Q2 2025 American Woodmark Corp Earnings Call
Good day, everyone and welcome to the American Widmark Corporation's second fiscal quarter 2025 conference call.
Operator: Good day, everyone, and welcome to the American Woodmark Corporation's second fiscal quarter 2025 conference call. Today's call is being recorded November 26, 2024. During this call, the company may discuss certain non-GAAP financial measures included in our earnings release, such as adjusted net income, adjusted EBITDA, adjusted EBITDA margin, free cash flow, net leverage, and adjusted EPS per diluted share.
Speaker Change: Today's call is being recorded November 'twenty, six 'twenty 'twenty four.
Speaker Change: During this call the company May discuss certain non-GAAP financial measures included in our earnings release, such as adjusted net income.
Speaker Change: That EBITDA adjusted EBITDA margin free cash flow net leverage and adjusted EPS per diluted share.
Operator: The earnings release, which can be found on our website, AmericanWoodmark.com, includes definitions of each of these non-GAAP financial measures, the company's rationale for their usage, and the reconciliation of these non-GAAP financial measures to the most comparable non-GAAP financial measures.
Speaker Change: He was released which can be found on our website American would mark Dotcom includes definitions of each of these non-GAAP financial measures the company's rationale for their usage and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures.
We also use our website to publish other information that may be important to investors such as investor presentations.
Operator: We also use our website to publish other information that may be important to investors, such as investor presentations.
Speaker Change: We'll begin today's call by reading the company's Safe Harbor statement under the private Securities Litigation Reform Act of 1995.
Operator: We'll begin today's call by reading the company's Safe Harbor Statement under the Private Securities Litigation and 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 may be 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 statement. Such factors include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission, 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.
Speaker Change: All forward looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that may be beyond the company's control.
Speaker Change: Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward looking statements.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: I would now like to turn the call over to Paul to him Chet <unk> Senior Vice President and CFO. Please go ahead Sir.
Operator: I would now like to turn the call over to Paul Joachimczyk, Senior Vice President and CFO. Please go ahead, sir.
Paul Joachimczyk: Hey, good morning, and welcome to American Woodmark's second fiscal quarter conference call. Thank you for taking the time today to participate.
Speaker Change: Hey, good morning, and welcome to American would March 2nd fiscal quarter Conference call.
Speaker Change: Thank you for taking the time today to participate joy.
Paul Joachimczyk: Joining me is Scott Culberth, President and CEO. Scott will begin with a review of the quarter, and I will add additional details regarding our financial performance.
Joining me is Scott <unk>, President and CEO.
Speaker Change: That 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 Scott.
Paul Joachimczyk: After our comments, we'll be happy to answer your questions.
Scott Culberth: Thank you, Paul, and thanks to everyone for joining us today for our second fiscal quarter earnings call. Our teams delivered net sales of $452.5 million, representing a decline of 4.5% versus the prior year. is within line with the expectations we shared last quarter. The year-over-year decline was due to continued software demand in the remodel market, along with a slowdown in new construction single-family starts over the summer. Despite Fed rate cuts, mortgage rates are up 60 basis points from the low achieved in late September. which continues to put pressure on existing home sales and new construction activity.
Scott: Thank you Paul and thanks to everyone for joining us today for our second fiscal quarter earnings call.
Speaker Change: Our teams delivered net sales of 452 $5 million, representing a decline of four 5% versus the prior year.
Scott: This was in line with the expectations, we shared last quarter.
The year over year decline was due to continued softer demand in the remodel market along with a slowdown in new construction single family starts over the summer.
Despite fed rate cuts mortgage rates were up 60 basis points from the low achieved in late September.
Scott: Which continues to put pressure on existing home sales and new construction activity.
Scott: In addition sales of existing home sales failed to sell to a 14 year low last month in October According to the National Association of Realtors.
Scott Culberth: In addition, sales of existing home sales fell to a 14-year low last month in October. according to the National Association of Regal slowing the demand for remodels. Single-family housing starts comped positively in August and September. but declined in October due to a slowdown in the southeast that was impacted by weather. We believe that the Southeast will rebound in future months. and that the impacts from favorable starts activity should benefit cabinet installations in future quarters. Although net sales were negative for the quarter versus prior year, unit growth for the new construction channel was positive, but was more than offset by prices.
Scott: Knowing the demand for remodel projects.
Scott: Single family housing starts Comped positively in August and September but declined in October due to a slowdown in the southeast it was impacted by weather.
Scott: We believe that the southeast will rebound in future months and that the impacts from favorable starts activity should benefit cabinet installations in future quarters.
Scott: Although net sales were negative for the quarter versus prior year unit growth for the new construction channel was positive but was more than offset by price mix.
Scott: Our home center customers continued to be impacted by our interest rates and macroeconomic pressures that lead to weaker spending on projects.
