Q1 2025 American Woodmark Corp Earnings Call

August 27, 2024

Music

Speaker Change: Good day, and welcome to the American Woodmark Corporation, first fiscal quarter, 2025 conference call. Today's call is being recorded August 27th of 2024.

Speaker Change: During this call, the company may discuss certain non-gap financial measures, including in our earnings early, such as a just-it-net income, a just-it-bada, a just-it-bada margin, free cash flow, net leverage, and a just-it-ep-s per-delutus share.

Speaker Change: The earnings release, which can be found on our website, americanwoodmark.com, includes definitions of each of these non-got financial measures, the company's rational for the uses and reconciliation of these non-got financial measures to the most recent, most comparable-got financial measures.

Speaker Change: We also use our website to publish other information that may be important to investors such as investor presentations.

Speaker Change: We will begin the call by reading the company's safe harbor statement under their private securities litigation reform act of 1995. All four looking statements may be made by the company involved material risk and uncertainties. And are subject to change based on factors that may be beyond company's control.

Speaker Change: Accordingly, the company's future performance and financial results made different materially from those expressed or implied and such for-looking statements.

Speaker Change: Such factors include, but not limited to, those described in the company's filings with the securities in exchange commission and the annual report to shareholders. The company does not undertake publicity, update or revise its forelooking statements.

Speaker Change: Even if experience or future changes may make it clear that the projected results expressed or implied they're in not be realized

Paul Joachimczyk: I would now like to turn the call over to Mr. Paul Joachimczyk, Senior Vice President and Chief Financial Officer, please go ahead sir.

Paul Joachimczyk: Good morning and welcome to American Wood Mark's first physical quarter conference call.

Speaker Change: Thank you for taking the time today to participate joining me at Scott Culver, the President and CEO. Scott will begin with a review of the quarter and I'll let additional details regarding our financial performance.

Speaker Change: After our comments we'll be happy to answer your questions.

Speaker Change: Scott

Scott: Thank you Paul, and thanks to everyone for joining us today for our first physical quarter earnings call.

Speaker Change: Our team's delivered net sales of $459.1 million, representing a decline of 7.9% versus the prior year.

Speaker Change: This is below our expectations for about a during last quarter's call due to weaker demands during the summer and the remote channel.

Speaker Change: You're your growth in single family housing starts of slow, over the past three months, putting down more pressure on cabin installations in future quarters.

Speaker Change: The focus remains on future rake cuts from the fed which could drive stronger to man in calendar 2025.

Speaker Change: Our home center customers have noted higher interest rates and macroeconomic pressures leading to weaker spending on projects.

Speaker Change: This has been more significant for higher price discretionary projects like kitchen and bath.

Speaker Change: We are not experiencing a loss to share with our customers, but we do expect weaker demand versus our expectations at the start of the fiscal year.

Speaker Change: Our teams remain focused on growing shared our accounts and have realized recent awards in our stock kitchen and bat business that will benefit the remainder of the fiscal year.

Speaker Change: Our belief is that it has interest rates decline.

Speaker Change: Consumer Confidence increases.

Speaker Change: He's just in home sales increase.

Speaker Change: and a potential for home projects increases.

Speaker Change: This should serve as a tailwind for our business encounter year 25.

Speaker Change: Our Jeff to leave a dog results were 62.9 million dollars, or 13.7% for the quarter.

Speaker Change: Report to the EPS was a dollar already known.

Speaker Change: Operational Excellence efforts continue to drive progress across the enterprise, but we're all set in the quarter by lower volumes.

Speaker Change: Our cash balance was $89.3 million at the end of the first fiscal quarter and the company has access to additional $320.9 million under its revolving credit facility.

Speaker Change: The leverage was at 1.19 times adjusted EBITDA, and the company repurchased 271,000 shares in the quarter.

Speaker Change: Our outlook for the industry in fiscal year 25 assumes the repairing model market will be down mid-single digits and new construction to be at mid-single digits.

Speaker Change: Within our larger discretionary projects will trend worse than the overall market and are projected to be down high single digits.

Speaker Change: As a result of the softer R&R to man, and the recently reported slow down and new construction single family housing starts, our expectation for the companies in that sales is being adjusted to a low single digit decrease versus fiscal year 2024.

Operator: Good day and welcome to the American Woodmark Corporation, first fiscal quarter, 2025 conference call. Today's call is being recorded, August 27th of 2024. During this call, the company may discuss certain non-gap financial measures, including in our earnings release, such as adjusted net income, adjusted EBITDA, adjusted EBITDA margin, free cash flow, net leverage, and adjusted EPS per deluded share.

Speaker Change: But just to leave it out expectations are targeted in the range of 225 million to 245 million.

Speaker Change: Our teams continue to execute our strategy as three main pillars.

Speaker Change: Grow.

Speaker Change: Digital transformation and platform design with a number of key accomplishments over the past quarter.

Operator: The earnings release, which can be found on our website, americanwoodmark.com, includes definitions of each of these non-gap financial measures, the company's rational for the usage and reconciliation of these non-gap financial measures to the most recent, most conveyorable gap financial measures. We also use our website to publish other information that may be important to investors, such as investor presentations.

Speaker Change: Our summer launch has been well received in the market and conversion activity continues within our distribution business in 1951.

Speaker Change: and a number of new accounts are being pursued.

Speaker Change: As previously noted, our teams of one several start-back and kitchen opportunities over the past quarter.

Speaker Change: Digital Transformation efforts continue with our teams planning for ERP Go Live and our West Coast Medistop facility later this fiscal year.

Operator: We will begin the call by reading the company's Safe Harbor Statement under the Private Security's Litigation Reform Act of 1995. All four looking statements may be made by the company involved material risk and uncertainties and are subject to change based on factors that may be beyond company's control. Accordingly, the company's future performance and financial results made different materially from those expressed or implied in such four looking statements. Such factors include but 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 publicity, update, or revise its four looking statements, even if experience or future changes may make it clear that the projected results expressed or implied they're in, not be realized.

Speaker Change: Platform design work continues as we ramp our Monterey Mexico and Hamlet North Carolina facilities.

Speaker Change: Miller Quentin continues to be installed at both sites and will ramp over the coming months.

