Scott Culbreth - SVP and Chief Financial Officer Cary Dunston - President and Chief Executive Officer.

Tim Wojs - Robert W. Baird Scott Rednor - Zelman & Associates Nick Coppola - Thompson Research Group.

Good day and welcome to the American Woodmark Corporation Fourth Quarter 2017 Conference Call. Today’s call is being recorded, May 30, 2017. We will begin the call by reading the company’s Safe Harbor statement under the Private Securities Litigation Reform Act of 1995.

All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that maybe beyond the company’s control. Accordingly, the company’s future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements.

Such factors include, but are not limited to, those described in the company’s filings with the Securities and Exchange Commission and the annual report to shareholders.

The company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. I would now like to turn the call over to Scott Culbreth, Senior Vice President and CFO. Please go ahead, sir..

Good morning, ladies and gentlemen. Welcome to American Woodmark’s fourth fiscal quarter conference call. Thank you for taking time to participate. Joining me today is Cary Dunston, President and Chief Executive Officer.

Cary will begin with a review of the quarter and I will add additional details regarding our financial performance as well as an outlook for fiscal year ‘18. After our comments, we will be happy to answer your questions.

Cary?.

Thank you, Scott, and good morning to you all. Another solid quarter for the company and the end to a very successful fiscal year. For the quarter, we grew sales 7.4% over prior year, outpacing both the industry and our key competitors. Key drivers were once again our new construction and dealer channels.

For the full fiscal year, we grew revenue 9% and I am extremely excited to say that for the first time in the history of the company, we have surpassed the $1 billion mark for the fiscal year.

It is truly quite a success story when you consider how quickly and profitably we have grown coming out of the recession, a true reflection and credit to the incredible people that make up this great company. I would like to go specifically at new construction.

For the quarter, we grew our Timberlake direct business 12% over prior year, significantly outpacing single-family home start growth of closer to 5%. For the fiscal year, we grew our direct business by 19%, another very strong year of market share gain as we continue to win in the marketplace.

From an industry perspective, we are monitoring current dynamics very closely. Although still strong, overall demand remained a bit lower coming into and out of the spring than we had initially anticipated. Reports vary greatly when you read the headlines regarding regional demand.

Most remain very positive, with some feeling that weather has had some impact, particularly in California, the Midwest and the Northeast. Others continue to recognize the ongoing constraints in the market. Labor and land shortages remain key bottlenecks as does the corresponding impact on home pricing. This was evident as first quarter U.S.

home pricing continued an aggressive upward trend, increasing 6% over prior year. Supply is certainly a factor in home price appreciation, with new and existing home inventory levels remaining very low. However, labor and land shortages are also drivers.

Statistic show wage rates in the new construction industry are rising 50% faster than general wage rates. The reality is the list of key drivers impacting overall demand is extremely long and very unpredictable.

But the advantage we have with our direct platform is we maintain direct communications with the country’s largest builders and as of now, they remain confident in near term demand.

Our team will stay very close to our incoming as we all know the summer months have been very difficult to forecast the past few years, creating a challenge on managing our backlog. Taking a look at our dealer channel. We grew the business by 10% in the quarter and 13% for the fiscal year. Demand remained strong.

However, it continues to be at a higher price point with a more affluent consumer. I firmly believe that the middle income consumer has yet to make a strong return to the market following the recession. This can be seen in the product mix within both the dealer and the home center channels in our category.

Regarding our home center business, it grew at 1% for the fourth quarter. Our comps were higher in March and April. However, February’s share was impacted by targeted promotional activities that favored our competition. In general, promotional activity remains high but closer to parity.

Going forward, we expect our growth to track closely with the overall home center cabinet business. As unpredictable as the overall market has been, we must not lose sight of the fact that tremendous growth opportunity remains in both the new construction and remodel markets.

With single-family starts at only $800,000, the housing industry will continue to grow and have a positive impact on the economy as a whole. Within remodel, I have said many times, I believe first-time homebuyers must return at more historical levels for sales to gain more momentum.

