, thanks. I would say, Tim, that certainly, if you look across the residential business in North America, where we service the hospital, there is certainly an initial shock in builder reaction as we watch some of them. A couple of cases completely stopped building for a while and then modified their building practices as they move forward. So in the wholesale area, we would certainly see a little lightening of demand over time with that.

Fortunately, all those builders have publicly come back and said they have started to see improvement through the course of April in terms of their order rates, so we're interested in and how that will translate to us. On the retail side, certainly, our unit POS was a little bit volatile, but better than we had anticipated when we started into the COVID-19 impact planning and the scenarios that Russ mentioned. And we started also with a larger-than-normal order backlog, and we've not seen cancellations of those orders. And so while we're watching very closely, to Russ's point, we don't know what the full-quarter dynamic will look like, I would say, April played out better than we had anticipated in a lot of our scenario plan.

Tim Wojs -- Baird -- Analyst

OK. OK, that's great. Good luck on the rest of the year here, and hope you stay safe.

Tony Hair -- President, Global Residential Business

Thanks, Tim.

Howard Heckes -- President and Chief Executive Officer

Thanks, Tim.

Operator

And our next question is from Kevin Hocevar from Northcoast Research. Please proceed with your question.

Kevin Hocevar -- Northcoast Research -- Analyst

Hey, good morning, everybody. Nice start to the year, and thanks for all the detail you guys have provided here. Curios on pricing, how sticky do you view pricing to be? It sounds like, obviously, there was the expectations were as having success. But with demand softening here, do you view that that pricing is in place and it's going to hold? Or is there any type of risk that that can scale back a little bit as the year progresses?

Howard Heckes -- President and Chief Executive Officer

Thanks for the question, Kevin. I think I want to go back to our original strategy when we announced this price increase in late October of 2019. We had done some significant research with homeowners, and we learned that homeowners generally expect to pay more for interior doors. And in fact, the current pricing, some actually ascribed in the image of poor quality with the price ranges on the door.

So that was a bit of fundamental research that we did. And then, as we'd said before, we didn't believe that the manufacturers were capturing fair value for the significant assets that were required to manufacture plush and molded doors. And finally, we wanted to really reinvest in the category to dramatically improve things like service and quality and new product innovation and, ultimately, end user demand. All three of those things are fundamentally still exactly the same as they were then when we launched the pricing.

So we feel good about that. Second, and Russ talked about it a little bit, we don't believe this is a housing demand problem, cyclical, too much housing available. We think that it's external shock, a housing crisis. And ultimately, the fundamentals of housing will recover.

Now obviously, nobody knows when exactly, but we don't think it's a fundamental housing issue. And so we believe that demand will recover. And finally, Kevin, I think the pricing action that we launched has taken hold and was successful in Quarter 1 and in April. And so I don't believe there's any reason to believe that that won't be the case going forward.

Kevin Hocevar -- Northcoast Research -- Analyst

OK, great. And as part of the pricing initiative, you had planned to invest $100 million over a five-year period. Most of that, my understanding was, in operating expenses to improve quality, service the customers, etc. Does this environment change the pace at which you'll make those investments this year? Or are you continuing to move ahead with those, at least, this year as you previously planned?

Howard Heckes -- President and Chief Executive Officer

Yeah. So we didn't announce our intent to spend $100 million over five years, and many of those initiatives were under way and are under way, started actually before the start of the year in an effort to improve our service and quality and things like that. I mentioned in my prepared comments that we started a separate team focused on this growth and momentum and continuing the growth and momentum of the company that we enjoyed in Q4 and Q1. And that team is really focused on reassessing the priorities of our investment, the resources and ensuring that we can build on this momentum when this crisis ends, and it's going to end.

And so it's really easy as a business to get really caught up in the day-to-day. And be worried about which plant is open and whether or not your people are safe, etc., etc. And we felt it was important to have one eye on the future. And so yes, our intent is absolutely to continue to invest.

I will say that the pace of that investment may have changed just a little bit, only because for the last couple of months, we have been pretty intently focused on day-to-day operations and financial stability and liquidity and all these things that we've talked about. However, every project that we invest in is going to be based on its own merits and things that we believe can help us win in the end.

Kevin Hocevar -- Northcoast Research -- Analyst

OK, perfect. Thank you very much.