Speaker Change: Automation efforts are progressing in our middle, component, and assembly operations.

Speaker Change: In closing, I'm proud of what this team accomplished in the first physical quarter, and look forward to their continuing contributions here in fiscal year 25.

Speaker Change: I'm now going to turn the call back over to Paul for additional details once an answer results for the quarter.

Paul Joachimczyk: Thank you Scott.

Paul Joachimczyk: I'll begin by discussing our first quarter results and then provide our outlook for the rest of the fiscal year.

Paul Joachimczyk: Net sales were 459.1 million representing a decrease of 39.1 million or 7.9% per prior year.

Paul Joachimczyk: I would now like to turn the call over to Mr. Paul, Joe Himchick, senior vice president and chief financial officer.

Paul Joachimczyk: I would now like to turn the call over to Mr. Paul, Joe Himchick, senior vice president and chief financial officer. Please good morning and welcome to American Woodmarks first physical quarter conference call. Thank you for taking the time today to participate.

Paul Joachimczyk: We saw softening in large ticket items that primarily impacted our remote business.

Paul Joachimczyk: We still believe in the long-term fundamentals of the housing industry.

Paul Joachimczyk: Please good morning and welcome to American Woodmarks first physical quarter conference call. Thank you for taking the time today to participate. Joining me is Scott Culver, president and CEO. Scott will begin with a review of the quarter and I'll add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions.

Paul Joachimczyk: and they are being impacted currently by consumer confidence and higher registration rates.

Paul Joachimczyk: Joining me is Scott Culver, president and CEO. Scott will begin with a review of the quarter and I'll add additional details regarding our financial performance.

Paul Joachimczyk: Gross profit as a percent of net sales for the first quarter decrease 180 basis points to 20.2% versus 22.3% reported last year.

Paul Joachimczyk: Lower sales volumes impact that are manufacturing leverage in our new facilities with combined pricing creases in our input costs, around logistics, raw materials and labor. But those impacts are partially offset by our sustained operating efficiency efforts.

Scott Culver: Scott, thank you Paul and thanks to everyone for joining us today for our first physical quarter earnings call. Our team delivered net sales of $459.1 million, representing the decline of 7.9% versus the prior year. This was below our expectations provided during last quarter's call due to weaker demands during the summer and the remodel channel. Year-over-year growth in single-family housing starts of slowed over the past three months, putting downward pressure on cabinet installations in future quarters.

Paul Joachimczyk: After our comments, we'll be happy to answer your questions.

Paul Joachimczyk: Operating expenses, excluding any restructuring charges, were 10% of net sales versus 12% last year.

Scott Culver: Year-over-year growth in single-family housing starts of slowed over the past three months, putting downward pressure on cabinet installations in future quarters. The focus remains on future rate cuts from the Fed, which could draw a stronger demand in calendar 2025. Our home center customers have noted higher interest rates and macroeconomic pressures leading to weaker spending on projects. This has been more significant for higher price discretionary projects like kitchen and bath. We are not experiencing a loss to share with our customers, but we do expect weaker demand versus our expectations at the start of the fiscal year.

Paul Joachimczyk: The 200 basis point decrease is due to the rolloff of our acquisition-related intangible asset amortization that ended in December 2023. Lower incentive compensation and control spending across all functions offset by our lower sales.

Scott Culver: The focus remains on future rate cuts from the Fed, which could draw a stronger demand in calendar 2025. Our home center customers have noted higher interest rates and macroeconomic pressures leading to weaker spending on projects. This has been more significant for higher price discretionary projects like kitchen and bath. We are not experiencing a loss to share with our customers, but we do expect weaker demand versus our expectations at the start of the fiscal year.

Justin: The Justin net income was 29.6 million or one dollar and 89 cents per diluted share in the first quarter versus 46.2 million or two dollars and 78 cents per diluted share last year.

Justin: This was impacted by an unfavorable mark to market adjustment on our form currency hedging instruments of 4.7 million net of tax.

Scott Culver: Our teams remain focused on growing shared hour accounts and have realized recent awards in our stock kitchen and bath business that will benefit the remainder of the fiscal year. Our belief is that as interest rates decline, consumer confidence in Recreases, existing home sales increase, and a potential for home projects increases. This should serve as a tailwind for our business encounter year 25. Our adjusted EBITDA results were $62.9 million or 13.7% for the quarter.

Justin: Adjusted EVIDO was 62.9 million or 13.7% in that sales, versus 75.2 million or 15.1% in that sales last year, representing a 140-based point decline your rear.

Justin: 3 cash for the total the positive 29.4 million for the current fiscal year to date compared to 72.5 million in the prior year.

Justin: The 43.1 million decrease was primarily due to changes in our operating cash flows.

Speaker Change: Specifically, Higher Edmontor.

Scott Culver: Report of the EPS was $1.99. Operational excellence efforts continued to drive progress across the enterprise, but were offset in the quarter by lower volumes. Our cash balance was $89.3 million at the end of the first fiscal quarter, and the company has access to an additional $322.9 million under its revolving credit facility. Leverage was at 1.19 times adjusted EBITDA, and the company repurchased 271,000 shares in the quarter. Our outlook for the industry in fiscal year 25 assumes the repairing model market will be down mid-single digits, and new construction to be at mid-single digits.

Speaker Change: That leverage was 1.19 times adjusted, even at the end of the first quarter compared with 1.09 times last year.

Speaker Change: As of July 31, 2024, the company had 89.3 million in cash, plus access to 322.9 million of additional availability under its revolving facility.

Speaker Change: Under the current Share Repurchase Program, the company purchased 24 million or 171,000 shares in the first quarter of representing about a 1.8% of outstanding shares being retired.

Scott Culver: Our outlook for the industry in fiscal year 25 assumes the repairing model market will be down mid-single digits, and new construction to be at mid-single digits. Within R&R, larger discretionary projects will trend worse than the overall market, and are projected to be down high-single digits. As a result of the softer R&R demand, and the recently reported slowdown in new construction single-family housing starts, our expectation for the companies in that sales is being adjusted to a low-single digit decrease versus fiscal year 24. Adjusted EBITDA expectations are targeted in the range of 225 million to 245 million.