My theory is as first-time homebuyers enter the market it will trigger the cycle of move up and move down buyers in existing homes. This, in turn, will trigger increased remodel spend in our category. The question is timing. Although entry level home sales are slowly increasing, underlying micro and macroeconomics are still a challenge.

The road will, obviously, be bumpy, but we are well-positioned to continue to over-index the market and are strategically focused on leveraging our core competency to continue to win across all channels. From a gross margin perspective, we had a strong quarter at 22.3%, a 200 basis point improvement over prior year.

Incremental gross margin was extremely favorable at 49% for the quarter. For the fiscal year, gross margin was 21.8%, an improvement of 70 basis points over our prior fiscal year. Likewise, incremental gross margin was very strong at 30% for the year.

Our team continues to operate our platform very efficiently and effectively managing our continued aggressive growth. On operating margin, we remained extremely pleased with our performance.

Exclusive of one-time charges related to corporate business development expenses, our fourth quarter margin of 11% was an improvement of 180 basis points over prior year. And for the fiscal year, we ended with an adjusted operating margin of 10.8%, 100 basis points higher than prior fiscal year.

On net income, exclusive of special charges, we generated $18.6 million in the quarter, up a very strong 31% from prior year. For the year, our net income was up 22.5%. We continued to leverage SG&A spend and benefit from profitable new product launches.

A success we talk a little about is the fact that close to one-third of our revenue is generated by products launched within the past 3 years. This is a key metric for us and has been at this level for several years, a strong indicator of just how successfully we identify market opportunities and launch new products.

Before I turn it back over to Scott, I would like to provide a few comments on our overall strategy and particularly provide clarification on our special charge identified as corporate business development expenses. We have been communicating for sometime now that it is our strategy to leverage our core competency and expand into adjacent markets.

We have been working diligently to evaluate numerous opportunities, including M&A and Greenfield investments. During this time, we incurred charges associated with performing diligence on a potential M&A opportunity that we ultimately decided not to pursue. This is always a potential outcome when a strategic decision is made to go down this path.

The reality is that absolutely nothing has changed relative to our overall strategy and we are continuing to pursue and evaluate all potential opportunities. We remain committed to identifying solutions to expand our product and market capability by leveraging our core competency of a superior customer experience.

As I mentioned earlier, the housing and remodel markets offer continued strong growth. As first-time homebuyers enter the market, the compounding effect on remodel will be evident in my opinion. As such, we remain extremely confident in our long-term strategy and our ability to expand into relevant segments.

With that, I will it turn over to Scott for the detailed financials..

The financial headlines for the quarter. Net sales were $258.7 million, representing an increase of 7% over the same period last year. Reported net income was $17.3 million or $1.06 per diluted share in the current fiscal year versus $13.4 million or $0.81 per diluted share last year.

Exclusive of after-tax non-operating charges related to corporate business development expenses at fiscal 2017 and idled land disposal on fiscal 2016, the company generated $18.6 million or $1.13 per diluted share of net income for the fourth quarter of the current fiscal year compared with $14.2 million or $0.86 per diluted share for the same period in the prior fiscal year.

For the fiscal year ended April, net sales are $1,030.2 million, representing an increase of 9% over the same period last year. Net income was $71.2 million or $4.34 per diluted share in the current fiscal year versus $58.7 million or $3.57 per diluted share last year.

Exclusive of after-tax non-operating charges related to corporate business development expenses in fiscal 2017, without land disposal of fiscal 2016, the company generated $72.9 million or $4.45 per diluted share of net income for the entire current fiscal year compared with $59.5 million or $3.62 per diluted share for the same period in the prior fiscal year.

For the current fiscal year, the company generated $77.1 million in cash from operating activities compared to $74.6 million from last year. New construction market continues to perform well.

Recognizing a 60-day to 90-day lag between start and cabinet installation, the overall market activity in single-family homes was up 5% for the financial fourth quarter. Single-family starts during December, January and February to prior period averaged 795,000 units, starts over that same time period from the current year, averaged 832,000 units.