Scott Culberth: Our home center customers continue to be impacted by our interest rates and macroeconomic pressures that lead to weaker spending on projects. This remains more significant for higher-priced discretionary projects, like kitchen and bath. We are not experiencing a loss of share with our customers and our teams remain focused on growing shared our account. Our belief is that as mortgage rates decline, consumer confidence increases, existing home sales increase, and the potential for home projects increase. This should serve as a tailwind for our business in the future. Our adjusted EBITDA results were $60.2 million, or 13.3% for the quarter.
Scott: This remains more significant for higher price discretionary projects like kitchen and Bath.
Scott: We are not experiencing a loss of share with our customers and our teams remain focused on growing share to our accounts.
Scott: Our belief is that as mortgage rates decline.
Tumor confidence increases existing home sales increase and the potential for home projects increases.
Scott: This should serve as a tailwind for our business in the future.
Our adjusted EBITDA results were $60 $2 million or 13, 3% for the quarter.
Scott Culberth: reported EPS was $1.79.
Scott: Ported EPS was $1 79.
Scott: Operational excellence improvements in SG&A spending benefits in the quarter were more than offset by lower sales restructuring cost to rightsize, our operations debt refinancing cost and a mark to market interest for peso hedging that Paul will cover in his remarks.
Scott Culberth: Operational excellence improvements and SG&A spending benefits in the quarter are more than offset by lower sales, restructuring costs to right-size our operation. debt refinancing costs, and a mark-to-market entry for peso hedging that Paul will cover in his remarks. Our cash balance was $56.7 million at the end of the second fiscal quarter. And the company has access to an additional $313.2 million under its revolving credits. Leverage was at 1.4 times adjusted EBITDA, and the company repurchased 349,000 shares, or 2.3% of shares outstanding, in the quarter. Our teams did an excellent job of refinancing the company's debt with a slight increase to our interest rate exposure.
Scott: Our cash balance was $56 $7 million at the end of the second fiscal quarter and.
The company has access to an additional $313 $2 million under its revolving credit facility.
Scott: Leverage was at one four times adjusted EBITDA in the company repurchased 349000 shares or two 3% of shares outstanding in the quarter.
Our teams did an excellent job of refinancing the company's debt with a slight increase to our interest rate exposure.
Scott: Our outlook for the industry in fiscal year 'twenty five assumes the repair remodel market will be down mid single digits and new construction to be up low single digits.
Scott Culberth: Our outlook for the industry in fiscal year 25 assumes the repair and remodel market will be down mid-single digits and new construction to be up below a single digit. Within R&R, larger discretionary projects will trend worse than the overall market and are projected to be down high single digit. Our expectation for the company's net sales is unchanged at a low single-digit decrease versus fiscal year 2000. The adjusted EBITDA expectations are targeted in the range of $225 million to $235 million.
Scott: Within R&R larger discretionary projects will trend worse than the overall market.
Scott: Projected to be down high single digits.
Scott: Our expectation for the Companys net sales is unchanged at a low single digit decrease versus fiscal year 2024.
Scott: Adjusted EBITDA expectations are targeted in the range of 225 million to $235 million.
Scott: Our team continues to execute our strategy that has three main pillars growth.
Scott Culberth: Our team continues to execute our strategy that has three main pillars, growth, Digital Transformation, and Platform Design, with a number of key accomplishments over the past quarter. conversion activity continues with our distribution business is almost 80% of customers have moved to our new brand 1951 cabinet Our teams are also actively pursuing a number of new accounts within the channel. Load-ins are almost complete for the stock bath and kitchen winds I shared last quarter. Digital transformation efforts continue with our teams optimizing the use of Salesforce for our sales teams and completing the planning for our ERP go live at our West Coast made stock facility next year.
Scott: Digital transformation and platform design with a number of key accomplishments over the past quarter.
Scott: Conversion activity continues with our distribution business is almost 80% of customers have moved to our new brand <unk> 1951 cabinetry.
Scott: Our teams are also actively pursuing a number of new accounts within the channel.
Scott: Load ins or almost complete for the stock Bath and kitchen wins I shared last quarter.
Digital transformation efforts continue with our teams to optimizing the use of Salesforce for our sales teams and completing the planning for our ERP go live in our West Coast made stock facility next year.
Scott: Yeah.
Scott Culberth: Platform design work continues with the continued ramp of our Monterey, Mexico, and Hamlet, North Carolina facilities, and automation efforts are progressing well in our mill, component, and assembly operations.
Scott: Platform design work continues with the continued ramp of our Monterrey, Mexico in hamlet North Carolina facilities.
And automation efforts are progressing well and our mill component and assembly operations.
Scott Culberth: In closing, I'm proud of what this team accomplished in the second fiscal quarter and look forward to their continuing contributions during FY25.
In closing I'm proud of what this team accomplished in the second fiscal quarter and look forward to their continued contributions during fiscal year 'twenty five.
Paul Joachimczyk: I'll now 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 second quarter results and then provide our outlook for the rest of the fiscal year. Net sales were $452.5 million, representing a decrease of $21.4 million, or 4.5% versus the prior year. We believe the long-term fundamentals of the housing industry are still sound, but they are currently dampened by persistently high interest rates and lower consumer costs. This led to the continued softness in the large ticket purchases, primarily impacting our remodeling.
