Gibraltar (ROCK) Q1 2026 Earnings Transcript

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DATE

Thursday, May 7, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — William Bosway
• Chief Financial Officer — Joseph Lovechio

TAKEAWAYS

• Adjusted Net Sales -- $356 million, up 44.6% driven by the OmniMax acquisition and metal roofing and structures acquisitions for two months of results.
• Residential Segment Net Sales -- $281 million, up 56% with $89 million contribution from OmniMax and $18 million from metal roofing acquisitions; organic growth declined 3%.
• Adjusted EBITDA -- Up 16.1%, with acceleration to a high-teen percentage rate in March, supporting plans for the next quarter.
• Adjusted EPS -- Down 50%, driven by $14.6 million in net interest expense and unfavorable price/material costs, particularly from a 16% aluminum price increase in the quarter.
• Residential Adjusted EBITDA Margin -- 15.6% for the quarter, with March margin accelerating to high teens.
• Operating Cash Flow -- Used $35 million, including payments related to the OmniMax closing.
• Debt Repayment -- $75 million paid down, including proceeds from the eBOS divestiture, with quarter-end net debt at $1.2 billion.
• Synergy Commitment -- Raised $2 million to $26 million in expected 2026 savings, with $16.3 million realized, and over 50% of the plan executed; a $600,000 insurance premium saving identified for future periods.
• Agtech Segment Net Sales -- Increased $10 million, or 23.6%, driven by the Lane Supply acquisition; total backlog of $84 million, down 13% after removal of the Arizona CEA project.
• Infrastructure Segment Net Sales -- Decreased $2.1 million, or 10%, due to weather-driven production outages causing shipments to move into April; backlog decreased 3%.
• CapEx -- $6 million in the quarter, equating to 1.6% of sales.
• Net Leverage Ratio -- 3.9x on a credit agreement basis, with $467 million available on the revolver and total liquidity of $487 million.
• 2026 Guidance Reaffirmed -- Net sales expected at $1.76 billion to $1.83 billion, adjusted EBITDA at $310 million to $326 million, adjusted operating income $222 million to $238 million, GAAP EPS $2.40 to $2.80, adjusted EPS $3.65 to $4.05.
• Special Charges -- $35 million in Q1 related to OmniMax integration; $25 million of this was cash, representing roughly two-thirds of 2026 expected special charges.
• Divestitures and Settlements -- Proceeds from eBOS sale applied to debt; $25 million settlement agreement on legacy renewables warranty claims to be paid in Q2.
• OmniMax Integration -- Integration management has executed 500-plus milestones, consolidated the supply chain team, and identified high-value work streams for the next phase.
• Commercial Synergies -- $4.3 million in incremental 2026 EBITDA from footprint expansion, cross-sell wins, and private-label programs.
• Section 232 Tariff Changes -- No incremental tariff impact in the quarter; management is proactively monitoring for future effects.
• Interest Expense -- Expected to be over $70 million in 2026, including financing and commitment fees; timing depends on future payments and rates.
• Tax Rate Assumption -- Projected at 26% for the year.

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RISKS

• Adjusted EPS declined 50%, attributed by management to "a net interest impact of $14.6 million and unfavorable price material economics from a 16% increase in aluminum market prices".
• Residential organic growth declined 3%, with building products down 3.8% and mail/parcel down 1.5%, reflecting continued market softness.
• Agtech backlog fell 13% after the removal of the Arizona CEA project, and organic Agtech volume fell approximately 3%.
• Infrastructure net sales declined 10% due to weather-related factory power outages, causing lower volume and EBITDA margins for the segment.

SUMMARY

Gibraltar Industries (NASDAQ:ROCK) reported significant top-line growth after closing its OmniMax acquisition, with integration milestones advancing and synergy commitments raised for 2026. Sequential trends in April and the start of May reflect improving shipment and order rates in residential, supported by actions in pricing and channel expansion. Free cash flow generation is expected to accelerate over the remainder of the year as special charges moderate, working capital initiatives commence, and the seasonally stronger operating back half approaches. Management reaffirmed full-year guidance, maintained a deleveraging trajectory toward 2.5x net leverage by early 2028, and is targeting incremental liquidity through cost discipline and noncore asset divestitures. Looking ahead, additional cost synergies, facility optimization, and product line harmonization are being targeted as primary transformation drivers, while the company transitions to a unified commercial and supply chain model post-OmniMax acquisition.

• Management stated that "over 60 locations" now serve customers with new product categories following integration, representing substantial cross-sell progress.
• Residential retail sales and units declined 6%-8%, while U.S. shingle shipments rose 41% sequentially from the prior quarter. Management termed this "approximately 3x the average Q4 to Q1 increase we have seen during the last 4 years."
• Leadership reported that "positive results in April with our shipments and orders on plan and [indiscernible] 2025 levels." were observed, suggesting recent momentum but acknowledging market softness remains.
• Management identified $7 million in supply chain synergy opportunities, with $3.7 million expected to flow through both direct and indirect spending, subject to contract renewals later in the year.
• Bosway said, "the single biggest thing that we'll do in the next couple of years is attacking the harmonization and simplification of the product lines," highlighting a core focus on SKU rationalization across 39 facilities.
• The company expects roughly $50 million in special charges linked to the OmniMax transaction, with two-thirds recognized in the first quarter and the balance to occur evenly for the rest of the year.
• Segment mix and weather-driven factory outages in Agtech and Infrastructure led to lower segment EBITDA margin performance. Production and shipments normalized by April.
• Guidance assumes approximately $570 million in adjusted net sales and $120 million in adjusted EBITDA contribution from OmniMax and synergy realization.

