Gibraltar Industries Inc (ROCK) Q2 2019 Earnings Call Transcript

ROCK earnings call for the period ending June 30, 2019.

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Gibraltar Industries Inc (NASDAQ:ROCK)
Q2 2019 Earnings Call
Jul 26, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, welcome to the Gibraltar Industries Second Quarter 2019 Earnings Conference Call. [Operator Instructions]. My name is Kevin, and I'll be your coordinator today. [Operator Instructions]. I would now like to turn the call over to David Calusdian from the company's Investor Relations Sharon Merrill Associates. Please proceed David.

David Lucien -- investor relations firm

Good morning, everyone, and thank you for joining us. If you don't have a copy of the earnings press release that was issued this morning, you can find it in the investor info section of the company's website, gibraltar1.com. During the prepared remarks today, management will be referring to presentation slides that summarize the company's second quarter performance. These slides are also posted to the company's website. Please turn to Slide Two in the presentation.

The company's earnings press release and slide presentation contain forward-looking statements about future financial results. The company's actual results may differ materially from the anticipated events, performance or results expressed or implied by these forward-looking statements. Gibraltar advises you to read the risk factors detailed in its SEC filings, which can also be accessed through the company's website. Additionally, Gibraltar's earnings press release and its remarks this morning contain adjusted financial measures.

Reconciliations of GAAP to adjusted financial measures have been appended to the earnings release and slides. On our call this morning are Gibraltar's President and Chief Executive Officer, Bill Bosway; and Chief Financial Officer, Tim Murphy. Please turn to Slide Three , and I'll turn the call over to Bill.

William T. Bosway -- President, CEO & Director

Thanks, David, and good morning, everybody. I want to thank everyone for joining us today. Let's get started. We delivered a solid second quarter with earnings in line with our guidance, despite revenue being below our expectations. Our revenue in Q2 of $262.7 million was essentially flat with last year with positive growth in our Renewable Energy & Conservation segment and in our Infrastructure business. During the quarter, we continue to build our backlog to a record level of $242 million, up 30% over last year, which gives us confidence to reaffirm our full year guidance and deliver second strong second half performance.

We do have parts of business, where revenue was flat or down in the quarter, particularly in our Residential segment and our Industrial business. Residential was impacted both by both weather and labor shortages and our Industrial business was impacted by the ongoing downward movement of steel prices. Our GAAP earnings of $0.61 and our non-GAAP earnings of $0.73 were in line with our guidance, and would have been stronger, if not for an incremental expense of $2.3 million or $0.05 per share related to the fewer modifications we began in Q1 of our existing tracker system.

In hindsight, given the uniqueness of each of the solar field, we underestimated the incremental labor expense to complete our work as we entered Q2. Fortunately, our product enhancements are working quite well in the field, and we've minimized and prevented disruptions for our customers. We've completed the modifications of 80% of installed systems, the remaining 20% of systems are currently undergoing modification and we've accounted for the cost to complete these projects. Of the 80%, we completed 45% up and generating power, 15% are in the process of starting up and 40% are waiting start up, but that's not related to our modifications. In all, our customers are supportive of our proactive approach and our product modifications, and we continue to seek demand for our solution.

Our tracker solution continues to provide better economics associated with lower land acquisition, land preparation and installation cost. And overall, our solar backlog is currently at an all-time high. After Tim reviews our financial performance, I'll update you on our key initiatives and provide additional color around our expectations for the second half of the year.

So with that, I'll turn it over to Tim.

Tim Murphy -- Chief Financial Officer

Thank you, Bill, good morning, everyone. Let's move to Slide four in the presentation entitled Solid Consolidated Results. Our 1.2% decline in consolidated revenues came as a result of lower value in our Industrial segment, mainly due to customers utilizing our on-hand inventories and expanded metal in anticipation of lower pricing as steel costs declined during the quarter. These lower volumes were partially offset by increased activity in our Renewable Energy segment and Infrastructure business. Customer demand that our project-based business is strong. We've build our backlog of projects to a record of $242 million, up 30% from the same period last year. On the bottom line, while our revenues were less than we anticipated, our consolidated GAAP earnings were within guidance and as expected below last year.