Paul: I'll now turn the call back over to Paul for additional details on the financial results for the quarter.
Paul: Thank you Scott I'll begin by discussing our second quarter results and then provide our outlook for the rest of the fiscal year.
Paul: Net sales were $452 5 million, representing a decrease of $21 4 million or four 5% versus the prior year.
Paul: We believe the long term fundamentals of the housing industry are still sound, but there are currently dampened by persistently high interest rates and lower consumer confidence.
Paul: This led to the continued softness in the large ticket purchases primarily impacting our remodel business.
Paul Joachimczyk: Gross profit as a percent of net sales for the second quarter decreased 290 basis points to 18.9% versus 21.8% reported last year. Lower sales volumes impacting our manufacturer leverage in our facilities combined with increasing product input costs around raw materials, labor, and customer freight. However, these impacts were partially offset by our sustained operating excellence efforts. Operating expenses excluding any restructuring charges were 9.3% of net sales versus 12.2% last year. A $290 basis point decrease is due to the roll-off of our acquisition-related intangible amortization that ended in December 2023, lower incentive compensation, and controlled spending across all functions offset by our lower savings.
Paul: Gross profit as a percent of net sales for the second quarter decreased 290 basis points to 18, 9% versus 21, 8% reported last year.
Paul: Lower sales volumes impacting our manufacturer leverage in our facilities combined with increasing product input costs around raw materials labor and customer freight rates. However, these impacts were partially offset by our sustained operating excellence efforts.
Paul: Operating expenses, including excluding any restructuring charges were nine 3% of net sales versus 12, 2% last year.
Paul: 290 basis point decrease is due to the roll off of our acquisition related intangible amortization that ended in December 2023, lower incentive compensation and controlled spending across all functions offset by our lower sales.
Paul: Adjusted net income was $32 million or $2 eight per diluted share in the second quarter versus $41 1 million or $2.50 per diluted share last year.
Paul Joachimczyk: Adjusted net income was $32 million, or $2.08 per diluted share in the second quarter, versus $41.1 million, or $2.50 per diluted share last year. Within this quarter, we changed our definition of adjusted EPS to exclude the mark-to-market adjustments on our foreign currency hedging to be in line with our industry and match our adjusted EBITDA definition for exclusion. Adjusted EBITDA was 60.2 million or 13.3% of net sales versus 72.3 million or 15.3% of net sales last year, representing a 200 basis point decline year over year. Pre-cash flow totaled a positive $30.1 million for the current fiscal year to date, compared to $109.9 million in the prior year.
Paul: Within this quarter, we changed our definition of adjusted EPS to exclude the mark to market adjustments on our foreign currency hedging to be in line with our industry and match, our adjusted EBIT of definition for exclusions.
Adjusted EBITDA was $60 2 million or 13, 3% of net sales versus $72 3 million or 15, 3% of net sales last year, representing a 200 basis point decline year over year.
Paul: Free cash flow totaled a positive $30 1 million for the current fiscal year to date compared to $109 9 million in the prior year.
Paul Joachimczyk: The $79.8 million decrease was primarily due to changes in our operating cash flows, specifically higher inventory and lower accrued expense balances. Net leverage was 1.4 times adjusted EBITDA at the end of the second quarter compared with 1.05 times last year.
Paul: The $79 8 million decrease was primarily due to changes in our operating cash flows specifically higher inventory and low to lower accrued expense balances.
Paul: Yeah.
Paul: Net leverage was one four times adjusted EBITDA at the end of the second quarter compared with 1.05 times last year.
Paul Joachimczyk: Please note that we entered into a new senior secure debt facility on October 10th, 2024. The new agreement provides for a $500 million revolving loan facility and a $200 million term loan. As of October 31, 2024, the company had $56.7 million in cash, plus access to $313.2 million of additional availability under its revolving Under the current share repurchase program, the company purchased 56.5 million, or 620,000 shares in the first half of the fiscal year, representing about 4.1% of the outstanding shares being retired. We have $33 million of share repurchase authorization remaining on our old authorization, plus an additional $125 million that the board approved this quarter.
Paul: Please note that we entered into a new senior secured debt facility on October 10th 2024.
The new agreement provides for 500 million revolving loan facility and a $200 million term loan facility.
Paul: As of October 31, 2024, the company had $56 7 million in cash plus access to $313 2 million of additional availability under its revolving facility.
Paul: Under the current share repurchase program the company purchased $56 5 million or 620000 shares in the first half of the fiscal year, representing about four 1% of the outstanding shares being retired.
We have $33 million of share repurchase authorization remaining on our old authorization plus an additional $125 million that the board approved this quarter.
Paul: Our outlook for fiscal year 2025 remains unchanged net sales are expected to be down low single digits versus fiscal year 2024.
