American Woodmark (AMWD) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for the third fiscal quarter were $384 million, representing a 31% increase year-over-year. Excluding the impact of the RSI acquisition, net sales increased by 1% to $257 million [21][22] - Adjusted net income was $24.1 million or $1.40 per diluted share, compared to $16.7 million or $1 per diluted share in the prior year [21] - Adjusted EBITDA was $52.2 million or 13.6% of net sales, up from $36 million or 12.3% of net sales in the same quarter of the prior fiscal year [21][16] - Year-to-date net sales reached $1.238 billion, a 47% increase over the same period last year [22] Business Line Data and Key Metrics Changes - New construction net sales increased by 12% for the quarter, with core growth at 5% [22][23] - The remodel business saw a 46% increase in revenue, including the acquisition impact, but core made-to-order remodeled business declined by 3% [9][24] - Core dealer business grew by 4%, while core made-to-order home center revenue declined by 4% [9][24] Market Data and Key Metrics Changes - Existing home sales decreased by 7.4% year-over-year, averaging 5.18 million units in the fourth calendar quarter of 2018 [23] - The median existing home price rose by 2.9% to $253,600, impacting consumer affordability [23] - The unemployment rate was reported at 4% in January, lower than the previous year [22] Company Strategy and Development Direction - The company aims to leverage its low-cost platform to meet the demand for lower price point homes, particularly targeting first-time home buyers [8][17] - The focus remains on enhancing operational efficiencies and integrating the RSI acquisition to drive revenue synergies [38][79] - The company is strategically positioned to compete in the multifamily market, emphasizing service and product differentiation [19][68] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the fundamental drivers of the housing market despite current volatility and economic uncertainties [7][17] - The company anticipates challenges in predictability for remodel sales due to low existing home inventory and affordability issues [12][46] - Management remains optimistic about long-term growth in the remodel industry, linked to first-time home buyers entering the market [12][19] Other Important Information - Gross profit margin for the third quarter was 20%, up from 17.2% in the prior year, driven by higher sales volumes and operational efficiencies [13][25] - Free cash flow totaled $106.2 million for the current fiscal year, compared to $16 million in the prior year [27] - The company expects adjusted EBITDA margins for fiscal 2019 to be between 14.7% and 15% [28] Q&A Session Summary Question: Can you walk us through the primary drivers of gross margin performance? - Management highlighted pricing adjustments and operational efficiencies as key drivers, with expectations for continued improvement [31][34] Question: What is the update on revenue synergy targets with the RSI product? - Management reported satisfaction with the progress on synergies, particularly through the Origins platform, although market conditions have not progressed as quickly as anticipated [36][38] Question: Are there any increased competitive pressures in the market? - Management indicated that while competition exists, they remain confident in their product and supply chain capabilities [40][41] Question: Can you elaborate on remodel trends and the divergence between dealer and home center channels? - Management noted a predictable decline in the dealer channel, while home center performance remains more volatile due to various external factors [44][46] Question: How are tariffs impacting guidance and pricing? - Management clarified that they have not fully incorporated the potential 25% tariffs into guidance, focusing instead on operational adjustments to mitigate impacts [55][57] Question: What is the current labor situation in Mexico? - Management reported positive labor relations and operational improvements in Mexico, with no significant unrest or agitation [80][84]