INDUSTRY GLOSSARY

• CEA (Controlled Environment Agriculture): Agricultural production in highly controlled indoor environments designed to optimize plant growth; referenced in context of Agtech project backlog.
• eBOS (Electrical Balance of System): Non-panel electrical components required for solar system installation, referred to with respect to divestiture proceeds.
• ARMA (Asphalt Roofing Manufacturers Association): Industry association providing data on U.S. shingle shipments, cited in the context of U.S. residential roofing market performance.
• OmniMax: Acquired North American building products manufacturer integrated into Gibraltar Industries, contributing to sales and synergy targets.
• 80/20 Initiative: Operational approach focused on identifying and optimizing the most impactful products, customers, or processes to drive productivity and profit; central to recent synergy actions.

Full Conference Call Transcript

William Bosway: Thanks, Carolyn. Good morning, everybody, and thanks for joining us for today's call. A lot of interesting and exciting things to talk about. We'll take you through our Q1 results, which include OmniMax operations for the last 2 months. And then we'll update you on our integration and synergy initiatives, our deleveraging progress and our 2026 guidance, which we are reaffirming today. And I'll talk about some positive trends we have seen in April and early May. And then we'll open the call for questions. So let's start by turning to Slide 3, and we'll talk about the first quarter.

So the first quarter is very dynamic and busy with the closing of the OmniMax acquisition in the middle of the quarter on February 2. The subsequent launch of our integration efforts, managing through some additional inflation of aluminum in February and March and incremental commodity inflation in March post the start of the Middle East conflict. All being said, I'm very pleased with how our team responded and executed in the quarter. And I was excited to see good operating performance in March as we exited the quarter and head into Q2. So starting with the quarter.

For the quarter, adjusted net sales were $356 million, up 44.6% driven by 2 months of having OmniMax as part of Gibraltar and our metal roofing and structures acquisitions. From a market perspective, residential remains soft, and we'll talk more about that today. And despite the start of the Middle East conflict in late February, we actually started to see customer order activity improve and become more consistent in March. Agtech and infrastructure markets remain solid with good backlog, but both businesses had some volume move into the second quarter, which we'll talk about. This is really related to some project schedules and timing of some shipments.

Adjusted EBITDA increased 16.1% and adjusted EPS was down 50%, driven by a net interest impact of $14.6 million and unfavorable price material economics from a 16% increase in aluminum market prices during the quarter, which really impacted mainly residential, but we also had increases in steel resin and fuel prices in March at the start of Middle East conflict. Despite the inflation in the lower volume and absorbing some inefficiencies with the OmniMax close in the middle of the quarter, we did perform very well in March with adjusted EBITDA accelerating to high teens, which is supportive of our plan going into the second quarter.

We used $35 million of operating cash flow, which included payments related to closing of the OmniMax transaction, and we applied the $70 million of the proceeds to eBOS divestiture to debt reduction. We ended the quarter with net debt of $1.2 billion. And finally, we continue to make progress with the sale of the renewables racking business, which are still targeting completion in Q2. So with that now, let's dig into the business segments, and we'll have Joe start with residential.

Joseph Lovechio: Thanks, Bill. Let's start with residential on Slide 4. Net sales increased just over $100 million to $281 million, which is up 56%, driven by the inclusion of 2 months of OmniMax results of operations, which contributed $89 million and our metal roofing acquisitions, which contributed $18 million. Organic growth for the segment decreased 3% with building products down 3.8% and mail and package down 1.5% as the overall residential market continued to remain soft. Our metal roofing acquisitions, which we acquired at the end of Q1 2025 performed well. And overall, we are seeing a good start to Q2 in our residential segment.

Adjusted operating EBITDA margins were down due to lower volume and inflation in the quarter, particularly with aluminum increasing 16% and other commodity inflation ramping up in March post the start of the conflict in the Middle East. Early in the quarter, we implemented price increases to help offset 14% aluminum price inflation in Q4 2025. And subsequently, we executed price increases in March and April across 14 of our brands and operating units to counter the additional aluminum inflation in Q1. The timing of our price increases and therefore, our price realization is governed by a well-defined approval process that takes 30 to 60 days, depending on the customer, the amount requested and the justification.

Our teams did a good job addressing Q1 inflation in a timely manner, but we were not able to offset the full impact during the quarter. With these increases now in place, we expect price material economics to be positive in Q2. As well, there was no incremental tariff impact in the quarter. And as it relates to the recent changes to Section 232 of the Trade Expansion Act, we are proactively managing any potential impact. Adjusted EBITDA margin for the quarter came in at 15.6%. But as Bill mentioned, we performed well in March with adjusted EBITDA accelerating to high teens, which is supportive of our plan going into the second quarter.

Let's move to Slide 5, we'll talk a little bit about the U.S. residential roofing market. The market remains soft in Q1 with ARMA reporting shingle shipments down 10% versus prior year, with results bearing quite widely by region and/or state. When we see big changes or swings in a particular quarter, specifically related to a weather event that occurred in an earlier period in a region or a state. And you can see, for instance, Florida down pretty significantly in Q1. General customer feedback remains consistent around affordability and interest rates. Limited weather impact in '25 helping create demand in '26. A lot of focus on inventory optimization while waiting for the season to start.

And then, of course, most recently, the conflict in the Middle East and the timing when that may be resolved. We believe we outperformed the market in Q1. Our retail sales and units were down 6% to 8%, where our sales dollars were down to flat, and our sales to distribution were also down roughly the same. In contrast to year-over-year ARMA shipments, Q1 shipments were up 41% sequentially.

It's an increase of approximately 3x the average Q4 to Q1 increase we have seen during the last 4 years and likely driven by a correction to the market over-indexing on inventory correction in Q4 2025, some pull ahead related to upcoming OEM and shingle price increases, and I also believe some better end market demand with some green shoots in certain markets and regions. And although it's early in the season, we have started to see positive activity -- we started to see positive activity in April which is really reflected in our actual April shipments and bookings, which were on plan and ahead of 2025 levels. We'll see how the market evolves.