Paul Joachimczyk: Our outlook for fiscal year 2025 remains unchanged. Net sales are expected to be down low single digits versus fiscal year 2024. Really reiterating what Scott said before, this assumes the repair remodel market will be down mid single digits. A new construction will be up low sink digits. This is a result of the software repair and remodel market and decline in larger ticket remodel purchases across the retailers, partially offset by continued growth in new construction during the back half of the year.
Speaker Change: Reiterating what Scott said before this assumes the repair remodel market will be down mid single digits.
Speaker Change: New construction will be up low single digits.
Speaker Change: This is a result of the softer repair and remodel market and a decline in larger ticket remodel purchases across the retailers, partially offset by continued growth in new construction during the back half of the year.
Paul Joachimczyk: Although we don't provide quarterly guidance, I did want to remind you that our Q3 sales are impacted by fewer sales days within the quarter due to the number of holidays that fall within, and will be the lowest sales quarter of the fiscal year. However, these assumptions are highly dependent upon overall industry, economic growth trends, material constraints, labor impacts, interest rates, and consumer behavior. Our projected EBITDA margin for fiscal year 2025 is being revised to a target range of $225 million to $235 million. driven primarily by sales volumes retracting and the increased manufacturing leverage of our facilities.
Speaker Change: Although we don't provide quarterly guidance I did want to remind you that our Q3 sales are impacted by fewer sales days within the quarter due to the number of holidays that fall within and will be the lowest sales quarter of the fiscal year.
Speaker Change: However, these assumptions are highly dependent upon overall industry economic growth trends material constraints labor impacts interest rates and consumer behaviors.
Speaker Change: Our projected EBITDA margin for fiscal year, 2025 is being revised to a targeted range of $225 million to $235 million.
Speaker Change: Driven primarily by sales volumes retracting and the increased manufacturing deleverage of our facilities.
Paul Joachimczyk: We evaluate our pricing monthly and will continue to do so on an on-going basis to mitigate our inflationary impacts on logistics, raw materials, and labor. Our capital allocation priorities for fiscal year 2025 remain unchanged. We'll first be focused on investing back into the business by continuing our path for our digital transformation with investments in ERP and investing in automation. Next, we'll continue our share repurchasing, and lastly, with our debt agreement in place and the leverage ratio we want to achieve, debt repayments will be deprioritized.
Speaker Change: We evaluate our monthly pricing monthly and we will continue to do so on a go forward basis to mitigate the inflationary impact on logistics raw materials and labor.
Speaker Change: Our capital allocation priorities for fiscal year 2025 remain unchanged.
Speaker Change: We will first be focused on investing back into the business by continuing our path for our digital transformation with investments in ERP and investing in automation.
Next we will continue our share repurchasing and lastly, with our debt agreement in place and our leverage ratio, we want to achieve debt repayments will be de prioritized.
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 plus have helped us mitigate the volume declines affecting the broader repair and remodel industry.
Paul Joachimczyk: 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 plus have helped us mitigate the volume declines affecting the broader repair and remodel industry. I'm excited with the investments that we are making in automation that will drive future operational efficiencies and enable our long-term targets from both a growth and margin perspective. The long-term thesis in the housing market is still very strong and will be positioned nicely when it recovers.
Speaker Change: I am excited with the investments that we're making in automation that will drive future operational efficiencies and enable our long term targets from both a growth and margin perspective.
The long term thesis in the housing market is still very strong and we will be positioned us nicely when it recovers.
Paul Joachimczyk: This concludes our prepared remarks. We'll be happy to answer any questions you have at this time.
Speaker Change: This concludes our prepared remarks, we'll be happy to answer any questions you have at this time.
Speaker Change: Ladies and gentlemen at this time well begin the question and answer session to ask a question you May Press Star and then one using a touchtone telephone and.
Operator: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then 1 using a touch-tone telephone. To withdraw your question, you may press star and 2.
Speaker Change: I would draw your question you May press Star two.
Operator: If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the numbers to ensure the best sound quality. Once again, that is star and then one to join the question. We'll pause momentarily to assemble the roster.
If you are using a speakerphone you ask you please pick up the handset prior to pressing the numbers to ensure the best sound quality.
Once again that is star and then one to join the question queue.
Speaker Change: We will pause momentarily to assemble the roster.
Speaker Change: Our first question today comes from Trevor Allinson from Wolfe Research. Please go ahead with your question.
Trevor Allinson: Our first question today comes from Trevor Allinson from Wolfe Research. Please go ahead with your question.
Trevor Allinson: Hey, good morning, Thanks for taking my questions first just given the post from Trump last night, calling for 25% tariffs on all imports from Mexico can you guys quantify your supply chain exposure to Mexico appreciating as of a couple of facilities there.
Scott Culberth: Hey, good morning. Thank you for taking my questions. First, just given the post from Trump last night calling for 25% tariffs on all imports from Mexico, can you guys quantify your supply chain exposure to Mexico? I appreciate you guys have a couple facilities there.
Yes, Trevor I guess I'd start by just saying, there's a lot of uncertainty regarding future policies on tariffs.
