Foundation Building Materials, Inc. (FBM) Q4 2018 Earnings Conference Call Transcript

Foundation Building Materials, Inc. (FBM)
Q4 2018 Earnings Conference Call
Feb. 26, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Greetings and welcome to the Foundation Building Materials Fourth Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Moten, Vice President of Investor Relations. Please go ahead, sir.

John Moten -- Vice President, Investor Relations

Good morning and thank you for joining us today for our Fourth Quarter 2018 Conference Call. Joining me on today's call are several members of our management team. In addition to Ruben Mendoza, our President and CEO, and John Gorey, our Chief Financial Officer, are Pete Welly, our Chief Operating Officer, and Kirby Thompson, Senior Vice President of Sales and Marketing, who are also available to answer your questions.

Last night, we issued our fourth-quarter press release and slide presentation for today's call, and we have posted these materials in the Investor Relations section of our website at fbmsales.com. Our prepared remarks and answers to your questions this morning may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties which may cause actual results to differ from those discussed today. Examples of forward-looking statements include remarks about future expectations, beliefs, estimates, and forecasts, as well as other statements that are not historical in nature.

Forward-looking statements that will be discussed today relate to our acquisition strategy, integration, and pipeline, our greenfield expansion strategy and performance, our ability to gain leverage in our business, our ability to increase market share and expand into new markets, and our 2019 financial guidance, including projected net sales, gross margin, adjusted EBITDA, adjusted EBITDA margin, and adjusted earnings per share.

As a reminder, forward-looking statements represent management's current estimates. We assume no obligation to update any forward-looking statements in the future unless otherwise required by law or rules of the New York Stock Exchange. Listeners are encouraged to review the more detailed discussions included in our filings with the Securities and Exchange Commission regarding these various risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by these forward-looking statements.

Additionally, during today's call, we will discuss non-GAAP financial measures which we believe could be useful in evaluating our financial performance. Other companies may calculate these measures differently, and our presentation of these non-GAAP measures should not be considered in isolation or as a substitute for measures prepared in accordance with generally accepted accounting principles, or GAAP. A discussion of how we calculate adjusted EBITDA, adjusted net income, and adjusted earnings per share, as well as a reconciliation to the most directly comparable GAAP measures, can be found in our earnings release, which has been furnished to the Securities and Exchange Commission and is available on our website. With that, I will now turn the call over to Ruben.

Ruben Mendoza -- President and Chief Executive Officer

Thanks, John. Good morning, and thank you for joining us for a review of our results as well as a discussion of recent developments in our business. On our call today, I will discuss some operational highlights from the full year and fourth quarter, as well as recent acquisitions, John Gorey will provide details on our financial results and guidance for 2019, and I will conclude with some summary comments. As a reminder, the reported numbers discussed on this call will focus on continuing operations, as we sold our Mechanical Insulation segment in the fourth quarter last year. After our prepared remarks, we will open the call for your questions.

2018 was a record year of net sales and operating profitability, with full-year net sales up 14% to over $2 billion, base business growth of 8%, and adjusted EBITDA of $155 million, up 15% compared to the prior year. During 2018, strong commercial activity led to full-year net sales gains across our business. In 2018, wallboard-based business growth increased 4%, with both price and volume up 2% compared to the prior year. Our suspended ceilings and metal framing product lines also posted solid results, with full-year base business growth of 8% and 23% respectively, largely due to price increases implemented during the year.

Additionally, we are pleased with our full-year consolidated gross margin performance of 29% of net sales, as our pricing initiatives across our business largely offset higher product costs experienced during the year. Our strong 2018 results reflect our strategic focus to grow profitably by executing our business model through organic growth and strategic acquisitions.

In 2018, we streamlined our business with the divestiture of the Mechanical Insulation, or MI, segment. The sale of the MI segment has sharpened our focus on the wallboard, suspended ceilings, metal framing, and complementary product lines, and will improve our long-term profitability. We used the net proceeds of $116 million to jump-start the paydown of our debt on the ABL credit facility. We reduced our net debt leverage from 4.3x in the third quarter to 3.6x by the end of 2018, and we plan to further reduce our net debt leverage ratio to under 3x by the end of 2020.