The decrease in GAAP earnings this quarter reflect volume leverage, higher restructuring cost, senior leadership transition cost and cost associated with our solar tracker solution. These increases were partially offset by benefits from interest savings from our debt repayment, lower performance-based compensation and our simplification initiatives. Consolidated adjusting earnings were up 2.8% year-over-year and in line with our guidance. The increase was due to interest savings from the recent repayment of our notes, lower performance-based comp and continued benefits from 80/20 simplification initiatives. These benefits were partially offset by the impact of lower volumes and cost incurred to improve the durability and ensure performance of our innovative tracker solution.

During the quarter, we achieved $2.9 million in interest savings from the repayment of our outstanding debt during the first quarter. We continue to anticipate annualized savings of $13 million in interest payments or a benefit of $0.22 to diluted earnings per share for the full year '19. Now let's review each of our 3 reporting segments starting with Slide five, the Residential Products segment. Revenue in the Residential segment were essentially flat year-over-year, as lower demand for building products due to difficult weather conditions and continuing labor shortages were largely offset by increased selling prices.

On the bottom line, operating margin declined due to unfavorable volume leverage, product mix and alignment of price to material costs. These factors were partially offset by benefits from our 80/20 simplification initiatives. Looking ahead, we expect increased end-market activities as weather related delays are subsided as we move through the seasonally stronger period in the year. Turning to slide six, the Industrial & Infrastructure Product segment. Revenues were down 8.2% year-over-year, as increased activity in the Infrastructure business was more than offset by the impact of lower demand for our core expanded metal products.

The decline in operating margin for the Industrial and Infrastructure segment resulted from the reduction of volume workload products on the industrial side, mix and the alignment and material cost of selling prices. This was partially offset by continued benefits from 80/20 initiatives. At the same time, we had strong performance in the Infrastructure business, which continues to improve with great year-over-year performance and an increase in backlog. Looking ahead, we expect this segment to benefit from higher backlogs and increased bidding activity in the Infrastructure business. Recovery in industrial demand as steel prices are expected to continue to decline through the third quarter, growing demand for innovative products and continued benefits from ongoing 80/20 simplification activities.

Turning to slide seven, the Renewable Energy & Conservation segment. Revenues in this segment increased 3.1%, driven by strong demand for our greenhouse solutions and the prior year acquisition of SolarBos. Our revenues from the tracker solution were muted during the quarter, as we paused on accepting new orders while we implemented modifications to existing systems in the field. During the second quarter, we incurred $2.3 million incremental costs related to our solar tracker system. We discussed previously we had a significant ramp in the installation of our projects -- product in the second half of 2018, with approximately 75% of our projects for that year during the third and fourth quarters.

In the first half of this year, we followed up with the labor-intensive in-field enhancements to the systems already installed. These activities ensure the performance our tracker system meets our expectations, while also improving durability. Customer feedback regarding system functionality and our level of service has been positive. The modestly lower GAAP and adjusted margins for the segment were due to these additional tracker related costs which more than offset the benefits of price to material cost alignment and mix. Excluding these tracker related cost, which were mainly for additional in-field service labor, operating income and related margins for the segment were increased year-over-year. We ended the third quarter with record levels of backlog, nearly doubling greenhouse and up approximately 20% renewables. We expect margins in the segment to continue to improve as we complete field modifications and benefit from improved volumes. Please turn to slide eight, Capturing the Opportunity. With cash on hand in under revolving credit facility, we had $476 million available to us at the end of the second quarter, which gives us tremendous flexibility for capital allocation, and we remain well positioned to execute on our acquisition strategy. With that, I'll turn it over to Bill. Please turn to Slide Nine, 4 Pillars Driving Value Creation.

