American Woodmark (AMWD 100.60, +12.05, +13.61%) opened sharply higher today (+15%)
after reporting 4Q18 (Apr) earnings results this morning. American Woodmark
makes kitchen cabinets and vanities for the remodeling and new home
construction markets. Its products are sold on a national basis directly to
home centers and major builders as well as through a network of independent
distributors. The company operates 18 manufacturing facilities in the US and
Mexico and has seven primary service centers located throughout the US.
The company offers framed stock cabinets in over 500 classic, transitional, and contemporary styles ranging in price from relatively inexpensive to medium-priced. Cabinet lines vary by design, construction, and color; style offerings range from low-pressure laminate surfaces to natural wood finishes utilizing maple, oak, cherry, and hickory frames. Products are sold under the brand names American Woodmark, Simply Woodmark, Timberlake, Shenandoah, and Waypoint Living Spaces. AMWD's business tends to be cyclical, seeing higher sales in fiscal Q2 (Oct) and Q4 (Apr).
Notably, AMWD made a large acquisition in December 2017 by acquiring RSI Home Products, one of the largest in-stock and value-based (affordably-priced) cabinet makers in North America. The implied enterprise value for RSI was approximately $1.075 bln, made up of cash, stock, and assumed debt. RSI provides cabinetry, counter tops, and accessories with over 100 styles and finishes for kitchens, bathrooms, and home and garage organization to home centers, builders, dealers, and remodeling contractors.
Turning to the company’s AprQ results, non-GAAP EPS rose 45% year/year to $1.64/share, which much exceeded market expectations. Revenue rose 57% year/year to $405.9 mln, also well above market expectations. The RSI acquisition majorly impacted revenue growth. This was the first full quarter to include RSI, and excluding RSI, revenue would have increased just 3% year/year to $266.7 mln.
AMWD did not provide forward guidance, as is typical for the company. The adjusted EBITDA margin improved to 16.1% from 13.3% in the prior year period. For the full FY18, adjusted EBITDA increased to 14.1% from 13.0% in FY17. As is also usual for AMWD, the company offered little supporting commentary in its initial earnings press release; a subsequent conference call at 11am ET was expected to provide additional details concerning quarterly results. However, AMWD did report that it saw solid growth in its dealer and new construction channels while home center channel sales continued to be challenging.
In sum, the stock is trading higher following the AprQ report, suggesting that investors are happy with the quarter overall. Perhaps because lack of earnings guidance gives investors difficulties with setting their expectations, the stock tends to trade in a choppy pattern with big moves (up and down) around earnings releases. This quarter, our sense is that the market may have underestimated the impact that the RSI acquisition would have on quarterly results. The newly combined company is off to a strong start.
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