Now, turning to our quarterly results, we recorded strong fourth-quarter performance, highlighted by year-over-year net sales growth of 16% and base business growth of 11%. During the fourth quarter, our wallboard business outpaced the market with 6% base business growth led by 4% volume growth and 2% higher average selling prices compared to the prior year. Our suspended ceilings and metal framing product lines also recorded strong base business growth at 7% and 35% respectively, largely due to price increases and mid-single-digit volume growth in metal framing.

During the fourth quarter, we saw stabilization of our product costs, which benefited our gross margin. We made good progress improving our profitability, with our gross margin hitting 30% and adjusted EBITDA margin rising to 8%. As we enter 2019, we expect our gross margin to improve by 20-40 basis points from the full-year 2018 level, as our pricing initiatives continue to gain traction in the market.

Now, turning to acquisitions, we completed four acquisitions in 2018, which added 16 branches and contributed $63 million in net sales for the year. Our acquisition pipeline remains strong, and we continue to acquire businesses that meet our strategic priorities and enhance our market presence. In early February, we announced the acquisition of Builders' Supplies, Limited, a leading independent distributor of drywall, suspended ceilings, metal framing, and complementary products serving the greater Toronto, Canada market. With an existing market presence in five Canadian provinces, the acquisition of Builders' Supplies will expand our geographic footprint into the nonresidential downtown Toronto market and enhance our service capabilities to the greater Ontario market.

In 2018, we opened five greenfield branches in Boynton Beach, Florida, Charlotte, North Carolina, Las Vegas, Nevada, New Braunfels, Texas, and Rochester, Minnesota, and we expect to open four to six greenfield branches in 2019. Our greenfield branch investments are projects that yield high returns on invested capital in the first few years of start-up. As we build our North American presence, we view greenfield branches as excellent opportunities to leverage our national scale, increase market share, and enhance our long-term profitability.

As we enter 2019, we continue to see solid demand in our core nonresidential construction markets, with over 40% of our net sales tied to the new nonresidential market and over 30% to the commercial repair and remodel market. We currently see continued building activity in tenant improvements, healthcare facilities, data rooms, offices, schools, and stadiums that are supported by our customers' backlog that extends into 2020. For 2019, we plan on capitalizing on the opportunities in front of us by executing our business model and driving operational efficiencies throughout our company to deliver long-term value to our customers and shareholders. As we close the year of 2018, I'm pleased with our strong financial performance, and we look to build upon the success in the coming years. Now, I'll turn the call over to John for more details on the fourth-quarter and full-year financial results.

John Gorey -- Chief Financial Officer

Thank you, Ruben. I would also like to welcome everyone on today's call. As a reminder, our discussion today excludes the MI segment, which was sold in November 2018 and is reported as discontinued operations in our SEC filings. As Ruben discussed, we finished the year with strong results, highlighted by fourth-quarter net sales of $516.2 million, up 16.3% over the prior-year period, base business net sales of $439.1 million, up 10.6%, and adjusted EBITDA of $41.2 million, with an adjusted EBITDA margin of 8%. As a reminder, we define "base business" as FBM branches that were owned by us since January 1st, 2017 and greenfield branches that were opened by us since that date.

Gross profit for the fourth quarter was $155.6 million compared to $133.2 million in the prior-year quarter, an increase of $22.5 million or 16.9%. Gross margin for the fourth quarter was 30.1% compared to 30% in the prior-year quarter. Similar to last year, our gross margin experienced a lift in the fourth quarter due to ongoing pricing initiatives and incentives from our suppliers at the end of the year. For 2019, we estimate our gross margin to improve 20-40 basis points from our full-year 2018 level of 28.9%.