William T. Bosway -- President, CEO & Director

So guys, as we move into next phase of our transformation, we are focused significantly on enhancing long-term growth and margin profile of our company. And so to do so, we're going to continue to build on and evolve our 4-pillar strategy, while focusing on really 5 key initiatives. First, accelerating operations excellence with continued 80/20 focus on quality, cost, productivity working capital performance and business model execution; and secondly, really working hard to create a stronger and more direct connection with our end customers to become their most relevant trusted partner; third, bring new products innovation to market that solve inherent industry and customer problems and to do with discipline, some best practices and the best value proposition for our customers; fourth, we're going to optimize our portfolio with growing capital both people and dollars in markets and businesses that are more attractive, fit our strategic rubric and have the highest value-creation opportunity for our shareholders; and finally, fifth, execute acquisition to strengthen our platforms, particularly in attractive fast-growing markets that are driven by technology and engineered solutions, but also have sustainable end-market demand for products and services.

So let me update you on our first initiative, the operations excellence work that's been done. We continue to reduce the complexity of our business, simplify our product lines and drive productivity initiatives. We are advancing our in-lining market-rate-of-demand and outsourcing initiatives, and during the quarter achieved 140 basis point improvement. We're also making good progress with our second initiative, building direct connection with our end customers, the focus that truly make -- that are truly making decisions about our products and services. In the second quarter, our direct end-customer business reached 41% of our total sales, driven by greenhouse, solar, infrastructure and perimeter security businesses.

This is up from 39% 2018, and I really do expect this to continue to grow as we move into the second half of the year and into 2020. In our greenhouse business, our strategy to work directly with cultivators and growers to deliver our broader portfolio of products and services is resonating really well in the market. We now offer an array of greenhouse structure options, but also system and technology integration services to ensure customer operation start up on time, but also meet performance expectations. So we believe the continued expansion of our backlog now at record levels and up almost 100% over last year supports our direction.

Direct business model also helping us gain insight to the various challenges and opportunities within the industry. Having a strong direct relationship is creating a very positive impact with our third initiative, which is new products and innovation. We think of innovation is a thought process regarding our business models, but also our products, services and the investment in trade focus competency. The key for us, as always is to ensure our customers have authentic genuine demand for what we do for our products and our services.

And we're doing a better job at this is through our trade focus. We continue to develop our new product development engine, invest in necessary marketing competencies. During the quarter, our patented products grew at a faster rate and our core products representing 13% of our sales, that's up from 9% in Q2 of 2018. We do see growth in our solar, perimeter security, package lockers and greenhouse industries, all which have intellectual property and/or new offerings integrating in them. In general, our new products and expansion of our service portfolio in last 2 quarters have played an important role in building our record backlog to $242 million at the end of the quarter. In our portfolio management work, our fourth initiative, we continue to evaluate our product lines, customers and end markets, and recently we've implemented the following.

First, we've developed and deployed our strategic rubric, which is a disciplined process and our guide to determine where, why and how we will build our business. Secondly, we further flat the organization and created more focus as a result with our leadership in our core businesses. And third, we are really working hard to surgically allocate our time, talent and energy in our businesses to ensure we execute and deliver performance. So I remain excited about the opportunity we have to create more value in each of our businesses and obviously we plan to do so accordingly.

Finally, our fifth initiative acquisitions, we are very active in the end markets, we believe, are most attractive to us. It help us strengthen our platforms and put us in a position to drive leadership relevance and shape the markets we participate in, and acquisitions continue to be the primary focus of our capital allocation. So with that, please turn to Slide 10, let's talk about 2019 guidance. So looking into the second half of the year, we expect positive end-market activity across our portfolio, our backlog and our project-based businesses is at record levels and we expect increase in market activity in our industrial business as steel prices are expected to continue to climb through the third quarter. Additionally, in our Residential Product segment, we believe weather-related delays have subsided and we move -- as we move into the seasonally stronger period of the year.

We are reiterating our full year 2019 guidance, expecting sales in the range of $1.30 billion to $1.50 billion. We expect GAAP EPS between $1.95 and $2.10 per diluted share as compared to $1.96 on a GAAP basis in 2018 or between $2.48 to $2.55 on an adjusted basis up from $2.14 from last year. For the third quarter, we expect revenues between $288 million and $298 million, up between 3% and 6% over Q3 2018, and we expect consolidated GAAP EPS between $0.71 to $0.78 per diluted share or between $0.84 to $0.91 on an adjusted basis, up from $0.71 last year.