And once the conflict in the Middle East is resolved, I expect the market to have tailwinds as oil and gas prices improve, I think mortgage rates move back to pre-conflict levels, which, if you recall, the 30-year mortgage rate went below 6% back in February, and existing home sales activity starts to improve. Until then, we're going to focus on winning more of the market. And our team sees there is quite a bit of opportunity given the U.S. has an installed base of over 80 million existing aging homes at an average age of 40-plus years.

And a significant multifamily market, which is hard to pick up that today or in the future will require obviously new roofs or roof maintenance and repair. Let's move to Slide 6. I want to discuss some of the commercial synergies and what we're doing to expand our participation in the market and what we've done in a relatively short period of time. When we announced the OmniMax deal, we emphasize the importance of being able to shape the future of our industry versus having someone shape it for us.

And over the last 24 months, with customer consolidation happening across the industry and new ownership in the industry, we believe then and we believe even more now that we are and will be an important partner for our customers moving forward. The combination of Gibraltar and OmniMax creates the local presence on a national basis to do things for this industry's others cannot. So we now have 39 locations serving most of the U.S. And by itself, this footprint and our local presence doesn't necessarily guarantee success, what matters is our ability to provide consistent high-level performance through obviously great service and speed and flexibility that has the right products and obviously, great quality from each of our locations.

So we have a good foundation with which we're going to further involve. But there are really 3 core initiatives that you're going to see us start to focus more on as we go forward to help our customers even more. Number one, it's become very obvious that we've had conversations with our customers about this that we can help streamline their supply base, particularly with customers that currently between 50 and 100 suppliers, making products similar to what we make. And this is a tremendous 80/20 opportunity where we simplify a supply chain, we think will drive substantial productivity and efficiency for customer supply chain.

And being local on a national basis gives us a chance to do that better than anyone else can. Secondly, there's a lot of emphasis around what kind of digital solutions are going to be needed to connect more seamlessly with customers to increase service levels while also reducing cost and reducing the cost of doing business with us. So this takes investment in technology, and we are in a position to support this effort going forward again, both on a local and national basis. And third, and I think this is our biggest 80/20 opportunity we have that we can bring to the industry but also bring to our business.

And that's our ability to better optimize codes and specs and material selection. And that's going to be done by working through local municipalities, working with our contractors as well as distributors and retailers and really focus on SKU and product harmonization. And we'll do that, which is a lot of heavy work, but pretty exciting stuff as well as bringing in new products. And again, the result is taking an 80/20 approach to an entire quote-to-cash process that our industry has grown up with. And we're again in a position to do that. If you step away and say, well, today, we actually do believe we bring the broadest product and service offering to the market.

And that has, in a very short period of time, enabled us more geographic expansion, some cross-selling opportunities and private label programs I'm going to talk about now. Now in a short period of time, we've made good progress with each of these 3 initiatives. First, we expanded our presence geographically. We established new business in over 40 branch locations across 9 different customers located in Texas, Florida, the Midwest, Northeast, Southeast and Mid-Atlantic regions. These are branches we were not serving before when Gibraltar and OmniMax were independent of each other.

Secondly, we are now -- we now have over 60 locations where existing customers are buying a new product categories from the combined business, and there are over 1,700 branch locations in the U.S. So a lot of opportunity in front of us to do more and more cross-selling. Our ventilation family of products is a great example, but there are others as well where we've had some success. And then thirdly, we have manufacturers with adjacent and complementary product lines that are starting to source private label product from us or grow their private label business with us.

So I believe some of this work, not all of it, it's starting to create new business and/or opening new doors for us. These commercial synergies also represent participation gains. And we will realize $4.3 million in our 2026 EBITDA as a result of these initiatives. As I mentioned earlier, we started to see positive results in April with our shipments and orders on plan and [indiscernible] 2025 levels. I think these initiatives are contributing accordingly to some of the trends that we're currently seeing.

Now let's turn to Slide 7, and I'm going to give you an update on integration and what we've been doing over the last 90 days with really a lot of effort over the last 75 days. First, the combined business has evolved from an organization transition when we started to integration discipline focused on building and executing synergy capture, inventory optimization, network rationalization opportunities and further optimizing procurement. The integration management office and our 22 integration teams have delivered 500-plus milestones and organizationally, we've accomplished quite a bit as well. We've completed Phase 1 of the organization structural work, with Phase 2 to be completed in May and in June.

We have integrated and consolidated Gibraltar's corporate supply chain team and are leveraging this team to support other businesses, including the mail and package business. And we've combined and communicated a single 2026 financial plan and goal set of goals for the new team. Let's turn to Slide 8, and I'm going to discuss a little bit on how the integration management office is now pitting. In February, in our paper earnings call, I shared our leadership team, the role integration management office structure and the process to drive integration across the combined business in the first 100 days.

The first 100 days focused primarily on organization transition to build one culture, ensuring we get our internal structure right and build an ownership mindset across the team. Our teams have done excellent work to create and execute charters and work plans for effectively every function in the business. We now have a good foundation in place as we move into our next phase, post-100 days, where we'll narrow focus to 11 high-value work streams with key synergies, continue to execute the 2026 work plans and start working on plans for 2027 and finalize all our business cases for the remaining work streams.

It's an important step as we move from integration to transformation, which means moving into a way that we expect the organization to execute the business going forward. Now we'll move to Slide 9, I'll give you a quick update on our 2026 synergy savings. As our team digs in, we continue to identify additional cost and commercial synergy opportunities. And we have raised our synergy commitment an additional $2 million to $26 million with $16.3 million realized in our full year 2026 adjusted EBITDA. Over 50% of our 2026 commitment has been executed and realized savings will ramp up in the second quarter and accelerate further in the second half of the year.