Selling, general, and administrative, or SG&A, expenses for the fourth quarter were $116.4 million compared to $100.6 million in the prior-year quarter. Excluding one-time adjustments, SG&A expenses as a percentage of net sales were 22.1% compared to 22.5% in the prior-year quarter. The 40-basis-point improvement in SG&A leverage is primarily due to higher net sales and our ongoing cost-out initiatives. We continue to focus on reducing our SG&A expenses by leveraging our economies of scale, consolidating shared services, and reducing branch-related overhead costs, with the goal of continual improvement in our adjusted EBITDA margin.

Now, turning to our product line results, fourth-quarter wallboard net sales were $198 million compared to $172.2 million, up 14.5% compared to the prior-year quarter. Our wallboard base business growth was 6.1%, with a 3.8% unit volume growth and 2.3% higher selling prices and mix. Metal framing net sales were $97.5 million compared to $67.9 million, up 43.5% compared to the prior-year quarter. Metal framing base business growth was 35.2%. The increase in metal framing net sales was primarily due to higher product prices for steel in the fourth quarter compared to the prior year.

Our suspended ceiling net sales were $91.5 million compared to $80.9 million, up 13.1% compared to the prior-year quarter. Suspended ceilings base business growth was 6.8%, mainly driven by price increases for metal grids. Our complementary and other products net sales were $129.2 million compared to $121.9 million, up 6% compared to the prior year. The increase in complementary and other product net sales was primarily due to our ongoing initiatives to expand the range of products we offer to our customers.

Now, turning to the balance sheet, we finished the year with cash and cash equivalents of $15.3 million and $146 million drawn on our ABL credit facility. In August 2018, we completed the refinance of our senior secured notes and ABL credit facilities, which reduced our interest rate on the debt by 200 basis points. In 2019, we expect $12-15 million of annual cash interest savings due to the refinancing of the notes.

Now, turning to our full-year 2019 financial guidance, we estimate full-year net sales to be between $2.1-2.25 billion. We estimate our full-year gross margin to improve from 28.9% in 2018 to a range of 29.1-29.3% for 2019. For adjusted EBITDA, we estimate a range of $160-180 million and adjusted earnings per share between $0.70-0.90. And finally, we plan to further strengthen our balance sheet by reducing our net debt leverage ratio from 3.6x to a range of 3.2-3.5x by the end of 2019 and below 3x by the end of 2020. Now, I'd like to turn the call over to Ruben for some closing remarks.

Ruben Mendoza -- President and Chief Executive Officer

Thanks, John. Before I begin my closing remarks, I would like to welcome our newest board member, Allison Navitskas. Allison is an attorney that has worked at prestigious law firms and for companies in both legal and business capacities. She has served on the board of directors of numerous private companies and brings her knowledge of business development, corporate finance, and risk management to our company.

I would also like to highlight our strong, independent directors: Jim Underhill, Fareed Khan, and Matt Espe. Jim Underhill is the former CFO and former COO of MRC Global, serving the company for 30 years in both financial and operational roles. Fareed Khan is currently the CFO at Kellogg Company. He previously was a CFO at US Foods, taking the company public. Earlier in his career, Fareed spent 12 years at US Gypsum in a variety of finance, business, and leadership roles. Matt Espe has held CEO roles at several companies, including Armstrong World Industries, Ricoh Americas, and Icon Office Solutions. These executives make up our audit committee, and bring board financial and operational management expertise to our board, and lead our efforts in corporate governance and best practices.

In closing, we are very pleased with our full-year and fourth-quarter results. We delivered double-digit net sales and strong base business growth, reflecting our balanced product mix and our ongoing strategies to drive organic growth. In addition, we've made great strides to improve our gross margin performance, with pricing initiatives across our business offsetting higher product costs experienced earlier in the year. FBM has a balanced business portfolio across product categories and end markets. With approximately 70% of our net sales to the new nonresidential and commercial repair and remodel markets, we continue to see solid building activity in 2019.