Scott Culberth: Yeah, Trevor, I guess I'd start by just saying there's a lot of uncertainty regarding future policies on tariffs. And, you know, quite frankly, it could be a daily or weekly tweet that could change the tone on that. Looking back, I guess I'd point to the focus previously on Chinese imports. Our sourcing team was able to significantly reduce our exposure for those purchases over the last five years. And the other potential import exposures, whether it's Mexico or Canada now, that are recently noted, I would say that our teams have adapted to any kind of tariff or regulatory change that's come our way.
Trevor Allinson: Quite frankly, it could be a daily or weekly tweet that could change the tone on that.
Trevor Allinson: Looking back I guess I'd point to focus previously on Chinese imports are sourcing team.
Trevor Allinson: Was able to significantly reduce our exposure for those purchases over the last five years.
Trevor Allinson: And the other potential import exposures, whether it's Mexico or Canada now that our note recently noted.
Trevor Allinson: I would say that our teams have adapted to.
Any kind of tariff or regulatory change that would come our way and our belief is that.
Scott Culberth: And our belief is that whatever the final policy is that's put in place, our teams will be able to make the adjustments necessary to be able to mitigate that. That could look like resourcing and shifting things to other markets. It could also lead to potential price impacts in the marketplace. Those could be off.
Trevor Allinson: Whatever the final policy is that put in place our teams will be able to make the adjustments necessary to be able to mitigate that that could look like resourcing and shifting things to other markets.
Trevor Allinson: It could also lead to potential price impacts in the marketplace that could be offset.
Speaker Change: Yes. It makes a lot of sense I. Appreciate there is still a lot of uncertainty about what actually ends up happening.
Trevor Allinson: Yeah, it makes a lot of sense. I appreciate there's still a lot of uncertainty about what actually ends up happening.
Speaker Change: Second question then on the last call you'd indicated you announced a price increase in your dealer channel. It's typically the first channel to get pricing for you guys. In your prepared remarks today, you talked about reviewing your pricing monthly have you guys announced any incremental pricing and any other channels. In addition to the dealer channel. Thanks.
Trevor Allinson: Second question then, on the last call, you had indicated you announced a price increase in your dealer channel.
Trevor Allinson: It's typically the first channel to get pricing for you guys. In your prepared remarks today, you talked about reviewing your pricing monthly. Have you guys announced any incremental pricing in any other channels in addition to the dealer channel?
Scott Culberth: Yeah, nothing additional at this point in time.
Speaker Change: Yes, nothing additional at this point in time, you are right, we did announced last quarter an increase in the dealer channel that went effective 10, one so thats in place.
Scott Culberth: You're right, we did announce last quarter, an increase in the dealer channel that went effective 10-1. So that's in place.
Scott Culberth: As Paul mentioned, we evaluate all of our input costs on a monthly basis. And once those reach what we believe is an appropriate trigger point, we would start negotiations and actions in those channels. Keep in mind that it depends on the channel and the timeframe as to when we had our last increase and when a future increase may be necessary.
Speaker Change: As Paul mentioned, we evaluate all of our input cost on a monthly basis.
Speaker Change: And once those reach what we believe is an appropriate trigger point, we would start negotiations and actions in those channels keep in mind that it depends on the channel and the timeframe as to when we had our last increase and when a future increase may be necessary.
Speaker Change: Appreciate all the color and good luck moving forward.
Trevor Allinson: Appreciate all the color. Good luck moving forward.
Scott Culberth: Thanks, Trevor.
Speaker Change: Thanks Robert.
Speaker Change: Our next question comes from Derek <unk> from Loop capital markets. Please go ahead with your question.
Garik Shmois: Our next question comes from Garik Shmois from Loop Capital Markets.
Scott Culberth: Please go ahead with your question. Oh, hi, thanks. First question is just on the sales outlook. It looks like you kept your view of low single digit sales declines for the fiscal year. But you know, if you're looking at your end market commentary, if I remember correctly, I think you did moderate some of your new construction observations. So just wondering kind of what the offset is in the maintained sales guidance. Is it maybe stronger, stronger share gains or, you know, fully big pricing actions? Just any additional color would be great.
Oh, hi, Thanks first.
Speaker Change: First question is just on the sales outlook it looks like you kept.
Speaker Change: Your view of low single digit sales declines for the fiscal year, but if youre looking at Europe.
Speaker Change: End market commentary.
Speaker Change: So I remember correctly I think you did moderate some of your new construction.
Speaker Change: Observations, so just wondering kind of what the offset is.
Speaker Change: The maintained guidance.
Speaker Change: Well, maybe stronger stronger share gains are fully baked pricing actions just any additional color would be great.
Sure when you look at the second half versus the first half we do expect better performance from a sales comp standpoint, why would that be you just hit one of the points are pricing clearly in the dealer channel would be.