Speaker Change: We have 65.4 million of shared purchase authors later in Manning.

Scott Culver: Within R&R, larger discretionary projects will trend worse than the overall market, and are projected to be down high-single digits. As a result of the softer R&R demand, and the recently reported slowdown in new construction single-family housing starts, our expectation for the companies in that sales is being adjusted to a low-single digit decrease versus fiscal year 24. Adjusted EBITDA expectations are targeted in the range of 225 million to 245 million. Our teams continue to execute our strategy as three main pillars, growth, digital transformation, and platform design, with a number of key accomplishments over the past quarter.

Speaker Change: Our Outlook for Fiscal Year 2025.

Speaker Change: Next sales are expected to be down low single digits versus fiscal year 2024.

Speaker Change: This is a result of the software repair and model market and decline in larger ticket model purchases across the retailers.

Speaker Change: Partly offset by the continued growth and new construction for in the back half of the year.

Speaker Change: However, these assumptions are highly dependent upon overall industry, economic growth trends, material constraints, labor impacts, interest rates and consumer behaviors.

Scott Culver: Our teams continue to execute our strategy as three main pillars, growth, digital transformation, and platform design, with a number of key accomplishments over the past quarter. Our summer launches been well-received in the market, and conversion activity continues within our distribution business in 1951, and a number of new accounts are being pursued. As previously noted, our teams have won several stockbath and kitchen opportunities over the past quarter. Digital transformation efforts continue with our teams planning for ERP go live, and our west coast made to stock facility later this fiscal year.

Speaker Change: are projected a margin for the fiscal year 2025 is being targeted in a range of 225 million to 245 million driven primarily by sales volumes retracting.

Scott Culver: Our summer launches been well-received in the market, and conversion activity continues within our distribution business in 1951, and a number of new accounts are being pursued. As previously noted, our teams have won several stockbath and kitchen opportunities over the past quarter. Digital transformation efforts continue with our teams planning for ERP go live, and our west coast made to stock facility later this fiscal year. Platform design work continues as we ramp our monitoring Mexico and Hamlin North Carolina facilities. Mill equipment continues to be installed at both sites and will ramp over the coming months. Automation efforts are progressing in our mill, component, and assembly operations.

Speaker Change: and the increased manufacturing delivered to our facilities during the last nine months of the fiscal year.

Speaker Change: We will continue to optimize our manufacturing and service platforms.

Speaker Change: In addition, we evaluate our pricing monthly and will continue to do so on a go-for basis to mitigate the inflationary impacts on logistics, raw materials and labor.

Scott Culver: Platform design work continues as we ramp our monitoring Mexico and Hamlin North Carolina facilities. Mill equipment continues to be installed at both sites and will ramp over the coming months. Automation efforts are progressing in our mill, component, and assembly operations.

Speaker Change: Our capital allocation priorities for fiscal year 2025 remain unchanged.

Speaker Change: We will first be focused on investing back in the business by continuing our path for our digital transformation with investments in gear p and CRM and investing in automation.

Scott Culver: In closing, I'm proud of what this team accomplished in the first fiscal quarter, and look forward to their continuing contributions during fiscal year 25.

Speaker Change: Next we'll be optimistic in our short purchasing and lastly with our deposition at a laboratory show we want to achieve that repayments will be de-prioritized.

Paul Joachimczyk: I'm now going to turn the call back over to Paul for additional details on the financial results for the quarter. Thank you Scott. I'll begin by discussing our first quarter results, and then provide our outlook for the rest of the fiscal year. Net sales were 459.1 million, representing a decrease of 39.1 million, or 7.9 percent for the prior year. We saw softening and large ticket items that primarily impacted our remodel business.

Speaker Change: Thank you. Our team is dedicated to making it happen every day.

Speaker Change: Our operational improvements that have been put in place over the past year have helped us mitigate the volume declines affecting the broader return model industries.

Speaker Change: Investments on a nation will drive future operational efficiencies and enable our long-term targets from both a growth and margin perspective.

Speaker Change: We remain steadfast in our GDP strategy and confident in the long-term investment opportunities within the housing market, including both the construction and the repair model sectors.

Paul Joachimczyk: We still believe in the long-term fundamentals of the housing industry, and they are being impacted currently by consumer confidence and higher interest rates. Gross profit as a percent of net sales for the first quarter decreased 180 basis points to 20.2 percent versus 22 percent reported last year. Lower sales volumes impacted our manufacturing leverage in our new facilities with combined price increases in our input costs around logistics, raw materials, and labor. But those impacts are partially offset by our sustained operating efficiency efforts.

Speaker Change: This concludes our prepared remarks. We'll be happy to answer any questions you have at this time.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to have your question, please press star then two. And at this time we'll pause momentarily to a symbol roster.

Paul Joachimczyk: Conference. Operating expenses, excluding any restructuring charges were 10% of net sales versus 12% last year. The 200 basis point decrease is due to the rolloff of our acquisition related intangible asset amortization that ended in December 2023, lower incentive compensation and control spending across all functions offset by our lower sales. Adjusted net income was 29.6 million or $1.89 per diluted share in the first quarter versus 46.2 million or $2.78 per diluted share last year.

Speaker Change: And the first question will come from Adam Baumgarten, with Zelman and Associates. Please go ahead.

Adam Baumgarten: Hey, good morning guys. Just on a quarter could you give me some color on how revenue-trended by channel in the fiscal first quarter?

Speaker Change: For new construction we were up a single digits in for repairing model down double digits

Speaker Change: Okay, got it

Speaker Change: And then just thinking about the updated outlook for the year, it looks like it assumes flat year or year revenue over the balance of fiscal 25.

Speaker Change: Maybe help us think about how you expect it to trend over the next three quarters. You expect some pressure, you know, in the coming quarter and then maybe a bit of growth. And in the back half of the fiscal year, maybe just a bit more color on how you expect it to face.