As we conclude our prepared remarks, let me reiterate our strategic priorities for the coming year. In 2019, we plan to strengthen our balance sheet by reducing our net debt leverage ratio from 3.6x to a range of 3.2-3.5x by the end of 2019 and below 3x by the end of 2020. Second, we will drive organic growth by opening greenfield branches, growing our market share, and expanding the products we offer our customers. In 2018, we opened five greenfield branches, and we plan to open four to six branches in the coming year. Our greenfield branches yield high returns on invested capital that will drive long-term growth and profitability.

Third, we will continue to focus on profit margin expansion across our business by leveraging our economies of scale and executing on our cost-out initiatives, with the goal of achieving up to a 40-basis-point improvement in our adjusted EBITDA margin. Fourth, we will continue to make strategic acquisitions while being mindful of our debt reduction targets. For 2019, we expect the pace of acquisitions to slow from previous years as we pay down our debt. We believe these actions will drive growth, improve profitability, and deliver long-term value to our shareholders. That concludes our remarks, and now, we'll be happy to take your questions.

Questions and Answers:

Operator

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing *. Once again, that is *1 to ask a question at this time. One moment, please, while we poll for questions. Our first question today is coming from Keith Hughes from SunTrust Robinson Humphrey. Your line is now live.

Keith Hughes -- SunTrust Robinson Humphrey -- Managing Director

Thank you. This is kind of a big-picture question that I've got, something a little more detailed. On the big picture, you made some very positive comments, Ruben, on the market, specifically around commercial. How far ahead can your customers give you a look? Is the '19 year basically set, or is that a little too aggressive in terms of what you can see ahead on?

Ruben Mendoza -- President and Chief Executive Officer

Thanks, Keith. I appreciate the question. I think we can see in the commercial part of our business at least through '19. I'm going to give you an example of a very large customer of ours. It's about a $200 million contractor in California. They have $442 million in signed work on the books through 2020, and there's several customers like that throughout the country, and these guys -- they do hospitals, data rooms, stadiums, and things like that. So, I can't say it's certain, but it's a pretty good look.

Keith Hughes -- SunTrust Robinson Humphrey -- Managing Director

Okay, great. And then, on the gross margin, you've given us your range for '19. Would you expect to see some gains in every quarter, or is there going to be a different cadence as the year goes along?

John Gorey -- Chief Financial Officer

It'll be pretty consistent each quarter. There will be a little bit of a gain in Q4, as it was the last couple of years.

Keith Hughes -- SunTrust Robinson Humphrey -- Managing Director

And, is that going to vary based on the success of the wallboard increase that's coming this year, or are you just in catch-up mode, and that gets the gross margin moving up?

John Gorey -- Chief Financial Officer

It'll be a combination of catching up a little bit more as we go through the pricing as well as getting through the wallboard price increase.

Keith Hughes -- SunTrust Robinson Humphrey -- Managing Director

Okay. And, final question -- I've got a lot of price increase on that metal framing, obviously. Do we lap that after the first quarter and the numbers will normalize out a little bit?

Ruben Mendoza -- President and Chief Executive Officer

I would say we do lap it after the first quarter. There was four last year, and as we said in previous calls, it was a catch-up mode, and we feel we've almost caught up, and so, we do start lapping it here in the first quarter.

Keith Hughes -- SunTrust Robinson Humphrey -- Managing Director

Okay, thank you. Congratulations on the numbers, by the way. They're excellent.

Ruben Mendoza -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Susan Maklari from Credit Suisse. Your line is now live.

Susan Maklari -- Credit Suisse -- Analyst

Thank you. Good morning.

Ruben Mendoza -- President and Chief Executive Officer

Good morning.

Susan Maklari -- Credit Suisse -- Analyst

My first question is just around -- you've obviously made some very good traction over the last year in terms of the wallboard pricing segment and holding on to that. How should we think about that environment for 2019, especially given the potential for some possibly weaker demand on the housing side of things? Can you talk to how much of the progress you made is company-specific around some of your own initiatives versus maybe just the broader market?

