MasterBrand, Inc.

in a question and answer session. Please note that this conference call is being recorded. I would now like to turn the call over to your host, Farron Pollack, Vice President of Investor Relations, Treasury, and Corporate Communications. Thank you. You may begin.

Thank you, and good afternoon. We appreciate you joining us for today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer, and Andy Simon, Executive Vice President and Chief Financial Officer. We issued a press release earlier this afternoon disclosing our first quarter 2025 financial results. If you do not have this document, it is available on the investor section of our website at masterbrand.com. I'd like to remind you that this call will include forward-looking statements and either our prepared remarks or the associated question and answer session. These forward-looking statements are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. Additional information regarding these factors appears in the section entitled Forward Looking Statements in the press release we issued today. More information about risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full year 2024 Form 10-K and updated as necessary in our subsequent 2025 Form 10-Qs, which will be available once filed at scc.gov. and at masterbrand.com. The forward-looking statements in this call speak only as of today, and the company does not undertake any obligation to update or revise any of these statements, except as required by law. Today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliation table, which are in the press release issued earlier this afternoon, and are also available at sec.gov and at masterbrand.com. Our prepared remarks today will include a business update from Dave, followed by a discussion of our first quarter 2025 financial results from Andy, along with our updated 2025 financial outlook. Finally, Dave will make some closing remarks before we host a question and answer session.

