American Woodmark Corporation

Good day, and welcome to the American Woodmark Corporation fourth fiscal quarter 2025 conference call. Today's call is being recorded May 29, 2025. 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 for diluted share. 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 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. We will begin the call by reading the company's safe harbor statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that 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 statements. Such factors include but are not limited to those described in the company's filings with the Securities and Exchange Commission and the annual report to shareholders. The company does not undertake to publicly update or revise its forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. If you require operator assistance, please press star then zero. I would now like to turn the call over to Paul Johimchak, Senior Vice President and CFO. Please go ahead, sir.

Good morning, and welcome to American Woodmark's fourth fiscal quarter conference call. Thank you for taking the time today to participate. Joining me is Scott Culbreth, 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.

Scott? Thank you, Paul, and thanks to everyone for joining us today for our fourth fiscal quarter earnings call. Our team delivered net sales of $400.4 million, representing a decline of 11.7% versus the prior year. Demand for our products in the new construction and remodel market were weaker than expected as uncertainty regarding tariff policies and declining consumer confidence slowed foot traffic with builders and retailers. The National Association of Realtors recently reported that existing home sales fell 0.5% month over month to a seasonally adjusted rate of 4 million in April 2025. Year-over-year, sales have declined 2 percent. Pent-up demand for housing continues to grow, and a reduction in mortgage interest rates could increase demand for housing and our products. For the quarter, all channels reported low double-digit declines. Within our home center business, the stock kitchen category performed better than our overall business, with a low single-digit negative comp versus the prior year. This is a result of share gains and the value of our offering. Our pro business was a positive comp for the quarter, with offsets in bath and storage. Single-family housing starts continue to experience negative costs versus prior year from January to April. The NAHB housing market index fell to 34 in May, below April, and expectations both at 40. This marks the lowest level since November 2023, as homebuilders continue to be impacted by high mortgage rates, weaker consumer confidence, and policy-related uncertainty. For our new construction direct business, Our teams delivered growth in the Northeast and Southeast markets, but this was more than offset by double-digit declines in Florida, Texas, and the Southwest. We continue to see a rotation down in our made-to-order new construction offering, resulting in unfavorable mixed impact on the business. Our adjusted EBITDA results were $47.1 million, or 11.8% for the quarter. Reported EPS was $1.71, and adjusted EPS was $1.61. Our cash balance was $48.2 million at the end of the fourth fiscal quarter, and the company has access to an additional $314.2 million under its revolving credit facility. Leverage was at 1.56 times adjusted EBITDA, and the company repurchased 417,000 shares in the quarter. The company purchased 1.17 million shares, or approximately 7.5% of shares outstanding for $96.7 million during fiscal 2025, consistent with our capital allocation methodology. Demand trends are expected to remain challenging, and our outlook for fiscal year 2026 ranges from low single-digit declines to low single-digit increases in net sales for the full fiscal year. We expect to outperform market growth rates, but have widened our outlook due to uncertainty related to tariffs when net sales declines expected throughout the first half of the fiscal year. Adjusted EBITDA expectations range from $175 million to $200 million based on current tariff policies in place at the end of the business day, May 28th. Longer term, our belief remains that as mortgage rates, mortgage interest rates decline, consumer confidence increases, existing home sales increase, and the potential for higher ticket home projects increases. Mortgage interest rate relief and consumer confidence increases will also benefit the single family new construction business as more consumers enter the home buying market. We have the products and platforms to win, and this will serve as a tailwind for our business. 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 fiscal year that I would like to highlight. Under growth, our team's navigated a challenging macroeconomic environment marked by low housing resale activity, high interest rates, and increased input costs. Despite these headwinds, we delivered on product innovation, capacity investments, and channel expansion. Over 30% of made-to-order sales came from products lost in the last three years. Facility expansions in Monterey, Mexico, and Hamlet, North Carolina enhanced our made-to-stock capabilities. We accelerated a low-skew, high-value product offering for pros and expanded it nationally. We also transitioned independent distributor customers to our new brand, 1951 Cabinetry. Looking forward, we're focused on expanding our internal sales teams, enabling home delivery for bath, and assuring we have the right products and platforms to support continued growth. Under digital transformation, we advanced our efforts with a focus on building an agile, scalable IT foundation to support future innovation. We executed our ERP cloud strategy with our Anaheim made-to-stock facility going live in early May of fiscal 2026 and are now planning for our East Coast made-to-stock facilities. We improved our cybersecurity readiness through enhanced detection and will be further enhancing our recovery systems. Key investments were made in video, infographics, search engine optimization, interactive tools, that have improved performance across digital channels and positioned us to deliver best-in-class content, especially for home center partners and independent dealers. Under platform design, we advanced our strategy by executing improvement plans at our Monterey, Mexico, and Hamlet, North Carolina sites, establishing them as manufacturing centers of excellence. We initiated footprint optimization across our network, including the closure of our Orange, Virginia facility, to streamline operations and improve responsiveness. These efforts address cost efficiency, asset modernization, and supply chain resilience while enhancing service to the new construction and repair model market. We also remain responsive to the evolving tariff environment and are focused on continuous improvement in plant operations through standardization automation projects targeting our mill, component, and assembly processes. In closing, I couldn't be prouder of what this team accomplished in fiscal 2025, and I look forward to their continuing contributions during fiscal year 2026. I'll now turn the call back over to Paul for additional details on the financial results for the quarter.