Ruben Mendoza -- President and Chief Executive Officer

Sure. So, as far as weaker demand, I'd like to address that. Everything I've seen -- and, I said this on the last call -- is flattish to up 1-2% in housing -- single-family and multifamily. So, I think demand will be flat to up 1-2%. 23% of our business is residential, so as we said on the call, it's mostly 70% or above would be commercial and commercial R&R. And, as far as -- I think you mentioned how we see the housing pricing or the wallboard pricing -- did you ask about that? We continue --

Susan Maklari -- Credit Suisse -- Analyst

Yeah, just the wallboard pricing. It seems like you made some -- you've done a good job this year of taking those in and passing them along.

Ruben Mendoza -- President and Chief Executive Officer

Right. And so, we expect the same throughout this year, as in previous years. We pass along price increases. As we mentioned on earlier calls, there were two price increases for gypsum wallboard last year, four for metal framing, and four for grids, so it took us a little longer to pass along, but we did, and we continue to see improvement in that area.

Susan Maklari -- Credit Suisse -- Analyst

Okay. And then, you obviously also made a lot of progress on the SG&A side this year and expect more to come. Can you give us a little bit more color there on some of those initiatives, how we should be thinking about them actually rolling through over the course of 2019?

John Gorey -- Chief Financial Officer

Yeah, we kind of expect another lift in 2019 of about 10-20 basis points as we continue to work through our consolidated share services and our ongoing cost-out initiatives.

Susan Maklari -- Credit Suisse -- Analyst

Okay, thank you.

Operator

Thank you. Our next question today is coming from Nishu Sood from Deutsche Bank. Your line is now live.

Morrison -- Deutsche Bank -- Analyst

Hi. This is Morrison for Nishu.

Ruben Mendoza -- President and Chief Executive Officer

Hi. How are you, Morrison?

Morrison -- Deutsche Bank -- Analyst

Good. Thank you for taking my question. Could you tell us more about the Builders' Supplies, Limited acquisition you made?

Ruben Mendoza -- President and Chief Executive Officer

Sure. I mentioned on the call it's in the greater Toronto area. 83% of their business is downtown commercial Toronto -- high-rise commercial, which is a very nice business, an ongoing business. The other 17% is in multifamily business. It enhances our prospects there. We have five locations in the greater Toronto area, so this would enhance our presence there, as well as we have the Armstrong Ceilings line in the greater Toronto area, and we can add that to Builders' Supplies, Limited. It's a very good acquisition for us at a very attractive purchase price, and the integration and the synergies are excellent.

Morrison -- Deutsche Bank -- Analyst

Thank you. And, one follow-up on that -- since the housing market in Canada is not doing very well, does this allow you to make acquisitions and to lower multiples, say, in the U.S. more than in the past?

Ruben Mendoza -- President and Chief Executive Officer

I'd like to address the housing market in Canada, or what you said -- our business in Canada is actually quite strong. It's not hugely growing every year, but we have a very good commercial business in Canada, and we do participate in the housing business, but once again, our percentages are equivalent to the U.S. as far as our mix, and our business in Canada is very strong. We have a very strong position up there with very good lines and very good people running our business, so we're very happy with our Canadian business. And, as far as multiples go, it's the same in the U.S. and Canada for us, but thank you for asking that.

Morrison -- Deutsche Bank -- Analyst

Thank you for sharing.

Operator

Thank you. Our next question today is coming from Mike Dahl from RBC Capital Markets. Your line is now live.

Michael Dahl -- RBC Capital Markets -- Managing Director

Good morning. Thanks for taking my questions.

Ruben Mendoza -- President and Chief Executive Officer

Hi, Mike.

Michael Dahl -- RBC Capital Markets -- Managing Director

Ruben, I wanted to ask -- within the fiscal '19 guide, could you give a sense of how you're thinking about organic expectations, price volume versus acquired contributions?

Ruben Mendoza -- President and Chief Executive Officer

Sure. Organic expectations -- we talked about opening four to six greenfields, we've talked about -- as you can see, in the last couple of quarters, we've gained share. We've gained share in the single-family/multifamily business, and not through price, but we have gained share in that. So, organically, we feel like we're going to continue to gain share, we're going to continue to add complementary products to our current customers, and open greenfields.