Howard Heckes -- President and Chief Executive Officer

Thanks, Kevin.

Operator

Our next question is from Michael Rehaut from JP Morgan. Please proceed with your question.

Elad Hillman -- J.P. Morgan -- Analyst

Hi. This is Elad, on for Mike. Thanks for taking my questions, and hope you all safe, healthy and doing well. First, just assuming the end markets start to recover from here, do you anticipate 2Q to be trough in volume declines? Or could declines continue to worsen into 3Q? In other words, is there a general lag that you would expect in the business before the recent market slowdown impacts your P&L?

Howard Heckes -- President and Chief Executive Officer

Yeah, thanks for the question, Elad. It seems likely that underlying customer demand will most likely be weakest in Q2 just because of all these stay-at-home orders that have been affecting the majority of the country for much of April and May. However, I'm not convinced that that will necessarily coincide with our demand. And a lot of that depends on how the channel potentially burns through inventory and how people come out of these stay-at-home orders and the speed at which things begin to recover.

So I can't sit here with certainty and say that Q2 will be a trough, if you will. But I would think that naturally, the end demand will start to improve once many of these shelter-in-place orders are rolled back.

Elad Hillman -- J.P. Morgan -- Analyst

OK. Thanks for that color. And then, I guess, secondly, could you guys just quantify the drivers of the much stronger North American residential margin in the quarter? Specifically, AUP was higher. But I think you're only expecting the full benefit from the price increases, at least, originally to flow through in 2Q.

And how much of the benefits were in 1Q? When did they start flowing through to your P&L? And how should we think about the incremental price benefits in 2Q?

Howard Heckes -- President and Chief Executive Officer

Russ, would you like to address that?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. Sure. And a lot, as always, if you have some specific modeling questions, we can certainly take that offline and not tie up the group with it. But here's how I would think about North American residential for Q1 broadly.

The business, in many respects, I would describe it as firing on all cylinders. The pricing went into effect. And it stated rates as we had intended on February 3. I think where we were probably most surprised or pleased was that we would have anticipated some natural pre-buy activity early in the quarter, we did see some of that.

And then, we would've typically anticipated that order demand would fall off a little bit post pricing implementation through the balance of the quarter. We did not see that. Demand held in very strong across all months of the quarter. And as a result, volume was strong in the last six weeks of the quarter and price realization against that stronger volume was, obviously, better than we anticipate.

So AUP was clearly a strong tailwind for the business, but volume was as well. The other items that I would call out, I think I mentioned them, both during my prepared remarks, is the fact that the sourcing team has done a phenomenal job driving savings projects that have helped us overcome gross commodity inflation. And so North American residential, in particular, saw the benefit of many of those projects, and they experienced a net material deflation in the quarter, again, on the strength of our internal work to identify savings projects. And then, the operations ran well.

We generally had pretty good labor productivity across the global operations, particularly in North America. And when you add to that, $2 million with the restructuring savings, those together are really what explained the really, really strong margin performance that they delivered in Q1.

Elad Hillman -- J.P. Morgan -- Analyst

Thank you.

Operator

And our next question is from Michael Wood from Nomura Instinet. Please proceed with your question.

Michael Wood -- Nomura Instinet -- Analyst

Hi. Good morning. Can you talk to us about what percentage of your retail partners in North America residential might be open or closed? And if they're closed, what are you hearing in terms of reopening plans? And just on that topic, if you could talk about the sales trends that you're seeing at places like the home centers that are actually open?

Howard Heckes -- President and Chief Executive Officer

Yes. So Tony, would you like to address Mike's question, please?

Tony Hair -- President, Global Residential Business

Yeah. Sure, Mike. So when we talk about our retail market, we're certainly talking about big-box retail. And I would say, that to my knowledge, there is not a direct closure of retail.

We have seen varying degrees of differences in store policy and how they want to manage the safety of their employees and their guests. Up to, including some regions, a region in Canada comes to mind where a major retailer has said that they will only do order online and pick up at store, there will be no walk-in traffic. When we see the dynamic, there's certainly the point-of-sale on a unit basis has fallen off more dramatically in environments like this. As I said earlier, the POS that we watch on a unit basis has been better than we anticipated and modeled in some of our scenarios.

