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Masonite International (NYSE:DOOR)
Q1 2019 Earnings Call
May. 02, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to Masonite's first-quarter 2019 earnings conference call. [Operator instructions] Please note, 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 of Investor Relations

Thank you, Tim, and good morning, everyone. We appreciate you joining us today. With me on the call today are Fred Lynch, 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 Graham Thayer, senior vice president, business leader of architectural, joining us for our Q&A session.

We issued a press release late yesterday afternoon with our first-quarter 2019 results. The release is available on our website at masonite.com. Before we begin, I'd 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 we issued yesterday. More information about risks can be found under the heading risk factors in Masonite's most recently filed report on Form 10-K and on our Form 10-Q anticipated to be filed with the SEC later today. Our SEC filings are available at sec.gov and on our website 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 in today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliations which are in the press release and the appendix of the Webex presentation. Our agenda for today's call includes a business overview from Fred, followed by a review of the first-quarter financial results from Russ and closing remarks from Fred, followed by a question-and-answer session. With that, let me turn the call over to Fred.

Fred Lynch -- President and Chief Executive Officer

Thank you, Joanne, and good morning, and welcome, everyone. Before we review earnings, I want to comment on our press release this morning announcing that Howard Heckes has been named president and chief executive officer effective June 3, 2019. He will also join Masonite's Board of Directors at that time. Howard will be replacing me following my previously announced intention to retire last December.

Howard is a seasoned executive who brings more than three decades of leadership, operational sales and marketing expertise to Masonite. He currently served as CEO of Energy Management Collaborative, a privately held company providing LED lighting and controls and IoT conversion systems and service solutions. Previously, Howard spent nine years in a variety of senior role at Valspar corporation, prior to their sale to Sherwin-Williams. Most recently, overseen Valspar's industrial coatings portfolio, which included four global operating divisions with approximately $2.5 billion in revenue, 40 manufacturing facilities and 5,100 employees in 38 countries.

Howard also held various leadership roles at Newell Rubbermaid, including president of Sanford Brands, president of Graco Children's Products and president of Goody Products. Today's announcement is a culmination of a comprehensive search process that included numerous strong internal and external candidates. We're thrilled to welcome Howard to make the Masonite team and look forward to his joining the company next month and continuing to build upon Masonite solid foundation and strong momentum. So now let's move to this quarter's result.

As Joanne mentioned, late yesterday, we released our first-quarter 2019 financial results. Net sales increased 2% in the first quarter, as compared to the prior year due to growth from acquisitions of 5% and healthy average unit price growth of 4% as we benefited from the December 2018 price increases, as well as those previously implemented in 2018. Soft end markets in North American Residential due to a combination of difficult weather and lower housing construction activity led to a 5% decline in base volume. Net sales were also impacted by a 2% decrease due to foreign exchange.

The weakening of the British pound and the Canadian dollar year on year had both a significant translational and a transactional impact on us, which Russ will discuss a little further in the financial review. Both adjusted EBITDA and adjusted EBITDA margin improved year on year and quarter on quarter, driven both by price and the positive benefits from the MVantage operating system, productivity initiatives undertaken throughout 2018 and in the first quarter of 2019. This is very encouraging to see given the negative impact of lower volume and higher material cost in the quarter. Additionally, foreign exchange with a headwind of almost $3 million in the quarter.

And excluding that, adjusted EBITDA would have been up roughly $7 million or 11% for the quarter. On our last call, we outlined a series of restructuring actions and divestitures being taken to further improve our cost position and drive margin expansion. We incurred $22 million in pre-tax charges related to those actions in the first quarter, which were principally related to noncash items. Russ will provide more detail on this later.

These charges were the cause of our year-on-year decline in net income for the quarter. And excluding these charges, adjusted to net income was flat. Moving to the right hand of the slide, under business and operations. Similar to other construction-related companies, we were impacted by severe weather across North America in the quarter.

Our architectural segment shouldered a brunt of this severe weather impact due to concentrations of facilities in the Midwest. In addition to record levels of snow, the severe cold force curtailments of natural gas to businesses to ensure resources were available to each resident. Our customers in both architectural and North American residential were equally impacted by this cold weather as flooding in California leading to, as well as flooding in California leading to reduce demand. External challenges, like these, reinforce the importance of leveraging the Masonite operating system to increase our responsiveness, improve manufacturing productivity and increase the engagement and skills to our plant teams.

We're off to a strong start this year. In addition to being on track for a number of lean certification 2019, we also held the record number of Kaizen events in the first quarter. These events usually take the form of a workshop where a cross-section of plant employees identify and then brainstorm ways to remove inefficiencies in their current work processes. This approach ensures the engagement of our manufacturing employees and driving a productivity mindset, enabling us to better manage cost and help overcome the impact of wage and benefit inflation.

And our manufacturing employees personally benefit from this improvement through participation in the operations monthly incentive program. So it's a great win-win. We're also progressing as planned with our restructuring actions. Since our last call, we've executed additional steps in the plant.

In March, we completed the sale of a noncore business in the U.K. and closed another North American manufacturing facility. And I'll go into more detail on our productivity and restructuring in a moment. As you might remember, our last earnings call was from the International Builders' Show in Las Vegas.

During that show, we launched a new Livingston interior-molded door. I want to highlight the success of Livingston door and how that speaks to the importance of product development. In addition to initial customer surveys where we received over 70% preference ratings from professionals and consumers alike, the Livingston received the best product award from the BIMsmith at IBS. A truly transitional design, the Livingston is appealing to a broad array of customers, and we're encouraged by the initial demand.