Thank you, Scott. I will first talk about our fourth fiscal quarter results, then transition to our full-year performance and close with our outlook for fiscal year 2026. Net sales were $400.4 million, representing a decrease of $52.9 million, or 11.7% versus prior year. Remodel net sales, which combines home centers and independent dealer and distributors, decreased 10.4% for the fourth quarter versus prior year, with both home centers and dealer-distributors decreasing 10% and 11%, respectively. New construction net sales decreased 13.4% for the quarter compared to last year. Our gross profit margin for the fourth quarter of fiscal year 2025 decreased 160 basis points to 17% of net sales versus 18.6% reported in the same period last year, This decrease was a result of fixed cost deleverage and increases in depreciation expense and product input costs. These were partially offset by our operational improvements in our manufacturing operations. Total operating expenses excluding any restructuring charges for the fourth quarter of fiscal year 2025 were 8.9% of net sales versus 10.1% for the same period last year. The 120 basis point decrease is due to decreases in our incentives and profit sharing, and then lower spending across all functions. Adjusted net income was $24 million, or $1.61 per diluted share in the fourth quarter of fiscal year 2025, versus $28.2 million, or $1.78 per diluted share last year. Adjusted EBITDA for the fourth quarter of fiscal year 2025 was $47.1 million, or 11.8% of net sales, versus 54.7 million, or 12.1% of net sales reported in the same period last year, representing a 30 basis point decline year over year. Our full year performance, net sales were 1.7 billion, representing a decrease of 138 million, or 7.5%. The combined home center and independent dealer distributor net sales decreased 9.2% for the fiscal year, with home centers decreasing 9.3%, and dealer distributors decreasing 8.9%. New construction net sales decreased 5.1% for the fiscal year compared to the prior year. The company's gross profit margin for the fiscal year was 17.9% in net sales versus 20.4% reported last year, representing a 250 basis point decline. During the fiscal year, we faced lower volumes due to macroeconomic events, which caused fixed cost deleverage combined with rising input costs, which was partially offset by operational enhancements and controlled spending. Total operating expenses, excluding any restructuring charges, were approximately 9.5% of net sales in the current fiscal year, compared with 11.7% of net sales for the prior fiscal year. The 220 basis point decrease was due to deal amortization that ended last fiscal year, Q3, combined with decreases in incentives, profit sharing, and controlled spending across all functions, offset by increases in our digital transformation spend Scott described earlier. Adjusted net income for fiscal year 2025 was $105.5 million, down $34.4 million due to lower sales, which caused fixed costs to deleverage, as well as higher input costs. These were partially offset by improvements in our operations and decreases in our incentive and profit sharing expenses. Adjusted EBITDA for fiscal year 2025 was $208.6 million, or 12.2% of net sales, compared to $252.8 million, or 13.7% of net sales, for the prior fiscal year, representing a 150 basis point decline year over year. Despite facing volume headwinds the entire fiscal year, our teams have continued to improve our operational efficiencies and control overall spending. These savings are partially offset by increases in our material and our transportation costs. Free cash flow totaled a positive $65.7 million for the