Scott Culberth: Sure, when you look at the second half versus the first half, we do expect better performance from a sales comp standpoint. Why would that be? You just hit one of the points. Pricing clearly in the dealer channel would be tailwind as we go into the second half. The other areas that I would look at is the stock, kitchen, and bath business. We had signaled last quarter some wins there, that that will benefit our second half. We only got some partial benefit for that in the first half of the year. And then the other one I would point to is in our made-to-order business specifically, our home center business.
Speaker Change: A tailwind as we go into the second half the other areas that I would look at is the stock kitchen, and Bath business, we had signaled last quarter. Some wins there that that will benefit our second half we only got some partial benefit for that in the first half of the year and then the other one I would point to is in our made to order business specifically.
Speaker Change: Our home center business, we do have.
Scott Culberth: We do have easier comps in the back half than we experienced in the first half.
Speaker Change: Easier comps in the back half than we experienced in the first half so that goes into our guidance outlook for the year.
Scott Culberth: So that goes into our guidance out there.
Garik Shmois: Okay, that's helpful.
Speaker Change: Okay. That's helpful and then I guess.
Scott Culberth: And then I guess, you know, tariffs aside, but I was wondering if you could speak to what you're seeing on the cost side for the second half of the year. Yeah, we had mentioned last quarter that we were seeing some increases in particle board. That continues. Paul's planned remarks, he shared continued increases in labor and final mile delivery specifically as a call out. So we continue to see input costs move in those particular areas. I think liner board would be the other one I'd call out where we've seen some recent inflation.
Speaker Change: Tariffs aside but I was wondering if you could speak to what you're seeing on the cost side for the supplemental here.
Speaker Change: Yeah, We had mentioned last quarter that we were seeing some increases in particle board back continues Paul's planned remarks. He shared continued increases in labor and final mile delivery, specifically as a call out so we continue to see input cost.
Speaker Change: Move in those particular areas I think linerboard would be the other one I'd call out where we've seen some recent inflation.
Garik Shmois: Okay, very good. Thanks for the helpful testimony.
Speaker Change: Okay very good.
Speaker Change: For the help I'll pass it up okay.
Scott Culberth: Okay, thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Steven Ramsey: Our next question comes from Steven Ramsey from Thompson Research Group. Please go ahead with your question.
Speaker Change: Our next question comes from Steven Ramsey from Thompson Research Group. Please go ahead with your question.
Speaker Change: Hi, good morning.
Scott Culberth: Hi, good morning. I was looking at trailing 12-month sales in the last few quarters, hovering in that $1.8 billion range in the midst of the market, as you said, incrementally weakening or staying weak despite rates. I'm curious if you kind of look at this zone of sales as a bottoming, or are you pontificating on any incremental risks or issues that could pressure it further aside from the macro, or do you think it's pretty macro-driven at this point? I still think it's pretty macro-driven. You had a lot baked into that remark. Could there be other things that perhaps could negatively impact even our outlook?
Speaker Change: Looking at trailing 12 month sales in the last few quarters hovering in that $1 $8 billion range in the midst of the market as you said incrementally weakening or staying weak despite rates I'm curious if you kind of look at this zone of sales.
Speaker Change: As a bottoming are pontificating on.
Speaker Change: Any incremental risks or issues that could pressure. It further aside from the macro or do you think it's pretty macro driven at this point.
Speaker Change: I still think it's pretty macro driven.
Speaker Change: You had a lot baked into that remark could there be other things that perhaps could negatively impact even our outlook certainly there are we've gotten past the election. So for quite some time there was a lot of uncertainty as it relates to that now that we've gotten past that now theres policy uncertainty. So what specifically do we expect to see with tariffs we've already <unk>.
Scott Culberth: Certainly there are. We've gotten past the election, so for quite some time there was a lot of uncertainty as it relates to that. Now that we've gotten past that, now there's policy uncertainty. So what specifically do we expect to see with tariffs? We've already remarked a couple of times on that in this call. Government policies and what that means with respect to employment, especially our overall industry of building products and home building. So there are some variables out there that we're not exactly sure what the policy mandates will be and what those will do from an impact on consumers and consumer spending.
Speaker Change: A couple of times on that in this call immigration policies and what that means with respect to employment, especially our overall industry of of building products in homebuilding. So there are some variables out there that we're not exactly sure what the policy mandates will be and what those will do from from an impact on consumers and consumers.
Speaker Change: <unk> spending.
Speaker Change: Okay. That's helpful. And then secondly was thinking.
Steven Ramsey: Okay, that's helpful.
Steven Ramsey: And then secondly, was thinking about volume sales down four and a half percent. You've got some better pricing flowing through in the dealer channel.
Speaker Change: About volume sales now at four 5%, you've got some better pricing flowing through in the dealer channel.
Scott Culberth: I'm curious a little bit on retail promotions in the quarter and expectations for the second half, all trying to get a directional sense of how you expect volumes to unfold in the second half. Yeah, the good news on the promos, we continue to see, you know, consistent activity and behavior with prior years. So we've not seen any substantial, you know, ramp up in promotional activity nor decline. It's been pretty consistent year over year. So don't expect any additional impacts there.