With that, let me turn the call over to Dave. Thanks, Barron. Good afternoon, everyone. We appreciate you joining us today for our first quarter 2025 earnings conference call. Well, it's only been a couple of months since we last spoke. It's been a dynamic period. We released our first quarter financial performance today and reported net sales of $660 million in the quarter, an increase of 3% compared to the same period last year. This increase was driven by 10% growth from our Supreme acquisition and 2% growth from net ASP increases in our legacy business as we continued to see benefits of previous price actions. These increases were partially offset by market volume declines of 9% in our base business. specifically with customers that service the repair and remodel market. Despite year-over-year declines in the new construction market, our builder direct sales increased by over 4% compared to the prior year, as we continue to benefit from previously discussed new business wins and steady new housing completions. We delivered adjusted EBITDA of $67 million in the first quarter and an adjusted EBITDA margin of 10.2%, 220 basis points lower than the same period last year. This expected margin contraction was due to lower volumes and the related impact on fixed cost leverage as we continue to work on aligning our production to the current demand environment. Similar to last quarter, pockets of softness impacted our ability to flex manufacturing quickly enough to preserve margins. While our Supreme integration and other facility consolidations are progressing as planned, we continue to run with greater capacity and related costs than current conditions require. We anticipate this will continue to be the case through the second quarter of 2025 as we finalize our manufacturing network realignment. Ultimately, expecting to return to more normal decrementals in the second half this year. As expected, we were users of cash in the first quarter with negative pre-cash flow of $41 million compared to positive $12 million in the same period last year. Lower net income coupled with higher inventory because of choppy demand and bond interest payments, which will repeat in July, drove this year-over-year decline in the quarter. Absent some of these first quarter specific items, along with higher net income, we expect to deliver positive cash flow in the second quarter and throughout the remainder of the year. Additionally, we believe we will still deliver full-year free cash flow in excess of net income. Given the soft demand in the first quarter, coupled with macroeconomic indicators pointing towards lower demand than anticipated for the remainder of the year, I would like to briefly share our perspective on year-to-date market demand and our updated expectations for 2025. We saw year-over-year market volume declines in the first quarter across all channels and end markets. On our last Journeys call, we mentioned that we saw similar demand patterns from the holiday season continue through January, but February's demand environment was more like the early part of the fourth quarter and prior periods of 2024. That choppy demand environment continued through February and into March and negatively impacted the spring selling season for our customers servicing the new construction and the repair and remodel markets. For those customers servicing the U.S. single family new construction market, we saw the market decline low single digit as we lacked relatively strong comparables from the prior year. While single family completions were flat to up modestly in the first quarter, many of these homes were built over an elongated period after builders slowed production due to record high spec home inventory in the fourth quarter. This, combined with year over year softer starts in the first quarter, resulted in the new construction portion of the market softening greater than anticipated. While we had anticipated a pocket of soft demand in the early part of 2025, The softer starts, coupled with commentary from builders on foot traffic in the latter part of the first quarter, suggest demand will continue to be weaker for the remainder of the year. Large production builders public commentary suggests that tariffs and their impact on consumer confidence have kept potential buyers on the sidelines. Several of these builders have lowered expectations for the remainder of the year, and we see this trend occurring with our midsize and smaller builders as well. Accordingly, We now expect new construction and market demand to be down mid-single digits for the full year 2025. Shifting to the repair and remodel market, serviced by our dealer and retail customers, we saw continued choppiness and demand weakening as general economic uncertainty kept consumers away from large ticket purchases. This quarter, the weakness was more pronounced in our lower price point products, specifically the stock categories at our retail partners. while premium products continue to be more resilient. Given the fluctuations we saw throughout the quarter, we believe the repair and remodel market performed at the low end of our expectations for the quarter and was down mid-single digits. We continue to closely monitor order patterns with our dealer network and point of sales data from our retail partners. These orders continue to be choppy, fluctuating up and down. We believe recent fluctuations up may be consumers pulling orders forward to avoid the impact of tariffs and are not indicative of stronger future demand, rather another example of how consumers are being impacted by tariffs and the uncertainty they bring. Due to this data, coupled with other headwinds to large home project purchases, such as record low consumer confidence and declines in existing home turnover, we expect the repair and remodel market to perform below our original expectations. We now estimate this market will be down high to mid-single digits for the full year 2025, with the back half of the year performing slightly better from a year-over-year standpoint on easier comparables, albeit still down. Shifting to Canada, the first quarter was directionally in line with our expectations, but year-over-year declines in the repair and remodel and new construction market were greater than anticipated. Despite five rate cuts, housing affordability remains a challenge in Canada. and the new construction market has remained soft. In total, we saw the Canadian market down high single digits across