We have also created a corporate synergy category where we are identifying structural and spend reduction opportunities across Gibraltar we continue to develop the portfolio and further leverage shared service capabilities. Recently we identified $600,000 in insurance premium savings based on a rate differential with the same provider, which will be realized on renewal of the policy. Looking at every cost line item, you find things like the example of insurance premium where we think there'll be more and more opportunity. And as I mentioned earlier, we have already consolidated, integrated our corporate supply chain team. Finally, I want to recognize our commercial team. It's really coming together. This is -- we've had the right leadership.

We've got with great experience and a very good reputation and really focused on execution. We also have very strong leaders dedicated specifically to business development and sales enablement. This is really foundational for us as we drive more wins and participation gains. So with that, we'll move on to Agtech, Slide 10. Okay. So Agtech net sales grew about $10 million or 23.6%, driven by the Lane Supply acquisition, which continues to perform as expected with solid demand. This offset organic volume decreasing approximately 3% in the quarter, with project movement during the year. Total backlog of $84 million supports the full year plan, but is down 13% in Q1 and with the removal of the Arizona CEA project.

Adjusted operating and EBITDA margin decreased mainly due to lower volume and the impact of a full quarter results of the Lane acquisition in 2026 which included January and February, which are the lowest margin months of the year. Now let's move to infrastructure on Slide 11. Net sales decreased $2.1 million or 10% as 2 separate weather events occurred in March that resulted in our factory losing power and impacted our production schedules. One event caused the entire community where we operate to lose power and the second event was the lightning strike to the plant's key power source. As a result, some customer shipments were pushed into April.

Backlog decreased 3%, driven by the timing of project awards, while quoting and bid activity remains strong. Segment adjusted operating EBITDA margins declined due to the lower volume as well as business mix. Let's move to Slide 12 to touch on our balance sheet and cash flow. The company's current position with respect to cash allocation will be to keep a minimum of $20 million to $25 million of cash on hand, use the revolver is needed to fund seasonal needs and pay down debt with excess cash flow. During the quarter for continuing operations, Gibraltar used $35 million in cash from operations and used $41 million of free cash flow or 11% of sales.

Of the $35 million in special charges that occurred in Q1 related to the close and initial integration efforts of OmniMax, $25 million of those were cash. Also, we used $43 million for working capital, including the use related to OmniMax as is typical given the seasonality of the business. Capital expenditures were $6 million or 1.6% of sales in the quarter. At quarter end, the drawn balance on the revolver was $25 million and our cash on hand was $20 million.

Debt repayment was $75 million, including the proceeds from the eBOS renewables sale, so as a result, at quarter end, our net debt on the balance sheet was $1.2 billion, and our net leverage ratio as defined by our credit agreement, which includes $35 million of anticipated cost synergies and the pro forma adjusted EBITDA was 3.9x. The availability on our revolving credit facility was $467 million and total available liquidity was $487 million. Let's talk now on Slide 13 about our deleveraging road map.

As we noted on our last call, our priority and focus is to deleverage as quickly as possible over the next 2 years through as shown on the left side, a plan of strong EBITDA delivery and synergy realization, working capital optimization and utilization of cash tax benefits, planned uses of cash include capital expenditures of 2% to 3% of sales, interest payments on our debt and special charges related to the acquisition transaction, integration and restructuring-related costs. The special charges we reported today represent approximately 2/3 of the charges we expect to record this year.

During the second year post transaction close, we expect continued strong EBITDA margin, the realization of additional synergies, benefits from continued working capital optimization and cash taxes, lower interest payments as our debt level is reduced and a reduced amount of special charges. We expect these factors to drive additional free cash flow and our net debt down even further. We may also create additional liquidity from other noncore asset divestitures. Our deleverage path targets a leverage ratio of approximately 2.5x adjusted EBITDA in 24 months ended first quarter of 2028. Again, during this 2-year period, our capital allocations will be focused on funding the growth of our business through capital expenditures and on debt reduction.

Also during the quarter, the renewables business, which has been reclassified as discontinued operations, reached a settlement agreement regarding unresolved warranty claims related to projects with certain discontinued products installed dating back as far as 2017. This settlement in the amount of approximately $25 million is expected to be paid in Q2 and has been factored into our deleveraging plan. Let's now move to Slide 14 to talk about our key assumptions for 2026 for continuing operations. First, given OmniMax closed on February 2, we will recognize 11 months of ownership in 2026.

The expected contribution from OmniMax plus synergy realization, which will occur both within legacy OmniMax and the legacy Gibraltar business is approximately $570 million to adjusted net sales and approximately $70 million to adjusted operating income and $120 million to adjusted EBITDA. As we execute our integration efforts across the combined business, we expect synergies to start to flow through in Q2 and accelerate in Q3 and Q4. More broadly, in residential, we see a continued soft market as we already fixed. In Agtech, we have removed the Arizona project from our plan and will continue to monitor the funding status supporting. Within infrastructure, engineering backlog and quoting activity remains strong.

In regard to free cash flow for continuing operations, given the seasonality of earnings in the business, the ramp up in synergies and working capital initiatives starting in Q2 and the cash outlays of the special charges related to the close and initial integration of OmniMax that already occurred in Q1, we would expect free cash flow generation throughout the rest of the year. We continue to expect CapEx to be 2% to 3% of sales, free cash flow of approximately 8% of sales, and we will be focused on debt paydown. Lastly, some additional assumptions to factor in.

With the combined company, we expect depreciation, amortization and stock compensation expense to be approximately $90 million for the year, which includes approximately $40 million annual assumption for noncash amortization related to intangibles due to the Omnimax acquisition. We anticipate approximately $50 million in special charges related to the acquisition, transaction, integration and restructuring costs, of which 2/3 already occurred in Q1. We expect greater than $70 million in interest expense, financing and commitment fees, which will be dependent on the timing of our debt repayments and interest rates. And lastly, we are assuming a 26% tax rate. Now let's move to Slide 15, where we are reconfirming our 2026 full year guidance.

