Core Insights - Canyon Capital Advisors increased its stake in MasterBrand by 734,854 shares in Q3 2025, bringing its total position to 1.8 million shares valued at $23.7 million as of September 30, representing a 1.3% incremental shift in the fund's U.S. equity assets [2][7] - MasterBrand's stock price is currently at $11.20, reflecting a 35% decline over the past year, significantly underperforming the S&P 500's 13% gain during the same period [3][4] - The company reported a 2.7% decline in net sales to $698.9 million in Q3, with net income margin compressing to 2.6% and adjusted EBITDA margin falling by 160 basis points to 13% [9] Company Overview - MasterBrand is a leading provider of residential cabinetry products, employing over 10,000 people and having a strong presence in the North American market [5] - The company's strategy focuses on product breadth, operational efficiency, and strong relationships with builders and retailers, leveraging a broad portfolio and established distribution channels [5] Investment Thesis - Canyon's incremental buy suggests confidence in MasterBrand's potential for margin recovery and the positive impact of its upcoming merger with American Woodmark, despite current challenges from soft housing demand and tariff-related cost inflation [6][10] - If housing volumes recover and merger synergies materialize, the current depressed valuation of MasterBrand could present an upside opportunity for long-term investors [10]

Core Insights - Coliseum Capital Management has significantly increased its stake in MasterBrand, acquiring nearly 3.3 million shares in Q3, raising its total holdings to 7.6 million shares valued at $99.6 million, making it the fund's fourth-largest position [2][3][9] Company Overview - MasterBrand is a leading provider of residential cabinetry in North America, focusing on a diverse range of cabinetry solutions for kitchens, bathrooms, and other home spaces [5] - The company has a market capitalization of $1.4 billion and reported revenue of $2.8 billion with a net income of $82.7 million for the trailing twelve months [4] Financial Performance - MasterBrand's stock price is currently $11.09, reflecting a 35% decline over the past year, underperforming the S&P 500, which has increased by 14% during the same period [3] - The latest quarter showed a 2.7% decline in net sales to $698.9 million, with adjusted EBITDA margin decreasing from 14.6% to 13% due to lower volume and tariff pressures [6][8] - Despite these challenges, MasterBrand generated $108.8 million in operating cash flow year-to-date [9] Strategic Moves - The company is preparing to merge with American Woodmark, which management believes could enhance growth, drive innovation, and unlock long-term synergies [9] - Coliseum's investment strategy appears to align with a value-oriented approach, positioning for a potential cyclical recovery in homebuilding and remodeling [6]

Financial Performance - Net sales for the thirteen weeks ended September 28, 2025, were $698.9 million, a decline of $19.2 million or 2.7% compared to $718.1 million for the same period in 2024[122] - Gross profit decreased by $19.8 million or 8.3%, totaling $218.2 million for the thirteen weeks ended September 28, 2025[122] - Operating income fell to $41.7 million, down $15.9 million or 27.6% from $57.6 million in the prior year[122] - Net income for the period was $18.1 million, a decrease of $11.0 million or 37.8% compared to $29.1 million in the same quarter of 2024[122] - Net sales for the thirty-nine weeks ended September 28, 2025, were $2,090.1 million, an increase of $57.4 million or 2.8% compared to $2,032.7 million for the same period in 2024, driven primarily by the acquisition of Supreme[137] - Gross profit decreased by $13.6 million or 2.0% to $660.1 million, reflecting weaker overall end market demand[136] - Operating income for the thirty-nine weeks ended September 28, 2025, was $146.1 million, a decrease of $52.1 million or 26.3% compared to $198.2 million in 2024[136] - Net income fell to $68.7 million, down $43.2 million or 38.6% from $111.9 million in the prior year[136] Costs and Expenses - Cost of products sold increased by $0.6 million or 0.1% to $480.7 million, representing 68.8% of net sales[125] - Selling, general and administrative expenses rose by $1.2 million or 0.7% to $167.5 million, accounting for 24.0% of net sales[126] - Cost of products sold increased by $71.0 million or 5.2% to $1,430.0 million, representing 68.4% of net sales, compared to 66.9% in the prior year[139] - Selling, general and administrative expenses rose by $30.1 million or 6.7% to $480.9 million, influenced by the inclusion of Supreme and strategic investments[140] - Restructuring charges were $13.9 million, up from $11.0 million in the prior year, primarily related to severance and employee-related costs[141] Debt and Financing - The company refinanced its debt in June 2024, completing the offering of $700.0 million in Senior Notes to fund the acquisition of Supreme and refinance existing debt[148] - As of September 28, 2025, the company had $954.1 million in outstanding third-party borrowings, net of deferred financing fees[152] - Interest expense increased to $56.5 million for the thirty-nine weeks ended September 28, 2025, compared to $54.7 million in the prior year, attributed to a higher average outstanding debt balance[142] - The company is required to maintain a minimum interest coverage ratio of 3.00 to 1.00 and a net leverage ratio not exceeding 3.25 to 1.00 starting March 30, 2025[151] - The company was in compliance with all debt covenants under the 2024 Credit Agreement as of September 28, 2025[151] Cash Flow and Investments - Net cash provided by operating activities was $108.8 million for the first three quarters of 2025, down from $176.9 million in the same period of 2024[154] - Net cash used in investing activities decreased to $40.1 million in the first three quarters of 2025, compared to $541.9 million in the same period of 2024, primarily due to the acquisition of Supreme[155] - Net cash used in financing activities was $79.8 million in the first three quarters of 2025, a significant decrease from net cash provided of $331.3 million in the same period of 2024[156] Strategic Actions - The company acquired Dura Investment Holdings LLC on July 10, 2024, enhancing its portfolio in the premium cabinetry market[112] - A definitive agreement was announced on August 6, 2025, for a merger with American Woodmark, expected to close in early 2026[113] - The company is actively monitoring trade policies and tariffs, which could impact input costs and supply chain dynamics[114] - Restructuring charges decreased to $2.6 million in the latest quarter from $7.8 million in the same quarter of the previous year[129] Tax and Compliance - The effective tax rate for the thirty-nine weeks ended September 28, 2025, was 23.4%, a decrease from 24.6% in the prior year, primarily due to changes in foreign exclusions and lower state and local income taxes[144] Inventory and Receivables - In the first three quarters of 2025, accounts receivable increased by $26.6 million, while inventory declined by $4.4 million, reflecting improved inventory management[154] - Depreciation expense increased to $51.2 million in the first three quarters of 2025, compared to $39.5 million in the same period of 2024, due to the full-year inclusion of Supreme[154] - The company believes its cash and cash equivalents, along with operating cash flows and credit facilities, will be sufficient to meet working capital and capital expenditure needs[157] - The company amended its credit agreement to obtain a $375.0 million term loan to settle American Woodmark's existing indebtedness, contingent on the closing of the Merger[152]