Our new construction base revenue increased 12% for the quarter. As we have stated on prior calls, we continue to over index the market due to share penetration with our builder partners and health of the markets where we concentrate our business. The remodel business is improving and continues to be challenging.

From a positive side, unemployment continues to improve. In April, U3 unemployment rate dropped to 4.4%, the lowest rate since May 2007 and U6 dropped to 8.6%. Both of these measures were lower than the April 2016 reported figures. Existing home sales increased during the fourth calendar quarter of 2017.

Between January and March of 2016, existing home sales averaged 4.7 million units. That same period for 2017 averaged 5 million units, an increase of 5.9%. March’s reported figure was the highest in over 10 years. Residential investment, as a percent of GDP for the first calendar quarter of 2017, increased to 3.7% versus 3.6% for the prior year.

Index remains well below historical average of 4.6% from 1960 to 2000. All-cash purchases in March were 23%, down from 25% last year. Consumer sentiment increased to 98 in April versus the 92 reported at the beginning of the calendar year and 89 reported in April 2016. The share of first-time buyers improved.

The March reported rate was 32%, an increase versus 30% a year ago. Keep in mind, the share remains well below historical norm of 40%. On the negative side, the meeting and existing home price rose 6.8% to $236,400 for March, impacting our consumer’s affordability index.

Interest rate increased in the quarter with a 30-year fixed rate mortgage of 4.05% in April, an increase of approximately 44 basis points versus last year. Unsold housing inventory remains low at a 3.8 months supply. Homeownership rates remained low versus historical averages.

The percent of Americans who own their own home in the first calendar quarter was 63.6%, a 0.1% above last year’s rate. Our combined home center and dealer remodel revenues were up 3% for the quarter, with home centers up 1% and Waypoint growing 10%.

Promotional activity remained higher than the prior year for the fourth quarter as we responded to competitive positioning and market conditions. The company’s gross profit margin for the fourth quarter of fiscal year 2017 was 22.3% of net sales versus 20.3% reported in the same quarter of last year.

The company generated year-over-year incremental gross margin rate of 49% for the fourth fiscal quarter. Year-to-date gross profit margin was 21.8% compared to 21.1% for the same period in the prior year.

Gross margin for the current quarter and the fiscal year was favorably impacted by higher sales volumes, lower labor benefit costs and improved operating efficiency. Year-to-date, the company generated a year-over-year incremental gross margin rate of 30%.

Total operating expenses increased from 11.1% of net sales in the fourth quarter of the prior year to 12.1% this fiscal year. Through 12 months, operating expenses increased from 112% of net sales to 11.3%. Selling and marketing expenses were 7.3% of net sales in the fourth quarter of this year compared with 7.2% in the prior year.

The increase in our expense – operating expense ratio is due to higher product launch costs. General and administrative expenses were 4.8% of net sales in the fourth quarter of fiscal year 2017 compared with 3.9% in the prior year. The increase in our operating expense ratio was a result of corporate business development expenses.

With respect to cash flows, the company generated net cash from operating activities of $77.1 million during the current fiscal year compared with $74.6 million during the same period in the prior year.

The increase in the company’s cash from operating activities was driven primarily by higher operating profitability and accrued expenses, which was partially offset by higher discretionary contributions in the company’s pension plan.

Net cash used by investing activities was $53.7 million during the current fiscal year compared with $40.8 million in the same period in the prior year, due to an increased net investment of $28.3 million in certificates of deposit, which was partially offset by decreased investment in property, plant and equipment.

Net cash used by financing activities of $20.8 million, increased $11.9 million during the current fiscal year compared to the same period in the prior year as the company reduced long-term debt by $7.2 million and realized a $5.7 million decrease in proceeds from the exercise of stock options.

This impact was partially offset by a $3.2 million decrease on repurchases of common stock. In closing, our new construction and dealer business continued to over-index the market. Our home center market shares improved, but promotional environment remains heavy.