current fiscal year to date, compared to $138.5 million in the prior year. The approximate $73 million decrease was primarily due to lower net income and changes in our operating cash flows, specifically higher inventory and lower accrued balances. Net leverage was 1.56 times adjusted EBITDA at the end of the fourth quarter of fiscal year 2025, representing a 0.42 times increase from the 1.14 times of last year. As of April 30th, 2025, the company had $48.2 million in cash, plus access to $314.2 million of additional availability under its revolving facility. Under the current share repurchase program, The company purchased 96.7 million or 1.17 million shares during fiscal year, representing about 7.5% of outstanding shares being retired. We have 117.8 million of shared purchase authorization remaining as of April 30th, 2025. Our outlook for fiscal year 2026. From a net sales perspective, We expect low single digit declines to low single digit increases in net sales for the full fiscal year. We do expect sales to increase in the back half of our fiscal year, with the first half being challenged by the current macroeconomic environment. The change in net sales is highly dependent upon overall industry, economic growth trends, material constraints, labor impacts, interest rates, tariff rate changes, and consumer behaviors. Our projected Adjusted EBITDA for fiscal year 2026 falls within the range of $175 million to $200 million, driven primarily by higher year-over-year SG&A costs, increases in our input costs, and fixed cost inflationary items, offset by our commitment to operational excellence and automation, both of which have been realizing efficiency gains across all of our platforms. While the current economic climate continues to put pressure on our sales, we will continue to be diligent in controlling our controllable costs and balancing our spending appropriately. Our capital allocation priorities for fiscal year 2026 will stay consistent with past practices. First, we will remain focused on investing back into the business by supporting our strategic pillars of digital transformation and platform design with investments in our ERP and our CRM platforms, investing in automation at all of our operating locations. Next, We will be opportunistic in our share repurchasing. And lastly, with our debt position at a leverage ratio we wanted to achieve, which is in the range of one and a half to two turns, debt repayments will be deprioritized. Please note that we did enter into a new debt agreement, and our interest expense will increase from the prior year by approximately $7 million annually. The additional capital projects that were completed last year our depreciation expense is increasing by approximately $11 million in fiscal year 2026. In closing, our business continues to have the resilience to manage through a tough and persistent macroeconomic climate and knows what action needs to be taken in order to position ourselves for the best growth possible, regardless of external factors. This past year was filled with uncertainty, and our teams managed to create some great wins in automation and operational efficiencies. I extend my heartfelt gratitude to every team member at American Woodmark. They are the driving force behind our daily accomplishments. They are the ones that make it happen daily. This concludes our prepared remarks, and 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 then 1 on your telephone keypad. If you're using a speakerphone, 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 then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Trevor Allenson with Wolf Research. Please go ahead.

