American Woodmark (AMWD) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q1 2024 were $498.3 million, a decline of 8.2% compared to the previous year [6][12] - Adjusted EBITDA increased by 33% to $75.2 million, representing 15.1% of net sales [8][15] - Reported EPS was $2.28, while adjusted EPS was $2.78, up from $1.71 in the prior year [8][15] - Gross profit margin improved to 22%, up 600 basis points from 16% in the same quarter last year [13] - Free cash flow totaled $72.5 million, compared to $32.7 million in the prior year [16] Business Line Data and Key Metrics Changes - New construction sales declined by 6.4% year-over-year [6][12] - Revenue from remodel, including home center and independent dealer businesses, decreased by 9.5% [7][12] - Home center business saw a decline of 12.8% compared to the previous year [7][12] - Dealer/distributor business experienced a slight increase of 0.1% year-over-year [8][12] Market Data and Key Metrics Changes - Cancellations in new construction are holding in the historic range of 14% to 16% [6] - Demand trends for made-to-order and stock kitchen business have slowed due to lower in-store traffic [7] - The company expects low double-digit declines in net sales for fiscal year 2024, influenced by overall industry economic growth trends [17] Company Strategy and Development Direction - The company’s strategy focuses on three main pillars: growth, digital transformation, and platform design [9][10] - New operational locations in Hamlet, North Carolina, and Monterrey, Mexico are expected to enhance capacity in stock kitchen and bath cabinetry [18] - Capital allocation priorities include investing in plant expansions and digital transformation initiatives [18] Management's Comments on Operating Environment and Future Outlook - Management noted that the outlook for repair and remodel demand is softer than originally anticipated, while new construction demand shows slight improvement [9][17] - The company plans to appeal a $4.9 million tariff charge incurred during the quarter [15] - Management expressed confidence in the operational efficiencies and stability of the supply chain contributing to improved financial performance [16][19] Other Important Information - The company repurchased 328,000 shares during the quarter, representing about 2% of outstanding shares [9][17] - Net leverage was reduced to 1.9 times adjusted EBITDA, with a significant improvement from 2.8 times in the prior fiscal year [16] Q&A Session Summary Question: Can you discuss the repair and remodel side and what's driving lower in-store traffic rates? - Management expects sales to decline in both channels, attributing lower in-store traffic to smaller-sized projects and overall market conditions [22][24] Question: What is your sense of inventory levels today? - Inventories are stabilizing, with room for improvement, and free cash flow is expected to remain strong for the year [25][26] Question: What are your expectations for input costs for the balance of the fiscal year? - Relief is seen in hardwood lumber costs, but upward pressure remains on plywood, paint, hardware, and labor costs [30] Question: Can you walk through the drivers helping gross margin in the quarter? - Key drivers include better pricing matching inflation, operational efficiencies, and stability in the supply chain [34][35] Question: How do you see the new facilities' costs evolving? - The costs are expected to be a pressure this year but should normalize as the facilities become fully utilized [37][38] Question: What is driving the increase in the margin guide? - The increase is attributed to better-than-expected first-quarter performance, pricing, and operational improvements [39][40] Question: Can you discuss destocking at the home centers? - Management believes there is an opportunity to increase in-store inventory levels to support product availability [43][44] Question: Are there differences in order activity based on the size of builders? - Larger builders are more optimistic about their expectations compared to smaller builders, with regional variations noted [50]