Our focus on designing and launching new products like the Livingston is a key element of our strategy to drive higher average unit price. Now the next slide, we summarize the latest residential housing market data for our major geographies. As you can see, the top-left chart, U.S. housing starts continues to decline during the first quarter of 2019.

Single-family starts were down 5% year on year and multi family declines worsened and in the quarter down 20% year on year. While completions were up year on year, growth of single-family completion is relatively modest compared to prior quarter. As you've heard from many of the builders, traffic has increased as the spring season selling build. And many are expecting a return to growth in the months ahead.

While we're encouraged by these anecdotes, we believe uncertainty remains, and we're approaching our business decisions accordingly. Canadian housing starts continue to soften as well, with multi-family starts down 9% and single-family starts down 33%. This marks the third quarter in a row that multi-family and single-family starts were both negative. U.K.

housing completions, again, turned negative in the first quarter. If you recall housing completions, the starts were up year on year in the fourth quarter, following declines in completions earlier in 2018. Until there is more clarity around Brexit, we anticipate continued lumpiness and soft end markets in the U.K. Now with all that said, we still believe there are healthy underlying fundamentals and needs for additional shelter across our markets.

But in the near term, it's difficult to predict when that will translate into consistently stronger market demand. As such, we'll continue to rely on a multi lever approach to increase the value of our offering, while simultaneously cost optimizing our operations through both footprint actions and by leveraging our MVantage operating system. On the next slide, part of increasing our value offering is understanding market trend and our end-customer needs. To address this, our North American Residential business team has done an in-depth review of builders' most popular floor plans, specifically gathering data related to square footage and number of interior doors.

Working with five of our top national builders, we selected five recently serviced, and then we used three of the most common floor plans in each of those markets. The result was a review of 75 floor plans in total with homes ranging from less than 1,400 square feet to almost 3,800 square feet. Our 2019 survey found that on average, the current building plans review utilize an average of 18 doors per home -- interior doors per home. If you look at NAHB data from fourth-quarter 2018, it shows that the average house size for new starts is a little over 2,500 square feet.

The base in our data, which include different size home and some multi-family units, that put the average number of doors at about 19. We assumed 21 doors in the past for midsize home. So this data would show about a two-door shift down from a comparable-sized home. But it's important to note the variability even for a midsized house where the number of doors can range anywhere from the 13 to 27.

Again, if you look at the scatterplot, we prepared with -- you'll see that there's a clear correlation to the number of interior doors and square footage of home and the related trend line. As we slide to the left, on the trend line away from the average home size, and it's smaller entry-level homes. We lose one door for roughly every 180 square feet. So as builders continue to focus on and build entry-level homes that would present a buying headwind for us.

So all these market trends may present a slight headwind, we do believe, though, we can help mitigate this through continuing to shift our mix toward higher AUP and differentiated products. Now on Slide 8. Let's take a closer look at operations and our progress with the announced restructuring plans. As mentioned earlier, the MVantage operating system is the foundation to drive continuous improvement at Masonite.

The three key pillars of the MVantage operating system are training and standards, which provide a toolset for our improvement programs; PIT crews or performance improvement teams deployed through the company to drive rapid improvement projects; and finally, plant transformations, which are 13-week long, focused improvement events with multiple teams across a single site addressing entire value streams. If you recall, last year, we completed plant transformations at seven sites. And this year, we have two nearing completion, one at our architectural door plant Marshfield, Wisconsin and one at our residential door plant in Monterrey, Mexico. The moderate transformation is in the final stages, and we're already seeing the benefits from this team's work with an 18% improvement in productivity and 24% improvement of weekly output.

We're consistently averaging greater than 50,000 doors per week at that facility, up from a little over 31,000 in 2017. We've discussed this increased capacity in our previous calls and how it has helped drive footprint optimization by reducing the overall cost of manufacturing in North America. I already mentioned we're on track for a record year of lean certification, and we held a record number of Kaizen events in the first quarter of 2019. This is a 14% increase in Kaizen events over the same period last year.

Shifting to the middle of the slide in footprint optimization. The Verdi, Nevada, cut-stock plant is progressing as planned. All of the key staff positions are filled, and the hiring production positions is on schedule. The production equipment is in, and we began running parts for quality test in the week for April 1.

As you may be aware, the existing cut back -- cut-stock facility in Stockton, California, experienced a significant fire early last week. The fire started at a non-Masonite property next door and then spread to our facility. Fortunately, none of our employees were injured, but the operations were severely impacted. And after assessing the damage, we've decided not to restart that facility.

While the Stockton cut-stock operations were scheduled to close this year, we'd anticipated ramping down production later in the second quarter. We're now pursuing an accelerated ramp-up of the Verdi plant, and we'll also begin an incremental volume -- we'll bring in incremental volume from our other cut-stock facility in Chile, as well as third-party suppliers. We continue to assess any financial impact of these sourcing changes. And based on our current plan, we believe we can mitigate the supply impact and fully service our customers as planned.

On our last earnings call, we announced the closure of two North American facilities, Denmark, South Carolina and Largo Florida, since then we've announced the closure of our Tampa manufacturing location as well. This facility is part of a North American Residential segment, and its operations will be relocated to three existing facilities. And prior productivity improvements and throughput and capacity expansion across our manufacturing network is enabling these consolidations. During the first quarter, we can continue to focus on reducing North American headcount related to SG&A and overhead.

