American Woodmark Corporation (NASDAQ:AMWD) Q3 2024 Earnings Call Transcript
American Woodmark Corporation (NASDAQ:AMWD) Q3 2024 Earnings Call Transcript February 29, 2024
American Woodmark Corporation beats earnings expectations. Reported EPS is $1.66, expectations were $1.13. AMWD isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day everyone, and welcome to the American Woodmark Corporation Third Fiscal Quarter 2024 Conference Call. Today's call is being recorded February 29, 2024. During this call, the Company may discuss certain non-GAAP financial measures included in our earnings release, such as adjusted net income, adjusted EBITDA, adjusted EBITDA margin, free cash flow, net leverage, and adjusted EPS per diluted share. The earnings release, which can be found on our website, americanwoodmark.com, includes definitions of each of these non-GAAP financial measures. The Company's rationale for their usage, and the reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures. We also use our website to publish other information that may be important to investors, such as investor presentations.
We'll begin the call by reading the Company's Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors that may be beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission, the annual report to shareholders. Company does not undertake to publicly update or revise its forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
I would now like to turn the floor over to Paul Joachimczyk, Senior Vice President and CFO. Please go ahead, sir.
Paul Joachimczyk: Good afternoon and welcome to American Woodmark's third fiscal quarter conference call. Thank you for taking the time today to participate. Joining me is Scott Culbreth, President and CEO. Scott will begin with a review of the quarter and I'll add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions.
Scott Culbreth: Thank you, Paul, and thanks to everyone for joining us today for our third fiscal quarter earnings call. Our teams delivered net sales of $422.1 million, representing a decline of 12.2% versus the prior year. Within New Construction, our net sales declined 11% versus the prior year. Recent data points such as housing starts and NAHB's measure of builder sentiment point to improving demand as we head into the spring. We remain strategically aligned with 19 of the top 20 national builders and key regional builders. With our best-in-class direct service model, we plan to continue to grow our share with new and existing customers and benefit from the share gains our partners are realizing in the marketplace. Looking at Remodel, which includes our Home Center and Independent Dealer and Distributor businesses, revenue declined 13.1% versus the prior year.
Within this, our Home Center business was down 14.1% versus the prior year. Demand trends remain under pressure due to lower in-store traffic rates and consumers choosing smaller-sized projects. With regards to our Dealer and Distributor business, we were down 10.3% versus the prior year. Our adjusted EBITDA decreased 0.7% to $50.6 million, but our adjusted EBITDA margin percentage increased 140 basis points to 12% for the quarter. Reported EPS was $1.32 and adjusted EPS was $1.66. The improvement in performance is due to product mix and improved efficiencies in the manufacturing platforms. Our team continues to drive operational excellence in our plans. Our cash balance was $97.8 million at the end of the third fiscal quarter and the company has access to an additional $322.9 million under its revolving credit facility.
Leverage was reduced to 1.5 times adjusted EBITDA and the company repurchased 216,000 shares in the quarter. Our net sales outlook for fiscal year '24 remains unchanged with our expectation of a low double-digit decline with fiscal Q4 sales down high single-digits. Due to the strong fiscal third quarter performance, our adjusted EBITDA expectations for the full fiscal year is increasing and narrowing to a range of $247 million to $253 million. Our team continues to execute against our strategy that has three main pillars; growth, digital transformation and platform design. Growth will benefit from the launch of a low-skew, high-value offering in the Home Center's targeting pros and a new brand that will serve our distribution customers 1951 Cabinetry.
Our made-to-order business will also benefit from the upcoming summer launch, featuring new on-trend styles and finishes. Digital transformation efforts over the last fiscal quarter include the go-live of ERP and Monterrey, the go-live of WMS in Hamlet, North Carolina, and the go-live of website enhancements for our Home Center business. The planning for the next phase of work continues and includes the CRM service module supporting our customer care organization and new construction service center operations and ERP for our made-to-stock facilities. Platform design work continues with our first shipment of components from Monterrey, Mexico in January, and shipments of bath products from our Hamlet, North Carolina location in February. We will continue equipment installations in the coming months along with the training and hiring of new teammates to support our ramp plan.