Paul Joachimczyk: This was impacted by an unfavorable mark-to-market adjustment on our form currency hedging instruments of 4.7 million net of tax. Adjusted EBITDA was 62.9 million or 13.7% in net sales versus 75.2 million or 15.1% in net sales last year, representing a 140 basis point decline year of year. Every cash flow totaled the positive 29.4 million for the current fiscal year to date compared to 72.5 million in the prior year. The 43.1 million decrease was primarily due to changes in our operating cash flows specifically higher inventory.

Speaker Change: Yeah, and we don't want to get into a quarterly forecast and projection outlook. We'd rather provide just a full-year basis. There's still a lot of uncertainty as to what'll play out over the next couple of quarters with the rate cuts, but we feel confident in the full-year projection that we provided.

Speaker Change: Okay, and then just lastly, on the import costs, I mean, it sounds like there's some pressure there and any guys are considering pricing, maybe just an update on how the pricing typically works, I know it's a different by channel and how much would potentially be needed if the import costs stay elevated here.

Paul Joachimczyk: Net leverage was 1.19 times adjusted EBITDA at the end of the first quarter compared with 1.09 times last year. As of July 31, 2024, the company had 89.3 million in cash plus access to 322.9 million of additional availability under its revolving facility. Under the current share repurchase program, the company purchased 24 million or 171,000 shares in the first quarter representing about 1.8% of outstanding shares being retired. We have 65.4 million of shared purchase authorization remaining.

Speaker Change: Sure, and your right to pricing actions will be variable depending on the channel. The timing could move around based on we also had our last increase in our respective channel.

Speaker Change: Historically, what you would typically see is first actions in dealer distributor followed by new construction followed by home center just because of the lag time when getting those prices.

Speaker Change: and put into the process. I can tell you at this particular point in time we have an active and dealer and we have announced a price increase in that channel.

Speaker Change: Okay got it. Thanks best one.

Adam Baumgarten: Thank you. Thanks, Adam.

Adam Baumgarten: The next question will come from Gerricks Moise with Luke Capital. Please go ahead.

Paul Joachimczyk: Our outlook for fiscal year 2025 net sales are expected to be down low single digits versus fiscal year 2024. This is a result of the software repair and remodel market and decline in larger ticket remodel purchases across the retailers, partially offset by the continued growth in new construction during the back half of the year. However, these assumptions are highly dependent upon overall industry, economic growth trends, material constraints, labor impacts, interest rates and consumer behaviors.

Gerricks Moise: Hi, thanks. Just some of the new construction side. If I remember correctly, if something like you held your outlook, but you also talked to some of the weaker friends, just given the housing starting environment that slowed over the last 90 days. So it just carries us to what's underpinning some of the...

Speaker Change: The new construction of you for you is a sharegain, some interest rate assumptions you're making for the back-up of the year. Does any color on your construction would be great?

Paul Joachimczyk: Our projected EBITDA margin for the fiscal year 2025 is being targeted in a range of 225 million to 245 million, driven primarily by sales volumes retracting and the increased manufacturing delivery or facilities during the last nine months in the fiscal year. We will continue to optimize our manufacturing and service platforms. In addition, we evaluate our pricing monthly and will continue to do so on a go for basis to mitigate the inflationary impacts on logistics, raw materials and labor.

Speaker Change: Sure, I'll in the construction. I would tell you that out of the gate for our first fiscal quarter we exceeded what our original planning expectations were from a D&D standpoint.

Speaker Change: and feel pretty good about our second quarter. Our concern became the second half, as we saw starts to decline over these last 90 days. So we start to model that forward as to when cabinet insolational occur in our expectations. We'll see a little bit softer, cabinet installing the back cap to your comment on interest rates.

Speaker Change: Let's assume the Fed take action in September feels like that's almost a guarantee at this particular point in time I don't think one move makes a big change because everyone's expecting it but at subsequent moves start to take place We think that will unlock more homeowners interested in buying a new home or

Paul Joachimczyk: Our capital allocation priorities for fiscal year 2025 remain unchanged. We will first be focused on investing back into business by continuing our path for our digital transformation with investments in GRP and CRM and investing in automation. Next, we will be opportunistic in our shared purchasing and lastly, with our deposition at a leverage ratio we want to achieve, debt repayments will be deep priority, and Artais. In conclusion, our team is dedicated to making it happen every day.

Speaker Change: Also in the repair and model side investing in their home and doing a project and the kitchen and back there So we think that could drive and criminal demand and new construction But that starts to play out into you know mid-counter your 25 will start to cross into our next fiscal year

Paul Joachimczyk: Next, we will be opportunistic in our shared purchasing and lastly, with our deposition at a leverage ratio we want to achieve, debt repayments will be deep priority, and Artais.

Scott Culver: In conclusion, our team is dedicated to making it happen every day. Our operational improvements that have been put in place over the past year have helped us mitigate the volume declines affecting the broader repair and model industries. Investment's automation will drive future operational efficiencies and enable our long-term targets from both a growth and margin perspective. We remain steadfast in our GDP strategy and confident in the long-term investment opportunities within the housing market, including both the new construction and the repair model sectors.

Paul Joachimczyk: Our operational improvements that have been put in place over the past year have helped us mitigate the volume declines affecting the broader repair and model industries. Investment's automation will drive future operational efficiencies and enable our long-term targets from both a growth and margin perspective. We remain steadfast in our GDP strategy and confident in the long-term investment opportunities within the housing market, including both the new construction and the repair model sectors.

Speaker Change: Okay, is that a comment, a pretty consistent with Ramonel as well, that you know your view would be that if it would, you need to see several Ray Cubs before, you know, that end market starts to, to accelerate as well.

Speaker Change: Yeah, absolutely. I think it's going to take a couple reductions.

Speaker Change: and then there's going to be a lag effect before consumers get confident and then start to engage in a project and the planning horizon as well as the actual project timelines, you know, pretty significant on a kitschary model, so I also don't think that's a huge boost for us in our second half, but it starts to set us up for a nice 26.

Paul Joachimczyk: This concludes our preparatory marks. We'll be happy to answer any questions you have at this time.

Paul Joachimczyk: This concludes our preparatory marks.

Operator: We'll be happy to answer any questions you have at this time. We will now begin the question and answer session. To ask a question, you may press star than one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two.

Operator: We will now begin the question and answer session. To ask a question, you may press star than one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two.

