MasterBrand(MBC) - 2025 Q1 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements detail the company's performance for Q1 2025 Condensed Consolidated Statements of Income Q1 2025 saw higher sales but significantly lower operating and net income compared to the prior year Q1 2025 vs Q1 2024 Income Statement Highlights | Metric | Q1 2025 (13 Weeks Ended Mar 30) | Q1 2024 (13 Weeks Ended Mar 31) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $660.3 million | $638.1 million | +3.5% | | Gross Profit | $202.2 million | $204.7 million | -1.2% | | Operating Income | $37.1 million | $62.8 million | -40.9% | | Net Income | $13.3 million | $37.5 million | -64.5% | | Diluted EPS | $0.10 | $0.29 | -65.5% | Condensed Consolidated Balance Sheets Total assets and liabilities increased slightly as of March 30, 2025, driven by a rise in long-term debt Balance Sheet Summary | Metric | March 30, 2025 | December 29, 2024 | | :--- | :--- | :--- | | Total Current Assets | $689.1 million | $650.7 million | | Total Assets | $2,955.8 million | $2,929.8 million | | Total Current Liabilities | $362.5 million | $395.4 million | | Long-term Debt | $1,058.2 million | $1,007.8 million | | Total Liabilities | $1,649.1 million | $1,635.1 million | | Total Equity | $1,306.7 million | $1,294.7 million | Condensed Consolidated Statements of Cash Flows The company experienced a net cash outflow from operations in Q1 2025, a reversal from the prior year's inflow Cash Flow Summary (13 Weeks Ended) | Activity | March 30, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(31.4) million | $18.7 million | | Net Cash Used in Investing Activities | $(9.8) million | $(7.0) million | | Net Cash Provided by (Used in) Financing Activities | $33.5 million | $(7.1) million | | Net (Decrease) Increase in Cash | $(7.5) million | $5.0 million | Notes To Unaudited Condensed Consolidated Financial Statements Notes detail the Supreme acquisition's impact, revenue disaggregation, debt refinancing, and share repurchases - On July 10, 2024, the company acquired Supreme Cabinetry Brands for $527.3 million, funded by cash and revolving credit[26][29] - For the 13 weeks ended March 30, 2025, Supreme contributed $60.8 million in Net Sales and $4.1 million in Net Income[26][29] Net Sales by Channel (13 Weeks Ended) | Channel | March 30, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Dealers | $353.1 million | $315.0 million | | Retailers | $223.5 million | $242.9 million | | Builders | $83.7 million | $80.2 million | | Total | $660.3 million | $638.1 million | - In June 2024, the company completed a refinancing transaction, issuing $700.0 million of 7.00% Senior Notes due 2032 and entering a new credit agreement with a $750.0 million revolving credit facility[54][55][57] - The company recorded restructuring charges of $4.7 million in Q1 2025, primarily for severance costs to align its workforce with demand[61] - During Q1 2025, the company repurchased 838,984 shares for approximately $11.4 million[79][82] - A new $50.0 million share repurchase program was authorized in March 2025[79][82] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes sales growth to the Supreme acquisition, which offset declines in the legacy business Results of Operations The Supreme acquisition drove a 3.5% net sales increase, but higher costs eroded gross and operating margins - Net sales increased $22.2 million (3.5%) YoY, with the Supreme acquisition contributing $60.8 million[99] - Legacy business sales declined by $38.6 million due to lower volume in repair/remodel and single-family new construction markets[99] - Cost of products sold as a percentage of net sales increased to 69.4% from 67.9% YoY, driven by higher manufacturing costs and unfavorable fixed cost leverage[101] - SG&A expenses rose by $16.2 million (11.8%), primarily due to the inclusion of Supreme ($13.0 million), increased associate-related costs ($2.7 million), and acquisition-related costs ($1.6 million)[102] - Interest expense increased to $19.4 million from $14.1 million due to a higher outstanding debt balance following the refinancing transaction for the Supreme acquisition[104] Liquidity and Capital Resources Liquidity is supported by a revolving credit facility, with total debt standing at $1,058.2 million - The company completed a major debt refinancing in June 2024, issuing $700 million in Senior Notes and establishing a new $750 million revolving credit facility[111] - As of March 30, 2025, the company had $1,058.2 million in outstanding debt and was in compliance with all debt covenants[114][115] - Net cash used by operating activities was $31.4 million in Q1 2025, compared to $18.7 million provided in Q1 2024, primarily due to a larger increase in accounts receivable and inventory[117] - Net cash from financing activities was $33.5 million, reflecting $50 million in net borrowings to fund working capital needs and $11.4 million used for stock repurchases[119] Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures remain materially unchanged from the 2024 Annual Report on Form 10-K - There have been no material changes in market risk since the last Annual Report on Form 10-K[123] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the evaluation date, March 30, 2025[124] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[125] Part II - Other Information Legal Proceedings The company is involved in routine litigation and is addressing a now-annulled tax assessment in Mexico - The company is a defendant in ordinary routine litigation and does not consider any pending action to be material[127] - A Mexican tax authority (SAT) issued a ~$54.9 million tax assessment for the 2018 tax year, which the SAT later annulled[128] - The company is taking legal action to make the annulment final and believes the risk of additional loss is remote[128] Risk Factors Key risks include supply chain efficiency, third-party supplier dependence, and changing government regulations - Risks related to improving organizational productivity and global supply chain efficiency, including potential interruptions in raw material supply, could adversely affect operations[131][132] - The company is exposed to global business risks, including uncertain trade environments, tariffs, and political changes in countries where it manufactures or sources materials[133] - Dependence on third-party suppliers presents risks of supply disruption, quality issues, and cost increases[135] - Changes in government and industry regulations related to trade, health, safety, taxes, and the environment could increase costs and impact results[137] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 838,984 shares for $11.4 million in Q1 2025 under its authorized programs Share Repurchases in Q1 2025 | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Amount Remaining for Purchase | | :--- | :--- | :--- | :--- | | Feb 24 - Mar 30, 2025 | 838,984 | $13.60 | $60,015,416 | | Q1 2025 Total | 838,984 | $13.60 | | - As of March 30, 2025, $10.0 million remained under the 2023 Share Repurchase Authorization and $50.0 million remained under the new 2025 Share Repurchase Authorization[139] Other Information No directors or executive officers adopted, modified, or terminated Rule 10b5-1 trading plans during the quarter - No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the quarter[142]