For continuing operations, we still expect consolidated net sales between $1.76 billion and $1.83 billion compared to $1.14 billion in 2025. Adjusted operating income between $222 million and $238 million compared to $151 million. Adjusted EBITDA between $310 million and $326 million compared to $185 million for 2025. GAAP EPS between $2.40 and $2.80 compared to $3.25 in 2025, including the expected impact of special charges. And adjusted EPS between $3.65 and $4.05 compared to $3.92 in 2025. Now let me turn it over to Bill.

William Bosway: Just to summarize for today, a lot to unpack and a lot of heavy lifting, as I mentioned. We have accomplished a lot of the heavy lifting and made good progress in the quarter, and we continue as we move into Q2. And the entire team has contributed, obviously, over the last 90 days to make that happen. We are transforming the business, as we said, going into the year, and we're going to continue to do that. In residential, and I would say in regards to the near-term market situation, we're going to stay really focused on winning more with our customers. We're going to continue to expand as we showed earlier geographically.

We're going to continue to do more cross-selling initiatives as well as support our private label programs. And if the market remains soft throughout the year, for whatever reason, I'd say we're already working on all the right integration costs and commercial synergy capture and price management initiatives to deliver our plan. In our Building Products, leadership team and IMO teams will maintain their intensity and discipline and focus on executing our plan while improving safety, service levels, productivity, 20 initiatives and winning more business. In Agtech, the business is in a position to deliver a solid year with $84 million of backlog at the end of Q1 with robust design and bid activity across North America in process.

We also expect infrastructure to deliver another good year and transition some key projects in engineering backlog to order backlog over the next 2 quarters. So with that, let's open the call up and we'll take some questions.

Operator: [Operator Instructions] The first question comes from Daniel Moore with CJS Securities.

Dan Moore: Start with resi. Obviously, good to hear the progress you're making thus far in Q2. Just has the inventory drawdown at retailers, I know it's seasonal, has that largely run its course? Where would you say customer inventories are now kind of on a historic basis? And maybe just talk about the monthly cadence of volume growth both at legacy Gibraltar and OmniMax through Q1 and thus far into Q2?

William Bosway: Yes. Thanks, Dan. The -- we think inventory levels are much better aligned than they have been in the last 2 or 3 years within demand. We've talked about that in the last quarter. And I think it differs a little bit by -- between channels. So distribution versus retail. And I think the retail guys seem to be a little bit more cautious with how the trying to manage inventory as they wait to see the season evolve. And I would say on the distribution side, probably less so there. But remember, contractors source about 80% of their needs through distribution.

So distribution may see a little bit -- may see sooner or a little bit more of that demand neutralizing in the in the marketplace than maybe the big box guys do, that may be part of it. But I would say right now, the general feedback from customers is the inventory is in a decent position. It probably varies a little bit by product line, which I don't have stats on that. But as we think about our POS results and we see -- it gives us some visibility of how inventory is positioned we can see it's in a better position than it was last year.

I would also say it really -- the other aspect of this is the regional piece. So as you get into the season, you see the weather patterns start to kick in through the spring season. You'll start to see orders move based on some of those events in different regions. And so wherever folks are a little bit short inventory. We've seen them make corrections pretty quickly as they've had some sustained weather, and we'll continue to see that as we go forward. As it relates to our situation.

It's been a good pleasant surprise to see how we got off to a start in April with the demand profile that we've seen as well as the first 4, 5 days in May has been pretty consistent as well. And I think a piece of that is there are some green shoots out there. We're a much broader company now where we have access to more of U.S. than we did 6 months ago. So we're seeing more opportunities. Some of the work that we've talked about with cross-selling is starting to kick in, some of the participation gains as we pick up more branches are starting to kick in.

I don't think the end market is highly different than it was before. I just think we're taking opportunities to participate more in it than we were before. And I do think inventory is in a better position right now. So you add all that up, for us, it's been a decent start to the second quarter. I'm a little bit surprised that we're ahead of last year's levels. And it's good to see that. I'd like to see that continue, and we'll watch that closely. I think, as I mentioned earlier, also, people are waiting to see what happens with the Middle East. Is that going to be prolonged?

Because if people think back to late February, we had 30-year mortgage rates go under 6%. We had existing home sales really start to pick up. And then boom, conflict happens and rates go back to 6.5%, existing home sales start to fall. So I do think there's going to be some tailwinds that could occur. I think the other thing with the Middle East conflict, which I know this is common sense for everybody, but it brings an overhang to everybody. Just kind of thinking about what this could mean and it causes consumer sentiment challenges. So between interest rates correcting a bit, gas prices coming down, I think it makes people feel a little bit better.

Mortgage rates starting to get back in line as this conflict comes to an end, hopefully sooner than later. That should help as we move into the year. So anyway, that was kind of off the bat path of your question, but inventory seems to be better aligned with demand and our demand, I think, is benefiting from that, but also some of the other activities I mentioned.

Dan Moore: That's helpful. And you mentioned if the market doesn't pick up, obviously, you'll just keep focusing on participation, but is there sort of a market growth rate or band for the back half of the year that you have in mind that kind of underpins the fiscal '26 guidance?

William Bosway: I don't think our -- when we went into the year, I think we had growth in 4%, 5% was built into the base plan for the residential business, if you're talking specifically about that. And so we still feel good about that as we go into the season based on what we're seeing so far. But I tell people also internally, this is kind of our mantra.

If the market doesn't improve or if it stays soft, it gets a little bit softer, whatever be the case, we're doing all the right things because everything that we're doing to integrate the business to get the right cost structure in place, with the right people, the right seats on the bus, the synergies that we're executing, we're not doing that because the market is soft. We're not reacting to that. We're doing that because we're building an organization that we think is the right way to approach to this industry and serve it over the next 5, 10 years.