And it really is a question of that bit of decline that we have seen, is it store policy change when they're limiting the number of people that have come in or is it underlying fundamental demand change, it's really hard to tell given the various dynamics that are going on there. I'd say that one piece that has resonated is the special order business at big-box retail is down more substantially, which could be a combination of customer reluctance to sit at a desk and work through a special order with a sales associate or the reluctance of perhaps, that's more a do-it-for-me project where they're uncomfortable having contractors or other folks in their home at this point in time. So overall, dynamics are better than we anticipated. And there are a lot of exacerbating factors that are really hard to sort through about underlying demand versus policy.

Michael Wood -- Nomura Instinet -- Analyst

Understood. And in terms of the pre-buy that you mentioned, it sounds like it occurred in January. Where do you think channel inventories stand now? And do your April trends that you discussed in North American residential, did they embed any destock that may have occurred?

Howard Heckes -- President and Chief Executive Officer

Tony?

Tony Hair -- President, Global Residential Business

Yeah. Sorry, Howard, I'll take that. Just quickly, Mike, I would say we keep in constant contact with not only our direct customers, but folks like the national builders who we serve indirectly through our business partners. Right now, we feel the inventory is very appropriate.

Certainly, stock has come down a little bit at the end of the year and retail channels have been trying to improve that, still an opportunity for us to improve the inventory there. But we're satisfied with where the inventory is across the channels in North America right now.

Michael Wood -- Nomura Instinet -- Analyst

Thank you.

Tony Hair -- President, Global Residential Business

Thank you, Mike.

Operator

Our next question is from Mike Dahl from RBC. Please proceed with your question.

Unknown speaker

Hi. This is actually Chris, on for Mike. Thanks for taking my questions. My first question, you gave the color on the decrementals and pricing commentary.

But could you provide any quantification around the cost actions and what impact that might have on 2Q margins? And particularly if it's necessary to progress along a U-shaped or L-shape recovery playbook? I mean, how could that impact the decremental outlook?

Howard Heckes -- President and Chief Executive Officer

Thanks for the question, Chris. You did break up a little bit, at least on my line, so I'm going to turn this over to Russ to talk to you, assuming that he caught enough of it that he can answer appropriately.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. Thanks, Howard. Yeah, you were breaking up a little bit here, but I think we got the gist of the question. So I'll take a shot at it.

And if I don't address it head on, by all means, please circle back. So with respect to the cost actions we've taken, we talked on the prepared remarks portion of the call already about the actions that we have taken, wage reductions, freezing hiring with the exception of any critical open positions. Obviously, the furloughs that we've taken in the U.K. and Ireland as a result of those broad shutdown orders and then frankly, just administrative cost savings that we've driven across the business wherever possible.

Travel and entertainment expense being pretty obvious in the current environment, but also a number of other cost areas. If we add all of that up, we anticipate approximately $15 million worth of savings in the second quarter as a result of those actions. And that would be spread really across the business, more or less proportional to their size of the pie. With respect to incremental actions that we could take, each of our segment leaders and our corporate functional heads have gone back again, and while we have already made a number of moves in discretionary cost areas, we've identified a sliding scale, I think, as I described it earlier, the playbook of which we could take additional cost actions.

Now we're going to be very careful, as I noted earlier, about how quickly we pull the trigger on some of those, given that increasingly aggressive reductions in staff or structural changes to the organization would likely impact our ability to rebound quickly with an economic recovery later this year. But to the extent that we saw this turned into a very prolonged U or some people like to say, Nike Swoosh, we would have the opportunity to rethink staffing levels and potentially even in capacity. So it would become more of a structural event if this became a very protracted and long-term downturn. At the current time, we're starting to see some green shoots in a lot of the commentary that we see down channel from us that would suggest that people want to get back to work.

And maybe the situation recovers without too much fanfare as we get deeper into the Q2 period. But we thought it was prudent to have some of those playbooks on the shelf in case this thing drags on for an extended period. Does that address the question?

Unknown speaker

Yeah, it does. Very helpful. Thanks for that. And just for my follow-up, are you able to quantify on the consolidated level what the impact of the idle facilities were to your first-quarter results? And then, what expectations you may have into 2Q just based on reopening plans across your footprint?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah, this is Russ. Let me just carry on to that one. If I understood the question correctly, let me widen the aperture a little bit, and I'll talk about the general financial impact that we saw in Q1. We're not talking about anything past our reported results for the quarter.

