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GMS Inc. (GMS +12%) is heading sharply higher following a healthy EPS beat with its Q4 (Apr) report this morning. This building products distributor (wallboard, ceilings, steel framing etc.) reported a 5.6% yr/yr drop in revenue to $1.33 bln, however, that was in-line with the single analyst estimate.

• The company is pleased with its Q4 and FY25 results, despite deterioration in its end market conditions as it moved through the fiscal year. GMS said that commercial activity continues to be negatively impacted by high interest rates, the lack of available financing and general economic uncertainty contributing to soft starts and mixed results among commercial applications. GMS expects this dynamic to continue but moderate, with some recovery in its business towards the first half of calendar 2026.
• Despite pressures, there were areas of strength. Within commercial, current category strength continues to come from larger projects and those that are not as dependent on private financing, particularly those in public education, health care, and technology. Notably, a data center backlog extends well into 2026, and there is no indication of these projects slowing down in the near term.
• Also, GMS posted Q4 volume growth for Ceilings and Complementary Products. Ceilings performed particularly well given the continued benefits of the addition of its Kamco Supply acquisition. In addition, GMS has focused more on architectural specialties projects, which have higher average unit pricing. In Steel Framing, as suppliers navigate the latest tariff actions, GMS has received notices of upcoming manufacturer price increases.

A key statement that stood out to us was GMS saying it's cautiously optimistic that it is nearing the bottom of the cycle, although the intensity and duration of the downturn will vary by each end market. High interest rates and policy uncertainty are the primary impediments to growth. These factors are causing homebuyers to retreat to the sidelines, multifamily and commercial developers to pause or delay starts, and regional banks to increase commercial lending requirements for new projects and lend less overall.

Given all the macro headwinds, we think investors are pleased with GMS's Q4 report and its comments about FY26. GMS's market appears it will remain difficult in the near term, but management did provide some measure of optimism, saying it's nearing a bottom in the cycle.