So at the end of the day, things got a little more challenge in the market, I would say we're proactively ahead of the game relative to making sure that we put ourselves in a position to operate in whatever market situation does come. So I'm not anticipating the market to be to be bad or to be worse than it is right now with what we have in our plan. But what I am making sure people understand is we are taking and executing all the things that you would do, assuming that the market would be bad because of the way we're trying to build out the business.

So we're kind of accomplishing 2 things at one time, so to speak, if you think about it that way.

Dan Moore: Okay. And then one more and I'll jump back. But on the cost and margin side. You've always been pretty adept at passing along input costs, rising steel, aluminum. And I appreciate the color, Joe, on the pricing mechanisms. Is the same generally true for OmniMax, I guess, could the integration cause any incremental delays in how you're sort of passing those through? Or just talk about how they have handled and your expectations for the cadence of margins as we get into Q2 and beyond?

William Bosway: Yes. Well, first of all, I would say, OmniMax historically probably is better than we have been relative to discipline and centralization of how they manage price. We were a little bit more decentralized in the way we ran our business. They're more centralized. And in the world of pricing in an inflationary environment that's played well for them, and they're very good at that. And that ties all way from the commercial organization I mentioned earlier, which is really coming together, tying in directly to the financial leadership and having a centralized control. And now we are one company with that approach.

And that's really helped us, I think, accelerate some of the price actions we've taken in a short period of time utilizing their process and their systems and their discipline associated with doing that. So actually, that was a great pickup for Gibraltar of having that approach, which I think is going to serve us even better going forward than what we've been able to do in the past, which has been pretty good ourselves. The thing that I'll point out for the quarter that was kind of interesting.

I mentioned in Q4 that -- we had a late price increase in legacy Gibraltar business that came in January, trying to catch up with the aluminum inflation of 14% in Q4. And so that inflation continued in January and the first part of well throughout the quarter, but we had to overcome that in our legacy business. And we subsequently, through the price increases that Joe mentioned in March, we brought that into the system that we use now as a combined company and that enabled us to catch up to get the -- to overcome the first quarter incremental inflation, not offset it all, but at least get the price in place.

So as we go into Q2, our price cost alignment is much better in total for the business than it would have been otherwise. So yes, I'm quite pleased with the way OmniMax has always approached pricing, their system, the centralization thereof and the connection within the business, and we are now using that same approach under one team for the total business, so that's going to be helpful.

Dan Moore: And those are price increases, not surcharges, so presumably get some benefit when...

William Bosway: I'm sorry?

Dan Moore: No, go ahead. I apologize.

William Bosway: No, I was going to say, yes, we tried to stay away from surcharges for that very reason. Increases kind of stick a little bit better and stick a little bit longer, but yes, everything that we've done are actually price increases, whether it's aluminum, steel, resin, vinyl and even fuel. So that's our mentality. I'm not saying it's 100% there, but we have very little surcharge type approach across the entire business in our residential business whatsoever. So it's really about price increases.

Operator: The next question comes from Walt Liptak with Seaport Research.

Walter Liptak: So just a follow-on to the last question first. I guess the price cost drag that happened on aluminum in the first quarter, how much was that, like in dollars? And how much of a profit benefit you think you'll pick up as you catch up on that price cost?

William Bosway: Yes. When you look at the amount aluminum we bought in the quarter, and you look at the delta on the increase from January 1 to end of the quarter, it's a $9 million to $10 million headwind that you would -- that came our way. Now obviously, that assumes that headwind in total would assume we had no inventory and so on and so forth, which is not the case. So we're able to offset a chunk of that because we had aluminum on hand at a lower cost. But we didn't have enough to cover everything. So we were able to chip away at that as best we could.

We did get some pricing in March, you don't get a whole lot in the quarter that affect to go after that. But we -- that helped offset that. We did, obviously, more 80/20, we tried to accelerate more of our synergies sooner than we could, but those are time constrained. We were relatively new into the process of bringing the business together. So -- but that was what we dealt with, and we tried to minimize that. And I think we did a pretty good job in minimizing that a headwind to a much lower level. We probably end up netting out a couple of million dollars worth of incremental costs in the quarter associated with that.

That will recover as we go into next -- that we go into next quarter as we go into Q2, I would say.

Walter Liptak: Okay. Great. And I'd like to try one on the integration cost out. I wonder if you could maybe give us a feel for how you're feeling about the integration, it sounds like it's good. But I mean maybe get a little bit granular. It looks like logistics that's more of a headwind, like where are you feeling better about things? And are there any planned or things that you could sell to help generate cash in the first year and increase some of your cash inflow?

William Bosway: Well, first on the integration. I see 2 questions here, Walt, I think, one is how we do on integration and the third is are you asking about the portfolio?

Walter Liptak: Right. If there's assets you can sell, if there's duplicate real estate in some areas, some regions or...

William Bosway: Yes, sorry. Yes. So we kind of just walk down the list, if you will, which we've been working pretty hard in -- let me pull my list up in front of me so I can just answer your question a little bit more succinctly. So supply chain, we've got -- originally had $6 million in plan. We've taken it up to $7 million. We're going to get about $3.7 million of that. That's going to flow through that both direct and indirect spend. That is mainly driven by contracts that we have to have expire before we can actually get more implemented, if you will.

That's not -- that doesn't surprise us so much, but steel aluminum contracts tend to be signed in October, November in the previous year that turn you through the year. So as we get towards October, November of this year, those contracts will come up for renewal, and we'll have an opportunity to then negotiate and will help us as we finish up the year and get into next year. On the indirect side, we're working on that as we speak, that those tend not to have long-term contracts. So that's where you see a lot of savings this year. And that's everything for MRO and packaging.

