John Turner: Mostly pricing. It’s mostly steel and we’re rolling into a period of time where Wallboard prices towards the end of the quarter are going to be difficult against the prior year compare even with just a very small degree of decline on a sequential basis. With the bulk of the downturn is, I don’t know what we’re talking $50 million, $60 million, $70 million in steel difference in sales.
Steven Ramsey: Okay. Perfect. Thank you.
Operator: Thank you. Next question is coming from Jeffrey Stevenson from Loop Capital Markets. Your line is now live.
Jeffrey Stevenson: Hi. Thanks for taking my questions today. In Ceilings, you reported a volume pickup in June last earnings call, and then you’re guiding to positive volume growth in the second quarter. Just wondered if you could expand on the primary drivers of the modest improvement in Ceilings demand. And if you’ve seen anything that gives you confidence that the R&R side could improve as we move through fiscal ’24.
John Turner: It’s basically all of the categories other than office seem to be okay. So education, good summer selling season throughout the schools, which again, that’s part of the mix. Earlier question asked about what was going on with pricing, really, you’re seeing a more commodity mix of ceiling tiles because it’s education that’s driving a lot of that and general commercial driving that small stores, et cetera, storefronts, strip malls, that. There’s a little bit of offset to that with the hospital activity. That is a little bit richer mix. We talked earlier about 10 hospitals right now plus out there between remodels and new. So that’s driving Ceilings business for sure.
Scott Deakin: A little bit of offset on our architectural specialties as well.
John Turner: Yes. And so that continues mix shift in architectural specialties continues into — like in the transportation sector, in particular, airports and transit stations, et cetera. The big drag, of course, is office, still not much happening in office. A lot of discussion about it. Of course, I feel like we’ve had a lot of discussion about it four years now. But a lot of discussion about what’s going to go on with all this turnover and ownership in office and what can be done to utilize that space. But when that starts, inevitably, there’ll be some of that for sure. And we’ll benefit from that as well the Ceilings producers.
Jeffrey Stevenson: That’s helpful. And then I just wanted to hear if you could talk more about the recent improvement in single-family housing starts and what you’ve been hearing from your builder customers. I appreciate your comments about single-family demand will kind of continue to improve as we move through the back half of the calendar year. But when do you think the recent uptick in starts will meaningful begin to show up and Wallboard demand moving forward?
John Turner: Well, it’s about a six-month lag from start to completion, right? So in a normal supply chain environment, and I feel like we’re — most products are in kind of normalized environment right now. I mean, you’re still hearing some issues with some electrical switches and things like that causing some constraint, a little bit of land development problems for the builders. But the big builders are going to keep building and continue to attempt to take share from the smaller builders. Going through this, they have strong balance sheets and the ability to do that. All of the data we’ve seen so far, obviously, was pre 7% plus mortgage rates. So that’s the one factor that could temper some of this going forward and why I would say we’re still a little bit cautious in our expectations over the course of the next three to six months for starts.
We’d like to see the permits and starts continue on the trend that we’ve seen for the last three months. But again, we won’t know until that actually happens. If we get six good months in a row, then we’ll get six full months of some growth for sure.
Scott Deakin: And the high rates as a countervailing part is keeping the availability of existing home sales for sale in the market depressed as well, which is helping the builders and the starts at the same time.
John Turner: It’s just another environment that’s creating more of a lack of availability of housing when every professional forecaster in this space would say we need somewhere between 1.5 million and 4 million houses, 5 million houses. And eventually, that’s going to have to be built. And you can’t read a single day. You cannot read a single day’s worth of financial news where somebody is not reporting on different state and local governments waking up and realizing that it’s a supply problem, not a demand problem when it comes to housing affordability. And hopefully, that leads to deregulation in the space. And certainly, you’re seeing a lot of momentum around that and then the permitting situation as well. We’re opening up different swaths of real estate for both single-family and multi-family housing.
Just had another great example of that up in the Toronto GTA where in Canada, they’re recognizing with their big goal around 5 million increase in population through immigration between now and the end of the year but there simply won’t be any housing if they don’t open things up. And they’ve recently just changed and opened up a tremendous amount of what was previously green space in their city planning for residential development. And I think you’re going to see that happen at a pace that’s going to accelerate over the course of the next couple of years in the US. Now it doesn’t help us in the next six months but post that period of time, I don’t see any reason why housing isn’t going to be very strong.
Jeffrey Stevenson: Great. Thank you.
Operator: Thank you. Next question is coming from Mike Dahl from RBC Capital Markets. Your line is now live.
Chris Kalata: It’s actually Chris Kalata on for Mike. Thanks for taking our seconds. Just a follow-up on the residential growth trajectory, the decline is moderating and then multi-family tailwinds moderating. Can you just remind us of the mix dynamics we should be thinking about in terms — on both top line and margin and to the extent you provide any quantification there?
John Turner: Well, 50% of the volume historically in the market would come from single family and 15% from multi-family, 35% from commercial. So any uptick in single family is worth three times the downturn in multi-family from a volume perspective.
Scott Deakin: Particularly on Wallboard.
John Turner: In Wallboard. I’m only talking about Wallboard, not the whole business, just Wallboard. Then there is a mix dynamic change there, but that impacts the price primarily. It’s not so much the actual gross margins and gross margin dollars, but there is a little bit of an impact there. But we still think and prefer a really robust single-family market to anything else when it comes to Wallboard volume.