Financial Data and Key Metrics Changes - The company reported net sales of $699 million for Q3 2025, a 3% decrease compared to the same period last year, reflecting mid to high single-digit end-market contraction [5][20] - Adjusted EBITDA was $91 million, down from $105 million in Q3 2024, resulting in an adjusted EBITDA margin of 13%, a decline of 160 basis points year-over-year [6][24] - Free cash flow for the quarter was $40 million, down from $65 million in the same period last year, attributed to lower net cash from operating activities and higher capital expenditures [7][26] Business Line Data and Key Metrics Changes - Demand in retail and dealer channels remained soft, particularly in stock cabinetry, while semi-custom offerings performed better as consumers sought value [6][10] - The repair and remodel business was down mid to high single digits year-over-year, consistent with broader market trends, particularly in entry-price stock cabinetry [9][10] - Mid-tier semi-custom products showed stronger performance, benefiting from consumers trading down from premium offerings [10] Market Data and Key Metrics Changes - In new construction, single-family housing starts were down mid to high single digits, but the company's new construction sales outperformed the broader market [8][9] - Canadian market performance was down mid-single digits, consistent with expectations, due to housing affordability challenges [10] - Overall, the company expects the addressable market in 2025 to be down mid to high single digits year-over-year [33] Company Strategy and Development Direction - The company is focused on integration initiatives and proactive management of trade dynamics to strengthen its foundation for growth [5][14] - The merger with American Woodmark is progressing as expected, with integration planning underway and anticipated cost synergies of approximately $90 million by the end of year three post-close [15][16] - Continuous improvement programs are driving measurable savings and are essential for managing through near-term softness while positioning for long-term margin expansion [17] Management Comments on Operating Environment and Future Outlook - Management noted that demand across both new construction and repair and remodel markets is expected to remain subdued through next year, with gradual improvement anticipated in late fiscal 2026 or early fiscal 2027 [11] - The evolving tariff landscape remains a major focus, with contingency plans in place to mitigate impacts [12][13] - The company remains confident in its ability to navigate challenges and is focused on maintaining operational discipline and customer service [36] Other Important Information - The company ended the quarter with $114.8 million in cash and $461.9 million in liquidity available under its revolving credit facility [24] - Net debt at the end of the quarter was $839.3 million, with a net debt-to-adjusted EBITDA leverage ratio of 2.5 times [25] - The company is committed to generating free cash flow in excess of net income for the full year [27] Q&A Session Summary Question: Reason for sales guidance revision for the full year - Management indicated that the revision to flat sales is due to better-than-expected performance in Q3 and the impact of prior pricing actions [39] Question: Challenges in realizing pricing and demand destruction - Management acknowledged challenges in pricing due to tariffs, particularly on products sourced from Mexico and Canada, but emphasized a comprehensive mitigation strategy [41][42] Question: Phasing of unmitigated exposure moving into next year - Management noted that the cost implications of tariffs will begin to materialize in Q4 and will spread throughout the year as mitigation efforts take time [45]