So with that, we'll open the call up for questions.

Questions and Answers:

 

Operator

[Operator Instructions] Our first question today is coming from Daniel Moore from CJS Securities.

Daniel Moore -- -- Analyst

Start with backlog, obviously, a really nice ramp to $240 million. Maybe just a little bit more color, can you break that down across each of the businesses? And if you don't want to get that granular, may be just bit more color on where you're seeing the most success in increasing demand?

William T. Bosway -- President, CEO & Director

Yes. So, Dan, it's been a good situation in the last quarter too as we build a backlog. I would say, it's -- really we're seeing a lot of that build in the renewables and conservation, there is a lot to do with solar in our greenhouse businesses, that has a lot to do with our direct end customer model. And I would say, it also has a lot to do with portfolio products and the services that we're now offering that maybe we weren't offering a year or so ago. So that's a substantial piece of the backlog grow, but we've also seen good activity in our infrastructure business, our perimeter security business continues to build as well. So it's a little broader than just the renewables, but it's -- I would say, it's more weighted towards that. And those are good end markets that we're well positioned in. I think, hopefully, we'll continue to take advantage of.

Daniel Moore -- -- Analyst

Helpful. And in terms of what will.

William T. Bosway -- President, CEO & Director

One other thought. I'm sure, people are wondering inside the greenhouse world, that backlog has been built across all of our subsegments within that space. It's not heavily weighted on one or the other. There are 5 kind of submarkets there that we work really hard on every day, and that's the other thing we're happy to see. It's not depending on 1 subsegment. It's happening across the board.

Daniel Moore -- -- Analyst

Good. Saves me a question there. On the perimeter security side, can you give us a sense of how much revenue you're generating either in the quarter or year-to-date? And what is backlog growth look like? Just trying to get a sense of how meaningful that could look in 2020 and beyond?

William T. Bosway -- President, CEO & Director

So, Dan, it continues to grow. But I would say is it can be lumpy because it's still pretty small. So from quarter-to-quarter, I think you look this quarter to last year's quarter, backlog is up. It's up pretty significantly, but I know we probably had a couple of jobs delayed this quarter. So the project-based business is always not. You get the project, you think it's going to ship 1 month -- 1 quarter and there could be a delay. So I think we continue to see strong growth there, the pipeline is up significantly, backlog is up quite a bit, but it is small and we continue to grow that piece of the business because it does have an attractive margin profile.

Tim Murphy -- Chief Financial Officer

Remember, Dan, some of them started a couple of years ago, and I would say the percentage growth in backlog you see in total is probably consistent with what you would see in perimeter along with renewables on a percentage basis. It's just much smaller, but it's very active and kind of exciting space.

Daniel Moore -- -- Analyst

Got it. And last from me, and I'll jump back. In the industrial side, any way to quantify the impact of the lower steel prices and customers utilizing existing inventory in Q2? And have you seen an uptick in Q3 or customers to date still pulling from existing inventory?

Tim Murphy -- Chief Financial Officer

Yes. So more than the drop, Dan, in industrial was caused by sort of volume reduction. So there is a $5 million decline in revenue, it's a little bit more than that in that core industrial product, partially offset by some increased infrastructure activity. And just to be very clear on what happens, that product generally goes through a distribution channel and the customers, the service centers, as prices are coming down and they look out 2 weeks and see a projection of a lower price, they'll pullback on ordering and replete their in-stock inventories figure and they can buy it cheaper 2 weeks later. And when that happens, it will go through a destocking period. We did see prices turn and the expectation in the market as they continue to climb through the third quarter and we have seen increased activity in that business as we would expect once that sort of market dislocation cleared itself.

