GMS Reports Third Quarter Fiscal 2023 Results
GMS Inc. (NYSE: GMS), a leading North American specialty building products distributor, today reported financial results for the fiscal third quarter ended January 31, 2023.
Third Quarter Fiscal 2023 Highlights
(Comparisons are to the third quarter of fiscal 2022)
- Net sales of $1.2 billion increased 7.0%; organic net sales increased 6.4%.
- 19.9% multi-family and 5.6% commercial Wallboard volume growth in the U.S. helped to partially offset single-family volume declines of 10.6%.
- Net income of $64.8 million, or $1.53 per diluted share, increased 5.5% compared to net income of $61.4 million, or $1.40 per diluted share; Adjusted net income of $78.3 million, or $1.85 per diluted share, compared to $76.5 million, or $1.74 per diluted share.
- Adjusted EBITDA of $140.8 million increased $5.8 million, or 4.3%; Adjusted EBITDA margin was 11.4%, compared to 11.7%.
- Cash provided by operating activities increased $76.9 million to $134.1 million; Free cash flow improved $82.3 million to $122.5 million.
- Net debt leverage was 1.6 times, down from 2.3 times a year ago.
“We were pleased to deliver solid results for our fiscal third quarter, including heightened levels of net sales, net income, Adjusted EBITDA and cash flow,” said John C. Turner, Jr., President and Chief Executive Officer of GMS. “Continued strength in multi-family, improved commercial activity and continued expansion of Complementary Products helped to offset both the early stages of a slowdown in single-family construction as well as difficult weather conditions during the quarter.”
Turner continued, “At the end of December, we acquired Tanner Bolt & Nut, Inc. (“Tanner”) in Brooklyn, NY. Tanner is a leading distributor of tools and fasteners servicing primarily the five New York City Boroughs and Long Island. Complementing this acquisition is our new greenfield yard, also in Brooklyn, with a dedicated focus on Ceilings, which we opened in early January. Combined, these investments give us a meaningful presence in the New York City area and a base from which we intend to continue to invest and grow, demonstrating our ongoing commitment to our strategic priorities of expanding our footprint and growing our Complementary and core product sales.”
“As we look to close out fiscal 2023 at the end of April, it appears single-family demand will continue to soften while multi-family and commercial activity should improve seasonally with continuing year-over-year growth. During this period, we expect to see year-over-year pricing in Wallboard, Ceilings and Complementary Products remain resilient. Similar to this quarter however, pricing and volumes in Steel Framing will likely remain challenged.”
“Given these end market dynamics, subsequent to the end of the quarter, the Company implemented cost reduction initiatives to better align our operations with the current demand outlook. As phased in, these initiatives are expected to reduce fixed SG&A expenses by approximately $15 million on an annualized basis. Approximately $2.5 million in one-time execution costs related to these reductions will be recorded during our fiscal fourth quarter.”
“All considered, we continue to be well-positioned with the scale, wide range of product offerings and expertise to adjust as needed to service the demands of all of our customers and continue to grow our business over the longer term.”
Third Quarter Fiscal 2023 Results
Net sales for the third quarter of fiscal 2023 of $1.2 billion increased 7.0% as compared with the prior year quarter, primarily due to resilient pricing in Wallboard, Ceiling tiles and Complementary Products, strong levels of multi-family construction activity, a slowly recovering commercial construction environment and continued sales growth both organically and otherwise in Complementary Products. These results were partially offset by declining single-family construction demand and a challenging volume and pricing environment in Steel Framing. Organic net sales, which exclude the net sales of acquired businesses until the first anniversary of the acquisition date and the impact of foreign currency translation, increased 6.4%.
Year-over-year quarterly sales changes by product category were as follows:
- Wallboard sales of $500.7 million increased 20.6% (up 21.2% on an organic basis).
- Ceilings sales of $146.8 million increased 4.9% (up 5.2% on an organic basis).