We've mentioned that after a detailed review of staffing levels, given the uncertain market environment, we have developed plans to reduce these areas 5% in the first half of 2019 through a combination of attrition and focused restructuring. As of the end of the first quarter, we have largely achieved that target with SG&A and overhead headcount reduced 4% from the year-end 2018. Moving to right column in portfolio optimization. In February, we announced that we had exited a noncore product line in the U.K.

and that we plan to exit two other noncore businesses. In March, we completed the sale of our PDS business in the U.K. This business has a limited product range and opportunities for integration with other parts of U.K. business were not what we had originally anticipated.

We plan to divest one additional noncore business from the U.K. during the second half of 2019. Overall, these divestitures will streamline our product portfolio without meaningful reductions to our core product offerings and allow us to reduce the number of manufacturing site and associated infrastructure costs. The combine 2018 revenue from these three assets was $58 million.

While we're divesting noncore product lines and business, we also continue to invest and launch new offerings in our core product portfolio, like the Livingston door mentioned earlier. That strategic focus on new product introductions has pushed our North American Residential vitality index above 11% as of the first-quarter 2019. Importantly, these newly introduced products command a higher average unit price and margins. And new products are just one aspect of our margin improvement.

We've worked with customers in all the regions to streamline our product offering, reduce complexity and rationalize low-volume and margin SKUs, ultimately driving higher AUP for our customers, as well as for Masonite. In Mexico, we realigned to put more focus on speciality products. And in the process, we've increased AUP and shed some business. The capacity from that shed business, similar to the capacity from the productivity improvements, has been redirected to service higher AUP and higher-margin business.

I am particularly proud of the team's performance in Q1. We're continuing to execute well on our strategic initiatives to enhance our margins. As I just shared, we're on schedule with our previously announced restructuring and plans for 10% reduction in the total number of manufacturing locations, which we will now achieve by the end of 2019 as compared to the second half of 2020, as previously anticipated. And so with, I'll turn the call over to Russ, to provide more details on our first-quarter financial performance.

Russ?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

All right. Thanks, Fred, and good morning, everyone, On Slide 10, we have a summary of our consolidated financial results for the quarter. We had net sales of $530 million, a 2% increase over the first quarter of 2018. As Fred mentioned, acquisitions and average unit price contributed approximately 5% and 4%, respectively, to this increase.

This was partially offset by a 5% decline in base volume due to softer end markets in North American Residential and a 2% headwind from foreign currency. Gross-profit and gross-margin expansion were driven by the higher AUP and net labor productivity partially offset by raw material inflation and the impact of lower production volumes, as well as start-up costs related to our new cut-stock plant in Verdi, Nevada. Gross profit was up over 6% in the first quarter with gross margin expanding 70 basis points versus the prior year to 21.1%. SG&A spending was $10 million higher in the first quarter largely driven by acquired businesses and noncash items.

Noncash items increased by $5 million compared to the same period, 2019, including higher depreciation and amortization and a $2.5 million charge related to the divestiture of ETFS, the noncore floor choice product line we exited in the U.K. in January. The impact of SG&A on adjusted EBITDA was considerably less than on a GAAP basis, roughly $2 million, primarily due to wage and benefit inflation and personal investments to support our architectural quick ship business and the integration of Graham and Maiman. Adjusted EBITDA increased by almost 7% to $65.5 million, while adjusted EBITDA margin expanded 50 basis points to 12.4%.

Referring to the adjusted EBITDA bridge on the right-hand side of the slide, you can see the meaningful benefit that price and mix delivered in the quarter, helping to overcome material cost increases and the impact of lower volumes on our manufacturing operations. It's also worth noting the impact of FX on adjusted EBITDA in the quarter, which was higher than normal due to more significant transactional FX headwinds relating to weakening of the Canadian dollar. We also incurred meaningful translational FX in the U.K. due to the weakening of the British pound.

Had it not been for these FX impacts, adjusted EBITDA would have been up double digits for the quarter. Commodity inflation was approximately 2% in the quarter, less than anticipated and lower than our full-year outlook of approximately 3%, in part due to savings projects undertaken by our supply chain team. The primary drivers of inflation for us continue to be steel as our contract towers reset higher in the prior quarter. We're more in line with the overall higher market prices and chemicals, which can fluctuate based on the price of oil.

Chemical inflation moved lower in the first quarter as oil price declines in the second half of last year, translated into reduce resin costs realized in our first-quarter cost of sales. Given recent upward moves in oil, this trend is likely to reverse in the next two quarters. Moving to factory cost. We see the sizable impact that lower volumes had in the quarter.

Approximately, $3 million of the $4 million impact in factory cost relate to reduced overhead absorption on lower volumes. We continue to manage cost carefully to address this lower-demand environment. As Fred mentioned, we continue to take overhead out of the organization. We've reduced indirect labor by an additional 3% during the first quarter as compared to the end of 2018.

Direct labor productivity continued to improve and was more than sufficient to offset the impact of wage and benefit inflation during the quarter. Distribution costs was relatively flat in the quarter as our logistics team continue to effectively offset higher carrier rates and fuel inflation. And finally, net income for the first quarter was approximately $4 million and diluted earnings per share was $0.15. Diluted EPS was down $0.58 per share from $0.73 per share in the first quarter of 2018 due to charges related to our previously announced restructuring actions and divestiture of noncore businesses.

Excluding the impact of those pre-tax charges of $22 million, our adjusted diluted EPS was $0.81 in the first quarter of 2019, compared to $0.73 in the comparable period of 2018. Included in the $22 million, our $4 million related to restructuring, $11 million related to asset impairment, $5 million for loss on the disposal of subsidiaries and $2 million for loss and disposable -- disposal of property, plant and equipment related to divestitures. Now let's look at our reportable segments. Turning to Slide 11, we'll start with North American Residential.

