GMS Inc (GMS) Reports Fiscal Q2 2024 Earnings Amid Varied Market Conditions

• Net sales for Q2 fiscal 2024 slightly decreased by 0.7% year-over-year to $1.4 billion.

• Net income fell by 21.5% to $81.0 million, with diluted earnings per share at $1.97.

• Adjusted EBITDA decreased by 14.3% to $167.6 million, with a margin of 11.8%.

• GMS Inc (NYSE:GMS) expanded its share repurchase program to $250 million, reflecting confidence in the business.

On December 7, 2023, GMS Inc (NYSE:GMS), a leading distributor of specialty building products in North America, released its 8-K filing detailing the financial results for the fiscal second quarter ended October 31, 2023. The company navigated a complex market environment characterized by robust commercial and multi-family activity, an improving single-family demand backdrop, and notable steel pricing declines.

Fiscal Q2 2024 Performance Overview

GMS Inc (NYSE:GMS) reported a slight decrease in net sales of 0.7% to $1.4 billion compared to the same quarter in the previous fiscal year. The company experienced volume increases in Ceilings, Steel Framing, and Complementary Products, driven by solid demand in commercial and multi-family construction. However, these gains were offset by significant price deflation in Steel Framing, which reduced net sales by $85 million for the quarter. Wallboard volumes showed resilience with only a minor decline, contributing to stable pricing.

Financial Highlights and Challenges

Gross profit decreased by 1.3% to $458.6 million, with a gross margin of 32.3%, slightly down from 32.5% a year ago. Selling, general and administrative (SG&A) expenses rose to $300.9 million, up from $279.0 million in the prior year period, primarily due to higher wages and benefits associated with increased sales volumes in commercial and multi-family end markets. Adjusted SG&A expense as a percentage of net sales also increased by 170 basis points to 20.6%.

Net income declined by 21.5% to $81.0 million, or $1.97 per diluted share, compared to $103.2 million, or $2.41 per diluted share, in the second quarter of fiscal 2023. Adjusted net income was $94.6 million, or $2.30 per diluted share, compared to $119.5 million, or $2.79 per diluted share, in the prior fiscal year's second quarter. Adjusted EBITDA saw a decrease of $28.0 million, or 14.3%, to $167.6 million, with an Adjusted EBITDA margin of 11.8%.

Balance Sheet and Cash Flow

As of October 31, 2023, GMS Inc (NYSE:GMS) had cash on hand of $76.5 million, total debt of $1.1 billion, and $823.7 million of available liquidity under its revolving credit facilities. The net debt leverage ratio improved to 1.5 times. Cash provided by operating activities for the quarter improved to $118.1 million, and free cash flow increased to $102.1 million.

Share Repurchase and Platform Expansion

The company's Board of Directors approved an expanded share repurchase program, authorizing repurchases up to $250 million of its outstanding common stock. During the quarter, GMS repurchased 688,717 shares for $44.3 million. The company also continued its platform expansion strategy with the acquisition of AMW Construction Supply, LLC, and the addition of new locations.

Management Commentary

We were pleased to deliver solid results for our fiscal second quarter, including net sales, net income and Adjusted EBITDA that were ahead of our previously stated expectations as commercial and multi-family Wallboard, Ceilings and Steel Framing volumes outpaced our forecast, said John C. Turner, Jr., President and Chief Executive Officer of GMS. These solid levels of demand helped to offset a steeper than anticipated steel pricing decline along with single-family demand that is comparatively reduced versus the prior year, but sequentially improving.

While market conditions are fluid, our scale, wide breadth of product offerings, execution and expertise across all of our varying end markets, and our commitment to outstanding service continues to position us well for solid financial performance, growth and realization of value for our shareholders over the long term.

The company's strategic focus on a balanced product portfolio and operational flexibility allows it to adapt to evolving market dynamics. GMS Inc (NYSE:GMS) remains optimistic about the future, particularly looking towards fiscal 2025, with improving conditions in the single-family market and a strong backlog in multi-family construction expected to drive growth.

For detailed financial tables and a reconciliation of non-GAAP financial measures, please refer to the full 8-K filing.

Explore the complete 8-K earnings release (here) from GMS Inc for further details.

This article first appeared on GuruFocus.