Speaker Change: Okay, and then just lastly, if my mouth was right, it looks like you held your eat the dumb margin guidance despite the slower sales. So, you know, it's only if you look at any more detail as to some of the offset, some of the benefits you're seeing on the margin side.

Operator: And at this time, we'll pause momentarily to a symbol or roster.

Speaker Change: Yeah, the first would be the comment earlier around some pricing actions as necessary, so as we already mentioned, we've taken some actions in dealer.

Adam Baumgarten: And the first question will come from Adam Baumgarten with Zellman and Associates. Please go ahead. Hey, good morning, guys.

Speaker Change: If input costs continue to move in the other channels will certainly be looking at conversations in those as well, so continue to manage that and then just overall operating efficiencies our teams are focused on operational excellence not just in the manufacturing side.

Scott Culver: Just on one quarter, could you give some color on how revenue trended by channel in the fiscal first quarter? Yeah, for new construction, we were up up single digits and for repair and model down double digits. Okay, got it.

Speaker Change: but our service platform and new construction, managing S.T.N.A. Spending wisely, we'll continue to do that, despite the pullback into man and our goal is to manage that even on number to the range that we just provided.

Scott Culver: And then just thinking about the updated outlook for the year, it looks like it assumes flat year-rear revenue over the balance of fiscal 25. Maybe help us think about how you expect that to trend over the next three-quarters. Should we expect some pressure in the coming quarter and then maybe a bit of growth in the back half of the fiscal year? Maybe just a bit more color on how you expected to face.

Speaker Change: Understood. All right, thanks for all that.

Speaker Change: Ok, thank you.

Trevor Allison: In the next question, we'll come from Trevor, Allison with Wolf Research. Please go ahead.

Trevor Allison: Hi, good morning. Thank you for taking my questions. First, you all mentioned some awards and stock kitchen and bath. It's going to benefit you guys. Can you provide some color on those? Perhaps how large of a benefit they could be? Is there any load in and what the timing looks like on those?

Scott Culver: Yeah, Adam, we don't want to get into a quarterly forecast and projection outlook. We'd rather provide just a four-year basis. There's still a lot of uncertainty as to what will play out over the next couple of quarters with the rate cuts, but we feel confident in the four-year projection than we provided.

Speaker Change: Yeah, I want to get into the specifics around load in and maybe exact timing, but I'll just share with you that it's in our it's in our full year outlook that we just provided.

Scott Culver: Okay, and then just lastly on the input costs. I mean, it felt like there's some pressure there and you guys are considering pricing. Maybe just an update on how the pricing typically works. I know it's different by channel and how much would potentially be needed if the input costs stay elevated here. Sure, and you're right, the pricing actions will be variable depending on the channel. The timing could move around based on we also had our last increase in our respective channel.

Speaker Change: It's some permanent placement on the kitchen side and then on the bass side it's more of a promotional nature so you're roughly 30 million from a net standpoint and business annualized and starting to shift in the current quarter.

Scott Culver: Historically, what you would typically see is first actions in dealer distributor followed by new construction followed by home center just because of the lag time when getting those prices input into the process. I can tell you at this particular point in time we have been active in dealer and we have announced the price increase in that channel. Okay, guys, thanks. That's a lot. Thank you. Thanks, Adam.

Speaker Change: Okay, I've got you. That's very helpful. And then, I want to follow up again on input cost trends. You've mentioned a few pieces of that that's a bit inflationary. You've got some pricing going into the market.

Speaker Change: What are you guys assuming for input cost inflation embedded in your full-year EBITDA guidance?

Speaker Change: We've seen some impacts in lumber as well as particle board more so recently on the particle board side, but labor is just going to always be an ongoing input cost increase is pushed forward and fought on mile so.

Garik Shmois: The next question will come from Garrick's Moise with Loop Capital. Please go ahead. Oh, hi, thanks. Just some of the new construction side. If I remember correctly or something, you held your outlook, but you also talked to some of the weaker trends just given the housing starting environment that's slowed over the last 90 days. It is curious as to what's underpinning some of the new construction review for you as a share gains, some interest rate assumptions you're making for the back half of the year.

Speaker Change: We've got a good handle on what those have been trending. We've got those modeled in our outlook and then we've built in pricing as appropriate to be able to offset and mitigate to hit the EBITDA numbers.

Speaker Change: Okay, great. And then one more quick one if I could.

Speaker Change: You guys previously had mentioned potentially being more aggressive with the new capacity you have available to when some share there Can you provide more color on that? Is that more aggressive on pricing? Is that more marketing dollars? How exactly are you thinking about that?

Garik Shmois: Does any color on new construction will be Sure, on a new construction, I would tell you that out of the gate for our first fiscal quarter, we exceeded what our original planning expectations were from a Dan Stampling, and feel pretty good about our second quarter. Our concern became the second half as we saw starts to decline over these last 90 days, so we start to model that forward as to when cabinet insulational occur in our expectations.

Speaker Change: Not more aggressive on pricing and marketing dollars, but more aggressive in sharing our capability.

Speaker Change: Alright.

Speaker Change: You know, making sure the market understands and our customers understand the capacity we've got and our ability to serve at the man. So that's the focus and the energy is a reminder you know when we went through COVID and we saw such a large surge in the man, we really had difficulty keeping up with that.

Garik Shmois: We'll see a little bit softer, cabinet install in the back half. To your comment on interest rates, let's assume the Fed take action in September, feels like that's almost a guarantee at this particular point. Time, I don't think one move makes a big change because everyone's expecting it, but as subsequent moves start to take place, we think that will unlock more homeowners interested in buying a new home, or also in their parent model side, investing in their home and doing a project in the kitchen or bat area.

Speaker Change: and we had issues around employment, et cetera, that was a barrier. So we invested, despite recent market downturn, we invested in capacity. We wanted to make sure we were ready to take it the end of the job.

Speaker Change: the name when it comes back. So we've made that investment and we're ramping that investment up. So instead of our teams having to pull back on being aggressive in the marketplace I'm taking here. Now we can turn them away. So we've done that and we've had some success up to this point.