Net sales decreased by 2% in the first quarter, but adjusted EBITDA increased by 6%. Net sales declines were driven by a 9% decrease in base volumes, due primarily to the soft end markets in our wholesale business along with the prior-year retail line loss. The beginning of the second quarter was the anniversary of this retail line loss. So this is the last quarter, we will see that impact in our year-on-year comparisons.

I'd like to provide a little more color on how the wholesale business performed in the quarter. If you recall, we mentioned on our fourth-quarter call that our North American Residential wholesale business improved year on year for the month of January. We subsequently saw the wholesale end market turned down slightly in February and continue to weaken in March. A 1% decline from foreign exchange along with a 1% decline from sales of components added to the year-on-year declines in the first quarter.

Sales declines were partially offset by a 6% improvements in average unit price, driven primarily by pricing implemented in December and a 3% increase in volume from our BWI acquisition, the integration of which is progressing as planned. Adjusted EBITDA margins increased to 120 basis points in the quarter due to strong AUP gains, again, primarily due to price. Additionally, adjusted EBITDA margin in this segment benefited from the labor productivity, I noted earlier, which fully covered labor inflation. Despite overhead reductions and an improved factory cost structure, we experienced unfavorable absorption due to lower volumes, however, which partially offset the benefit of improved productivity.

Turning to Slide 12, in our Europe segment. Net sales decreased by 3% compared to the first quarter of last year due to a 7% decline from foreign exchange, driven by a weaker British pound. We also incurred a 1% decline from acquisitions and divestitures, reflecting the impact of the divestiture of the timber flooring product line along with a 1% decline from sales components. Partially offsetting these declines was a 5% increase in base volumes for the quarter.

Given the uncertainty in the U.K., it's encouraging to see base volumes up year on year. If you recall, we saw positive starts from out of the U.K., the back half of last year, and it appears this translated to positive demand for our products in the first quarter. Adjusted EBITDA grew in the first quarter by 1% over the comparable period of 2018. Adjusted EBITDA margin of 11.9% was up year on year by 50 basis points despite higher material cost aided by strong results through DW3.

From an operational standpoint, the U.K. successfully completed the consolidation of their customer service and accounting functions in the quarter. Moving to Slide 13, in the architectural segment. Net sales increased by 28% in the first quarter, primarily driven by 21% growth from our Graham and Maiman acquisition, as well as increases in base volume and average unit price, up 2% and 5%, respectively.

AUP gains were the result of like-for-like price partially offset by mix. While we're pleased with the sales growth in Architectural, adjusted EBITDA margins were heavily impacted by severe weather. As Fred mentioned, the architectural segment was disproportionately hit by the severe weather in the Midwest. Approximately, 80% of the total production ships lost across Masonite in the first quarter were architectural facilities.

This, coupled with the expected impact of acquisition-integration costs for Graham and Maiman, resulted in considerable pressure on margins. Aside from the weather impact, architectural operations are performing well. Given this quarter's net sales growth along with positive order trends year on year, we remain optimistic for 2019. Before I hand it back to Fred, let me review our liquidity profile on Slide 15.

You can see our total available liquidity, including unrestricted cash and accounts receivable purchase agreement and our undrawn ABL facility, was $254 million or approximately 12% of our trailing 12-month net sales as of March 31, 2019. At the end of the first quarter, total debt and net debt to trailing 12-month adjusted EBITDA were 2.9 times and 2.6 times, respectively. Cash flow from operations was $19 million in the quarter. While lower than an exceptionally strong first quarter of 2018, we solidly performed in what is typically a minimal cash-flow quarter given the seasonal working capital profile of our business.

Capital expenditures were $20 million in the quarter in line with our expected pace and outlook of $75 million to $80 million for 2019. As Fred mentioned, the organization is executing well on our key strategic initiatives, and this includes the deployment of capital for its strategic projects. Lastly, we continue to execute our share-repurchase program in the first quarter, purchasing approximately 646,000 shares at an average price of $51.37 per share, totaling approximately $33 million in the quarter. And with that, I'll now turn the call back to Fred, to summarize today's discussion.

Fred Lynch -- President and Chief Executive Officer

Great, thank you, Russ. So to summarize, we delivered higher net sales, increased adjusted EBITDA and expanded adjusted EBITDA margins in the first quarter. Growth from acquisitions and higher AUP, primarily due to price more than offset sales declines in North American Residential base volume and higher than expected negative foreign exchange. While lower volumes and higher material inflation put pressure on adjusted EBITDA margins, higher AUP and our productivity improvements more than offset these impacts.

We felt some additional pressure on margins from weather, but that was fortunately isolated to our architectural segment. Given our performance in the first quarter, we believe, we are still positioned for full-year adjusted EBITDA margin expansion. We continue to drive the MVantage operating system across the organization. We're off to a strong start, having already achieved a record number of Kaizen events in the first quarter and are on pace for a record number of lean certifications in 2019.

Our restructuring is progressing well. Given our progress to date, we now expect to achieve a 10% reduction in the total number of manufacturing locations by the end of 2019 as compared to the second half of 2020 as previously expected. As this will be my last quarterly call as CEO, I want to thank the investors and analysts on the phone for their support through the years. Five and a half years ago, we took Masonite public with the trailing 12-month adjusted EBITDA just a tad over $100 million and thanks to the hard work and dedication of our roughly 10,000 employees have grown that to over $270 million at the end of the first quarter.

