American Woodmark (AMWD 89.90, +4.95, +5.83%) is trading higher today after reporting 1Q19 (Jul) earnings results this morning.
American Woodmark manufactures kitchen cabinets and bathroom
vanities for markets including remodeling and new home construction. It sells
its products nationwide directly to major builders and home centers such as The
Home Depot (HD) and Lowe’s (LOW), with sales through those two centers
accounting for over 40% of the company’s gross sales in fiscal 2018, as well as
through a network of independent distributors. As of July, the company operates
18 manufacturing facilities in the U.S. and Mexico and has seven primary
service centers located throughout the U.S.
The company’s products include framed stock cabinets offered
in over 500 different 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 customizable combinations
of maple, oak, cherry, and hickory frames, doors, and drawers. 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
an uptick in sales during fiscal Q2 (Oct) and Q4 (Apr).
Notable activity in American Woodmark’s recent history
includes its acquisition in December 2017 of RSI Home Products, one of North
America’s largest in-stock and value-based (affordably-priced) cabinet makers.
The implied enterprise value for RSI was approximately $1.075 bln, made up of
cash, stock, and assumed debt. RSI provides cabinetry solutions, counter tops,
and accessories with over 100 styles and finishes for bathrooms, kitchens, and
home and garage organization to home centers, builders, dealers, and remodeling
contractors.
Turning to the JulQ results, non-GAAP EPS rose 50% year/year
to $2.04/share, which was much better than market expectations. Revenue rose
55% year/year to $429 mln, which was in-line with market expectations. The RSI
acquisition provided a big portion of this revenue growth. This was the second
full quarter to include RSI, and excluding RSI, revenue would have been up just
8% year/year to $299 mln.
As is typical for the company, AMWD did not provide forward
guidance. Adjusted EBITDA margin improved to 15.9% from 13.5% in the prior year
period. This was primarily due to sales growth in the quarter and the inclusion
of three months of results for RSI. As is also usual, the company presented
little by way of color in its press release; an earnings call scheduled for
this morning 11 a.m. ET was expected to provide further details. However, AMWD management
did say that the company experienced growth in all channels, over-indexing the
market as a whole.
Of note, AMWD did announce that it has reinstated the
company's previously suspended stock repurchase program. AMWD had previously
announced the suspension of its stock repurchase program in December 2017 in
connection with the RSI acquisition. Approximately $36 mln remains available
under the program for repurchases.
The stock is trading higher on the JulQ report, indicating
that investors are upbeat about the quarter overall. The stock tends to trade
in a choppy pattern with big moves (up and down) around earnings -- the
company’s customary lack of earnings guidance perhaps gives investors difficulty
setting expectations. Our sense this quarter is that the market may have
continued to underestimate the impact of the RSI acquisition on results. The
newly combined company continues to be off to a good start.