Garik Shmois: We think that could drive incremental demand in new construction, but that starts to play out into mid-calendar year 25, which starts to cross into our next fiscal year. Is that a comment pretty consistent with remodel as well that your view would be that it would need to see several rate cuts before that end market starts to accelerate as well? Yeah, absolutely. I think it's going to take a couple of reductions, and then there's going to be a lag effect before consumers get confident and then start to engage in a project.

Speaker Change: Thanks for all the sense. Thank you very much for being with me before.

Speaker Change: Okay, thank you.

Scott Culver: In the planning horizon as well as the actual project timelines, pretty significant on the kitchen remodel, so I also don't think that's a huge boost for us in our second half, but it starts to set us up for a nice 26.

Speaker Change: Again, if you have a question, please press star, then one. Our next question will come from Tim Woj with beard. Please go ahead sir.

Tim Woj: Hey guys, good morning. Thank you.

Tim Woj: Maybe just first question Scott, I mean, as you talk to like the channel partners and your dealers, you know, just on the R&R environment.

Tim Woj: Do you feel, or do you get the feedback that this is just an interest rate situation at this point that there is, you know, some level of kind of deferred demand that's out there that's just kind of waiting for lower interest rates, or is there, is there something else? I'm just trying to understand if there is a...

Garik Shmois: In the planning horizon as well as the actual project timelines, pretty significant on the kitchen remodel, so I also don't think that's a huge boost for us in our second half, but it starts to set us up for a nice 26. Okay, and then just lastly, if my math was right, it looks like you held your EBITM margin guidance despite the slower sales. So, you know, it's only if you go into any more detail as to some of the offsets and some of the benefits you're seeing on the margin side.

Scott Culver: Okay, and then just lastly, if my math was right, it looks like you held your EBITM margin guidance despite the slower sales. So, you know, it's only if you go into any more detail as to some of the offsets and some of the benefits you're seeing on the margin side. Yeah, the first would be the comment earlier around surprising actions as necessary. So, as we already mentioned, we've taken some actions in dealer.

Speaker Change: You know, a pocket of, you know, kind of projects that are out there that are just waiting for financing, you know, to come down to kind of kind of, kind of, stimulate demand.

Speaker Change: If a feedback we're getting is there's not a structural reduction in the man. It really is, consumers is kind of holding back and waiting on the sideline. I want to see what's going to play out.

Garik Shmois: Yeah, the first would be the comment earlier around surprising actions as necessary. So, as we already mentioned, we've taken some actions in dealer. If input costs continue to move in the other channels, we'll certainly be looking at conversations in those as well. So, continue to manage that. And then just overall operating efficiencies, our teams are focused on operational excellence, not just in the manufacturing side, but our service platform and new construction, managing SGNA spending wisely. We'll continue to do that despite the pullback and demand, and our goal is to manage that EBITM on number to the range it was provided. Understood. All right, thanks for all that. Okay, thank you.

Scott Culver: If input costs continue to move in the other channels, we'll certainly be looking at conversations in those as well. So, continue to manage that. And then just overall operating efficiencies, our teams are focused on operational excellence, not just in the manufacturing side, but our service platform and new construction, managing SGNA spending wisely. We'll continue to do that despite the pullback and demand, and our goal is to manage that EBITM on number to the range it was provided. Understood. All right, thanks for all that.

Speaker Change: with Rage.

Speaker Change: to some extent the election as well.

Speaker Change: and get on the other side of that, and as consumer confidence comes back, obviously folks you can want to look to invest in their health.

Scott Culver: Okay, thank you.

Speaker Change: We've seen the price appreciation. We've seen the value creation that folks have had and holding that asset.

Speaker Change: They're staying in a longer and that's going to create an upt to invest so we don't think there's a structural reduction in the man we think it's there

Speaker Change: In fact, our board being the last week, one of the analogies used him was a beach ball being held under water.

Speaker Change: and we used it to describe the demand environment perhaps for both new construction and every model and these macroeconomic factors are keeping an underwater, eventually those will dissipate and that'll come back and we just want to make sure that we're ready for that from a capacity and from a people standpoint.

Trevor Allinson: The next question will come from Trevor Allison with Wolf Research. Please go ahead. Hi, good morning. Thank you for taking my questions. First, you all mentioned some awards and stock kitchen and bath. It's going to benefit you guys. Can you provide some color on those? Perhaps how large of a benefit they could be? Is there any load in and what the timing looks like on those?

Speaker Change: and operating efficiency standpoint.

Speaker Change: Okay, okay, and then I guess when you think about, um,

Speaker Change: you know just kind of the expectations for share games kind of this fiscal year.

Trevor Allinson: Yeah, I don't want to get into the specifics around load in and maybe exact timing, but I'll just share with you that it's in our full year outlook that we just provided. It's some permanent placement on the kitchen side and then on the bath side, it's more of a promotional nature. So, roughly 30 million from a net standpoint and business annualized and starting to shift in the current. Corp. Okay, gotcha, that's very helpful.

Scott Culver: Yeah, I don't want to get into the specifics around load in and maybe exact timing, but I'll just share with you that it's in our full year outlook that we just provided. It's some permanent placement on the kitchen side and then on the bath side, it's more of a promotional nature. So, roughly 30 million from a net standpoint and business annualized and starting to shift in the current. Corp. Okay, gotcha, that's very helpful.

Speaker Change: has how has that tracked relative to kind of your initial expectations. I know you secured some wins, but I'm just kind of curious if there's the opportunity to exceed that or if things are kind of tracking as you expect it.

Speaker Change: I'd say at this point in time, our teams are tracking as we expect. We expected to have some wins and we've delivered all of those up to this particular point time.

Speaker Change: Okay, great. And then I guess the last thing just on on capital deployment, I mean you go search.

Trevor Allinson: And then, I want to follow up again on input cost trends. You've mentioned a few pieces of that, that inflationary, you've got some pricing going into the market. What are you guys assuming for input cost inflation embedded in your full year EBITDA guidance? We've seen some impacts in lumber, as well as particle board, more so recently on the particle board side, but labor is just going to always be an ongoing input cost increase as we push forward in the final mile.

