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Bear of the Day: American Woodmark (AMWD)

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American Woodmark Corp. AMWD is getting hit by increasing inflationary pressures. This Zacks Rank #5 (Strong Sell) stock is expected to see lower earnings this year even as it raises prices.

American Woodmark is one of the largest cabinet manufacturers in America. It sells in major home centers and partners with builders and independent dealers and distributors.

Inflation Hits the Fiscal First Quarter

On Aug 31, American Woodmark reported its fiscal 2022 first quarter results and missed on the Zacks Consensus. Earnings were $0.70 versus the consensus of $1.41.

But sales rose 13.5%, or $52.5 million, to $442.6 million compared to the year before.

It saw growth across all channels, with high-teens growth in the repair and remodel sales channel and upper single digit growth in the new construction sales channel.

Market demand continued to be strong.

Why the Big Earnings Miss?

Net income fell $13.1 million due to the inflationary pressures that outpaced the pricing actions taken across all of the company's channels.

This results in about 220 basis points of sequential pressure from the Company's fiscal 2021 fourth quarter, related primarily to materials and logistics costs.

Because of the increased backlog of their products there was a lag in the realization of the company's price increases to deal with the inflationary pressures.

Net income margin was 0.7% for the quarter compared to 4.1% in the same period the prior year.

As a result, earnings fell to $0.70 from $1.63 in the prior year.

"Assuming our current sales level, we expect the impact of confirmed pricing actions to increase in the second half of fiscal 2022 to over $25 million per quarter," said Scott Culbreth, President and CEO.

"Looking forward our focus remains on increasing production to match a strong demand environment and reducing backlog and realizing additional pricing actions to mitigate inflationary pressures in materials, logistics, and labor," he added.

Full Year Estimates Cut

Even with strong demand, the big miss in the first quarter meant that the analysts still moved to lower full year estimates.

The fiscal 2022 Zacks Consensus Estimate fell to $4.84 from $7.67 just 30 days ago.

That's an earnings decline of 24.4% as American Woodmark made $6.40 last year.

Shares Fall in 2021

American Woodmark was a recovery play in 2020 as the new home market and home remodeling took off during the pandemic.

But shares have reversed in 2021, falling 27% year-to-date.

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Zacks Investment Research

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They're still cheap on a forward P/E basis, even with the earnings being cut. It trades with a forward P/E of just 14.

But investors looking for a way to play the hot housing and remodeling markets may want to invest in one of the home builders or the retailers, like Home Depot HD or Lowe's LOW, while waiting to see what happens with the inflationary pressures.

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