Speaker Change: I'm curious a little bit on retail promotions in the quarter and expectations for the second half all trying to get a directional sense of how you expect volumes to unfold in the second half.
Speaker Change: Yes, the good news on the promos, we continue to see consistent activity and behavior of the prior year. So we've not seen any substantial ramp up in promotional activity, nor a decline thats been pretty consistent year over year. So don't expect any additional impacts there.
Speaker Change: Great. Thank you.
Steven Ramsey: Great, thank you.
Speaker Change: And once again, if you would like to ask a question. Please press star and then one using a touchtone telephone.
Operator: And once again, if you would like to ask a question, please press star and then 1 using a touchtone telephone.
Adam Baumgarten: Our next question comes from Adam Baumgarten from Zellman, please go ahead with your question. Hey, good morning, everyone.
Speaker Change: Our next question comes from Adam Baumgarten from Zelman. Please go ahead with your question.
Adam Baumgarten: Hey, good morning, everyone.
Adam Baumgarten: Just curious in the quarter sales down four and a half percent.
Adam Baumgarten: Curious in the quarter sales down four 5%, maybe if you could break that out by the three main channels that you guys Sir.
Scott Culberth: Maybe if you could break that out by the three main channels that you guys serve. Yeah, I don't have the breakout, Adam, for each of the channels. I'll just tell you each of the channels were down in the period.
Speaker Change: Yeah, I don't have the breakdown Adam for each of the channels I would just tell you each of the channels were down in the period. The one thing that I did have a specific note on was new construction unit growth.
Scott Culberth: The one thing that I did have a specific note on was new construction unit growth in the quarter, but price mixed, you know, shifted it just a slightly negative for the quarter. So units were up and new construction, but price mix was down? Correct. Got it. Okay.
Speaker Change: In the quarter, but price mix shifting to just to slightly negative for the quarter.
Speaker Change: So units are up in new construction, but price mix was down.
Speaker Change: Correct.
Speaker Change: Got it Okay, and then just thinking about the maintained guidance implies kind of flattish trends in the back half of the year I think Scott you mentioned some of the tailwind I guess does that outlook assume a continuation of the current trends youre seeing across end markets are you, assuming some kind of pick up outside of the easier comparisons.
Adam Baumgarten: And then just thinking about the maintained guidance implies kind of flattish trends in the back half of the year. I think, Scott, you mentioned some of the tailwinds.
Scott Culberth: I guess, does that outlook assume a continuation of the current trends you're seeing across end markets? Or are you assuming some kind of pickup outside of the easier comparison? Yeah, we're not assuming any kind of major macro improvement or any, you know, substantial change in rates that would lead to to an increase in consumer demand. So kind of steady as it goes with this most recent quarter outlook as we think about the next OK, got it.
Speaker Change: We're not assuming any kind of major macro improvement or any substantial change in rates that would lead to an increase in consumer demand so kind of steady as it goes with this most recent quarter outlook as we think about the next two quarters.
Speaker Change: Got it thanks best of luck.
Adam Baumgarten: Thanks a lot.
Speaker Change: Yeah.
And again, if you would like to ask a question. Please press star and one on.
Operator: And again, if you would like to ask a question, please press star and 1.
Tim Woos: Our next question comes from Tim Woos from Baird. Please go ahead with your question.
Our next question comes from Tim <unk> from Baird. Please go ahead with your question.
Speaker Change: Hey, guys good morning.
Tim Woos: Hey guys, good morning. Hey, good morning. Hey, maybe just kind of on that last question, Scott, I guess when you're thinking about low single digits, you know, down for the year, I guess there's a little bit of a range there. But would you expect the top line to kind of turn back positive, at least as you kind of get into the fourth quarter? You know, this fiscal year, just just given the comps and kind of the implications in the guide? I think it's too early for me to declare that I'll absolutely go positive. I think we modeled still down slightly in Q4.
Speaker Change: Hey, good morning.
Speaker Change: Hey, maybe just kind of on that last question Scott.
Speaker Change: I guess, when you're thinking about low single digits down for the year I guess, there's a little bit of a range there but.
Speaker Change: Would you expect the top line to kind of turn back positive at least as you kind of get into the fourth quarter.
Speaker Change: This fiscal year, just just given the comps and kind of the implications in the guide.
Speaker Change: I think it's too early for me to declare that will absolutely go positive I think we modeled still down slightly in Q4, I think we need to get through some of these policy positions at the start of the calendar year and then see what the fed actions are here in December and into January before we would get.
Scott Culberth: I think we need to get through some of these policy positions at the start of the calendar year and then see what the Fed actions are here in December and into January before we would get, you know, to a point of claiming that we'll go positive in that quarter.
Speaker Change: To a point of claiming that will go positive in that quarter, certainly as we think about 'twenty six our view is 26 should be a positive growth year for the business fiscal year 'twenty six.
Scott Culberth: Certainly, as we think about 26, you know, our view is, you know, 26 should be a positive growth year for the business, fiscal year 26. Okay, okay.