As far as the acquisitions go, we have about $4.7 million of EBITDA in our model for 2019 in acquisitions, so it's a modest -- and we've already done Builders' Supplies, so we're nearly halfway there as far as acquisitions go, Mike. I noticed you put something out prior a couple days ago with your model without acquisitions, so hopefully, that just clears that right up for you.

Michael Dahl -- RBC Capital Markets -- Managing Director

Yes, it does. So, to be clear, that $4.7 million -- half of that is already in the bag with the most recent, so it's really just a couple million that you'd have to cover in incremental acquisitions to be within your guide. Is that right?

Ruben Mendoza -- President and Chief Executive Officer

That is correct.

Michael Dahl -- RBC Capital Markets -- Managing Director

Okay, that's helpful. And then, as far as -- you talked about the share gains, which is great to see. Earlier in '18, there were certainly some moving pieces around competition, and some of the private players pushing for share and taking some share -- not necessarily from you guys or just from you guys -- but what are you seeing in the competitive environment currently? Is it settled down? What color can you give us there?

Ruben Mendoza -- President and Chief Executive Officer

I'm going to quickly answer this, and I'm going to let Pete Welly -- Pete's our COO, and I'm going to let him chime in on it. But, we've -- combined, the four of us sitting here, we have over 120 years of combined experience in this building products/distribution business, and we've seen competition all over. I know the industry, the investors, and analysts. I've really made quite a bit of the competition in the industry, and it's really not been that much different than what we've seen in the past. So, we knew that we -- whether somebody was low-priced, taking housing business, or whatever, our business, our digital marketing, our Track My Truck on your app, our people would win over time. We're in this business for the long haul, and we get it, so we've attracted business back without price, and we'll continue to do that. As far as competition goes and forward-looking, I'm going to let Pete discuss a little bit more about our competition and how we look in the future.

Pete Welly -- Chief Operating Officer

Thanks, Ruben. Competition is real. Whether it's a large private company or a regional player, we continue to battle for our customers' loyalty. Once the bloom of a low price goes away, they come back to us because of our service, our relationships, and all that Ruben mentioned about the things that we do that makes FBM special. So, we feel very confident that the share we gained was because of service, and I think our margin lift is proof that it was our service that drove that.

Michael Dahl -- RBC Capital Markets -- Managing Director

Okay, thank you both. If I could just sneak one more in, I know that you don't have the largest footprint in the Northeast and Mid-Atlantic, but are you seeing any disruption just related to the Buchanan plant outage, and do you have any comments related to what you'd expect from an impact there?

Ruben Mendoza -- President and Chief Executive Officer

Mike, I'm going to let Kirby Thompson, our Senior VP of Sales and Marketing, take that questions.

Kirby Thompson -- Senior Vice President, Sales and Marketing

Thanks, Mike. We really have not seen any disruption. We have a great partnership -- and have for a long time -- with Continental, and they've continued to provide service to us as we've expected in the past.

Ruben Mendoza -- President and Chief Executive Officer

And, just to add to that, their Silver Grove plant is the largest plant in the country, and I think they've really dialed that plant up to service the other part of the country where they're down.

Michael Dahl -- RBC Capital Markets -- Managing Director

Okay, great. Thanks for all the details.

Operator

Thank you. Our next question today is coming from Ryan Merkel from William Blair. Your line is now live.

Ryan Merkel -- William Blair -- Analyst

Hey, good morning. Nice quarter.

Ruben Mendoza -- President and Chief Executive Officer

Good morning. Thanks, Ryan.

Ryan Merkel -- William Blair -- Analyst

So, first, can you just quantify the year-end rebates? How much did that help gross margin in the quarter?

Ruben Mendoza -- President and Chief Executive Officer

Thanks for asking that. I'm going to let John answer that, but I don't know that we have a number we're going to be able to quantify, but go ahead, John.

