Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales increased by 2.8% to $1.45 billion, driven by volume growth across major product categories.
- Gross margin remained relatively stable at 31.2%, despite a challenging market environment.
- Complementary products saw a 4.1% growth, with specific categories like insulation, tools and fasteners, and EIFS/stucco growing by 9% year-over-year.
- Recent acquisitions, including R.F. Elliott, are expected to be accretive to EBITDA margins and expand GMS Inc (GMS, Financial)'s footprint and product offerings.
- The company is implementing a $25 million annualized cost reduction program to optimize efficiency and reduce overhead.
Negative Points
- Organic sales declined by 2.2%, primarily due to softening demand in multi-family and commercial end markets and steel price deflation.
- Net income decreased by 34.1% to $57.2 million compared to $86.8 million a year ago.
- Adjusted EBITDA fell by 15.8% to $145.9 million, with EBITDA margin decreasing to 10.1% from 12.3% a year ago.
- High interest rates continue to create a challenging financing environment, particularly impacting commercial demand.
- Steel price deflation had a significant negative impact, contributing to a 16.8% decline in price and mix for steel framing products.
Q & A Highlights
Q: Can you provide an updated outlook on gross margins for the rest of the fiscal year?
A: John Turner, President and CEO: The outlook for gross margins is lower than the previously anticipated 32% due to slower price realization. We are working to claw back price increases, but it's taking longer than expected. We expect to see improvement as single-family market activity picks up, potentially leading to a return to 32%-plus gross margins in the long run.
Q: How is steel price deflation impacting SG&A expenses, and what is the outlook for steel prices?
A: Scott Deakin, CFO: Steel price deflation is offsetting potential SG&A relief from the commercial mix shift. We are taking $25 million in costs out of the business to address near-term volume challenges. We expect steel prices to decline sequentially by about 2% next quarter, with hopes for stabilization or gradual increases thereafter.
Q: What is the pacing of the $25 million cost reduction program?
A: John Turner, President and CEO: We expect to realize about half of the cost savings in the second quarter, with full benefits materializing by the third quarter.
Q: How long will it take for steel prices to stabilize year-over-year?
A: John Turner, President and CEO: We expect steel prices to stabilize beyond this fiscal year. We can provide more specific forecasts upon request.
Q: What is causing the divergence in volume expectations between Wallboard and Ceilings?
A: John Turner, President and CEO: Ceilings are benefiting from strong demand in data centers, healthcare, and education, which are less impacted by the slowdown in general commercial and multifamily projects. This has led to continued growth in Ceilings volumes.
Q: How broad is the commercial slowdown, and what are the key factors?
A: John Turner, President and CEO: The slowdown is broad, with large interest rate-dependent projects being delayed or canceled. The commercial market is facing a general malaise, with significant projects like EV-related developments being postponed.
Q: When do you expect multifamily market conditions to improve?
A: John Turner, President and CEO: We expect multifamily market conditions to improve in the back half of calendar 2025, with single-family market recovery anticipated to offset multifamily declines.
Q: What are the expectations for Wallboard pricing in the back half of the fiscal year?
A: John Turner, President and CEO: We expect to continue realizing like-for-like pricing gains in Wallboard over the next two quarters, with potential for inflationary pricing in the spring of next year.
Q: How are complementary products performing, and what is driving their growth?
A: John Turner, President and CEO: Complementary products are performing well, driven by targeted investments and acquisitions. We are gaining share in areas like EIFS, stucco, and insulation, and leveraging acquisitions to improve sales across other GMS locations.
Q: Who are you gaining share from in complementary products?
A: John Turner, President and CEO: We are gaining share from smaller players in tools and fasteners, and improving our capabilities in EIFS, stucco, and insulation through targeted acquisitions and focused sales efforts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