Hi, good morning. Thank you for taking my questions. The first one's on tariffs and what you've assumed in your four-year guidance. Can you quantify for us how much of an impact you're expecting, maybe split that between China and non-China tariffs, and then how much of that headwind are you expecting to fully offset in your fiscal 26 guidance?

Yeah, good morning, Trevor. So our outlook range was significantly influenced by tariffs and certainly the uncertainty associated with tariffs. There could be demand impacts, that could have an impact on the outlook, and there could be delay in pricing to recover the incremental cost the business could take on. I'll tell you with last night's ruling from the United States Court of International Trade, that ruling could be favorable to our outlook because the price-cost delay risk would be removed from our outlook for the year. The outlook we just gave to you assumed the tariffs that were in place at the end of business yesterday, and that would be roughly $20 million of cost. for the business. And then we had a variety of scenarios that we've modeled for recovery from 0% to 100% and different timeframes associated with that. So that's fully baked into the $175 million to $200 million range we gave you.

Okay. That makes a lot of sense. I appreciate all that color. And then the second one is more of a two-parter on margins. First, on gross margins, They stepped up about 200 basis points quarter over quarter. Just curious as to what drove that nice improvement sequentially. And then similarly, G&A, your cost control was really good in the quarter at about $15 million. Should that be a good number that we should think of going forward, keeping that lower at about $15 million, or was there anything more one-time in nature than paying that in the quarter? Thanks.

Yeah, with respect to gross margins, typically our Q3 timeframe would be one of the tougher margin quarters for us. because of the holidays and just the overall slow season. As you recall, last quarter we talked about softer demand than we expected inside the quarter, and then our teams took actions towards the end of Q3, towards the beginning of Q4, to right-size our operations and our footprint. So our teams completed those tasks, and as a result, you're seeing that margin rebound inside Q4 overall. For SG&A, no, I wouldn't use the quarter alone as a baseline to carry forward. As Paul mentioned, incentive comp is a big part of that story. And when we reset our plan for fiscal year 26, we do have a cost pickup or increase, if you will, year over year for incentives.

Yep, makes sense. Appreciate all the color and good luck moving forward.

Yep. Thanks, Trevor. The next question comes from Adam Baumgarten with Zellman. Please go ahead. Hey, guys. Good morning.

Just thinking about the revenue gap here. So we think about the midpoint of flat. What does that assume for each of your main end markets, R&R and new construction? Actually, Adam, it's pretty consistent. So our overall forecast projection as we think about fiscal year 26, saw first half, better second half, recovery in both end markets. So not wildly different depending on the channel. Okay, got it. And then just on the second half being better, are you seeing anything in the business today, maybe matrix? give you confidence that you could see a return to growth in the back asset fiscal 26? I'll just rely on the commentary we get from our partners. Certainly our home center partners messaged over the last couple of weeks their outlooks for the year. They reaffirmed their position for the full year, which certainly models a bit more of a recovery in the second half, and I think they did have some call-outs to some of the higher ticket discretionary performing better second half. So we would certainly have that same assumption. As we think about new construction as we get through this summer and go into next year, the expectation is that market will perform better than the weak market that we saw in 2025. But I think it's too early to say there's clear data points at this stage. Yep, understandable. And then just lastly, you mentioned negative MTO mix in the home builder channel. Can you talk about how you're seeing pricing behave, just given all the pushback we're hearing about on all suppliers from the large home builders? Yeah, pricing is held, but we've certainly seen some mixed impacts that we spoke about. So in new construction specifically, you would go to market with that good, better, best approach, and we've seen a rotation from that best to better. I think I mentioned last quarter as well, kind of number of cabinets per home is also starting to show up. So as builders are looking to take cost out of the home, one way to do that is to impact the design, and perhaps there's one or two less cabinets in the design. We see those impacts, but no wholesale price impacts at this stage. Okay, good to hear. Thanks, guys.

The next question comes from Garrick Smoys with Loop Capital. Please go ahead.

Oh, hi. Thanks. Just outside the tariff impacts, is there anything else that we should be thinking about on the cost side as it relates to the four-year guidance?

I think the biggest piece is the tariff discussion. If you table tariffs, we do have some modeled commodity inflation as well as we go into the year, whether that's lumber, particle board, plywood, et cetera. So we do expect to see some inflationary impacts there along with labor, transportation, and we'll need to navigate that either with productivity offsets or pricing to be able to recover that as well.

Okay, thanks. And a follow-up question is just on the closure of the components facility that you talked about last quarter. I think you said it was going to be a bigger impact for fiscal 26. I'm not sure if you're able to quantify the potential savings from that action.

Yeah, so, Garrett, the closure of that facility should yield about $5 million to $6 million of savings and benefits for us on an EBITDA perspective each year, annually going forward here.

Got it. Thank you very much.

Mm-hmm. The next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Hi, good morning. Wanted to follow up on the outlook and the planning process to build that outlook in the prior months. Clearly a very dynamic environment. But with the tariffs dampening that outlook, I guess what I'm trying to get at, would you expect there to be growth next year or on the flat to high side of the outlook? if tariffs were not maybe as severe and dampening your outlook on demand or pricing?