John Gorey -- Chief Financial Officer

We estimate it to be about an 80-basis-point lift of the sequential improvement third quarter to fourth quarter.

Ryan Merkel -- William Blair -- Analyst

Got it, OK. And then, 2019 EBITDA guidance -- EBITDA margin up 20-40 basis points, and then, you also said gross margin is up 20-40, so am I reading anything into SG&A leverage for 2019, or are you just giving a range?

John Gorey -- Chief Financial Officer

We're just giving a range. We do still -- I mentioned 10-20-basis-point improvement in our SG&A as well, so with a combination of that and the gross margin, we think we'd get up to a 40-basis-point lift in our EBITDA margins.

Ryan Merkel -- William Blair -- Analyst

That's what I thought. So, there's still some room on cost take-out as you head into 2019.

John Gorey -- Chief Financial Officer

Yes, sir.

Ryan Merkel -- William Blair -- Analyst

Okay. And, just lastly, maybe comment on sales trends to start 2019, and mention if weather has been a negative, a neutral, or a positive.

Ruben Mendoza -- President and Chief Executive Officer

Great question. In January, we had an excellent January, and our results in January mirrored our fourth quarter as far as sales go, as far as our entire business went -- base business, January mirrored our fourth quarter. In February, we're right on track to hit our internal budgets, but that's only because there has been some weather. In California, we've had an extended amount of rain, even snow in some areas -- in northern California, even more rain than I've mentioned. It snowed in Las Vegas for us, polar vortex happened in the Midwest, and it snowed in Seattle. Those are all strong areas for us, but we're still going to hit or beat our internal budget, which is what we're guiding on for February.

Ryan Merkel -- William Blair -- Analyst

That's great, Ruben. Thanks. I appreciate it.

Ruben Mendoza -- President and Chief Executive Officer

Thank you, Ryan.

Operator

Thank you. Our next question today is coming from Matt Bouley from Barclays. Your line is now live.

Marshall Mentz -- Barclays Investment Bank -- Vice President

Good morning. This is Marshall on for Matt. Congrats on the quarter and thank you for taking the questions

Ruben Mendoza -- President and Chief Executive Officer

Thanks, Marshall.

Marshall Mentz -- Barclays Investment Bank -- Vice President

My first question is on wallboard volumes, specifically the break between reported and manufactured volumes for the quarter and the growth that you've put up in your base business. Could you give us a sense of your view of the components of that difference, specifically thinking about potential timing issues between manufacturer sales and your sales? It sounds like January was a pretty good month, and maybe there's not so much of a pullback to start the year, but that piece, and maybe if you could just elaborate a little more on share gains. I know you've talked about that previously on the call, but anything else you can add would be very helpful.

Ruben Mendoza -- President and Chief Executive Officer

Thanks for the question. I mentioned on our last call -- I think the wallboard volumes from the Gypsum Association are sales from the manufacturers and purchases from us, so it takes us 30-45 days to turn our inventory, so our sales -- our wallboard volumes are our sales, so there is a difference there. And then, there was a pre-buy in 2017 that was larger than the pre-buy here, and I shouldn't say "pre-buy" -- it probably wasn't a big pre-buy -- but there's still an increase in the fourth quarter. I think the Gypsum Association showed a 10% decrease in the fourth quarter versus year-over-year, and we showed an increase, but like I said, there's a little bit of a delta there as to when we purchase and when we sell it, and I can't really quantify what that is.

And, as far as January goes, we had a great January in volume, our base business was up excellent, and we continue to gain some share -- not a ton of share, but we continue to gain some share throughout the country with our service and our relationships, and we're attracting some of the best people in the industry, we're attracting some of the people wanting to sell their businesses, we've set a preferred acquire almost every time we've had a call, and I don't want that to get old, but we believe that that is the case, and so, we continue to attract positive things for our business, and that's how we believe we're gaining share.

Marshall Mentz -- Barclays Investment Bank -- Vice President

Thanks. That's all very helpful. And then, just a follow-up in the supplier incentives -- the prior question. Could you just give us a sense -- was that very different year over year in the fourth quarter, the benefit that you got?