William T. Bosway -- President, CEO & Director

And it's pretty immediate when the prices move as well. I would say, the markets are really efficient in managing, as Tim described. So when you see things turn within days, you start to see activities shift and unfortunately in the quarter going down that happen quite quickly. And as we said earlier, it's -- prices are starting to change and we're starting to see to change accordingly. So we'll see how it tracks, but hopefully be better than -- hopefully still pricing will be more beneficial in the third quarter than it was in the second.

Operator

Our next question is coming from Kenn Zener from KeyBanc Capital Markets. Your line is now live.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Good morning, gentlemen. So you talked about the $5 million hit I believe you just said in industrial. Obviously, it was like I think the wettest second quarter in the record. Can you talk about the impact weather had on the residential space, recognizing it's probably not impacting mailboxes, but I think it's impacting your roofing products? Could you kind of talk about what that means?

Tim Murphy -- Chief Financial Officer

Yes. That's very accurate the mailbox business isn't impacted at all but two thirds of the residential segment is either the ventilation or roofing accessories product. And so as various regions experience cold weather, it just delays roofing projects and that's really when our projects that use, you think about 80% to 85% of these products go to the repair and remodel side of the business. And the remaining goes to rebuild. So new build housing isn't a big driver here, it's really that repair, remodel and it's just the ability to get out and get on the roof and do the work.

The other challenge that this end market has is labor availability were some 4% unemployment and I think all contractors are -- have labor issues where there's more work to do than they can get to because of labor. So it can tend to flatten the season a little bit if the weather stays good later into the year and we've seen that in the last couple of years activity continued strong.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Right. How could steel impact you? I mean because you're talking about bending right for the gutters, for the vents, did the steel dynamic you talked about industrial impact the top liners that can impact pricing in the second half or how should we think about that?

Tim Murphy -- Chief Financial Officer

So this market moves slower. So when we look to second quarter of last year to the second quarter this year pricing was up. And it's a function of price increases that we got in the second half of last year or later in the quarter last year that were in place for the full quarter. So that helps offset some of that volume decline that's why the decline is a little, maybe a little less than otherwise would have been.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Fair. Renewable, obviously, so you talk about 80% being done and then you did I think a very a job breaking out like did that impact people's running business? Was the project just getting up so it's not impacting them? The 2.3 in the quarter what was it in first quarter of a dollar drag associated with that. I forget.

Tim Murphy -- Chief Financial Officer

3.4

Ken Zener -- KeyBanc Capital Markets -- Analyst

Okay. So if I add two, three, plus three, four I get 5.7. Am I to assume 5.7 divided by 0.8? I mean there's still another third quarter component coming. Is that how I should apply that 80% to the existing charges incurred?

Tim Murphy -- Chief Financial Officer

Well, you should consider that we've taken all the costs that we are expecting into account already.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Okay. Good. So [Speech Overlap]

Tim Murphy -- Chief Financial Officer

We came out of Q1, and as I referred to that, I think we underestimated what we thought coming on of Q1 for Q2 and that's really related to the uniqueness of each of the fields. And so we went back in and we've gone through every field, every project in each field and what's going to be required to finalize things and that's covered in the expense of the charge you've seen -- taken Q2 for the remaining 20% as well as the existing 80% that's been...

Ken Zener -- KeyBanc Capital Markets -- Analyst

Got it. Excellent. I mean, margins would be quite impressive. Correct my math that, I mean, you get -- I added in Q3, but you would be at 15.6 margin in that segment versus the 13 last year adjusted for that charge, is that correct?