Our operations team continues to drive productivity, which has improved our gross margins, but increases in fuel and transportation costs are our concern. Although the market remains uncertain, we continue to be pleased with our progress. We established all-time highs in net sales and net income.

However, we also realized that there are further opportunities for improvement.

Regarding our fiscal year ‘18 outlook, for the market, we expect the following; single-family housing starts to grow approximately 8% to 10%; interest rates declined along with continued increases in the average price of new homes, both factors will negatively impact affordability, particularly for the important first-time and first upgrade buyers.

Unemployment should remain steady. Cabinet remodeling sales continue to be challenged until economic trends remain consistently favorable. Growth is expected at roughly mid single-digit range during the company’s fiscal 2018.

In this environment, our expectations for company performance were as follows; the company expects that its home center market share will remain at normalized levels for fiscal 2018. However, this is heavily dependent upon competitive promotional activity. And the company will continue to gain market share in its growing dealer business.

This combination is expected to result in remodeling in sales growth that exceeds the market rate. The company’s new residential construction sales growth outperformed the new residential construction market during fiscal 2017.

And management expects it will again outperform the new residential construction market during fiscal 2018, but by a lesser rate in fiscal 2017, as its comparable prior year sales levels become more challenging.

Inclusive of a potential for modest sales mix and pricing improvement, the company expects it will grow its total sales at a high single-digit rate in fiscal 2018. Despite anticipated material inflation and trade transportation rate increases, the company expects to improve gross margins and operating margins for fiscal 2018.

This concludes our prepared remarks. We would be happy to answer any questions you have at this time..

Thank you. [Operator Instructions] We will take our first question from Tim Wojs..

Hey guys. Good morning..

Good morning Tim.

How are you?.

Good. Nice job on the passing $1 billion there, it’s been quite an achievement..

Thank you. We appreciate it..

So maybe turning just to the puts and takes, maybe to gross margin guidance Scott, what – and maybe this will kind of dovetailing to the promotional discussion, but what do you assume from a promotional cadence in the gross margin outlook or in the EBIT margin outlook and how should we think about input costs for this year?.

Yes, on the promotional front, as you recall in fiscal year ‘17, although the costs were elevated each quarter versus the prior year, we really didn’t move into a parity state with our competition until the second half, so our expectation is the rate of promotional spend we saw in the second half of fiscal year ‘17 will continue into fiscal year ‘18.

As far as input costs, lumber has continued to be somewhat stable for us. We anticipate that to continue as we go forward. We do have increases built in to our outlook with respect to fuel, as well as carrier increases and then we have a number of other related purchasing material items that we have built in some inflation for..

Okay.

And then how do you think about, just from a mix perspective, I mean what are you guys seeing, Cary you mentioned that a little bit on the remodel side, but if you could add a little bit about what you are seeing in mix and maybe how that’s compared to maybe the last year or so?.

Overall, I would say looking forward, we expect mix to stabilize. I think we have all benefited in the market from a fairly good mix, with a more affluent consumer and also if you look at the relevant average mean home prices and so forth.

So obviously it’s very dependent upon that first-time homebuyer and as it starts to trend down, for the most part, for the next fiscal year, we are anticipating and expect our mix to be fairly stable, pending obstacles, other variables that we have to forecast.

But the first-time homebuyer does come back at a greater rate, we would expect a potential shift downward in mix, but right now we are anticipating stability..

Okay. And then last quarter, I think you guys had benefited in the new construction channel for maybe some pull-forward from your builder customers.

I mean, does that have an impact on the growth rate this quarter and anyway to kind of think about how much?.

Yes. So, the question on how much is where we actually really would like to have that and answer to that question, because that’s lot of variables in the market and as I mentioned it.

We are little – I won’t say surprised, obviously, we did grow fairly aggressively particularly relative to the market that we did have, I guess, a little bit of surprise in the overall market growth. We are anticipating it to come in a little bit higher. We are continuing to do some of our own analysis and work closely with builders.

Like I said there is various opinions out there and it’s also very regional. We did see lot of demand pulled forward.