We're looking at all our leases, everything we lease, whether it's buildings or forklifts or what have you. And so the team is doing a pretty good job. That tends to be -- there's some of that across the entire footprint, and there's some that's very specific to operations. And so we're going to continue to work that pretty hard. I mentioned earlier, we've had a really -- a lot of progress on pulling the supply chain team together. That supply chain team is working their tails off on this, but we're also identifying some other opportunities to support other parts of Gibraltar as well.

So supply chain, I think feel really good about not just for what we do this year, but as we roll into next year. On the SG&A side, people think about organization mainly. We talked about Phase 1 being implemented. Phase 2 will come here this month and next, and we will have our organization work done. So the second half of the year, you get that full run rate effect of that as we move into that. But the other SG&A buckets are kind of interesting as well. I mentioned one example of in line items like the insurance premium, $0.06 -- $600,000 is a $0.01 in EPS for us.

So as you go through each of those hundreds of line items, whether it's COGS or SG&A we're just attacking every one of those to see what the opportunities are. And so that's how we're able, I think, each month and kind of keep adding to our list of things that we think will be helpful. 80/20, and this kind of gets at what you're talking about, 2 things going on there. Yes, we have is around the facility optimization front that we're starting to recognize that could be opportunities for us. And that is kind of on the map, if you will. And we're working that as we speak. And that's twofold.

That's one, do you need all those locations. And we're not talking about a bunch here, Walt, and we lease most of this anyway. But it's really more about are we optimized in those facilities to support distribution and retail accordingly. But a lot of work going on relative to 80/20 on the facility optimization aspect. And as I alluded to, we have our new leader of product innovation that is starting next Monday, one of our big efforts is really going to be around our biggest initiative, which is product line simplification. And if I break that down a little bit further. That's really harmonization around SKUs.

What we're really trying to do there is simplify from raw material purchase all the way through to finished product, how we can change the supply chain, how we can drive cost out of that supply chain by simplifying what the industry actually should be using versus what it has always grown up with. And we think that's going to actually start with work internally, gathering data, what we're doing to each of our 39 facilities, but it's also sitting down with core municipalities and talking about why they had what they have. And so it's big 80/20 effort. We're researching that accordingly, but it's one of our biggest strategy initiatives that we'll have.

And you'll see that start to kick off this year, but really in earnest start to read through next year. It has a lot of positive implications for us that we're excited about. We are doing other types of PLS work as we speak, and we'll continue to do that. So 80/20 becomes a pretty big bucket for us going forward. I talked about commercial, so I won't be repetitive here, but I think what surprised us here is how quickly we were able to actually win incremental business, line up new branches and doing more cross-selling in a short period of time. If you think about it, we closed on February 2.

It's not like February 3, the sales team was together, and we figured this out. It takes a while to get the teams together. But really in the last 60 days, I'd say we've done a pretty good job working with customers on some of these opportunities. And I just think there's a lot more there. We have work to do, and we're working on it. But I think we're off to a pretty good start on that front. Logistics is actually related to the 80/20 initiative on harmonization. As we harmonize SKUs and product lines, it has a huge impact on how we drive our logistics.

And that's why those 2 are linked, as I referenced that, I think, in our last call. We're not saying there's not logistics opportunities that we're working on with negotiating freight rates and all that. We're doing that. What I'm referring to here is more the broader strategy of logistics and as it ties to our product portfolio going forward that we're producing out of these 39 locations to support customers. And then finally, corporate. We added this bucket which we didn't have last quarter. What we start to recognize a little bit is skating where the puck is going to be as the portfolio evolves.

But in the short term or the near term, I mentioned earlier, we've consolidated our supply chain team. While that is pretty meaningful in a lot of ways, if you think about residential being over 80% of what we do, it made sense to actually combine forces and build the right structure around what we need to support that business. And so we went ahead and proactively said, well, let's figure out how to integrate some of these corporate teams now and the corporate supply chain team was one of those that kind of came into the fold. So we're doing more of that.

There will be other things across the board as the portfolio continues to simplify and the majority of what we're doing becomes more residential focused. So sorry for the long answer, but hopefully, that gives you a little bit more perspective on what the teams are focused on every day.

Walter Liptak: Yes. Yes, thanks for the detailed answer, and it's great to hear that 80/20 is such a big focus of these integrations.

William Bosway: Walt, it will be -- the single biggest thing that we'll do in the next couple of years is attacking the harmonization and simplification of the product lines that we have. Absolutely. That's a big piece of what we're doing.

Walter Liptak: Okay. And then one for Joe around the free cash flow. I wonder if you could help us and get a little bit more granular around second quarter free cash flow? And then how -- what that number might look like and then the back half of the year. Is this going to be a hockey stick as we go into the year? Or is it loaded to the fourth quarter?

Joseph Lovechio: Yes. No, I think from a continuing ops perspective, we've talked about the fact that you kind of had 2/3 of these special charges in Q1, that had a cash impact. That won't recur to the same level as you kind of go through Q2, 3 and 4. Because we've got 1/3 left to go of those between now and the end of the year. I would probably think about those as probably fairly even by quarter from here on out. So more a little bit each quarter, not all in Q2 or back-half weighted. Then on the working capital side, I talked about a use in Q1.

We obviously, as we bring the teams together, we'll now start in earnest the working capital initiatives in Q2, and we'll expect those to drive benefits as we go into the back half of the year. And then the third piece is just kind of the earnings seasonality. And obviously, Q2 and Q3 are kind of more of the earnings season, particularly as it relates to residential. So those are probably the pieces kind of think through in terms of how the seasonality will unfold. So that would imply that it's not anticipated to be a hockey stick or back half weighted into Q4.

Operator: [Operator Instructions] Next question comes from Julio Romero from Sidoti & Company.