John Gorey -- Chief Financial Officer

No, it was very similar in '17 as well, as you'll see -- the margin lift in '17 and '18.

Marshall Mentz -- Barclays Investment Bank -- Vice President

Okay, thank you.

Operator

Thank you. As a reminder, ladies and gentlemen, if you'd like to be placed in the question queue, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue. One moment, please, while we poll for further questions. Our next question is coming from Luke Junk from Robert W. Baird. Your line is now live.

Luke Junk -- Robert W. Baird -- Vice President

Good morning. Ruben, first question on wallboard pricing -- sitting here today, we've had now a couple years of 2% or better price for you guys. Just wondering how you view the industry's position right now relative to the last couple of years. What would you say is the same or different as we move into 2019 in terms of wallboard pricing?

Ruben Mendoza -- President and Chief Executive Officer

Thanks, Luke. I think the industry is pretty much the same as it has been in the last couple of years. I think volume is flat to up a little bit, I think business is decent. It could be growing 10%, 20% would be better, but it's not. It's flat to up 1-2%, we think, for 2019, and we see more of the same. So, as far as wallboard pricing goes, we see more of the same as in the previous years.

Luke Junk -- Robert W. Baird -- Vice President

Okay, that's helpful. And then, second, on the ceilings business here in the fourth quarter, would it be possible just to put a finer point on the price/mix benefit you guys saw?

Ruben Mendoza -- President and Chief Executive Officer

Sure. Most of our increase was in price and mix. Our AUV was up equivalent to what Armstrong's was, and our price was equivalent to what Armstrong's was, and obviously, we don't carry Armstrong in every territory, but I just reference them because it's our largest brand, and we do have some USG ceilings in other areas as well, but you can think of it just like Armstrong's was.

Luke Junk -- Robert W. Baird -- Vice President

Mm-hmm. And then, if I could just sneak one more in here for John, just wondering if you could bridge between the reported fourth-quarter EBITDA and the midpoint that was implied by your guidance. What were the biggest positive variances versus what you were thinking a few months ago?

John Gorey -- Chief Financial Officer

We did improve in our cost-out initiatives and our SG&A, and we got an extra 20-basis-point improvement there, and then, from the incentives we got from our suppliers at the Q4.

Ruben Mendoza -- President and Chief Executive Officer

To add to that, Luke, we also had a great quarter. We had better sales than we thought as well -- better volume.

John Gorey -- Chief Financial Officer

Which helped our leverage as well.

Luke Junk -- Robert W. Baird -- Vice President

Okay, perfect. That's all I had for this morning. I really appreciate it, buys.

Ruben Mendoza -- President and Chief Executive Officer

Thanks, Luke.

Operator

Thank you. As a reminder, ladies and gentlemen, it's *1 if you'd like to be placed in the question queue. One moment, please, while we poll for further questions. Once again, that is *1 to be placed in the question queue. If there are no further questions, I'd like to turn the floor back over to management for any further or closing comments.

Ruben Mendoza -- President and Chief Executive Officer

I'd like to thank our over 3,600 employees for buying into our strategy and making this a great company, and I appreciate all of you on the call and appreciate you joining us today. Thank you very much.

Operator

Thank you. That does conclude today's conference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Duration: 39 minutes

Call participants:

John Moten -- Vice President, Investor Relations

Ruben Mendoza -- President and Chief Executive Officer

John Gorey -- Chief Financial Officer

Pete Welly -- Chief Operating Officer

Kirby Thompson -- Senior Vice President, Sales and Marketing

Keith Hughes -- SunTrust Robinson Humphrey -- Managing Director

Susan Maklari -- Credit Suisse -- Analyst

Morrison -- Deutsche Bank -- Analyst

Michael Dahl -- RBC Capital Markets -- Managing Director

Ryan Merkel -- William Blair -- Analyst

Marshall Mentz -- Barclays Investment Bank -- Vice President

Luke Junk -- Robert W. Baird -- Vice President

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