MasterBrand Overview - MasterBrand is the 1 North American residential cabinet manufacturer with $2.7 billion in 2024 net sales[6,7] - Approximately 60% of net sales are attributed to R&R (Repair and Remodel)[7] - The company has a dealer network of over 7,700 and employs over 13,000 people across 20+ manufacturing facilities[7] - The company's 2024 Adjusted EBITDA was $364 million[7] Q3 2025 Financial Performance - Net sales for Q3 2025 were $698.9 million, a decrease of 2.7% compared to $718.1 million in Q3 2024[30] - Gross profit decreased by 8.3% from $238.0 million in Q3 2024 to $218.2 million in Q3 2025[30] - Net income decreased by 37.8% from $29.1 million in Q3 2024 to $18.1 million in Q3 2025[30] - Adjusted EBITDA decreased by 13.3% from $104.5 million in Q3 2024 to $90.6 million in Q3 2025[30] - Diluted EPS (GAAP) decreased by 36.4% from $0.22 in Q3 2024 to $0.14 in Q3 2025[30] - Free cash flow (YTD) decreased by 54.3% from $142.3 million in 2024 to $65.0 million in 2025[30] Full Year 2025 Outlook - The company anticipates a high to mid-single-digit percentage decline in the North American cabinets market[31] - The company expects net sales to be approximately flat[31] - The company projects adjusted EBITDA to be between $315 million and $335 million, with an adjusted EBITDA margin of approximately 11.5%-12.0%[31] - The company forecasts adjusted diluted EPS to be between $1.01 and $1.13[31] Long-Term Financial Targets - The company aims for a 3-5% CAGR in the North American Cabinets Market[36] - The company targets a 4-6% CAGR in Net Sales[36] - The company aims for an adjusted EBITDA margin of approximately 16%-18%[36] Additional Information - Strategic transformation initiatives have created >$180 million of cumulative annual savings since 2019, with another $50 million of incremental savings anticipated in 2025[27] - The company expects annual run-rate cost synergies of $90 million by the end of year three, following the close of the American Woodmark merger[29]

Financial Performance - Net sales for Q3 2025 were $698.9 million, a decrease of 2.7% compared to Q3 2024, attributed to a mid- to high single-digit market decline[4] - Gross profit was $218.2 million, with a gross profit margin of 31.2%, down 190 basis points year-over-year due to lower volume and unfavorable fixed cost leverage[5] - Net income was $18.1 million, resulting in a net income margin of 2.6%, a decrease of 150 basis points from the prior year[6] - Adjusted EBITDA was $90.6 million, with an adjusted EBITDA margin of 13.0%, down 160 basis points year-over-year[7] - Diluted earnings per share were $0.14, compared to $0.22 in Q3 2024; adjusted diluted earnings per share were $0.33, down from $0.40[8] - Operating income for the 13 weeks ended September 28, 2025, was $41.7 million, a decline of 27.7% from $57.6 million in 2024[29] - Net income for the 39 weeks ended September 28, 2025, was $68.7 million, down 38.5% from $111.9 million in 2024[35] - Adjusted EBITDA for the 39 weeks ended September 28, 2025, was $263.1 million, compared to $289.0 million in 2024, reflecting a margin of 12.6% versus 14.2%[35] - Diluted earnings per share (EPS) for the 13 weeks ended September 28, 2025, was $0.14, down from $0.22 in 2024[32] - The company reported a net income margin of 3.3% for the 39 weeks ended September 28, 2025, down from 5.5% in 2024[35] Debt and Cash Flow - As of September 28, 2025, total debt was $954.1 million, with a net debt to adjusted EBITDA ratio of 2.5x[9] - Free cash flow for the thirty-nine weeks ended September 28, 2025, was $65.0 million, down from $142.3 million in the prior year[9] - Long-term debt decreased to $954.1 million from $1,062.3 million, a reduction of 10.2%[47] - Net debt to adjusted EBITDA ratio remained stable at 2.5x for both periods reported[47] - Cash and cash equivalents at the end of the period were $114.8 million, up from $108.4 million year-over-year[49] - The company reported a net cash provided by operating activities of $108.8 million, down from $176.9 million in the prior year[49] Future Outlook - The company expects organic net sales performance to outperform the underlying market, driven by new products and previously implemented price actions[10] - The financial outlook for 2025 includes adjusted EBITDA in the range of $315 to $335 million, with an adjusted EBITDA margin of approximately 11.5% to 12.0%[13] - The anticipated benefits of the pending acquisition may be affected by competition and the ability to integrate operations successfully[25] Mergers and Acquisitions - The company is focused on closing the merger with American Woodmark to drive growth and innovation[3] - Acquisition-related costs for the 39 weeks ended September 28, 2025, totaled $18.7 million, associated with the pending acquisition of American Woodmark[36] Restructuring and Capital Expenditures - The company incurred restructuring charges of $2.6 million for the 13 weeks ended September 28, 2025, compared to $7.8 million in 2024[32] - Capital expenditures for the 39 weeks ended September 28, 2025, were $43.8 million, an increase from $34.6 million in the previous year[49] Asset Management - Total assets increased to $3,001.9 million as of September 28, 2025, compared to $2,960.2 million a year earlier, representing a growth of 1.4%[47] - Total current liabilities decreased slightly to $369.9 million from $378.4 million[47]

