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.
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