And I would say, 2 months ago, if you are asking me that question, I would say the answer was, they probably pulled more than we thought and emptied out the pipeline a little bit more than anticipated and therefore there was a little bit of catch up and it would take a couple of months to do that or to see that result.

But as I come out of the spring now, it is still a little bit lower than where we would initially anticipated it, still growing, but a lower growth rate than what we probably would anticipated a few months ago. So, it’s something we are just watching closely.

There is nothing out there, I’d say, is alarming at this point in time, whether it’s consumer confidence, administration, there is various variables out there that could be impacting it.

There is also some theories that as you approach that 800,000, 850,000 single-family start level for it to really to continue to grow at the pace it has grown, that mix is going to have to shift down at some point. You can’t sustain that type of growth with a higher medium home price like we have enjoyed for the past, let’s say, 4 to 5 years.

So that may stabilize or cause that growth to slow down a bit for another year or two until that first-time homebuyer really gets back to more historical levels. So, it’s a good question and that was a long answer.

We don’t have a perfect answer for you nor can I tell you really the overall impact of each one of the variables, but something we are going to continue to monitor closely..

Okay. And then the last question for me and then I will hop back in queue.

But how do you feel about capacity at this point in terms of manufacturing, but then also some of the – maybe more of the builder facing employees and footprint? And then just on the M&A side, I mean, anything you can talk about as to maybe why you didn’t consummate the deal would be helpful? Thanks and good luck on fiscal ‘18..

Yes. You threw like three questions in one in there. So, on the capacity question, we are good. I mean we are – it’s something we as I recall we made investment and that’s been notably 2 years just coming this fall that we have leveraged very effectively. I think we would continue to grow at pretty aggressive rates.

So, we still have that investment that is growing, but it’s being utilized very efficiently. So, it’s something we are continuing to stay close to where we are good right now. And from a manufacturing capacity perspective, we have no concerns and we will continue to make investments on our core platform as necessary.

With regards to M&A, it’s no different from what I said before is we do remain committed, particularly the whole mix question, we do feel strongly that there is a lot of growth opportunity remaining, particularly within what I’ll call the Southwest corner.

It’s really a little bit lower price point, more back to I would say where we were prior to the recession. We have moved up in price and mix. So, I think finding a very profitable solution and also being able to potentially enter new markets, such as multifamily and lower price point is it remains a strong strategic opportunity for us.

We remain committed to it where that solution is via M&A or Greenfield, Brownfield is to be determined, but we continue to work aggressively on that solution..

Great. Thanks. Good luck..

Thank you..

[Operator Instructions] We will take our next question from Scott Rednor with Zelman & Associates..

Hey, good morning Cary. Good morning, Scott..

Hey, good morning..

Good morning, Scott..

The first question I just want to make sure I understand a couple of the comments on the sales line near-term. On the one hand, I think you said that the home center business strengthened through the quarter, but then the prior comments was in terms of demand being lower than expected.

Is that on the builder side or is that relative to the overall portfolio? I was just hoping you could....

It’s primarily on the builder side. Yes, on the dealer channel and remodel as a whole, fairly close to where we would expect..

And so how should we think about squaring that with a lot of the public builders and many of your customers reported strong orders in their calendar 1Q and that’s probably demand you have yet to satisfy yet.

So, I was just kind of curious how do you guys think about squaring those two things?.

Once again it’s all relative, right. So, I’d say we are outpacing the industry. So as the builders grow, we grow. And I think the question is really is what’s in backlog and where the growth is anticipated to go in the coming months.

So when they say they have strong growth, there truly is strong growth, but you’ve got to think of those relative comparisons to where we have grown post-recession. We have had pretty aggressive growth.

So if we start talking about 10% to 11% growth in new construction, that is quite lower than where have been, but I think that’s closer to reality going forward in the new construction market. So it’s just I think preparing our analysts for that.

But also just thinking about what the housing industry is going to do going forward and what the mix is going to look like. So, I don’t think there is any negative in there, it’s just understanding what those growth rates will be and what that mix is going to look like.