both the new construction market and the repair and remodel market. While we continue to expect the market to improve as the year progresses, we believe the Canadian new construction and repair and remodel end market demand will be down mid-single digits year-over-year in 2025. Broadly speaking, the general economic uncertainty caused by tariffs and what that could mean for consumers has shaken their confidence and willingness to make large purchases. Given this shift in consumer sentiment and our mix of business, we believe our overall end market demand will now be down high to mid single digits in 2025. This is compared to our previous market outlook of down mid to low single digits for the full year 2025, as discussed in our last earnings call. With 2025 shaping up to be another year of soft demand, we're taking action designed to preserve margins and maintain a strong balance sheet, while continuing to invest in targeted areas for growth. Now, I'd like to walk you through some of those cost actions and provide an update on our growth initiatives. As I mentioned earlier, and we first discussed last quarter, we have two larger facility consolidations underway. One in North Carolina, where we're currently in the process of combining a Supreme facility and a legacy master brand premium facility into a third existing master brand location. Leveraging unused space in our Kinston, North Carolina plant, along with investment in new equipment, we plan to consolidate three facilities located within 200 miles of each other into one combined site that can meet our production needs and lower costs. On the West Coast, we are currently working on our previously announced plans to relocate our Colton, California facility to North Las Vegas, Nevada. We believe this newly built site will allow us to continue growing our business in the western and southwestern states through improved service and at a lower cost. Given the current demand environment, we may look to temper the pace of the facility's production ramp to mirror that of the market. These manufacturing network changes are designed to both reduce costs and improve service, but those benefits will not be realized for some time. The result, as I mentioned earlier, is that we expect to continue to see pressure on our margins while these projects are in flight. We expect to see the financial benefit of these begin to materialize in the third quarter of this year. Beyond these structural changes, we've also taken a variety of actions aimed to right-size the business in the near term. We are reducing operations by nearly 500 production positions. Similarly, in corporate and administrative functions, we are reducing staff size and eliminating open roles. Additionally, we have reviewed and reduced discretionary expenses across the organization. Lastly, we further reviewed planned investments and are slowing 2025 spending in selected areas. We believe these actions, coupled with our incremental continuous improvement savings of $50 million expected in 2025, should allow us to preserve margins and near-term financial performance. while we continue to invest for the future. Now let me provide a brief update on how our strategic initiatives are progressing and why we believe continuity of investment is so important. Our three strategic initiatives designed to position the company for outsized future growth are Align to Grow, Lead Through Lean, and Tech Enabled. Despite the choppy environment, our associates have done an exceptional job of continuing to make progress across each area. We further benefited from our previous Align to Grow work this quarter as our builder direct business outperformed the market, continuing to grow despite the market contracting. As I mentioned in prior calls, our Align to Grow initiative and our broad product portfolio enable us to focus on the right parts of the market and the right customers with the right product solutions at optimal service levels. We are now expanding the Align to Grow efforts to focus on other channel customer needs, We believe our offering of on-trend products has never been greater, and with innovations around new materials designed to improve performance and aesthetics and labor-saving solutions for installers, we believe Masterbrand has further positioned itself to address customers' needs and to gain share across all channels in the future. Progress in our Align to Grow initiative wouldn't be possible without our 13,000-plus associates. Their dedication and skill are vital to our efforts, which is why investing in our Lead Through Lean initiative is so important. You might recall that at this time last year, I discussed our newly introduced True Leader program. This training is designed to ensure that frontline supervisors are skilled in leading others and coaching them for success. Since the introduction, 97% of frontline supervisors have completed all four modules of the program. We believe that better equipping our associates to lead teams, develop solutions to fluid challenges, and then subsequently execute on those plans should allow us to outperform the market in any condition. Lastly is our tech-enabled initiative. Given the continued successes we saw from this initiative in 2024, we initially planned to invest an incremental $15 million in 2025. However, given the current economic environment, we've reduced this goal by about 20%. Through this incremental investment, we plan to get closer to consumers than ever before with the hope of easing the buying process, unlocking pent-up demand, and making their dream kitchens a reality. Our goal in building a closer relationship with the end consumer is to provide actionable insights directly into our channel partners and stimulate demand. As the largest manufacturer of residential cabinets in North America, we believe our scale and breadth of product uniquely positions us to take advantage of this digital opportunity. We believe this initiative will further differentiate MasterBrand against our competitors and allow us to outperform the underlying market. Though we have lowered spending on these investments in 2025, we expect they will continue to create year-over-year headwinds for the organization's near-term financial performance. However, we believe these investments will drive superior financial results in the long term. Now, with that, let me turn the call over to Andy for a deeper look at the first quarter results and our updated full-year 2025 outlook.