Tim Murphy -- Chief Financial Officer

We'd be significantly better, that is correct. I would say, operating wise the team has done a nice job in the solar business. You got this one-time effect and what -- there is no more a victory here, we get that. But if you look at our various subsegments within solar, the team has actually executed quite well in Q2, it was just kind of masked by this carryover and the on the tracker. So I'm happy with the work that's been done. The team has worked their tails off, just to remind everybody. Most of the field that we implemented actually weren't even up and running. So -- and we weren't impacting our customers in a big way by any means, and it's still an issue and that go out and telling our customers who want to get this fixed and now these fields are kind of coming up and they're working well. The ones that aren't started yet, they're more related to just getting connected to power grading such, nothing related us, but I feel like the team has done a good job. I think they're operating the business as we expected going into the year from an ongoing performance. We got to finish up getting through the tracker initiative and that gives us more confidence going into second half, but should be better than the first half.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Right. So I guess, I'm looking at your EBIT guidance for the year and there is a midpoint there. So I'm just going to say that's a 10.8%. My question is, can you guys offer a little more clarity in terms of the -- which is up, your EBIT margin is up. I just did a quick calculation year-to-date your 9%, say, you're down 60 basis points versus last year 9.6%. So there is always going to be a lot of left. I mean, can you talk to the cadence a little bit in margins, just the industrial steel is still hurting you perhaps? Or is that all done? Residential margins, which were pretty good last year. I mean, where should we really can see the margin lifting? Can you give us some degree of clarity narrative? Just isn't going to be coming through renewable because you're running down year-over-year EBIT margins right now and you're guiding up so there is obviously a big swing?

Tim Murphy -- Chief Financial Officer

Yes. So I think second half you'd expect renewable, right, we've got that significant backlog coming through and we not had these couple of tracker related costs we've already be running up. So expectation is that runs higher certainly in the second half and full year. So you will see...

Ken Zener -- KeyBanc Capital Markets -- Analyst

How much for the year, if you could -- is that like a 50 basis points for the year including the charges? Or is it -- go ahead.

William T. Bosway -- President, CEO & Director

Yes, we don't give -- I'm giving you direction, alright. We don't give guidance by segment, but I'll try to help you without giving the Kings to the Kingdom, per se. But that should be up, if you think about industrial and infrastructure, pretty good performance relative to the last couple of years this past quarter a little bit of headwind from the steel markets, we don't expect that. So I'd expect expansion there for the remainder of the year and you should end up a little bit up for the full year. The infrastructure business continues to perform very well and that helps pulling that off. And then residential, there is a little bit of uncertainty in that end market about what volumes will be.

We saw an uptick in July versus the third week of July. So we talk on the moving side, depending on who we talk to, it continues to look the same, up 3, down 3 depending on who you talk to. I think, we have seen yesterday changed from down 3 to may be flat, may had a pretty strong second quarter and what they called share gains and some regional pickup. So I think there, you will see improvements, do we get back to where last year, I think that one is a little less clear to us.

Operator

Our next question is coming from Walter Liptak from Seaport Global Securities. Your line is now live.

Walter Liptak -- Seaport Global Securities -- Analyst

Hi, thanks. Good morning, guys. Sticking with the residential business, Tim, in your prepared remarks, you talked about the profits and the year-over-year decline. I wonder if you could just kind of review those again and talk about how those may change, I think, you talked about the volume, the price cost in there etc?

William T. Bosway -- President, CEO & Director

So the first half of the year, what we've seen is volumes off and turning over pricing, offsetting that generally, right. So when we think about the margins there, there is some mix, right? We have more profitable and less profitable products, and we've been growing a little bit more, sometimes in the less specialized, less engineered non-patented product families have been growing a little bit faster over the last couple of years. So there's a little bit of mix going on. As we went through last year, steel prices sort of peaked in year-end, we carry those inventories into the first half of this year. As that works through that system, we'd expect that to catch up.

So for the full year borrowing any price increases, we expect pretty much to stay even on material like we always do. It's just the timing of when price changes occurring when the actual cost comes through. And then there is still a fair amount of 80/20 work to do in those businesses. So we got a bunch of projects going on, and we expect to see more come up probably more in the fourth quarter. So question will be, how much impact they have in '19 versus sort of carryover impacts into '20.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay. And I'll switch gears to the tracker product, and I just wanted to ask in the press release, you talked about how you're not taking any -- you are not bidding on new jobs. I wondered kind of as a postmortem on the issues that you had with the tracker, what do you think the outlook is for that product? And when you start up again with bidding on projects?

