American Woodmark (AMWD)

Cabinet manufacturing company American Woodmark (NASDAQ:AMWD) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 12.2% year on year to $403 million. Its non-GAAP profit of $1.01 per share was 11% below 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.

Reviewing a company’s long-term sales performance reveals insights into its 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 $1.65 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards 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 9.6% annually over the last two years.

This quarter, American Woodmark missed Wall Street’s estimates and reported a rather uninspiring 12.2% year-on-year revenue decline, generating $403 million of revenue.

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

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

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 17.1% gross margin over the last five years. Said differently, American Woodmark had to pay a chunky $82.86 to its suppliers for every $100 in revenue.

In Q2, American Woodmark produced a 16.7% gross profit margin, marking a 3.5 percentage point decrease from 20.2% in the same quarter last year. American Woodmark’s full-year margin has also been trending down over the past 12 months, decreasing by 3 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 an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

American Woodmark was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.3% 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 1.5 percentage points over the last five years.

In Q2, American Woodmark generated an operating margin profit margin of 5%, down 5.2 percentage points year on year. Since American Woodmark’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for American Woodmark, its EPS declined by 1.3% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences.If the tide turns unexpectedly, American Woodmark’s low margin of safety could leave its stock price susceptible to large downswings.

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

American Woodmark’s two-year annual EPS declines of 18.7% were bad and lower than its two-year revenue losses.

Diving into the nuances of American Woodmark’s earnings can give us a better understanding of its performance. American Woodmark’s operating margin has declined over the last two years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q2, American Woodmark reported adjusted EPS of $1.01, down from $1.89 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects American Woodmark’s full-year EPS of $5.75 to shrink by 14%.

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 mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.8%, subpar for an industrials business.

Taking a step back, an encouraging sign is that American Woodmark’s margin expanded by 1.1 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

American Woodmark’s free cash flow clocked in at $41.21 million in Q2, equivalent to a 10.2% margin. This result was good as its margin was 3.8 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 3.8 percentage point increases over the last few years. This is a good sign, and we hope the company can continue improving.

American Woodmark reported $54.91 million of cash and $504.3 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 $188 million of EBITDA over the last 12 months, we view American Woodmark’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $3.92 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 struggled to find many positives in these results. Its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $67.02 immediately following the results.

Updated: November 8, 2025 at 10:22 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in American Woodmark.

American Woodmark falls short of our quality standards. To begin with, 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 declining EPS over the last five years makes it a less attractive asset to the public markets.

American Woodmark’s P/E ratio based on the next 12 months is 12x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $70 on the company (compared to the current share price of $55.61).

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.