American Woodmark (AMWD -11%) is trading significantly lower following its Q1 (Jul) report. AMWD, one of the largest cabinet manufacturers in the U.S., reported back-to-back EPS misses after four consecutive large EPS beats. Revenue dropped 7.9% year-over-year to $459.1 million, falling short of expectations.
- AMWD delivered sales growth in the new construction market, but weaker-than-expected demand in the remodel market offset these gains. Looking ahead, the company expects FY25 sales to decline in the low single digits, contrary to analysts' expectations of slight positive growth.
- Single-family housing starts have slowed over the past three months, putting downward pressure on future cabinet installations. Higher interest rates and macroeconomic pressures are leading to weaker spending on high-priced discretionary projects like kitchens and baths, according to home center customers.
- On a positive note, AMWD believes it is not losing market share. The company expects consumer confidence and existing home sales to rise as interest rates decline, potentially boosting home projects in 2025. Continued growth in new construction is also anticipated during the back half of the year.
- Operational improvements over the past year have helped AMWD mitigate volume declines in the broader repair and remodel industries. Investments in automation are expected to drive future operational efficiencies. Notably, AMWD was aggressive with share buybacks in Q1, repurchasing about 1.8% of outstanding shares.
Overall, AMWD had a challenging start to FY25. While investors expected difficulties in the repair/remodel segment, the weakening new construction side was unexpected. AMWD needs interest rates to fall to kickstart kitchen and bath remodels in both new construction and remodel markets. When rates do fall, AMWD could be a stock to watch.