Thanks, Dave. I'll begin with an overview of our first quarter financial results, and then I'll provide more details on our updated full-year outlook. First quarter net sales were $660.3 million, a 3.5% increase compared to $638.1 million in the same period last year. Our top line performance was primarily the result of the positive contribution from our Supreme acquisition, which continues to perform in line with our expectations and the flow through of our anticipated net ASP improvements and share gains, particularly in the new construction market. partially offset by overall weakness in the markets we serve and the related volume decline. Gross profit was $202.2 million in the first quarter, down 1.2% compared to $204.7 million in the same period last year. Gross profit margin decreased 150 basis points year-over-year from 32.1% to 30.6%. This year's margin decline was due to lower volumes and the related impact on fixed cost leverage, partially offset by positive contribution from Supreme, continuous improvement, net of inflation, and higher net ASP. Tariffs had a minor impact in the quarter. I'll discuss our expectations for their full-year impact along with our recovery and mitigation plans when I review our full-year outlook. Selling general and administrative expenses were $154 million, up 11.8% compared to $137.8 million in the same period last year. Virtually all of the increase in SG&A was driven by Supreme-related items, specifically the addition of Supreme's SG&A expenses, acquisition-related costs, including some incremental depreciation, with the remainder being driven by increased spending on our digital and technology initiatives. These increases were partially offset by volume-related reductions in commissions, distribution, and freight costs. Net income was $13.3 million in the first quarter compared to $37.5 million in the same period last year. The year-over-year decline was primarily driven by higher SG&A expenses due to the addition of Supreme, as I just discussed, as well as higher interest expense related to the funding of the Supreme acquisition, restructuring costs, and the amortization of intangible assets, partially offset by lower income tax expense. Interest expense was $19.4 million in the first quarter compared to $14.1 million in the same period last year. This increase in interest expense relates to debt necessary to fund the Supreme acquisition. Income tax was $4 million, or a 23.1% effective tax rate in the quarter, compared to $11.5 million or a 23.5% rate in the first quarter of 2024. Diluted earnings per share were 10 cents in the first quarter of 2025 based on 130.7 million diluted shares outstanding, a decrease from diluted earnings per share of 29 cents in the first quarter of last year based on 130.5 million diluted shares outstanding. Adjusted diluted earnings per share were $0.18 in the first quarter compared to $0.31 in the prior year period. Adjusted EBITDA was $67.1 million compared to $79.4 million in the same period last year. Adjusted EBITDA margin declined 220 basis points to 10.2% compared to 12.4% in the comparable period of the prior year, primarily due to the impact of lower volume on fixed cost leverage. which more than offset the benefit of our anticipated net ASP improvements, savings from our continuous improvement efforts, net of inflation, and contribution from Supreme. Turning to the balance sheet, we ended the quarter with $113.5 million of cash on hand and $358.6 million of liquidity available on our revolver. Net debt at the quarter end was $944.7 million, resulting in a net debt to adjusted EBITDA leverage ratio of 2.7 times up as anticipated from 2.4 times last quarter. Including Supreme for a full 12 months, our net debt to adjusted EBITDA leverage ratio was 2.4 times up from 2.2 last quarter. Despite this anticipated increase, we continue to see a path to our stated leverage goal of below two times by the end of the year. Net cash used in operating activities was $31.4 million for the three months ended March 30th, 2025, compared to net cash provided by operating activities of $18.7 million in the comparable period last year. As Dave mentioned, this decline was in line with our expectations. We expect our second quarter cash flow to improve as those large first quarter outflows will not repeat. Capital expenditures for the three months ended March 30th, 2025 were $9.8 million compared to $7 million in the prior year. This elevated number reflects our full year 2025 CapEx budget, which includes supreme integration and footprint realignment spending, and we believe will help align our manufacturing network for the current demand environment. Free cash flow was negative $41.2 million for the three months ended March 30, 2025, compared to positive free cash flow of $11.7 million in the comparable period last year. The decrease was in line with our expectations, and we are maintaining our goal of free cash flow and excess of net income for 2025. We expect our free cash flow to return to a more typical pattern in subsequent periods as certain one-time payments will not repeat, normal seasonal trends will resume, and our integration efforts take hold. Our Board of Directors authorized an additional share repurchase program under which we may repurchase up to $50 million of our common stock over a 36-month period expiring on March 13, 2028. This repurchase program replaces the 2023 share repurchase authorization that expired on April 23, 2025. During the 13 weeks ended March 30, 2025, we repurchased approximately 839,000 shares of our common stock. The shares were repurchased at a total cost of approximately $11.4 million, or an average of $13.60 per share. Now let's turn to our outlook. As we stated in the press release we issued today, our 2025 financial outlook only reflects the impact of those tariffs in effect as of today. It does not reflect any other potential tariff impacts on our costs or on end market demand. We