Julio Romero: Following up on some of the residential commentary. You mentioned the uplift in distribution was a little bit better than what was in retail in April. As I understand, you guys are about 2/3 distribution, 1/3 retail and residential. So I think that dynamic would be helpful to you guys. How much more pronounced was that uplift in distribution versus retail? Did that surprise you? And curious if that factors into your confidence in passing through price across the segment?

William Bosway: Yes. Well, yes, I think it's -- I don't think it's changed. We saw more uplift, I think, in distribution in the last 60 days. And I think part of it, Julio, honestly, is the branches are that much closer to the contractor. So they see demand in a real-time way differently than probably a walk-in big box kind of situation. I think that plays a lot into it. And that's partly, again, you have such a large portion of your contractor needs are being served by the branches. So when you have weather starts to evolve like we saw in March and in April, those branches, I think, racked a little bit quicker.

And I think that's part of why the uplift was sooner for them. I think the DIY guys, as you think about it, Home Depot would probably say something like at a Home Depot stores are -- maybe the uplift is not as strong as what SRS is. So they see both sides because they own both. And I think that's a big piece of it is you just have your branches at the ground level that are seeing real-time demand that they can act on. And so they're closer to some of those things that maybe drive things in a different way.

But I think the relationship between the channels in terms of how much will drive through both isn't going to change dramatically this year. I just think in the last 6 weeks, that's what we've seen. We've just seen distro grow at a faster rate. Now we are picking up branches, as I mentioned earlier, which is good. The cross-selling, we talked about really at the distro level, and it's easier to go prime branches or win branches and do cross-selling in a shorter period of time than it is to go incremental business in a short period of time with retail. Retail tends to go through a product line review or a very lengthy process.

So really in a short period of time, we were able to go win some things with quite a few branches through distro. And that's just a different DNA than dealing with retail when you're thinking about winning new stuff as well. So you got that. But I think the feedback I mentioned earlier with retail seems to be more cautious on inventory. I think partly coming off of that destocking and having to do that, I think we have seen probably just a little bit more cautious approach to managing how they're on to optimize inventory until they start -- season start.

So I don't know if that kind of gets your questions, but hopefully it does, but that's my perspective.

Julio Romero: It's good comps for sure. Thank you, Bill. Joe, that the factory in Agtech that lost power in the first quarter in March, how much of an impact was that in the first quarter? And I think you mentioned the customer shipments were pushed out. Has that been fully caught up and realized in the second quarter?

William Bosway: I'll take that just because I was involved. We lost about 7 days of production, yes, all in March at a different time. So as Joe has mentioned, if you guys recall, Illinois, Ohio, Indiana got -- we've gotten hammered with tornadoes and big storms. And so the town where we're located lost power substations, et cetera, got knocked out, that hurt. And then we actually had a strike on our transformer feeding into the factory at a separate storm. What caused the issue isn't so much that the power was out for a long period of time is you're running all your machines and then bone your power goes out, those machines lock down.

And so if you have 1 or 2, it's not that big of a deal and your maintenance crews can go -- your maintenance team can go fix that. When all of your equipment goes down simultaneously, that's what caused the delay in bringing an extra expenses and costs to help us reset all the machines, check all the tooling and ramp them back up. That's where it gets hit. Large companies would tend to think of this as business interruption insurance that you go after. It's not something we've ever actually done. We've never had this kind of a set of events happen in a particular location.

But the team is able to work through that and make those shipments up in April. And so we think we're back on track in that regard. But -- and then we had some mix effect as well that hit the quarter, but that's the impact of those 2 weather events. I don't like to use weather. I just feel those are pretty extraordinarily interesting to have a small town and a factor into small town get it twice in a 3-week period.

Julio Romero: Yes. Makes sense for sure. It sounds like the integration is going well according to plan, first 100 days. You up your synergy target and your realization target. I think the realization was up by a little more than $1 million, I believe. Does that -- is that incremental $1.3 million all fourth quarter weighted? Would you expect it a little bit earlier? And where does that take the '27 kind of run rate and realization figure?

William Bosway: Yes. So $16.3 million is what we realized. The incremental we add is $1.2 million, that will start flowing in actually in Q2 and Q3 and Q4. So all of our -- so I mentioned earlier, so if you think about $26.2 million of annual run rate, we've implemented or executed over half of that. And now of that, that we've executed, you'll start to see that flowing now into the rest of the year. So I mentioned earlier, we have Phase 2 that we will implement in our organization structure in May and June. So you get a half year full year benefit, if you will, because that will be done in the second quarter.

So Q3, Q4, we'll see a full year run rate of that, if you will. And so that's how a lot of our things are timed that way. Again, not to use an example again, but the insurance premium, when that policy renews is when we'll get the $600,000 will start to flow through. And that's time -- every one of these things is time down to when we think it's going to flow into each month. And that's how we get the realization associated with when we've actually implemented or agreed or negotiated whatever it is we negotiated to get to the $26 million to start with. Does that make sense?

Julio Romero: It does. That's all for me. Thanks very much.

Operator: We have no further questions. I will turn the call back over to Bill Bosway for closing comments.

William Bosway: Yes. So again, thanks, everyone, for joining today. I know there's a lot to unpack. There's a lot of heavy lifting going on in the quarter. Not so easy to follow, if you will, in some respects. But we're in the middle of the transformation. It's going as we had expected. We're excited about what we've seen so far and how we enter Q2. I do want to thank everyone for taking the time with us today.

We will be at the Seaport Annual Growth Discovery Conference and the CJS Annual Conference in May and also the Wells Fargo 16th Industrials and Materials Conference in June, and really look forward to connecting back with you to talk about Q2 when the quarter is done. So thanks again. Appreciate it.

Operator: Ladies and gentlemen, that concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

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