WINCHESTER, Va., Nov. 29 - American Woodmark Corporation (Nasdaq: AMWD) today announced results for the second quarter ended October 31, 2005.
Net sales increased 8% from the prior year to $214,535,000. The increase in sales was experienced in both the remodeling and new construction sectors due to higher unit volume and an improvement in mix. The Company had previously issued forward guidance that anticipated net sales growth of 8% to 12%. The Company's previous sales outlook was based on the expectation of stronger seasonal demand in the remodeling and new construction sectors than was actually experienced. The Company believes that reduced consumer confidence and a lingering impact from transportation issues experienced earlier in the year, in certain geographic regions, were the primary reasons sales were at the lower end of previous guidance.
Net income for the quarter was $6,172,000, or $0.37 per diluted share, compared with net income of $11,355,000, or $0.67 per diluted share, in the prior year. Net income was below the Company's previous forward guidance of $0.50 to $0.60 per diluted share.
Gross profit was 15.7% of sales, down from 21.4% in the previous year. The deterioration in gross profit was the result of the continued rise in transportation expense combined with inefficiencies in labor and overhead costs. Transportation expense increased due to higher fuel costs, inflation in rate structures due to an overall lack of carrier capacity and additional cost from switching selected carriers to improve customer service. Labor and manufacturing overhead costs rose as a percentage of sales as actual sales volumes were at the low end of the Company's expectation, creating inefficiencies in production due to excess capacity. In addition, manufacturing overhead costs reflected the addition of two new manufacturing facilities in the third quarter of the last fiscal year.
Selling, general and administrative costs decreased to 11.1% of net sales from 12.1% the previous year due to the impact of cost management efforts and lower costs related to the Company's pay-for-performance employee incentive plans.
Reflecting upon the Company's performance, Chairman and CEO Jake Gosa commented, "We are disappointed with these operating results. Accordingly, we have performed a detailed analysis of our operating margins and identified several operational and strategic initiatives to improve our performance and focus the Company on margin improvement. Operating initiatives, including the adjustment of spending and staffing levels, are being implemented as we begin the third fiscal quarter. In addition, the Company is working with certain customers to either improve margins or transition their business to other suppliers. As these transitions occur over the next several fiscal quarters, the Company will support our strategic customers and minimize the potential adverse impacts."
Looking forward to the third fiscal quarter of 2006, the Company expects reduced rates of growth in the new construction and remodeling markets due to the lower production outlooks announced by several national home builders, uncertain consumer confidence and the potential for increased interest rates. In addition, the Company anticipates the transition of low margin business will commence during the third quarter. As a result, the Company currently expects fiscal third quarter net sales to increase between 0% and 4% over the same period of the prior year. Exclusive of the transition impact, the Company expects sales to increase between 4% and 8% over the prior year. The Company believes that continued operational improvements will be realized during the third quarter. However, the Company expects these improvements will be more than offset by the impact of additional inefficiencies caused by unused manufacturing capacity. Overall, the Company currently believes net income for the third quarter of 2006 will be in the range of $0.20 to $0.30 per diluted share versus $0.42 in fiscal 2005.
American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. Its products are sold on a national basis directly to home centers, major builders and through a network of independent distributors. The Company presently operates fifteen manufacturing facilities and ten service centers across the country.
Safe harbor statement under the Private Securities Litigation Reform Act of 1995: All forward looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors that may be beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission and the Annual Report to Shareholders. The Company does not undertake to publicly update or revise its forward looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
AMERICAN WOODMARK CORPORATION
Unaudited Financial Highlights
(in thousands, except share data)
Operating Results
Three Months Ended Six Months Ended
October 31 October 31
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net Sales $214,535 $199,149 $430,099 $386,683
Cost of Sales &
Distribution 180,808 156,479 359,482 305,143
---------- ---------- ---------- ----------
Gross Profit 33,727 42,670 70,617 81,540
Sales & Marketing
Expense 18,115 16,405 35,928 32,531
G&A Expense 5,709 7,623 12,635 14,509
---------- ---------- ---------- ----------
Operating Income 9,903 18,642 22,054 34,500
Interest & Other
(Income) Expense (52) 28 (61) (18)
Income Tax Expense 3,783 7,259 8,488 13,462
---------- ---------- ---------- ----------
Net Income $6,172 $11,355 $13,627 $21,056
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Earnings Per Share:
Weighted Average
Shares
Outstanding
- Diluted 16,793,367 16,918,556 16,758,552 16,849,175
Earnings Per Diluted
Share $0.37 $0.67 $0.81 $1.25
Balance Sheet
October 31 April 30
2005 2005
---------- ----------
Cash & Cash Equivalents $37,876 $24,406
Customer Receivables 45,512 52,877
Inventories 70,648 65,213
Other Current Assets 16,696 14,158
---------- ----------
Total Current Assets 170,732 156,654
Property, Plant & Equipment 183,534 185,513
Other Assets 19,691 19,001
---------- ----------
Total Assets $373,957 $361,168
========== ==========
Current Portion - Long-Term Debt $1,068 $1,046
Accounts Payable & Accrued Expenses 81,019 81,496
---------- ----------
Total Current Liabilities 82,087 82,542
Long-Term Debt 28,779 29,217
Other Liabilities 33,223 34,218
---------- ----------
Total Liabilities 144,089 145,977
Stockholders' Equity 229,868 215,191
---------- ----------
Total Liabilities & Stockholders' Equity $373,957 $361,168
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