Scott Culver: And then, I want to follow up again on input cost trends. You've mentioned a few pieces of that, that inflationary, you've got some pricing going into the market. What are you guys assuming for input cost inflation embedded in your full year EBITDA guidance? We've seen some impacts in lumber, as well as particle board, more so recently on the particle board side, but labor is just going to always be an ongoing input cost increase as we push forward in the final mile.

Speaker Change: We purchased probably close to 10% of your stock over the past five quarters. I mean, anything that would kind of change that trajectory, especially when you kind of look at some of those, you know, longer term targets that you have out there.

Speaker Change: Yeah, no, Jim, we remain very confident in the shared purchase program and efforts for our organization.

Jim: Okay, and that's another thing you're term that would change that to him.

Jim: Okay, thank you. Good luck and mercy, you guys.

Speaker Change: Thank you.

Trevor Allinson: We've got a good handle on what those have been trending. We've got those modeled in our outlook and then we've built in pricing as appropriate to be able to offset and mitigate to hit the EBITDA numbers.

Scott Culver: We've got a good handle on what those have been trending. We've got those modeled in our outlook and then we've built in pricing as appropriate to be able to offset and mitigate to hit the EBITDA numbers.

Speaker Change: Again, if you have a question, please press star, then one. Our next question will come from Catherine Thompson with Thompson Research Group. Please go ahead.

Catherine Thompson: Hi, thank you for taking my questions today. Great analogy on the beachfall from earlier in the call.

Scott Culver: Okay, great. And then one more quick one if I could. You guys previously had mentioned potentially being more aggressive with the new capacity you have available to win some share there. Can you provide more color on that? Is that more aggressive on pricing? Is that more marketing dollars? How exactly are you thinking about that? Not more aggressive on pricing and marketing dollars, but more aggressive and sharing our capability. You know, making sure the market understands and our customers understand the capacity we've got in our ability to serve at demand.

Catherine Thompson: I wanted to follow up on that tip of the man because it was...

Speaker Change: With our universe coverage we, what we're finding is the kind of the balance between

Speaker Change: Outdoor projects providing a greater return for homeowners, particularly in the wake of COVID versus kind of a traditional kitchen and bath.

Speaker Change: So there are some stats that some companies have to have bandied about about that, but based on your experience of based on what you're seeing in the market, have you seen any change in terms of the return metrics?

Scott Culver: So that's the focus and the energy as a reminder, you know, when we went through COVID and we saw such a large surge in demand, we really had difficulty keeping up with that. And we had issues around, you know, employment, et cetera, that was a barrier. So we invested despite, you know, a recent market downturn. We invested in capacity. We wanted to make sure we were ready to take advantage of demand when it comes back.

Speaker Change: for a kitchen remodel versus the outdoor, which has been so prevalent since COVID. Thank you.

Speaker Change: Thanks for the question, Katherine. I haven't seen anything that's pointed to a change in the return philosophy approach.

Scott Culver: So we've made that investment. We were ramping that investment up. So instead of our teams having to pull back on being aggressive in the marketplace on taking share, now we can turn them loose. So we've done that and we've had some success up to this point. Makes a lot of sense.

Speaker Change: for investing in the home as to how that may compare with the outdoor project. I guess I have a...

Speaker Change: I have a little model and I don't know so I've facts in front of me but I still think a large scale kitchen project is going to be more costly

Speaker Change: was an outdoor project in general, but the return metrics continue to be there for us. So either price points between the two can certainly influence an impacted demand trajectory, but I still think folks are passionate about that indoor space.

Trevor Allinson: All right. Thank you very much. Good luck moving forward.

Operator: Okay. Thank you.

Operator: Again, if you have a question, please press star then one.

Tim Woge: Our next question will come from Tim Woge with beard. Please go ahead, sir. Hey guys. Good morning. Thank you very much. Maybe just first question, Scott. I mean, as you talk to like the channel partners and your dealers, you know, just on the R&R environment. Do you feel or you get the feedback that this is just an interest rate situation at this point that there is, you know, some level of kind of deferred demand that's out there.

Speaker Change: Folks are passionate about hosting to your point some of that's moved outdoors, but the indoors is still going to be relevant and we think folks you're going to continue to want to beautify those spaces.

Speaker Change: Okay, great. And then in terms of share gains.

Speaker Change: What is a typical lifetime to win the financial benefit? You know, it's another word, you know, what historically has done the effect on your financials?

Tim Woge: That's just kind of waiting for lower interest rates or is there, is there something, is there something else? We're trying to understand if like there is a, you know, a pocket of, you know, kind of projects that are out there that are just waiting for financing, you know, to come down to kind of kind of stimulate demand. The feedback we're getting is there's not a structural reduction in demand. It really is consumers just kind of holding back and waiting on the sideline.

Speaker Change: So it would depend on the type of share gain when. So typically, you know, a new construction is going to be a longer lag. You're going to be awarded the business say for a particular community.

Speaker Change: and that community is going to have to be developed. So is the dirt already ready or starting to build etc. So it could be short to long depending on that specific project.

Tim Woge: They want to see what's going to play out with rates to some extent the election as well and get on the other side of that. And as consumer confidence comes back, obviously folks are going to want to look to invest in their home. We've seen the price appreciation. We've seen the value creation that folks have had and holding that asset. They're staying in them longer and that's going to create an opportunity to invest. So we don't think there's a structural reduction in demand. We think it's there.

Speaker Change: If you're converting an existing community that could be a little bit faster because you just simply need to change out the model home and then you could presumably start selling as the next customers come in and start making selections. In home centers, it's essentially the, you know,

Speaker Change: the shelf positions of a kitchen or bath.

Scott Culver: In fact, our board meeting last week, one of the analogies used to them was a beach ball being held underwater. And we used it to describe the demand environment perhaps for both new construction and remodel. And these macroeconomic factors are keeping an underwater eventually those will dissipate and that'll come come back. And we just want to make sure that we're ready for that from a capacity and from a people standpoint and operating efficiency, from Stanford.

Speaker Change: Again, it's going to depend on what their timeline is, when can they bring their store labor in to do a reset and a change out? So it can be upwards of a couple of quarters before you fully realize all the benefits associated with some choices and decisions that you're realizing.