- Steel Framing sales of $234.5 million decreased (17.1)% (down (16.8)% on an organic basis).
- Complementary Product sales of $352.6 million increased 11.7% (up 8.2% on an organic basis).
Gross profit of $402.2 million increased 9.4% compared to the third quarter of fiscal 2022 primarily due to the continued successful pass through of product inflation, improving commercial Wallboard sales, growth in the sales of Complementary Products, and incremental gross profit from acquisitions. Gross margin of 32.6% increased 70 basis points year-over-year with better-than-expected margins in Steel Framing on focused inventory management and project quoting as well as the execution on negotiated year-end volume incentives. End market mix and Complementary Product margins were also favorable in the quarter.
Selling, general and administrative (“SG&A”) expense leverage during the quarter was negatively impacted by demand pull-backs in single-family construction, resulting in a relative mix shift in end market volumes, which while favorable to gross margin, also require a higher operational cost to serve. In addition, inflationary wages, higher fuel and maintenance costs and disruptive weather conditions in several markets ultimately challenged our normal operational efficiency. As a result, SG&A expense as a percentage of net sales increased 80 basis points to 21.7% for the quarter compared to 20.9% in the third quarter of fiscal 2022. Adjusted SG&A expense as a percentage of net sales of 21.4% increased 100 basis points from 20.4% in the prior year quarter.
Net income increased 5.5% to $64.8 million, or $1.53 per diluted share, compared to net income of $61.4 million, or $1.40 per diluted share, in the third quarter of fiscal 2022. Adjusted net income was $78.3 million, or $1.85 per diluted share, compared to $76.5 million, or $1.74 per diluted share, in the third quarter of the prior fiscal year. Earnings per share outpaced net income as a result of the $100.4 million in share repurchases completed since the end of January 2022.
Adjusted EBITDA increased $5.8 million, or 4.3%, to $140.8 million compared to the prior year quarter. Adjusted EBITDA margin was 11.4%, compared with 11.7% for the third quarter of fiscal 2022.
Balance Sheet, Liquidity and Cash Flow
As of January 31, 2023, the Company had cash on hand of $186.7 million, total debt of $1.2 billion and $574.4 million of available liquidity under its revolving credit facilities. Net debt leverage was 1.6 times as of the end of the quarter, down from 2.3 times at the end of the third quarter of fiscal 2022.
The Company recorded significantly improved levels of cash flow for the quarter. Cash provided by operating activities and free cash flow were $134.1 million and $122.5 million, respectively, for the quarter ended January 31, 2023. For the quarter ended January 31, 2022, the Company recorded cash provided by operating activities and free cash flow of $57.2 million and $40.2 million, respectively.
During the quarter, the Company repurchased 656,670 shares of common stock for $33.2 million. As of January 31, 2023, the Company had $128.0 million of share repurchase authorization remaining.
Platform Expansion Activities
During the third quarter of fiscal 2023, the Company continued the execution of its platform expansion strategy with its first entries into the New York City market. These include the acquisition of Tanner Bolt & Nut, Inc. on December 30, 2022 and the opening of a Ceilings-focused greenfield location, expanding upon its existing vendor relationships in other Northeast markets.
In addition, during the quarter, the Company opened a greenfield yard location in Chester, VA and three new AMES store locations.
For the complete press release, click here.
About GMS Inc.
Founded in 1971, GMS operates a network of approximately 300 distribution centers with extensive product offerings of Wallboard, Ceilings, Steel Framing and Complementary Products. In addition, GMS operates approximately 100 tool sales, rental and service centers, providing a comprehensive selection of building products and solutions for its residential and commercial contractor customer base across the United States and Canada. The Company’s unique operating model combines the benefits of a national platform and strategy with a local go-to-market focus, enabling GMS to generate significant economies of scale while maintaining high levels of customer service.
Carey Phelps – Investor Relations – firstname.lastname@example.org – (770) 723-3369
Source: GMS, Inc.