AMERICAN WOODMARK CORP Q2 FY2025 earnings call

Key Points

• Net sales of $452.5M, down 4.5% due to softer remodel market and slow new construction.
• Unit growth in new construction channel but offset by price mix; home center customers impacted by weaker spending on higher-priced projects.
• Operational excellence efforts and SG&A spending benefits offset by lower sales, restructuring costs, debt refinancing costs, and peso hedging mark-to-market.

Accomplishments

• 80% of distribution customers moved to new brand 1951 Cabinetry.
• Load-ins for stock bath and kitchen wins near completion.
• Digital transformation: Salesforce optimization and ERP planning for West Coast facility.
• Platform design: Ramp of Monterrey, Mexico, and Hamlet, NC facilities; automation progress in mill component assembly.

Net sales were $452.5 million, a decline of 4.5% year-over-year. Gross profit as a percent of net sales decreased to 18.9% from 21.8% the prior year. Adjusted EBITDA was $60.2 million, or 13.3% of net sales, down from $72.3 million, or 15.3% last year. Free cash flow totaled $30.1 million YTD compared to $109.9 million prior year. New construction channel had unit growth but was offset by price mix.

Financial Outlook

• Net sales expected to be low single-digit decrease vs fiscal 2024.
• Repair and remodel market down mid-single digits, new construction up low single digits.
• Adjusted EBITDA target range $225M to $235M, revised due to sales volumes retracting and manufacturing deleverage.

Capital Allocation

• Priorities: Invest in digital transformation and automation, continue share repurchasing, deprioritize debt repayments.

• Uncertainty around tariffs on imports from Mexico/Canada, impacting supply chain and pricing.
• Policy uncertainty related to immigration and employment, affecting consumer spending.
• Inflationary impacts on raw materials, labor, and freight rates.

Q: Impact of Trump's call for 25% tariffs on Mexico imports and supply chain exposure to Mexico facilities?

A: Uncertainty exists, but teams have adapted to prior tariff changes and can adjust sourcing.

Q: Additional pricing in channels besides dealer?

A: No additional pricing yet, but monthly evaluation of input costs for potential channel increases.

Q: Sales outlook and tailwinds?

A: Better second half performance due to pricing in dealer channel, stock kitchen/bath wins, easier comps in home center made-to-order business.

Q: Cost side for second half?

A: Continued increases in particle board, labor, final mile delivery, and liner board.

Q: Sales bottoming and macro drivers?

A: Still macro-driven, with policy uncertainty (tariffs, immigration) as variables.

Q: Volume sales, pricing, and retail promotions?

A: Volume down 4.5%, pricing in dealer channel, retail promotions consistent with prior year.

Q: Sales outlook for fourth quarter and EBITDA guide drivers?

A: Modeling still slightly down in Q4, EBITDA guide tightened due to inflationary impacts and volume.

Q: Free cash flow expectations?

A: Consistent with performance, pressure on working capital related to inventory.

Q: New construction and hurricane impacts in Southeast?

A: Timing issue, no material impact on Q3, but stock kitchen business may have some benefit.