American Woodmark (AMWD)

Cabinet manufacturing company American Woodmark (NASDAQ:AMWD) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 11.7% year on year to $400.4 million. Its non-GAAP profit of $1.61 per share was 13.4% above analysts’ consensus estimates.

Company Overview

Starting as a small millwork shop, American Woodmark (NASDAQ:AMWD) is a cabinet manufacturing company that helps customers from inspiration to installation.

Traditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.

Other companies in the cabinetry market include Masco (NYSE:MAS), Fortune Brands Home & Security (NYSE:FBHS), and private company MasterBrand Cabinets.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, American Woodmark struggled to consistently increase demand as its $1.71 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and suggests it’s a low quality business.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. American Woodmark’s recent performance shows its demand remained suppressed as its revenue has declined by 9% annually over the last two years.

This quarter, American Woodmark missed Wall Street’s estimates and reported a rather uninspiring 11.7% year-on-year revenue decline, generating $400.4 million of revenue.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

American Woodmark has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 17.3% gross margin over the last five years. Said differently, American Woodmark had to pay a chunky $82.71 to its suppliers for every $100 in revenue.

This quarter, American Woodmark’s gross profit margin was 17%, down 1.5 percentage points year on year. American Woodmark’s full-year margin has also been trending down over the past 12 months, decreasing by 2.8 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

American Woodmark was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.4% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, American Woodmark’s operating margin rose by 1.6 percentage points over the last five years.

This quarter, American Woodmark generated an operating profit margin of 7.4%, down 1.1 percentage points year on year. Since American Woodmark’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

American Woodmark’s EPS was flat over the last five years, just like its revenue. This performance was underwhelming across the board.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Although it wasn’t great, American Woodmark’s two-year annual EPS declines of 6.7% topped its two-year revenue performance.

In Q1, American Woodmark reported EPS at $1.61, down from $1.70 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects American Woodmark’s full-year EPS of $6.63 to shrink by 6.4%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

American Woodmark has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.6%, subpar for an industrials business.

Taking a step back, we can see that American Woodmark’s margin dropped by 3.4 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

American Woodmark historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.7%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, American Woodmark’s ROIC averaged 4.8 percentage point increases over the last few years. This is a good sign, and we hope the company can continue improving.

American Woodmark reported $48.2 million of cash and $509.9 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $208.6 million of EBITDA over the last 12 months, we view American Woodmark’s 2.2× net-debt-to-EBITDA ratio as safe. We also see its $4.77 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing American Woodmark beat analysts’ EPS expectations this quarter. On the other hand, its revenue and EBITDA missed as well as its full-year EBITDA guidance. Overall, this was a weaker quarter. The stock traded down 1.7% to $55.58 immediately after reporting.

Updated: June 12, 2025 at 11:05 PM EDT

Before investing in or passing on American Woodmark, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We cheer for all companies making their customers lives easier, but in the case of American Woodmark, we’ll be cheering from the sidelines. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising returns show management's prior bets are at least better than before, the downside is its projected EPS for the next year is lacking. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

American Woodmark’s P/E ratio based on the next 12 months is 8.9x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $70.33 on the company (compared to the current share price of $55.24).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.