believe the dynamic nature of the tariff, specifically the uncertainty of implementation, potential timing, and duration of any new or changes in tariffs, limits the usefulness of estimating this information. As Dave mentioned, we expect our overall market demand to be down high to mid single digits year over year in 2025, with performance varying by end market. Accordingly, we now anticipate a low single-digit percentage decline in our annual net sales year over year. Let me provide some additional color on the drivers of our net sales in relation to the market. We continue to anticipate that Supreme will add mid-single digits to our net sales in 2025 as we work towards the July 10th anniversary of the acquisition. We continue to assume very modest commercial synergies related to Supreme as we continue to onboard and train dealers and prepare our factory footprint for related growth. We now expect a mid single digit decrease in our organic net sales year over year. With more visibility into a slow and uneven spring selling season, particularly with increased weakness in builder activity, retail point of sale trends, specifically in our stock product, and continued softness in our dealer channel, we believe it was appropriate to lower our full-year expectations to reflect the negative impact of general economic uncertainty on our end market demand, especially on big-ticket items. As we discussed last quarter, we continue to expect new products and channel-specific packages and share gains across our channels to allow us to outperform the market in our legacy business. With respect to seasonality, based on the first quarter and what we have seen in the second quarter so far, we expect 2025 net sales to exhibit a normal seasonal demand pattern. That said, in addition to being weaker, this year's spring selling season began later than last year, which benefited from a stronger new construction market in the first half of the year. This challenging comparable will continue to impact our year-over-year decremental performance in the second quarter of 2025. Additional market dynamics are expected to challenge margins as choppy demand limits our ability to operate plants at peak efficiency. In response, we are implementing a series of targeted actions in an effort to preserve profitability. Our footprint optimization initiatives, announced in 2024, are progressing. However, the associated cost savings will take some time to fully materialize. Our workforce is being realigned to better match staffing levels with current operational needs. Despite these efforts, we anticipate headwinds to fixed cost leverage in the second quarter, with margin performance improving in the second half of 2025. As I mentioned earlier, tariffs had a minor impact in the first quarter. Looking forward, existing tariffs are impacting our product categories in different magnitudes. In aggregate, and on a full-year annualized basis, the potential exposure from tariffs will be low single digits as a percentage of net sales. We are aiming to mitigate some of the impact through a multi-pronged strategy of price increases, renegotiating terms with existing suppliers, sourcing from new suppliers in regions not affected or less impacted by tariffs, and exploring further manufacturing footprint adjustments to optimize costs. Even as we are executing these remediation plans, we are seeing alternative suppliers take advantage of the pricing umbrella created by tariffs and follow with similar price increases. We believe our countermeasures will materially offset the impact of tariffs, but we anticipate it will take some time for the benefits to show in our financial performance. We are continuing a disciplined approach to SG&A spending while remaining committed to investing in the business. We believe this healthy tension between managing costs and investing for growth is appropriate given the current market conditions. Proactively managing costs not only allows us to mitigate margin pressure, but also gives us the financial flexibility needed to invest in targeted areas with the goal of capturing market share and growth when demand recovers. Despite current headwinds, we remain confident in our strategic priorities. Our continuous improvement initiatives are tracking in line with our previously stated expectations despite volume declines, and supreme synergies are also progressing as planned. They will continue to ramp throughout the year, and we are on track to achieve the previously disclosed amounts. With this in mind, we now expect adjusted EBITDA in the range of $315 to $365 million, with adjusted EBITDA margins of roughly 12 to 13.5% for 2025. We believe the widened range is deemed prudent due to the unknown impact of tariffs on demand. While tariffs have introduced more uncertainty into our outlook and negatively impacted demand, we believe it is important to continue to share our view of the markets we are operating in and our anticipated financial performance. Interest expense still is expected to be approximately $68 million to $73 million, and we continue to anticipate an effective tax rate of around 25%. As such, for 2025, we expect our adjusted diluted earnings per share to be in the range of $1.00 at $0.03 to $1.32. We now expect 2025 capital expenditures to be in the range of $75 to $85 million, down $10 million from our previously stated range. As I stated last quarter, after excluding $27 million related to the Supreme integration and footprint realignment, this investment is just under one-time depreciation, which is within our stated long-term goals. With 2025 shaping up to be another year of softer anticipated demand, our revised outlook is focused on our goals of actively balancing near-term financial performance and stability in a dynamic environment while continuing to maintain capacity, invest in growth to create long-term value for our shareholders. Now I would like to turn the call back to Dave.