We saw approximately a $9 million headwind to the business on the top line. About half of that would have come from the Europe segment just because those operations were essentially shut down in their entire date at the last week of the quarter. On an EBITDA basis, it was circa $3 million that we felt in Q1. And so that's why we described it as a modest impact.

It wasn't material to us. But clearly, that will grow as we have continued shutdown of the operation.

Howard Heckes -- President and Chief Executive Officer

And I'd just add one thing there, Chris. As I said, and we said in our remarks, that the U.K. operations remain idled. So they have been essentially shut down for the entirety of the second quarter.

But as I also said, we began to recall some people this week in preparation for some limited production starting next week as we're watching the U.K. homebuilders very closely and monitoring when they're coming back and some of the larger homebuilders are now coming back. And so we expect to begin to see some demand there, starting hopefully as early as next week.

Unknown speaker

Appreciate the color, and stay safe. Thank you.

Howard Heckes -- President and Chief Executive Officer

Thank you.

Operator

Our next question is from Trey Grooms from Stephens Inc. Please proceed with your question.

Noah Merkousko -- Stephens Inc. -- Analyst

Good morning. This is actually Noah Merkousko, on for Trey. First, I just wanted to ask, at a high level, it kind of seems like volume and demand in Europe is going to get hit harder first. And then, maybe see North America follow.

But sort of over a longer period of time, how are you thinking about the shape of the recovery for those two businesses?

Howard Heckes -- President and Chief Executive Officer

Well, I'll take a stab at Europe, and Tony or Russ want to weigh in on North America later, that's fine. Maybe I'll answer to your satisfaction. As Russ said, it's so hard to predict sort of the depth and the length of the down curve. There's plenty of different economists and models that suggest a lot of different things.

So we're just trying to keep our finger on the pulse and to watch what our customers are doing with demand and stay close with our customers and discussing their needs and trying to meet our needs. So with the U.K., they had a bit more stringent shelter-in-place or stay-at-home order and as a result, most or all U.K. homebuilders, most of all U.K. homebuilders essentially elected to temporarily cease their operations.

And as a result, our demand dried up there. And so we, obviously, followed, took quick and swift action to furlough the vast majority of our team there and shut our operations as well the last week of March, and they've remained closed ever since. Now we do have two big customers that are starting phased opening and started that the last week of April. We have one more that we believe is starting this week and then others that we believe will be starting next week.

And so as a result, we began to recall people. And as I said, we expect some demand, limited demand starting next week. Now how quickly that rebounds? Difficult to say, but we're going to stay very close to monitoring it, and we have the ability to get our team back up and running quite quickly. North America, kind of the same, right? I mean, we've been watching our volumes in April.

And as the team has said here, generally, we've been pleased with how April turned out. It was not as bad as some of our scenarios suggested it might be. But as Tony said, it's very difficult to know how much of it is really underlying demand versus store policy, and so we're just going to try to stay on top of this as best we can and to react quickly.

Noah Merkousko -- Stephens Inc. -- Analyst

Thanks. That's helpful. And then, just a follow-up question. You guys talked about the variable versus fixed costs in COGS.

Can you tell us the percentage of variable costs on SG&A? And maybe how flexible that is?

Howard Heckes -- President and Chief Executive Officer

Russ?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. Sure. With respect to SG&A, a bulk of that is going to be people cost, so wage and benefits. You will have some depreciation and amortization costs that's also in there that's not related to production facilities, professional fees, travel expenses.

But a bulk of it is going to be people cost. And so as a result, I would think about SG&A as being largely fixed in the near term. And only variable over the longer periods if you fundamentally restructure the organization, take out staff, reduce head count. And as I commented earlier, we're going to be very thoughtful before we take some of those more aggressive steps next because we pride ourselves on running a relatively lean organization as it is.

And there are a number of initiatives that we think are important to positioning the company for continued growth and reinvestment in the business emerging from the COVID crisis. So before we take steps that would actually address that fixed cost component of SG&A and take staff out, we'd have to see clear evidence that we're going to see a pretty deep downturn for an extended period.

Noah Merkousko -- Stephens Inc. -- Analyst

All right. That makes sense. Thanks for taking my questions. I'll leave it there.