While the company is in a solid financial position on all counts, there is still more juice to be had, and I am confident that Howard and the Masonite leadership team will continue to build on that positive momentum of Q1 and drive toward result outlined in our long-term strategic growth framework. The best part of this job by far has been the opportunity to serve the 10,000 employees who have a heart and soul of our company. Our employees have built an incredible culture that emanates from our purpose. We help people walk through walls.

We do this both physically, by offering great products; and metaphorically, through our culture, engaging each other and providing our teams with the tools, training, development and confidence to cross new thresholds and by encouraging people in our communities to be part of our team. That's why people come to work at Masonite and why they choose to stay and make a career here. And I will miss that part terribly. But as I always say, all good things must come to an end and after 12 years as CEO, my time is up.

Howard will have a strong foundation to build upon and a great and talented leadership team ready to support him in serving the 10,000 employees and helping them continue to walk through the walls. I very much look forward to reading the next chapter in Masonite's history as it nears its 100th birthday in 2025, under the leadership of Howard Heckes. And with that, we'd like to open the call to questions, operator?

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Michael Rehaut of J.P. Morgan. Please proceed with your question.

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

It's Elad on for Mike. I wanted to just get a little bit more color on the trend in North America Residential wholesale business. You mentioned that you're up in January, down in February and down more in March. Just wondering, kind of, what happened in March and February and what you're seeing in April? And then, more specifically, on customer inventory levels.

I think after their lack of pre-lie in 4Q, things seem to return to normal in January. And so just wondering what those are and if there's still maybe lowering inventory levels? Thanks.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. Elad, it's Russ. I'll kick off and then Tony can jump in and add some additional color, particularly as it relates to general dynamics and inventory. I would describe Q1 generally as moderating as we went through the quarter.

Growth in January sliding to just slight softening in February and then down a few percentage points in March. Those comments are specific to the wholesale business in North America. So definitely some moderation over the course of the quarter. As we look at April right now, if you step back and look at total revenue picture for the company, when you strip out FX, I would describe performance as flattish.

So Tony, you want to add some more color on North America?

Tony Hair -- President of Global Residential

Yeah. I think, certainly, we felt the softening of the end markets as we went through. We've seen tough weather in some of the big markets that we do business with from California down through the South and even in the Midwest. And in April, we felt some of that softness still in the marketplace, to Russ' point.

Our customers, however, are pretty bullish that they believe that building is coming back. And that as the weather sides, they're going to see a move back in a positive direction. And remember, we're late in the build cycle in terms of our product category. So some of our customers have started to see a rough number of things picking up.

And we expect to get back in a more positive nature. But we are cautious about what that's going to look like as we go forward, which is -- what has driven the restructuring in the plans that we put in place. So relative, the customer inventory feels really good. We know we have some customers who are starting to elevate their inventories in anticipation of some of the return in the market, and we're working with them on that.

But we feel like customer inventories are absolutely in the right spot, right now.

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

Thank you. And also, just one more on the mix and the wholesale business. And I appreciate the review you gave with shift to entry-level homes and the number of doors per home. I was also interested in terms of mix and driving the higher AUP products and any early feedback from the builders or other consumers, specifically from the entry-level consumers? And how -- maybe the Livingston indoor or some of the other new products that you guys are coming out with, how these characteristics could appeal to entry-level buyers, in particular?

Tony Hair -- President of Global Residential

Yeah. I think Elad, that's a great question. And I think our new product vitality index demonstrates that even with a move toward more entry level, we are seeing both consumers demand for more contemporary styles and more current products and builder's response to that. So even if there are fewer doors, and we do see the demand for those more on-trend styles being represented.

And that's why we've seen the Heritage product line do so well and why the reception around Livingston has been very positive. So we think we'll continue to see that positive mix.

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

Great. Thanks, guys.

Fred Lynch -- President and Chief Executive Officer

Thank you.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Tim Wojs of Robert W. Baird & Company. Please proceed with your question.

Tim Wojs -- Robert W. Baird and Company -- Analyst

Thanks. Good morning, everybody, and nice job on the EBITDA improvement here. And Fred, I want to wish you well on your retirement here with this being your last call as CEO.

Fred Lynch -- President and Chief Executive Officer

Thanks, Tim.

Tim Wojs -- Robert W. Baird and Company -- Analyst

I guess, my first question, just on price cost for the year, I think, both price is a little better than we thought, and it sounds like inflation was maybe a little bit better than you thought. So I guess if we look through the balances of 2019, any update to kind of what you're expecting from a pricing and a cost inflation type numbers through '19 now?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Hey, Tim, it's Russ. Let me start perhaps talking about the cost of the equation, and then I'll circle that back to price/cost to overall. We did see a little bit less inflation in the quarter than we would have anticipated as I commented earlier about 2%. Whereas, our viewpoint on the year is 3% roughly equivalent across the quarters.

Some of that was due to the impact of a lower-resident inflation, as I commented in the prepared remarks. And there could be some likelihood that that reverses against us as we get into the next couple quarters, just given the delay that we see between higher oil prices and how that translates into our chemicals' costs, which is a significant part of our materials cost-to-sales basket. So overall, nothing that suggest at this point that we would move meaningfully off of that viewpoint of 3% costs for the year. Relative to price cost, clearly, we had a favorable relationship in the first quarter.

As you've heard us say in the past, our strategy is always to maintain a neutral-to-favorable price cost relationship. We're pleased with the ability of the business to put the price increasing through that we had announced after the end of the year, and you're now seeing that margin improvement as a result of this two dynamics.

Tim Wojs -- Robert W. Baird and Company -- Analyst

OK. OK. And then maybe going back to the wholesale discussion a little bit. Just -- I think the volumes have run -- the volume, you're talking about a run maybe just a little counter to what we've heard from some other company.