In closing, I'm proud of what this team accomplished in the third fiscal quarter and look forward to their continuing contributions during fiscal year '24. I will now turn the call back over to Paul for additional details on the financial results for the quarter.
Paul Joachimczyk: Thank you, Scott. Reviewing our third quarter results for fiscal year 2024. Net sales were $422.1 million, representing a decrease of $58.6 million or 12.2% versus prior year. Remodel net sales, which combines Home Centers and Independent Dealer and Distributors, decreased 13.1% for the third quarter versus prior year, with both Home Centers and Independent Dealer Distributors decreasing 14.1% and 10.3%, respectively. New Construction net sales decreased 11% for the quarter compared to last year. Our gross profit margin for the third quarter of fiscal year 2024 improved 350 basis points to 19.2% in net sales versus 15.7% reported in the same period last year. Gross margin benefited from favorable product mix and pricing matching, inflationary costs impacts along with operational improvements in our manufacturing facilities combined with the stability in our supply chain.
Total operating expenses, excluding any restructuring charges for the third quarter of fiscal year 2024 was 12.6% of net sales versus 10.4% for the same period last year. The 220 basis point increase is due to increases in our incentives and profit sharing for all employees and lower sales. Adjusted net income was $26.8 million, or $1.66 per diluted share in the third quarter of fiscal year 2024 versus $24.4 million, or $1.46 per diluted share last year. Adjusted EBITDA for the third quarter of fiscal year 2024 was $50.6 million, or 12% of net sales versus $51 million, or 10.6% of net sales, reported in the same period last year and represents a 140-basis-point improvement year over year. Despite facing year-to-date volume headwinds, our continued strong earnings performance this year is a direct result of the hard work and efforts our teams have put into reestablishing and maintaining our operational efficiencies, stabilizing our supply chain, and controlling overall spending.
These earning gains are partially offset by increases in incentive compensation, profit sharing, and digital transformation costs. Free cash flow totaled a positive $131.7 million for the current fiscal year to date compared to $91.5 million in the prior year. The $40.2 million increase was primarily due to changes in our operating cash flows, specifically higher net income and lower inventory partially offset by increased capital expenditures. Net leverage was 1.5 times adjusted EBITDA at the end of the third quarter of fiscal year 2024, representing a 0.76 improvement from the 1.81 times as of last year. As of January 31, 2024, the company had $97.8 million of cash and cash equivalents on hand, plus access to $322.9 million of additional availability under our revolving facility.
Under the current share repurchase program, the company purchased 19.6 million, or approximately 216,000 shares, in the third quarter, representing about 1.3% of outstanding shares being retired. For the first nine months, we have repurchased 71.8 million of the company's common shares and have 105.4 million of share repurchase authorization remaining. Our outlook for the fiscal year 2024 from a net sales perspective, we continue to expect low double-digit declines in net sales versus fiscal year 2023, with high single-digit declines in the fourth fiscal quarter. The change in net sales is highly dependent upon overall industry, economic growth trends, material constraints, labor impacts, interest rates, and consumer behaviors. Given our strong performance for the first nine months of the year, we are increasing and narrowing our adjusted EBITDA expectation for the full fiscal year 2024 to a range of $247 million to $253 million.
The increase in our expected outlook is due to the strong operational performance and the execution we have achieved in the first nine months of our fiscal year 2024. Reiterating our outlook from the past quarter, we have begun operations in our new locations in Hamlet, North Carolina, and Monterrey, Mexico, and we'll continue to ramp up production throughout the remaining calendar year. This will negatively impact our results and we will be incurring operational expenses without the offsetting full revenue performance of those locations. The total impact of these charges is approximately $8 million to $9 million in the full fiscal year 2024, with more than half of these charges occurring in the fourth fiscal quarter. In closing, our business continues to capitalize on the strides achieved over the past year.
We anticipate that these enhancements will positively impact our financials throughout the remainder of the fiscal year. This success stands as a testament to the unwavering commitment, diligence and contributions of our dedicated employees, all in alignment with our GDP strategy. I extend my heartfelt gratitude to every team member at American Woodmark. They are the driving force behind our daily accomplishments. They are the ones who make could happen daily. This concludes our prepared remarks. We'll be happy to answer any questions you have at this time.
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