Core Points - MasterBrand, Inc. continues its partnership with Habitat for Humanity International as a Platinum Sponsor for the 2025 Jimmy & Rosalynn Carter Work Project, which will take place from October 26-31 in Austin, Texas [1][2] - The project aims to build 25 affordable energy-efficient homes in Whisper Valley, emphasizing environmental responsibility and long-term affordability [2][3] - MasterBrand's involvement includes providing cabinetry and design services, with a focus on creating functional and stylish kitchen and bath layouts for the homes [3][4] Company Overview - MasterBrand, Inc. is the largest residential cabinet manufacturer in North America, offering a wide range of cabinetry products for kitchens, bathrooms, and other areas of the home [5] - The company has over 13,000 employees and operates more than 20 manufacturing facilities and offices, supported by a distribution network of over 7,700 dealers and retailers [5]

Core Insights - StarMark Cabinetry, a brand under MasterBrand, Inc., is launching a significant product line expansion with 15 new door styles and eight finishes to cater to evolving homeowner and designer preferences [1][2][3] - This launch is part of a two-year initiative aimed at refreshing the StarMark brand and product offerings, emphasizing craftsmanship and modern design trends [1][2] Product Offerings - The new product line includes various door styles such as slab, shaker, and French-cut miter doors, blending traditional craftsmanship with contemporary aesthetics [3] - Notable new door styles include Colville, Emmerson, Francis, Ozark, Shoshone, and Kobuck, each designed to appeal to modern design sensibilities while maintaining a sense of heritage [3] Finish Options - Eight new finish options are introduced, inspired by natural elements, including warm light stains and soft off-white hues, enhancing the wood grain's beauty and evoking tranquility [4][8] - Specific finishes include Whisper, Tea Chest, Sandhill Crane, Nova, Lush Forest, Raindrop, Tideway, and Night Currents, each offering unique color characteristics [8] Customization Features - The product line expansion includes new features such as curved end panels, a modern arch valance, and new island end options, providing homeowners and designers with enhanced customization opportunities [4] Brand Identity - StarMark Cabinetry has unveiled a refreshed brand identity, which includes an updated logo and cohesive visual language that reflects its commitment to quality and craftsmanship [5]

Core Insights - Shareholders of MasterBrand, Inc. (NYSE: MBC) are expected to benefit significantly from the deal with American Woodmark Corporation (AMWD) due to AMWD's recent investments in a new ERP cloud solution [1] Group 1: Company Overview - MasterBrand, Inc. is positioned to gain from strategic partnerships and technological advancements in the industry [1] - American Woodmark Corporation has made recent investments aimed at enhancing operational efficiency through a new ERP cloud solution [1] Group 2: Financial Analysis - The analysis includes a focus on cash flow statements and unlevered free cash flow figures, which are critical for assessing the financial health of companies [1] - Financial models may incorporate various metrics such as cost of capital, cost of debt, WACC, share count, and net debt to evaluate investment opportunities [1]

Group 1 - Shareholders of MasterBrand, Inc. (NYSE: MBC) are expected to benefit significantly from the deal with American Woodmark Corporation (AMWD) due to AMWD's recent investments in a new ERP cloud solution [1] - The article emphasizes the importance of cash flow statements and unlevered free cash flow figures in evaluating companies [1] - The author mentions a focus on companies with a long history of financial reporting, avoiding growth stocks in favor of established firms [1] Group 2 - The analysis includes various financial metrics such as cost of capital, cost of debt, WACC, share count, and net debt to assess company performance [1] - Trading multiples studied include EV/FCF, net income, and EV/EBITDA, which are crucial for valuation [1] - The author provides access to a database with over 15,000 DCF models ranked by margin of safety and upside potential, indicating a comprehensive approach to investment analysis [1]