William T. Bosway -- President, CEO & Director

So Walter, we have to take this way. When we're going through this modification process in the field, as we went out and talked to our customers, let's get this right and so doing -- sat down, say, let's pause on taking additional or you want to make sure we get this right and you see it and you feel good about it and so forth. Remember, most of these fields were out up and running. So it's early in the process and so then you have this kind of natural pause coordinated with your customers to get the fields up and running so they can see the modifications and that's kind of where we have been and that's 45% of all the projects now are up and the fields have been running. And as a result of that, we're starting to see activity and we're accepting those orders to come back in as collectively we both feel good about what we're seeing. So the tracker orders are now slowing in as we get the rest of the customer fields up and running and you see the good results there.

You will see more of those orders start to flow in on top of that. So we're not turning away business. We just agreed with our customers, let's get this done. Let's get your fields up and running and then feel good about our solution and then let's start moving forward. And that's kind of where we're at this stage. So I would expect as these fields all kind of get up and running, I think, 3 of our 6 large customers are active ordering and the other 3 in the process of starting up. And if that works through the system the next 30, 60 days, you'll start to see orders materialize. So despite all that, I mentioned, that "our backlog is still up 20-plus percent in the solar world," that's we are having a lot of activity in the rest of our solar business.

So fixed tilt or fixed amount has been very positive this year, probably greater than we thought and that's kind of help whether the proverbial storm so to speak on the tracker that work that we've been doing, and now we'll start to see the tracker orders to flow in as well. So we think, it gives us some pretty good confidence in the second half.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay. Is it fair to say that the backlog growth that you're seeing out of the solar business, that's coming from the smaller fixed-tilt projects and not yet from the tracker that's in the backlog, Bill?

William T. Bosway -- President, CEO & Director

Yes. And as I mentioned earlier, probably unanticipated going into the year with the strength of fixed-tilt versus what we had thought. So that's been a pleasant surprise, and gives us strong foundation to start adding back to the tracker as it comes back online. So I think you will see the backlog. The backlog growth will be made up of more both going forward than it has in the last quarter as we went through this pause on the trackers. So it will be little a bit broader based.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay. Great. And then what if M&A question and just get your view of the pipeline, have you changed the pipeline at all? Is there -- are you having meetings with potential targets and just a sense of anything that they may have changed either with your process or the sectors that you're going after any kind of, I guess, philosophy about trying to get M&A deals done?

William T. Bosway -- President, CEO & Director

Yes. So good question. One, I'll start with, we're very active. We have a variety of processes in flight, and I would say that with our strategic rubric, which is really a thought process, we have introduced a new organization, it's really helped us, I think, verify the markets we want to go a little bit faster on that front. And those are the markets that we see good end market demand, not just short but long-term that has some attractiveness to it. But -- and we think we can play a really important role that also tend to be direct to end customer business models. So give you some idea of kind of where we're spending a lot of time right now, but I would say activities increased substantially and looking forward to getting through that process here in the next couple of quarters as well.

Operator

Our next question is coming from Julio Romero from Sidoti& Company. Your line is now live.

Julio Alberto Romero -- Sidoti & Company -- Analyst

Just wanted to ask about residential maybe in a different way. So the ARMY industry shipments were up about 4% in 2Q, and if I look at your second half of last year, so maybe lighter year-over-year volume comps, but not necessarily that benefit on pricing and you mentioned July has trended a little bit better. Just thinking about that backdrop as a whole like, how should volumes maybe -- what could go wrong on the volume side? Because it sounds like we should be just cautiously optimistic, I guess, a little better second half on volumes, but just trying to reconcile that backdrop as a whole, any thoughts there?

William T. Bosway -- President, CEO & Director

I think cautiously optimistic is a fair view, right. We were -- this market has been a little bit muted in the first half from a volume perspective in the areas that we serve, which is West Nile in the Midwest, we're not in the Northeast. So depended on the armor that you have at Northeast is up more that can skew it, but we've seen increased activity the last couple of weeks in some of the businesses, but it's not a quarter. They have their forecast, they talk to their customers. Everybody surely have said at the beginning of year, and we're still here, and the market is going to be up three or down three. and we're seeing that the first half has been on the downside. There is certainly demand. The economy is good, unemployment is low, people are working. There is no reason that shouldn't, at least, get work on last year, but it's hard to say that it will. So I guess, if that answers your question? It's just we have about beyond what we already shipped, we have conversations with customers and we have orders that we usually turn within 3 to 8 days depending on what our agreement with our customers. That's generally our visibility beyond looking at regional sales forecast on a bunch of other information that we see.