Thanks, Andy. As you can see, we're currently operating in a more dynamic environment. While we cannot control tariffs or their impact on end market demand, we can control how we react to them. Through the discipline use of our business system, the master brand way, we are confident in our strategy to navigate through these uncertain times as we have in the past. We believe staying focused on our customers and delivering superior products and services should allow us to outperform the market throughout the cycle and deliver superior financial performance for our investors. Now with that, I'll open the call up to Q&A.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Derek Schmoes with Loop Capital Markets. Please proceed with your question.

Oh, hi, thanks. And thanks for all the detail. I was hoping you could speak a little bit to how you're thinking about pricing, you know, recognizing you had implemented a price increase previously and, you know, it sounds like you might need additional actions to counteract tariffs. You know, are you seeing any you know, impacts on the demand side, you know, related to pricing. And if you can, you know, maybe help us understand if there's additional pricing that's needed at this point to offset higher costs.

Yeah, Derek, sure. I think that, let me first start by saying, yes, there's additional price, but it's related to the tariff impact. We're using a surcharge methodology for that. And we've kind of put out there that if tariffs change or come off, we'll adjust that surcharge as appropriate along with that. In terms of the mechanics of it, it's very similar to what we've talked about in the past. Certain parts of the market can go quicker. In general, we've had some empathy for our customers in that sense, and so all of them have gotten a little bit of a window, you know, most of April, while we were waiting to figure out what the, you know, kind of final or sort of semifinal tariff numbers were that we're changing so much basically throughout the month that we We just listened a lot, did our math and waited. But, you know, moving forward, it's all a matter of timing and certain projects and certain customers have to be negotiated. And we're in that process right now. So I think that's the kind of stage we're in. We're going to have to see how demand develops from it. You know, it is a bit strange. We talk a lot about the choppiness of demand. We have seen some demand coming in over the past month through this tariff discussion, and as we highlighted in the prepared remarks, we don't see that as a signal of future demand. We see that more as a potential that people are pre-buying. You've seen that in other large ticket items around the country. So, you know, there's been some buying with that. know it's hard to tell when that's going to start downturn we've sort of forecasted that out as sort of the the tail end of q2 and into q3 and four that we're going to start seeing some impact on demand overall in the market and that's it's not a some of that's based off of things like starts that came down in march but some of it's also just uh uh an estimate of where we think the market's going in the second half okay thanks and just wanted to follow up on that point you know with respect to

Maybe 2Q, and I think you mentioned that you're expecting normal seasonality, if I heard that correct. Is that mainly a function of some of the pre-buying that you're seeing right now? Any other ways that you can maybe help us think through the demand cadence the best you can, just given your visibility right now?

Yeah, I think, you know, within a quarter, you can see what backlogs are doing. And so I think we're pretty comfortable with seeing that seasonality here in Q2. Again, there's no real crystal ball on what will happen in the second half across, particularly in R&R. I think, you know, you can listen to builders talk about what they're planning for the year. But, you know, we have to kind of Patrick O' pick a spot and say this is what we think it's going to be and aim for that in terms of capacity and headcount and all the costs associated Patrick O' inventory, all that kind of stuff. And so we've kind of put a line down and said, this is where we think things are going to go in the second half. Patrick O' You know, the one thing I'll say in this in the second quarter, is we are eating the tariffs right now. And along with the fact that we have not completely adjusted the factory footprint yet, some of that is taking some time. We'll start seeing the benefits of that in Q3 and Q4. So it'll be a little better than the decrementals we had in Q1, but probably not up to our standard in Q2 either. So we're going to just take some time to adjust our operating footprint. And frankly, we do have scenarios planned for worse or better, but you have to kind of pick a point and go with it. And that's what we've done here.

No, understood. Last question is just on the last point on footprint optimization and trying to align your costs to where the demand is. Just wondering if you could maybe expand on how you're thinking about some of the cost savings measures and balancing the near-term uncertainty with the potential for when demand does end up recovering.