So do you feel like your customers may have kept a little more inventory in the channel just to see how the new construction markets developed? And then is there a little slower development. And so they kind of destock toward the end of the quarter? Just any more color on just, kind of, how you would think through the pace for the year? Because it does run a little counter -- or the pace of the quarter, it did run a little counter relative to what other people have talked about.

Tony Hair -- President of Global Residential

Yeah. Tim, this is Tony. I think, certainly, as you look across the markets where we had weather impact, there were certainly customer organizations that did not meet their own expectations in terms of going out the door, so they were -- they had a little higher inventory. I would say that they've managed that very effectively.

And so in working with them as we see the market come back, we think we'll be in a good spot. So I don't think there was anything remarkable about that but, certainly, a little disappointed in what we saw in the demand and the end-market shift throughout the quarter.

Tim Wojs -- Robert W. Baird and Company -- Analyst

OK. And then maybe just the last one from me. So the restructuring in terms of the plant take out sounds ahead of schedule. Any change to how we should think about realizing some of the associated restructuring benefits in kind of that cadence between 2019 and 2020?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. Tim, it's Russ. Really no impact in 2019 associated with that. We have previously thought that we really wouldn't hit full run rate for those savings until we get closer to the end of 2020.

We may see some acceleration of that, but no impact on 2019.

Tim Wojs -- Robert W. Baird and Company -- Analyst

OK. Great. Good luck on the rest of year. Thanks for the time.

Fred Lynch -- President and Chief Executive Officer

Thank you.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Thanks, Tim.

Operator

Our next question comes from the line of Mike Eisen of RBC Capital Markets. Please proceed with your question.

Mike Eisen -- RBC Capital Markets -- Analyst

Thanks, guys, for taking the questions. And Fred, congratulations on last call and a good tenure. I just wanted to see if we can get a little more color on the price volume dynamics in North America. Specifically, how in the quarter this compared to both the marketing and your expectations? And then how we should think about the strategy of price and volume as we move forward?

Fred Lynch -- President and Chief Executive Officer

Yeah. So I'll kick that off. So this is Fred. I think that when we look across the business right now, we think from a volume perspective, we kept up with the market.

I think it was right in line with what our customers were seeing. Again, I think as both Tony and Graham can explain, what -- we saw a lot in the different geographies of the country. It was really based on some of these weather conditions where I thought that -- I think the lumpiness, even we saw in the quarter, was related to whether or not customers can actually take product in. So we're looking at it right now from price-volume perspective that the plan, as we go through the rest of the year, is exactly as we anticipated with regards to how the market will continue to the progress.

Mike Eisen -- RBC Capital Markets -- Analyst

Got it. That's helpful. And then thinking about the productivity improvement and some of the initial successes you guys have talked to through Kaizen events and then some of these more transformational reviews. How should we think about the headwind that we saw from factory and productivity in the first quarter? And should we expect that to inflect to tailwind moving forward from these initiatives?

Fred Lynch -- President and Chief Executive Officer

Yeah. I think the answer is yes. I mean, the factory productivity -- the factory cost in the first quarter were largely due to lower volumes. So if this is really the utilization of our assets.

We actually were able to offset any -- a lot of the wage inflation through our productivity programs. So I would say that right now we feel like the operations team and the operating programs on that slide that we showed earlier with regards to how we're driving our MVantage program, the driving of our footprint optimization and even the overall portfolio optimization as we shed some of the lower-margin businesses. We'll continue to show -- demonstrate positive performance on the cost side.

Mike Eisen -- RBC Capital Markets -- Analyst

Very helpful. And then one more, if I can sneak it in. It seems like a lot of that is coming through on the architectural segment, and the margins have been pressured over the last couple of quarters, granted some of it from the lower volumes. Should we think of it as, those weather headwinds, a bait that that segment will go back to margin expansion as we move into the second quarter and the back half of the year?

Fred Lynch -- President and Chief Executive Officer

That's big yes. I'm looking at Graham, too. And he's shaking his head.

Graham Thayer -- Senior Vice President, Business Leader of Architectural

Nodding affirmatively.

Fred Lynch -- President and Chief Executive Officer

Quite frankly, the team did a -- I think a very good job. And given the weather impact on that plant, how many plant ships we lost, we actually were pleased with the performance. While it does -- didn't demonstrate growth year on year, underlying performance was very solid.

Mike Eisen -- RBC Capital Markets -- Analyst

Got it. Thanks for taking the questions.

Fred Lynch -- President and Chief Executive Officer

Thank you.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Michael Wood of Nomura Instinet. Please proceed with your question.

Mason Marion -- Nomura Instinet -- Analyst

This is Mason Marion on for Mike. You had a relatively easy comp in the U.K., but we still get to see volume growth there. Can you talk about the sustainability of this volume growth? And then if any high-level commentary on the housing market in the U.K. and whether or not you guys are stealing share?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. Good morning, Mason. It's Russ. I think, generally speaking, when you step back a look at the U.K., it's been just a very lumpy market in light of everything that's occurred with Brexit.

We see a lot of volatility even in the statistics we see reported on a quarter-to-quarter basis with respect to starts and completions. So there's nothing that suggests that lumpiness is going to correct itself between now and, call it, late in the year when, hopefully, we finally have visibility on what a Brexit mechanism looks like for that market. I think the biggest point of volatility that we're seeing there is FX. And remember, we had significant FX declines in the Europe segment, specifically, in U.K.

in the first quarter. In fact, the pound sterling was down circa 6.5% versus the U.S. dollar. So absent that, you would have seen even stronger growth in revenues in the U.K.