Tim Murphy -- Chief Financial Officer

Clearly, we don't get a lot of -- there is not an industry, as you know, probably better than me, but it's not a lot of visibility beyond probably a 30-day period. What I would say is probably for the first time this year in the first few weeks of July, we saw more activity than we have been seeing. So we feel good about that and hope that continues. And if it does then, yes, I think you're right, we should be cautiously optimistic about second half relative to the first. For the year, I lend itself to probably being a roughly flat year just because pent up demand is pent up, because of things like the ability to find people to get work done and you can start getting into different parts of the seasonal or language stuff. But I hope what we are seeing in the first 3 or 4 weeks continuous, and that will give us some reason to be cautious and optimistic, specifically, in that space in the second half.

Julio Alberto Romero -- Sidoti & Company -- Analyst

That's helpful and that's fair, and I, absolutely, appreciate the detail there. Just on the last point about labor being tight, is that -- is there any particular part of the value chain that maybe seeing an outsize impact of labor shortage? Would it be maybe on customer side? Or any additional color you could give on that would be helpful.

William T. Bosway -- President, CEO & Director

Yes. When we talk about labor, we're talking about the guys on roof swing and hammers. It's that we have a contractor, can he get 3 crews out or can he staff 5 of ours.

Julio Alberto Romero -- Sidoti & Company -- Analyst

Okay. And then just lastly, all this you mentioned in the prepared remarks, but was there any -- can you talk about the earnings contribution from patented products? And what you're doing in the near-to-medium term that maybe drive that a little bit going forward.

William T. Bosway -- President, CEO & Director

We did have move 13% of sales in the -- for patented products. And yes, we continue to, I think, broaden a little bit, historically, we focused strictly on patented. But we have some innovative products and services that get a lot of benefit from patenting other than maybe giving somebody a -- they might not be patentable or you might be just giving your competitors a roadmap to what you're doing. So we've expanded the scope of products and services that we're offering to customers and quite honestly that's doing to try to drive the growth. And we have been talked about the innovation piece.

Tim Murphy -- Chief Financial Officer

So one for the group and this time, one thing to think about that gives us really excited. We have parts of our business that have done a really good job the last 6 to 9 months expanding the service offering, frankly didn't provide 1 year or 2 ago, and direct to end customer business model particularly given structure of some of the markets that are -- we're in, that are in their infancy or they are unstructured by nature, or would have -- they are -- ability to play a much larger role and to drive value associated with that role, we're starting to recognize and that's a big piece of what I'll call new to our portfolio of products and services. And as I said in our prepared remarks, I think, is having relatively positive impact on our ability to build our backlog, but also put us in a position in some of these markets that really get us excited, which lends itself to a number of other questions that were asked today and where we might be heading. So I just -- I'm really excited for what our teams are doing, and you can see where it is and that's a good thing for us.

Operator

We reached end of our question-and-answer session. I'd like to turn the floor back over to Bill for any further or closing comments.

William T. Bosway -- President, CEO & Director

So, guys, just again I want to thank everyone for taking the time and spending with us this morning and learn more about our Q2 and some other things going on, and I also want to thank you for your support for Gibraltar. So I think this is it for today. It concludes our earnings call. I hope everyone has a great weekend, and look forward to catching up with you after today, as well. Thank you.

Operator

[Operator Closing Remarks].

Duration: 47 minutes

Call participants:

David Lucien -- investor relations firm

William T. Bosway -- President, CEO & Director

Tim Murphy -- Chief Financial Officer

Daniel Moore -- -- Analyst

Ken Zener -- KeyBanc Capital Markets -- Analyst

Walter Liptak -- Seaport Global Securities -- Analyst

Julio Alberto Romero -- Sidoti & Company -- Analyst

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