Howard Heckes -- President and Chief Executive Officer

Thank you.

Operator

Our next question is from John Baugh from Stifel. Please proceed with your question.

John Baugh -- Stifel Financial Corp. -- Analyst

Thank you for squeezing me in, and congrats on a great first quarter. I wanted to drill down a little bit more on the North American volume in Q1. And I was interested in the performance, say, from post-price increase February 3 to pre-virus impact. And wondering roughly how that volume held up relative to your expectations, number one? And number two, I'm assuming we're sufficiently far out now from February 3 that any loss of customers due to pricing would have occurred or is that a bad assumption? Thank you.

Howard Heckes -- President and Chief Executive Officer

Thanks, John. I'll start, and then I'll turn it over to Tony to talk about some customers. But we were pleased with the volumes in the quarter. As Russ said, what we might have normally expected was a bit of a heavier pre-buy leading up to the price increase on February 3 and then a falloff of volume because some of our customers had accumulated inventory, right, probably due to the prebuy.

We didn't see that. So we saw some prebuy leading up to February 3 and some reasonably heavy demand. But then we essentially saw market demand continue steadily throughout the quarter. And so we didn't see that drop-off in demand following the implementation of pricing.

So I think that was a testament to the generally strong demand in the business that we saw kind of carry throughout the quarter. As far as customers, I think, Tony, do you want to make some comments on that as pricing?

Tony Hair -- President, Global Residential Business

Sure. All right. And John, just to reiterate, I think, Howard is absolutely right. We had expected to see a little bit of trough in volume demand post-price increase implementation, we did not.

It remained very robust. In terms of customers, there were a few customers that in certain locations had indicated that they were going to move the business as a result of our pricing strategy. For the most part, any of those that were communicated have been done. And then, obviously, we'll see the impact of that as it goes forward, but it was less substantial to the scenarios that we modeled and that we thought.

John Baugh -- Stifel Financial Corp. -- Analyst

Great. Thanks for that color, and good luck.

Howard Heckes -- President and Chief Executive Officer

Thanks, John.

Operator

Our next question is from Reuben Garner from Benchmark Company. Please proceed with your question.

Reuben Garner -- The Benchmark Company -- Analyst

Thanks. Good morning, everybody. Most of mine have been answered. I just have one quick follow-up.

As far as decremental margins go in the near term, is it fair to kind of -- a lot of moving pieces over the last couple of years, is it fair to start with where we were in Q1 and kind of adjust margins on a sequential basis rather than looking at it on a year-over-year basis? Clearly, your performance in Q1 with all the savings flowing through and other things you've been working on is kind of a new bar for you guys. Is that an OK way to look at it? Or is there anything about the Q1 results that you would not necessarily want us to start there as we look into the next few quarters.

Howard Heckes -- President and Chief Executive Officer

Thanks, Reuben. Russ, would you like to address that question?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yup, yup. Thanks for the question, Reuben. Here's how I think about it, and I'll answer this clearly from the vein of not wanting to provide any specific outlook or guidance past the commentary we provided on April already. The market is simply just too uncertain at this point for that.

But if you look at what we successfully accomplished in Q1, in particular, the successful implementation of pricing in North American residential, that's going to be a clear inflection point on the overall margin profile for that business, which is our largest. So to your direct question about, should we be looking at Q1 and moving off of that as opposed to historical norm, I think, you have to take that into account. I think the wildcard in all of this is what does volume do from here through the balance of the quarter and beyond, and how much cost drag does it represent in loss of overhead absorption and productivity simply because we've got a lot of volume coming out potentially in a short period of time, and a delay in being able to flex the variable parts of our cost structure to deal with that. To the second part of your question, which was, is there anything in Q1 that we wouldn't want you to think about as you model forward? For the most part, I think it was a pretty clean quarter with a possible exception that we did acknowledge there were some extraordinary costs in the architectural segment, not significant, but we had circa $1 million alone for facility relocations.

That were in our adjusted results, and that's an item that you would not expect to carry forward.

Reuben Garner -- The Benchmark Company -- Analyst

Great. Thanks again, and congrats, guys. Take care.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Thank you.

Howard Heckes -- President and Chief Executive Officer

Thanks, Reuben.

Operator

And our next question is from Steven Ramsey from Thompson Research Group. Please proceed with your question.