Speaker Change: Okay, Okay and then the.
Tim Woos: And is the kind of tweak lower on the EBITDA guide? I mean, is that just a little lower volume?
Speaker Change: The kind of tweak lower on the EBITDA guide.
Speaker Change: Is that just a little lower volume is it price cost or just what's the I guess what are the drivers of kind of that modest reduction in EBITDA and EBITDA kind of midpoint, yes.
Scott Culberth: Is it price cost of just what's the, I guess, what are the drivers of kind of that modest production in the EBITDA kind of midpoint? Yeah, we wanted to tighten it up now that we're halfway through the year. We've got better line of sight as to where we see overall performance. To your point, you know, specifically with some of the inflationary impacts, you know, some of those picked up on us inside the last quarter, and then the volume impacts overall. So as we modeled that out, we said, look, let's tighten this up. This is a better range as to being, you know, a $20 million spread for just half a year over.
Speaker Change: Yes, we wanted to tighten it up now that we're halfway through the year, we've got better line of sight as to where we see overall performance to your point, specifically with some of the inflationary impacts some of those picked up on us inside the last quarter.
Speaker Change: The volume impacts overall, so as we model that out we said look what's tighten. This up this is a better range as to being a $20 million spread for just half a year open.
Tim Woos: Okay, okay, good.
Okay, Okay, great and then any any idea or any kind of guidance on free cash flow expectations, maybe relative to just EBITDA for the year.
Tim Woos: And then any, any idea or any kind of kind of guidance on on free cash flow expectations, maybe relative to just EBITDA, you know, for the year? Yeah, Tim, on the free cash flows relative to it, we'll be consistent with how we perform. We're still repurchasing. So we've got a lot of excess cash that's out there. We will have constraints around our inventory. You saw the pressures there. Along with the port strikes and the Chinese New Year, we wanted to make sure we had all the available goods that are out there. So if anything, we have just a little bit of pressure on our working capital related to inventory that's out Okay, okay.
Speaker Change: Yes, Tim on the free cash flows relative to it will be consistent with what how we performed were still repurchasing. So we've got a lot of I'll call it excess cash thats out there.
Speaker Change: We'll have constraints around our inventory solid pressures there along with the port strikes and the Chinese new year, we wanted to make sure. We have all the available goods that are out there. So if anything we have just a little bit of pressure on our working capital related to inventory that's out there.
Speaker Change: Okay. Okay, and then just the last one did you guys experience any kind of new construct.
Scott Culberth: And then just the last one, did you guys experience any kind of new construction or hurricane impacts in the new construction business in the southeast in the in the second quarter? Yeah, we saw some impacts there. Certainly, there were some down days where we weren't able to actively get out to the job sites. We typically make those up with weekends and overtime.
Speaker Change: Hurricane impacts in the new construction business in the southeast and in the second quarter.
Speaker Change: Yes, we saw some impacts there certainly there were some down days, where we weren't able to actively get out to the job sites. We typically make those up with with weekends and overtime I think the question maybe to explore is do we expect to see any benefit going forward for that specifically around new construction no.
Scott Culberth: I think the question maybe to explore is do we expect to see any benefit going forward for that? Specifically around new construction, no. It's just a timing issue. But when we think about our stock kitchen business, sometimes we'll see a little bit of benefit for that. The stores in which we had the largest impact with respect to the hurricanes, we work with our customers to make sure we've got the appropriate inventory levels there in case there is an increase in demand. But we don't expect anything material to impact our Q3.
Speaker Change: As a timing issue but.
Speaker Change: But when we think about our stock kitchen business, sometimes we will see a little bit of benefit for that.
Speaker Change: The stores in which we had the largest impact with respect to the Hurricanes, we work with our customers to make sure. We've got the appropriate inventory levels. There in case, there is an increase in demand, but we don't expect anything materially material to impact our Q3.
Tim Woos: Okay, okay, sounds good.
Speaker Change: Okay.
Speaker Change: Okay sounds good thanks, guys for the time.
Tim Woos: Thanks guys for the time.
Scott Culberth: Thanks, Tim.
Speaker Change: Thanks, Tim.
Okay.
Paul Joachimczyk: And ladies and gentlemen, at this time, in seeing no additional questions, I'd like to turn the floor back over to Mr. Joachimczyk for closing comments.
Speaker Change: And ladies and gentlemen at this time I'm seeing no additional questions I'd like to turn the floor back over to Michigan <unk>.
Paul Joachimczyk: Please go ahead, sir.
Speaker Change: Those comments. Please go ahead sir.
Speaker Change: Thank you again this concludes our conference for today and we thank you for your participation.
Paul Joachimczyk: Thank you again.
Operator: This concludes our conference for today, and we thank you for your participation.
Speaker Change: Yeah.
Speaker Change: And ladies and gentlemen, with that we'll be concluding today's conference call and presentation. We do thank you for joining you may now disconnect your lines.
Operator: And ladies and gentlemen, with that, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Speaker Change: Okay.