So lot of the builders are actually seeing continued strong growth, but they are starting to see some move down in that mix and then starting to invest more in that first-time homebuyer. We haven’t seen a big mix shift yet, but it is coming. But it’s just a lot of variables out there that I think we are all paying close attention to..

Got it.

And Cary, would you say that that’s representative of maybe you have maxed out your share opportunity because of the extent to which you have grown those sales over the past 5, 6, 7 years since the recession or is there something else at play?.

No, I don’t think. We are – as Scott mentioned, we are going to continue to over-index the industry, particularly in new construction and the dealer channel. It’s really reflective of the industry as a whole.

And when you think about how much growth it’s had coming out of the post-recession, but we have been fairly steady at 800,000 to 850,000 despite all of these positive numbers. Single family has not done a lot past year.

It’s growing, but I think the big question is to get from the 800,000 to the 1.1 or I will say everybody has a different opinion in what the new norm is out there and what the steady state will be for single-family. What will that growth look like and what would that mix look like to go from the current 800,000, 850,000 to that 1.1 million.

So we will continue to over-index. Our large builders will also continue to over-index, but not at really the rates that we have enjoyed since the recession..

And to your question on share being maxed out, I’d answer that as no. There is still opportunities to gain share with our existing builder partners and markets that perhaps we don’t serve..

Yes, they will gain share and we will gain share with them and also continue to expand ourselves..

Okay, great. And then....

None of our business is obtained in that way. Go ahead, Scott..

Okay. And then maybe just taking a step back at this point last year, you guys guided to double-digit growth with flat OM and clearly the year shaped out differently than you saw it.

So I am just curious, for either one of you, can you maybe talk about the puts and takes to kind of your planning assumptions this year? What could evolve, upside, downside as you kind of look at the full year outlook relative to how we saw 2017 develop?.

Yes, it’s not going to be that different from the conversation we were having with them just a little bit earlier. So we have built in some inflationary factors around the fuel transportation of lumber. Are those still concerned areas for me? Yes, because those could certainly accelerate.

The OPT mix, which Cary has already spoken to a couple of times, we don’t think there will be a rapid rotation down, but if for some reason that was to play out that could be certainly a factor for us.

We feel good about the efforts of our operations team on driving productivity, making the appropriate investments to get cost out where it makes sense, focusing on Lean and Six Sigma and all those initiatives certainly paid dividends in fiscal year ‘17 and we are counting on that again as we roll forward into fiscal year ‘18..

Okay. And just lastly, can you maybe just clarify why you didn’t pursue the M&A? Was it price? Was it due diligence? I mean I know you guys can’t talk super-specific, but can you maybe give somewhat....

Yes, nothing really we could add to the current state and we really can’t give the specifics on it..

Okay. Thank you..

Thank you..

And we will take our next question from Nick Coppola with Thompson Research Group..

Good morning..

Good morning Nick..

So gross margin is up 200 basis points year-over-year, quite strong, can you just talk more about the main drivers there and I heard you guys call out fixed cost leverage, lower labor benefits and operating efficiencies, just any color in terms of the magnitude of those drivers.

And then is there anything we should we thinking about in terms of channel or product mix?.

Yes. So on the margin side, you got the main call-out point obviously the higher volume helps us up 7.4% in the quarter.

I mentioned just a moment ago, a number of initiatives, our manufacturing colleagues that worked on with respect to Lean and Six Sigma to take cost out of the process, so we have been running more efficiently on the labor side as well.

And then our labor benefit costs were less than the prior year, so healthcare was an advantage for us as well as a bit on some of the incentive programs that we have in place. So those were a couple of drivers. Also keep in mind that the comp, that was one of our weakest periods.

If you go back to fiscal year ‘16, when you look back at that Q4 results from a comp standpoint, so that’s also part of the driver..

And then anything on channel or product mix that we should be thinking about?.

Nothing of significance, it was pretty comparable to the last couple of periods. And what we have seen is growth in each of their respective channels..

Got it, okay.