Steven Ramsey -- Thompson Research Group -- Analyst

Good morning. On North America pricing, going forward, if there is greater demand in retail than distributors, will that mix be a headwind to the pricing benefits versus maybe what was originally planned based on the original plan of channel mix?

Howard Heckes -- President and Chief Executive Officer

I'll let Tony comment. I'd say that our pricing strategy, as we said, was pretty consistent and implemented as expected. So I wouldn't think there'd be any significant mix headwinds now. Tony, is there anything you'd like to add or Russ on that?

Tony Hair -- President, Global Residential Business

Just a quick clarify, as we mentioned earlier, Steven, obviously, to Howard's point, we were consistent in our application of the price change in the strategy that we had when we launched it. I mentioned earlier that during this uncertain environment, we are seeing a difference at retail between special orders and stock purchases in terms of POS. So there might be some minor mix variations that occur, again, depending on the impact of the store and consumer behavior. Beyond that, I wouldn't say it would be significant.

Steven Ramsey -- Thompson Research Group -- Analyst

Great.

Howard Heckes -- President and Chief Executive Officer

And that would be more of a product mix than a channel mix, really.

Tony Hair -- President, Global Residential Business

Yes, correct. Product mix.

Steven Ramsey -- Thompson Research Group -- Analyst

Great. Thanks. And then, quickly on sourcing benefits. Just to clarify.

Can you quantify the pure dollar benefits to Q1 for sourcing? And you talked about impact in North America the most. Can you discuss the magnitude of savings for the other segments and will that continue? Or is there more benefits to come in the next couple of quarters?

Howard Heckes -- President and Chief Executive Officer

Russ?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yup. Steven, let me take the question this way. As I think you probably know, we typically talk about our inflationary pressures in percentage terms, never in dollar terms necessarily. What we saw in the first quarter was inflation, inclusive of tariffs that crested 2%, just over 2% in the quarter.

Remember, coming into the year, we acknowledged that there were going to be a few drivers that would contribute to what we anticipated at the time to be total inflation, again, inclusive of tariffs of between 1% and 2%. And we said that that was going to reflect some continued nominal commodity inflation -- underlying commodity inflation, the additional lapping of tariffs and then the potential for incremental cost as we reestablished our supply base and diversify our supply chains, in some cases, outside of Asia, not only for tariffs, but as we saw some of the early impacts in Q1 of the COVID-19 crisis and ensure that we were diversifying our supply chain to protect our supply. All of that informed a view of 1% to 2%, and the high end of that is indeed what we incurred in the quarter for gross inflation. Now from a P&L perspective, $3 million actually came to the bottom line.

A majority of that in NA Res just because the sourcing team has done a really good job negotiating with suppliers, dual sourcing, moving supply where possible, establishing fixed-price contracts for steel. Those are the elements that are driving year-on-year savings. I don't want to call specific projections going forward. I can tell you that we're real happy with that team's performance.

They've got great momentum, and they're going to keep pushing.

Steven Ramsey -- Thompson Research Group -- Analyst

Excellent. Thank you.

Howard Heckes -- President and Chief Executive Officer

Thanks, Steven. And thank you all for joining us today. We appreciate your interest and continued support during these challenging times. Please stay safe and well, and this concludes our call.

Operator, will you please provide replay instructions?

Operator

Thank you for joining as Masonite's first-quarter 2020 earnings conference call. This conference call has been recorded. The replay may be accessed until May 20. To access the replay, please dial (877) 660-6853, it's for the U.S.

or (201) 612-7415 for outside of the U.S. Enter conference ID number 13702305. [Operator signoff]

Duration: 76 minutes

Call participants:

Joanne Freiberger -- Vice President and Treasurer

Howard Heckes -- President and Chief Executive Officer

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Tim Wojs -- Baird -- Analyst

Tony Hair -- President, Global Residential Business

Kevin Hocevar -- Northcoast Research -- Analyst

Elad Hillman -- J.P. Morgan -- Analyst

Michael Wood -- Nomura Instinet -- Analyst

Unknown speaker

Noah Merkousko -- Stephens Inc. -- Analyst

John Baugh -- Stifel Financial Corp. -- Analyst

Reuben Garner -- The Benchmark Company -- Analyst

Steven Ramsey -- Thompson Research Group -- Analyst

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