Yeah, I think we've always built our factory network to be as flexible as you can in this kind of manufacturing, which is certainly not the most flexible, but we really understand how to run a production line from a tack time perspective and how many people you need. And know the first move you always make is is you change the tack time and so you're building slower it doesn't fix the fixed cost portion of it but it certainly adjusts the variable cost appropriately obviously the more choppy demand is the harder that is to do so we you tend to chase it a little bit here and there and that's kind of what you're seeing here in the last couple of quarters I think we have a good rhythm now where we understand at least where we are today. And then the plans we put in place really are designed to deal with some of the fixed costs that you can't adjust on a daily basis. And if we have to adjust further, we have those plans ready to go. It's just hard to, we're not going to do that just yet. we'll be able to, you know, the moves that we're making right now don't sacrifice future growth. I think that, you know, should conditions get worse, then we have to make those decisions around would we sacrifice, you know, future growth to maintain performance, and we'll just have to see how that flushes out. Right now, I think we're more focused on how do we keep the demand that we have going at the current pace, and there's a lot of effort around that, so we're not just throwing up our hands and letting the market dictate. We're trying to make our own way in this difficult market, but we're just going to have to wait and see as the year progresses.

Yeah, understood. All right. Thanks for all the help and best of luck. Thanks, Gary.

Our next question comes from Adam Baumgarten with Zellman and Associates. Please proceed with your question.

Hey, everyone. Thanks for taking my question. I guess maybe just thinking about 2Q, I know you talked about sales kind of following their seasonal patterns. If we think about margins, there's usually a pretty decent step up quarter over quarter in margins, but you did call out some headwinds and some timing related factors. Maybe some help on how you think the margin progression will be in 2Q. I think it sounds a bit better in the second half as some of these initiatives go through, but maybe some help on 2Q would be great.

Yeah, sure. I think we should see improvement from Q1 for sure. It's maybe not going to be, again, as I highlighted, I don't think our decrementals are in the zone where we are happy in Q2. And a couple different factors for that. One is just the mix of where the volume is coming in. So there's certain factories that are running fairly inefficiently right now. We're adjusting that. But again, you can't unless you close the factory, you're not eliminating the fixed cost portion of that. So I've talked in the past about how we have a very good model for adjusting our flow and level loading our factories, but you do reach a point where the fixed costs becomes overbearing. The moves that we're making in terms of the realignment will solve a lot of that in the second half, but they're not going to be done in the second quarter. In addition, as I highlighted just a few minutes ago, we are getting the tariff costs, and we don't have the price in the market yet. So that's another headwind for Q2. And you take those two combined things, and that puts a bit of weight on the P&L from a year-over-year perspective. So sales, we think, will be better than Q1. EBITDA will be better than Q1. But again, the The decrementals year over year will not be up to our stuff, up to our standard. Andy, you have any additional things to say on that?

I think that's a good point.

Okay, great. And then just on the guidance, you know, fairly wide range on EBITDA, fully understanding it's a pretty dynamic environment out there. I guess we think about what gets you to the low or high end. Is it simply kind of the range of sales that you guys put out of those declines, or is it on the organic side, or is it

know an ability to offset tariffs and push through price and maybe it's all of it but maybe you just help us kind of how we get to the top end or low end yeah i think the the range is really dictated by market demand and uh you know obviously within that it's how well we do it at gaining share and charting our own course but i think it gives us a broader range of where we think the market would go because again like i just said we you have to pick a point and this is where we're going to operate and aim for and then adjust as you get closer and learn more. And right now, it's still premature to really have a good feel for the impact that tariffs may have on demand. And again, I think it's more, I don't think the tariffs are having a massive amount of impact particular to our business. I think it's just the consumer in general is getting impacted by it. And we haven't seen that show up yet in the market. So it's hard to tell how the consumer is going to behave. Other than

know consumers not very happy right now and that doesn't bode well hey guys thanks best of luck thanks adam our final question is from tom mahoney with cleveland research please proceed with your question oh good afternoon i i wanted to go back to the con uh the tariff question and just as you take a step back and you say In a world that has kind of more tariffs in the future than it's had in the past, you think about master brands, comparative position relative to others in the category, and what are some of the ways that you guys think about yourselves as favorably positioned and the path, what are the benefits that you could see in a world that has more tariffs as you think about the path to rebuilding margin versus the pressures that you're seeing right now?