General market trends there seem to be recovering. Our base volume seems to be doing fine in that business, again, once you strip out FX. So we're not feeling bad about that market at all, but we are prepared for uncertainty in the balance of the year.

Mason Marion -- Nomura Instinet -- Analyst

Great. Thank you.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from line of Kevin Hocevar of Northcoast Research. Please proceed with your question.

Kevin Hocevar -- Northcoast Research -- Analyst

Hey, good morning, everybody. And Fred, congrats, again, on the retirement. On Slide 7, you show how growth queuing toward entry-level homes is hurting your volumes in North American Residential. I'm wondering -- it's helpful to see all that.

But wondering, if you can help quantify how big of a headwind is this? You talked about '18, '19 or so entry -- interior doors per, kind of, floor plan, at this point, used to be 21. So I mean, when you think about how that impacts the industry and your business, is it a 1%, 2%, 3% -- how big of a headwind do you see that to volumes on an annual basis?

Fred Lynch -- President and Chief Executive Officer

Yeah. I'll start that one off. And I think one of the challenges, we have much better -- and much more discrete data today about exactly what we're seeing in each of these homes as you can see from this scatterplot. When we talked to the 21 doors back in the day, that was a much more anecdotal, I think, number based on feedback that we got from our customers.

We didn't have this level of research and data associated with it. As I look -- as we look at this chart, there's really a few things that stand out. I think as we mentioned, it's about a door for 180 square feet if you just follow the slope of that lifeline. And so I'd say that as we'll continue to watch the average home size and how that moves, right now, it's just over 2,500 square feet, we don't see that dropping down below -- rapidly below 2,300 square feet over the next years.

So -- but that could have an impact of one door, and one doors is roughly 5%. The other part of the equation here, I think, is the variability. Well, this -- you can see a significant variability from top to bottom in this chart. So we know we're going to continue to focus in on that and add to this data set, pick up more of a view on multi-family homes, so that we can then help better understand what that impact will be to us in the long term.

And more importantly, how do we influence that impact. As we shared internally, there's a lot of little green dots. It's well below that line that we like to go back and figure out how we work those homeowners and start to change and those homebuilders, I should say, and start to change their perspective on why we're using so few doors in those homes.

Kevin Hocevar -- Northcoast Research -- Analyst

Gotcha. OK. And then can you talk to Canada specifically. I mean, obviously, starts there have been pretty weak.

So what are you seeing from a volume perspective in that market? And given the weakness seen there, how was the competition in that market? Are you seeing any pricing pressure? In total, North America Residential average unit price looked really, really good. But just kind of curious, if you can give some color on what you're seeing in Canada?

Tony Hair -- President of Global Residential

Yeah. This is Tony. I think we talked about the third quarter in a row when we saw starts on both ends: single family, multi family being down. That has -- undoubtedly has significantly impact on overall demand in Canada.

I think from position standpoint, we feel good about the partners that we have, the product that we brought to bear. And they are primed and ready to be able to support building as it plays out there. So there hasn't been any undue price pressure or a change as a result of that. We monitor that with our partners throughout the business, and we haven't seen anything extraordinary there in terms of price differentiation.

Fred Lynch -- President and Chief Executive Officer

Yeah. I would say that in some way the -- It really does act as a combined North American market. And so while you might have regional differences, we -- in some way and at least on a residential side, Canada's more like a region of North America.

Kevin Hocevar -- Northcoast Research -- Analyst

Gotcha. OK. Very helpful. Thank you very much.

Fred Lynch -- President and Chief Executive Officer

Thanks, Kevin.

Operator

Our next question comes from the line of John Baugh of Stifel. Please proceed with your question.

John Baugh -- Stifel Financial Corp. -- Analyst

Good morning. And Fred, wish you all the best in retirement. My question is around AUP. And I think Russ mentioned that it was somewhat more skewed to price than mix.

But could you help us as we model out the remaining nine months of this year with that, sort of, price expectation impact AUP versus the mix? Thank you.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. John, it's Russ. Well, as you know, we're very circumspect about talking perspective without price. But let me give you a little bit of color about the price and mix dynamics.

The one thing I'd remind you of is recall from an AUP perspective, the loss of retail business, the line review from the second quarter of last year, has actually served as a headwind to our AUP in the North American Residential business. And that's been roughly a point worth of headwind, the last couple of quarters simply because that business was largely of pre-hung doors as opposed to door slabs being sold into the wholesale channel. So as our mix of pre-hung products has reduced, given that loss of a retail business, that has had -- been a headwind. We now will lap that in the second quarter.

And what you'll see going forward would be more representative of balance in price and mix.

John Baugh -- Stifel Financial Corp. -- Analyst

OK. And the pricing that you perceived, both through calendar '18 and the warm -- the increase at the end of the year, has that been balanced across distribution channel, i.e., builders, homes centers, etc.?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. So we took pricing across all channels and all product lines.

John Baugh -- Stifel Financial Corp. -- Analyst

Thank you very much.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Thanks, John.

Operator

Our next question comes from the line of Reuben Garner of Seaport Global Securities. Please proceed with your question.

Reuben Garner -- Seaport Global Securities -- Analyst

Thanks. Good morning, everyone. So SG&A in the quarter was a little bit higher than we modeled. Was there anything one time that went on? I know you called, I think, in the presentation some integration expense.

Can you just talk about maybe the cadence for SG&A for the rest of the year that's kind of embedded in your outlook?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. Sure, Reuben, it's Russ. As I commented during the prepared remarks. If you just look at the pace in the P&L, there's about a $10 million increase in SG&A.