And then I guess speaking of channels, can you just elaborate at all on the competitive environment in home centers, I think I heard you are saying that February was a competitor was elevated, but then I guess they pulled back, any kind of inflection upward or downward across the industry and just thoughts about how you see this playing out going forward?.

I would say on average, we are closer to parity now. You see some one-off promotions here and there that could either be sponsored by a home center themselves or a competitor.

So I think in this environment, both home centers are working on different, let’s say solutions, trying to draw more consumers in via promotional activity and so forth, which is as Scott mentioned, will keep the promotional spend at a consistent level, but elevated compared to where we were a year ago, moving into our fiscal year ‘18.

So but the good news, I think at least as of right now, it’s unpredictable right now let’s say we are closer to parity. And as Scott mentioned, we expect to grow more in line with overall home center growth for fiscal year ‘18 is what we are forecasting..

Okay, very helpful.

And I guess just one last question, if you could talk a bit about the standard consumer and kind of how maybe traffic has looked at home centers and dealers to-date?.

It’s a good question. I think it’s very dependent on how you breakdown that consumer, that mix comments that I made before and the fact that we are seeing a more affluent consumer, I have said that in almost every call.

But the reality is to, if you look at statistics, we just had some data released from the NKB that still shows that consumers very heavily favor the home center channels at least as where it all start, some may not close there, but the home center channel is still very important to our category.

I think the question is at what point does that middle income consumer and I know the middle income consumer of today is going to be different than it was pre-recession.

But the younger generation, certainly the job market has improved and their discretionary spend is improving, they are getting back in the market, a lot of conversation about they want a home, because they saw their parents go through struggles.

Most of that is like hearsay and most of the data supports that younger generations do and do you want to own a home. And I think we will return to more steady state levels in new construction where that’s 1.1, 1.2 or somewhere around there. That will return.

It’s just I think it’s delayed because of all the delays in the market, the delays in marriage, the delays in having children and so forth, but its happening. So I think those delays are catching up. And I think as long as the economics will support the younger buyers getting back in the market, there is still a lot of growth left and in all channels.

I think you are going to see dealer business grow, you are going to see home centers grow and you are going to see new channels to market grow. What exactly those are, who knows. There is certainly influence of direct sales via the Internet, very small today, but the younger generation have shown that they are willing to do some of that.

I think in our market, that’s going to take time just because it’s a very complex buying process as well as installation process to go through. So I think the dynamics on that consumer are something we are continuing to monitor. We continued to do research data.

Right now still heavily weighted towards I will say the more senior aged next generation and a lot of baby boomers are still out there spending money and remodeling. But I feel there is still pent-up demand and that will shift to the younger generation over time..

Okay. Thanks for taking my questions..

Thank you..

[Operator Instructions] We will take our next question from Tim Wojs with Baird..

Hey guys.

Just a couple follow-up questions on the model, how should we think about the tax rate in fiscal ‘18 and with that in – and have you guys included the new stock-based options accounting on the tax rate and what should we expect for CapEx?.

Yes. So we had already – we already adopted the change in fiscal year ‘17. If you remember our fiscal first quarter, we had a pretty light tax rate as a result of that. If you look at fiscal year ‘18, 35 to 36 is what we are expecting. Likely again to see a lower rate in Q1 of ‘18 with that adopted change in accounting.

With respect to CapEx, we are finalizing work on the cable. We will get that out here in the next four weeks.

But the way you would typically see is, from a capital budget standpoint, we are going to be 1.5% to 2% kind of the normalized rate, but then you need to layer on top of that this year the new corporate office building, so that would be the one deviation.

So if you go back to what we communicated a quarter ago on that, that’s an additional benefit – sorry, an additional spend..

Great. Thanks guys..

[Operator Instructions] As I do not see that there is anyone else waiting to ask a question, I would like to turn the line over to Mr. Culbreth for any closing comments, please go ahead, sir..

Since there are no additional questions, this concludes our call. Thank you for taking time to participate..

This concludes today’s call. Thank you for your participation. You may now disconnect..