Yeah, that's a good question. I think the, you know, 80% of our production is in the United States. So compared to other industries, we're better insulated from tariffs because we are really, you know, we're a North American company, but we're predominant. Our revenue comes from the United States. So from that perspective, We're insulated a bit more than other industries from tariffs. And I think also there's obviously been a model of companies importing 100% of their product into the United States. And I think that it all depends. I think in the current tariff construct, it's not really impacting them that much. But I think if that changes, that could potentially impact that. Now, we've also explained we have some of that supply chain as well. but we have the capacity in the United States to build those products. It's just they're going to be a little more expensive. I mean, the reason you go to low-cost countries is for affordable housing products, and you keep the cost down by doing that. So I think in general, you'll see inflation from tariffs, and it's the same reason why everybody's moved certain production offshore is because it helps bring the cost down. Over time, though, I think that, you know, People will adjust their thinking, and it may mute demand in aggregate, but I think that we have a good footprint in the United States, and I think we can absorb a lot of that volume if we need to as things change over time. So a little too soon to tell how it flushes out. I don't think in the current script of tariffs it has a material impact, but I think if that changes over time that it could. So we'll just have to wait and see.

helpful perspective. Thinking more about 25 and how things move through, the first I want to talk about was ASP. There's carryover price from the second half of last year, but looking at ASP in the third quarter and the fourth quarter, I believe it was negative. And so it seems like perhaps mix of the business is a piece of why it was able to swing positive in the first quarter. I guess Is there any way to parse that out as you look at the numbers and how you think about ASP trending, at least on the carryovers, what you can see for now through the balance of the year?

It's sort of indicative of the process of getting price in our business. It takes a couple of quarters. So what you're seeing is probably normal. I will say there is definitely some mix. We highlighted that the The higher end has held up better. That's been consistent for a long time here, so that's not necessarily a deviation from the past, but it's what was odd this time was there was definitely much more softness in the in stock product in home centers and then then a we expected and be that we normally see. You know, normally that's a product line that's fairly robust in downtime, so it sort of signals at the. The lower lower end. the market is under some pressure from just general economics. And so I think that makes it a little harder. I think our goal here this year, like I said earlier, is to make our own way through whatever happens. And we're really emphasizing, you know, with our investments, things like new product launch, you know, how we can get closer to the consumer and bring them into our world if they're going to buy cabinets. So we've just got to go find the people that are willing to buy cabinets and bring them to us so that they're getting great product from us.

That makes sense. And then the last one on inventory, you guys have talked about doing some pre-buy in these areas in the past. Is that how you'd characterize the growth in inventory, at least on a year-over-year basis for 1Q, and how do you see that progressing through the year?

Yeah, a little bit, and a little bit of, you know, unfortunately, you know, as a slow demand, you end up having too much safety stock. So it's a little bit of both. We did not do a massive pre-die of anything. And it was kind of hard to put your fingers on what was going on with the tariffs. It changed so rapidly that we have, but, you know, because of a combination of buying a little bit more when we could, but also just carrying more inventory because we didn't use it as fast. So But I think we've demonstrated in the past that we have a good handle on how to adjust that. So as we look forward from a cash flow standpoint, those metrics will come down to adjust to the current operating environment.

Understood. Thank you. Thank you.

We have reached the end of the question and answer session. I'd now like to turn the call back over to Farron Pollack for closing comments.

Thank you, Operator, and thank you, everyone, for joining us. We appreciate your interest and support and look forward to speaking with you in the future. This concludes our call for today.

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