But all -- but $2 million of that would have been related to either new businesses that we'd acquired and the SG&A that came with them or some of the noncash items, like higher D&A. And we did have some charges in there related to disposal of sale of assets associated to restructuring. From an EBITDA perspective, it was only about a $2 million increase, and that was reflective of both wage and benefit inflation and some additional investment that we made in resources in the Architectural business. So specifically, the quick ship business and Architectural continues to demonstrate strong growth and good margin performance.

So we're investing in certain areas there. And then there are some costs associated with, for example, services agreement as we wind off the integration of Graham and Maiman. So from a standpoint of how that rolls out through the year, some of that cost is going to naturally be embedded in the business as we go forward just because of wage and benefit inflation in some of those investments that we've made.

Reuben Garner -- Seaport Global Securities -- Analyst

OK. Got it. So if you had to quantify maybe what was kind of one time in nature? Or just specific to Q1, is there a dollar amount that you could call out that maybe wouldn't recur going forward? Or is that not the right way to think about it?

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Yeah. There was about $2.5 million worth of one-time charges just related to disposals. Our D&A was up about $3 million, that's probably going to be more of an on-going basis just from projects that we've rolled in. And then we also had $4 million of restructuring charges that were dialed out of our adjusted EBITDA, those would be one time in nature.

Although, we'll continue to have some restructuring costs each quarter as we complete the closure of plants. Again, you won't see those in our adjusted figures as we go forward.

Reuben Garner -- Seaport Global Securities -- Analyst

OK. And then -- that's very helpful. And one clarification for me, follow up on the last question. The -- so your comment that AUP has seen about a point drag over the last four quarters.

So in other words, you would've seen about a seven-point increase in Q1. What -- I mean, I know you don't like to talk about going forward a number. But what other items are there to think about, pluses and minuses that would impact that level for the remainder of 2019?

Fred Lynch -- President and Chief Executive Officer

Yeah, just to be clear that was 1%, not -- it's not additive, it's cumulative.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Well, the point is that with respect to AUP, we've had the last several quarters about one point worth of drag in the North American business as a result of lower pre-hung business in the retail channel. You step back and look at the different pieces of AUP, price and mix. Within mix, you're going to have a dynamic of channel mix, pre-hung versus slab and you also have the impact of product mix. And so I would just think about it in terms of as we roll out continued new product introductions, Tony and Fred talked about the Livingston, in particular, and the great reception that that's had.

That should be a tailwind for average unit price in addition to pure price actions.

Reuben Garner -- Seaport Global Securities -- Analyst

All right. Thank you, guys.

Operator

Our next question comes from the line of Steven Ramsey of Thompson Research Group. Please proceed with your question.

Brian Biros -- Thompson Research Group -- Analyst

Hey, good morning. This is actually Brian Biros on for Steven. Thank you for taking my questions. I think most of them have been answered.

But I guess, you just touched on the North American volumes. I know you gave some good insight into the volume decline there across the various factors. But is that something you could quantify into like what percentage was weather related? What was housing starts, channel withdrawals and anything else?

Tony Hair -- President of Global Residential

Yeah. Brian, I don't know if we can get that specific or would be able to quantify that really well. We know that all of those things had an impact. And again, we believe that with the optimism in the market that we'll see that some of those subside and be able to play out more favorably going forward.

Brian Biros -- Thompson Research Group -- Analyst

OK. Any guess on whether if that was even ballpark 25, 50? Or just stop, if you want -- anything you can get to?

Tony Hair -- President of Global Residential

I'm not going to guess about that or future weather events. So --

Brian Biros -- Thompson Research Group -- Analyst

Understood. And I guess just one last one on the architectural side. With the -- some of the recent acquisitions you guys have had. Any changes to the strategy or thoughts on those going forward, given how Q1 shaped up and what the rest of the year looks like?

Graham Thayer -- Senior Vice President, Business Leader of Architectural

No. I think we're going on as planned. It's Graham, by the way. We're continuing to integrate the business and really take advantage of the network we have right now, and we're working through some of the purchasing synergies that were part of acquisition.

So I think we still pretty much going on with the plan that we had put together. And we're very happy with the acquisitions and things are moving very smoothly in that direction.

Brian Biros -- Thompson Research Group -- Analyst

Sounds good. Thanks.

Fred Lynch -- President and Chief Executive Officer

Thank you.

Russ Tiejema -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

There are no further questions at this point in the conference. I would like to turn the conference back over to President and CEO, Mr. Fred Lynch.

Fred Lynch -- President and Chief Executive Officer

OK. Well, thanks, everyone, for participating in the call today and for your interest in the company's performance. And the team looks forward to speaking to you again at the next quarter. With that, I'll turn it back to the operator for a replay of the instruction.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Joanne Freiberger -- Vice President of Investor Relations

Fred Lynch -- President and Chief Executive Officer

Russ Tiejema -- Executive Vice President and Chief Financial Officer

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

Tony Hair -- President of Global Residential

Tim Wojs -- Robert W. Baird and Company -- Analyst

Mike Eisen -- RBC Capital Markets -- Analyst

Graham Thayer -- Senior Vice President, Business Leader of Architectural

Mason Marion -- Nomura Instinet -- Analyst

Kevin Hocevar -- Northcoast Research -- Analyst

John Baugh -- Stifel Financial Corp. -- Analyst

Reuben Garner -- Seaport Global Securities -- Analyst

Brian Biros -- Thompson Research Group -- Analyst

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