Speaker Change: Okay finally in the color on the M&A market.

Speaker Change: Nothing specific to add there. I know we had a question around that last quarter that had been some activity. We shared our commentary at that particular point in time. Nothing that we're currently pursuing or looking at at this point in time.

Scott Culver: Okay. And then I guess when you think about, you know, just kind of the expectations for share gains kind of this fiscal year, how has that tracked relative to kind of your initial expectations? I know you secured some wins, but I'm just kind of curious if there's the opportunity to exceed that or things are kind of tracking as you expected. I'd say tracking as we expected. We expected to have some wins, and we delivered all of those after this particular point of time.

Speaker Change: Great, thanks very much.

Speaker Change: Okay, thank you.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Paul Joachimczyk for any closing remarks. Please go ahead, sir.

Paul Joachimczyk: Since there are no additional questions, this concludes our call, thank you all for taking the time to participate.

Paul Joachimczyk: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Scott Culver: Okay. Great. And then I guess the last thing just on on capital deployment. I mean, you guys have repurchased probably close to 10% of your stock over the past five quarters. I mean, anything that would kind of change that trajectory, especially when you kind of look at some of those longer term targets that you have out there. Yeah. No, Tim, we remain very confident in the shared purchase program and efforts for our organization. Okay. Yeah. Nothing your term that would change that, Tim. Okay. Sounds good. Good luck on the rest of you guys. Yeah. Thank you. Again, if you have a question, please press star, then one.

Speaker Change: Music Music

Katherine Thompson: Our next question will come from Katherine Thompson with Thompson Research Group. Please go ahead. Hi. Thank you for taking my questions today. Great analogy on the beach ball from earlier in the call. What did this fall the love on that temp up demand? Because with our universe coverage, what we're finding is the kind of the balance between outdoor projects, providing a greater return for homeowners, a particular way to COVID versus kind of your traditional kitchen and baths.

Tim Woge: Our next question will come from Katherine Thompson with Thompson Research Group. Please go ahead. Hi. Thank you for taking my questions today. Great analogy on the beach ball from earlier in the call. What did this fall the love on that temp up demand? Because with our universe coverage, what we're finding is the kind of the balance between outdoor projects, providing a greater return for homeowners, a particular way to COVID versus kind of your traditional kitchen and baths.

Speaker Change: [inaudible]

Katherine Thompson: And so there's some stats that some companies have bandied about that, but based on your experience of based on what you're seeing in the market, have you seen any change in terms of the return metrics for the kitchen remodel versus the outdoor, which has been so prevalent since COVID. Thank you. Yeah. Thanks for the question, Katherine. I haven't seen anything that's pointed to a change in the return philosophy or approach for investing in the home as to how that may compare with the outdoor project.

Tim Woge: And so there's some stats that some companies have bandied about that, but based on your experience of based on what you're seeing in the market, have you seen any change in terms of the return metrics for the kitchen remodel versus the outdoor, which has been so prevalent since COVID. Thank you. Yeah. Thanks for the question, Katherine. I haven't seen anything that's pointed to a change in the return philosophy or approach for investing in the home as to how that may compare with the outdoor project.

Katherine Thompson: I guess I have a, I have a middle model and I know this so I fax in front of me, but I still think a large scale kitchen project is going to be more costly than an outdoor project in general. But the return metrics continue to be there for us. So either price points between the two can certainly influence an impacted demand trajectory, but I still think folks are passionate about that indoor space. Folks are passionate about hosting to your point. Some of that's moved outdoors, but the indoors is still going to be relevant and we think folks are going to continue to want to beautify those spaces.

Tim Woge: I guess I have a, I have a middle model and I know this so I fax in front of me, but I still think a large scale kitchen project is going to be more costly than an outdoor project in general. But the return metrics continue to be there for us. So either price points between the two can certainly influence an impacted demand trajectory, but I still think folks are passionate about that indoor space. Folks are passionate about hosting to your point. Some of that's moved outdoors, but the indoors is still going to be relevant and we think folks are going to continue to want to beautify those spaces.

Kathryn Thompson: Okay, great.

Scott Culver: Okay, great. And then in terms of share gains, what is the typical lag time to win the financial benefit? You know, in some other words, you know, what it put historically has been the effect on your financials. So, it would depend on the type of share game win. So, typically, you know, a new construction, it's going to be a longer lag. You're going to be awarded the business save for a particular community, and that community is going to have to be developed.

Scott Culver: And then in terms of share gains, what is the typical lag time to win the financial benefit? You know, in some other words, you know, what it put historically has been the effect on your financials. So, it would depend on the type of share game win. So, typically, you know, a new construction, it's going to be a longer lag. You're going to be awarded the business save for a particular community, and that community is going to have to be developed.

Scott Culver: So, as the dirt already ready, you're starting to build, etc. So, it could be short to long depending on that specific project. If you're converting an existing community, that could be a little bit faster, because you just simply need to change out the model home. And then you could presumably start selling as the next customers come in and start making selections. In home centers, it's essentially the, you know, the shelf positions of kitchen or bath.

Scott Culver: Again, it's going to depend a bit on what their timeline is, when can they bring their store labor in to do a reset and a change out. So, it could be upwards of a couple of quarters before you fully realize all the benefits associated with some choices and decisions that you're realizing. Okay, finally, any color on the M&A market? Nothing specific to add there. I know we had a question around that last quarter. There have been some activity. We shared our commentary at that particular point in time. Nothing that we're currently pursuing or looking at at this point in time.

Kathryn Thompson: Okay, finally, any color on the M&A market? Nothing specific to add there. I know we had a question around that last quarter. There have been some activity. We shared our commentary at that particular point in time. Nothing that we're currently pursuing or looking at at this point in time.

Kathryn Thompson: Okay, great. Thanks very much. Okay, thank you.

Katherine Thompson: Okay, great. Thanks very much. Okay, thank you.

Operator: This concludes our question and answer session.

Paul Joachimczyk: I would like to turn the conference back over to Mr. Paul Johimchek for an closing remarks. Please go ahead, sir. Since there are no additional questions, this concludes our call. Thank you all for taking the time to participate. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.

Q1 2025 American Woodmark Corp Earnings Call

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