I think for us, our view has been that the second half of our fiscal year, which, of course, pivots into the first part of calendar year 2026, we need to remove uncertainty. And there's a lot of things that you can articulate as being uncertain at this point in time. Tariffs is one of the biggest ones. So I think removing the uncertainty is what's important. Certainly if they go to zero, that's helpful, and you've got to think that leads to a rebound in consumer confidence and perhaps consumers are more willing to spend on their home or perhaps make a transition and move from a particular home to a new home, which creates an opportunity for us to sell our product. So that theoretically should be a positive. Even if there is some base tariff amount, again, I think removing the uncertainty is what's important. When we have day-to-day changes in impacts, to your point around having to do a model and a forecast projection, it is challenging. So removing the uncertainty, I think, is the key. And then if you can get those down to zero and it's a non-impact, of course, I think that's great news for our business and industry.

Okay, that's helpful. And maybe kind of a similar line of thought. For a bigger R&R recovery to happen, particularly in the big ticket and the cabinet space, How much refi or HELOC rebound do you think needs to happen to support that?

I don't think it's as much about refi as it is about existing home sales. So, you know, we've seen a considerable slide the last couple of years. You know, the data point I shared, roughly 4 million. You know, the base case was that was north of 5 million for the core timeframe that we looked at sort of coming out of COVID-19. I think that type of rebound is what we're shooting for and is what we need. Interest rates certainly can help that, but I don't think it's a refinance conversation. I think it's a velocity of activity with home sales.

Okay, that's helpful. And then last quick one for me, the automation gains and investments that you continue to work on. Can you put some context around the progress there and how it's helping 2026 results and then pulling up, what inning would you say the company is in on the automation investment journey?

Yeah, we're still in the early innings of that, so let's call them the first three innings of that particular process. We saw a pretty sizable uptick in what we would identify as automation-related investments inside fiscal year 25, so north of $10 million of spend. That goes from small projects to large projects. And many of those had benefits that reduced the demand for labor in our operation. So we'll fully realize that as we go into fiscal year 26. And we've got some great projects teed up that we're working on now that will impact the business in 26 and beyond.

Okay.

Thank you.

Again, if you have a question, please press star, then 1. The next question comes from Tim Weiss with Baird. Please go ahead.

Hey, guys. Good morning. Morning. I guess just what's embedded for pricing at the midpoint and, I guess, the ends of the guidance for revenue?

Again, I don't want to give you an exact number, Tim. I just want to highlight there's a host of scenarios that go into that particular data set. I've already mentioned, you know, upwards of $20 million of tariff impacts, and we model all types of scenarios, again, from zero to 100%. from a recovery standpoint to give you that range.

Okay. Do you have a scenario where you, you know, pricing is being able to kind of offset the, pricing and productivity are able to offset the inflation? Or is that net-net going to be a headwind for Woodmark in 26?

It's going to depend the degree of inflation that we see. I think you've always heard us speak to this and seen us demonstrate in the past that over time we're able to recover. For commodity inflation, what we sometimes deal with is that lag effect because of the process we have to go through for most of our customers to justify and then actually start to realize the price. So there could be some lag effects that hit fiscal year 26, and that's built into the outlook that you've seen. Okay.

And then I guess the gap between – you know, I guess single-family completions and then just what you're seeing in the builder direct sales, I mean, that's widened over the last couple of quarters. So it sounds like it's more mixed in kind of cabinet count versus share per se. But I guess based on what you're hearing from builders, is that something that's going to kind of anniversary in a couple quarters, or do you think that's going to be a persistent headwind to the builder business for the foreseeable future?

Yeah, I don't have any perspective from our builders on future quarters and what their thoughts are on that, but you nailed it specifically on what we see happening today. It's been more of a mix effect as well as cabinet count impacting that and driving that gap that you're seeing. Okay.

Okay, sounds good. Good luck on the year, guys.

Thank you. Guys, I do not see that they're Is anyone else waiting to ask a question? I would like to turn the line over to Mr. Johinchak for any closing comments. Please go ahead, sir.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.