American Woodmark (AMWD)

Cabinet manufacturing company American Woodmark (NASDAQ:AMWD) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 5.8% year on year to $397.6 million. Its non-GAAP profit of $1.05 per share was 20.2% 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 have short-term success, but a top-tier one grows for years. Unfortunately, American Woodmark’s 1.2% annualized revenue growth over the last five years was weak. This fell short of our benchmarks and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. American Woodmark’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 8.1% annually.

This quarter, American Woodmark missed Wall Street’s estimates and reported a rather uninspiring 5.8% year-on-year revenue decline, generating $397.6 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.2% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

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 20.7% gross margin over the last five years. That means American Woodmark paid its suppliers a lot of money ($79.33 for every $100 in revenue) to run its business.

American Woodmark’s gross profit margin came in at 91.5% this quarter, marking a 72.3 percentage point increase from 19.2% in the same quarter last year. American Woodmark’s full-year margin has also been trending up over the past 12 months, increasing by 14.5 percentage points. If this move continues, it could suggest an environment where the company has better pricing power and stable or shrinking input costs (such as raw materials).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

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 1.3 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, American Woodmark generated an operating profit margin of 5.3%, down 1.3 percentage points year on year. Conversely, its gross margin actually rose, so we can assume its recent inefficiencies were driven by increased operating expenses like marketing, R&D, and administrative overhead.

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 1.2% annually over the last five years while its revenue grew by 1.2%. However, its operating margin actually expanded during this time and it repurchased its shares, telling us the delta came from reduced interest expenses or taxes.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Although it wasn’t great, American Woodmark’s flat two-year EPS performance topped its two-year revenue performance.

In Q4, American Woodmark reported EPS at $1.05, down from $1.66 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 $6.71 to grow 12.8%.

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 5.2%, subpar for an industrials business.

Taking a step back, we can see that American Woodmark’s margin dropped by 6.5 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 has increased over the last few years. This is a good sign, and we hope the company can continue improving.

American Woodmark reported $43.48 million of cash and $518.7 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 $216.2 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 $3.81 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 full-year EBITDA guidance missed significantly and its revenue fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 4.8% to $67.77 immediately following the results.

Updated: May 21, 2025 at 11:34 PM EDT

Are you wondering whether to buy American Woodmark or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

American Woodmark doesn’t pass our quality test. 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 projected EPS for the next year implies the company’s fundamentals will improve, the downside is its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders. On top of that, its cash profitability fell over the last five years.

American Woodmark’s P/E ratio based on the next 12 months is 7.6x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $76.33 on the company (compared to the current share price of $57.49).

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.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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