GMS Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 7, 2023

There are 10 speakers on the call.

Operator

Greetings. Welcome to GMS Second Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a note, this call is being recorded.

Operator

At this time, I will turn the conference over to Carrie Phelps, Vice President of Investor Relations. Carrie, you may begin.

Speaker 1

Thank you, Rob. Good morning, and thank you for joining us for the GMS Earnings Conference Call for the Q2 of fiscal 2024. I am joined today by John Turner, President and Chief Executive Officer And Scott Deacon, Senior Vice President and Chief Financial Officer. In addition to the press release issued this morning, we have posted PowerPoint slides to On today's call, management's prepared remarks and answers to your questions may contain forward looking statements as defined in the Securities Litigation Reform Act of 1995. Forward looking statements address matters that are subject to risks and uncertainties, many of which are beyond our control and may cause actual results to differ from those discussed today.

Speaker 1

As a reminder, Forward looking statements represent management's current estimates and expectations. The company assumes no obligation to update any forward looking statement in the future. Listeners are encouraged to review the more detailed discussions related to these forward looking statements contained in the company's filings with the SEC, including the Risk Factors The definitions and reconciliations of these non GAAP measures are provided in the press release and presentation slides. Please note that references on this call to the Q2 of fiscal 2024 relate to the quarter ended October 31, 2023. Finally, once we begin the question and answer session of the call, in the interest of time, we kindly With that, I'll turn the call over to John Turner, whose discussion will be starting on Slide 3.

Speaker 1

J. C?

Speaker 2

C. Durrant:] Thank you, Carrie, and thank you all for joining us today. We are pleased to report another solid quarter, which exceeded our expectations for net sales, net income and adjusted EBITDA. Continued demand in commercial and multifamily construction Drove volume increases in ceilings, steel framing and complementary products, all of which helped to offset a more challenging steel pricing environment and relative softness in single family residential demand. Despite the single family market, wallboard experienced only a slight overall volume decline, which was offset by continued resilient pricing.

Speaker 2

For the quarter, net sales were $1,400,000,000 net income was $81,000,000 And adjusted EBITDA totaled $168,000,000 Cash flow improved again this quarter as we recorded cash from operations $118,000,000 and free cash flow of $102,000,000 up 10% and 6%, respectively, from the prior quarter. Net debt leverage improved to 1.5 times from 1.6 times a year ago. Our well balanced portfolio of products and end markets combined with our team's expertise and the company's scale Continues to provide us with the ability to flex our operations as dynamics in our end markets change. In the near term, multifamily activity is expected to continue at or near current levels as backlog is worked through over the next few quarters. Commercial is also expected to continue at its current pace into the spring, and we are optimistic about the sequentially improved levels of activity We've seen in single family demand.

Speaker 2

As the recent easing of mortgage rates, limited supply of existing homes for sale and favorable demographics Seem to be setting up promising conditions for this end market, particularly as we look out into fiscal 2025. Our teams have done a remarkable job so far this fiscal year under challenging circumstances to continue to focus on our strategic pillars, Which are highlighted on Slide 4. First, we have continued to grow in our core products With higher wallboard sales as a percentage of gypsum associated shipments versus the prior year, reflecting at least in part Our strength in serving the nation's largest homebuilders as they too gain share and as they report a more positive outlook. We've also increased share in steel framing according to the Steel Framing Industry Association data, and we've continued to gain share in ceilings category, which made up 30% of our sales for the quarter and delivered its 14th consecutive quarter of year over year growth. We are placing particular emphasis on tools and fasteners, eaps and stucco and insulation, which collectively continued to grow faster than the overall category during the 3rd, expansion through M and A and Greenfield openings continues to be one of our key levers of growth.

Speaker 2

During the quarter, we acquired AMW Construction Supply, a highly respected distributor of tools and fasteners and other complementary products In the Phoenix, Arizona market, and we also opened 2 new Greenfield locations. Post COVID, We have acquired 14 companies, representing a total of 30 distribution centers and 91 AIM stores, With estimated annual revenues at the time of deal closings of nearly $600,000,000 and we've also opened 26 Greenfield locations. We continue to have a promising pipeline of opportunities and an appetite to expand our footprint in key markets where we are underpenetrated. While we also broaden our service territories and product offerings in existing markets. Finally, With enhanced tools and data to facilitate better decision making and offerings that provide an overall enhanced customer experience.

Speaker 2

The benefits of these efforts are evident in the levels of SG and A we recorded this quarter, which Scott will detail during his remarks. Before turning the call over, I want to thank our team for maintaining our high level of performance and commitment to delivering outstanding customer service during the quarter. We have demonstrated our flexibility and expertise in supporting all of our end markets and believe that we are well positioned as demand dynamics progress in the coming quarters. With that, I will turn the call over to Scott.

Speaker 3

Thanks, JT. Good morning, everyone. Starting with Slide 5, I'll now provide some further perspective on our 2nd quarter results. Net sales for the quarter decreased Just slightly year over year to $1,400,000,000 as steel price and mix deflation of more than 30% Drove an $85,000,000 reduction in net sales. Single family demand softness was also a headwind, While robust activity levels in both our commercial and multifamily end markets with volume increases in steel framing, Ceilings and complementary products were a favorable offset.

Speaker 3

Our recent acquisitions including EMJ, Tanner, Blair, Home Lumber and AMW also contributed positively to our quarter's results. Organically, sales were down 3.1%. From a U. S. End market perspective, multi family sales dollars grew 9 3% year over year, while single family sales dollars declined 10.3%, resulting in a total Residential sales dollar decline of 5.7 percent.

Speaker 3

Commercial sales dollars in the U. S. On the other hand were roughly flat As increased sales volumes were offset by the noted steel price deflation. As we highlighted last Many of our regional markets are continuing to experience favorable commercial demand with active projects underway or scheduled to start in the coming quarters across nearly all sectors. For example, we expect to participate in the Tampa Airport expansion, Multiple new hospitals and other medical facilities, student housing and other higher education facilities, A new casino, several manufacturing facilities, a number of mixed use residential projects and even some tenant build out projects in the office space.

Speaker 3

While financing is tight and could become a headwind for the commercial end market, we are capitalizing on the attractive level of demand that we've been seeing currently. Now looking at our Q2 results for each of our product segments. Wallboard sales dollars of 500 and 17% and 6.5% respectively. Single family wallboard volumes declined 11.4%. Overall, wallboard volumes were approximately flat with resilient prices that remained steady with a year ago, Again, reflecting the realities facing wallboard manufacturers, which are high input and production costs, A lack of excess capacity and increasingly pressured access to synthetic gypsum.

Speaker 3

Organically, 2nd For the Q2, the average realized wallboard price was $4.76 per 1,000 Square Feet, Up slightly from both a year ago and sequentially from our fiscal Q1. Given this continued resilience in pricing, we now expect roughly $175,300,000 increased 9.9% year over year comprised of an 8.5% increase in volumes And a 1.4% benefit from price and mix, organic sales in ceilings grew 7.2% With a 5.8% increase in volumes and a 1.4% benefit from price and mix. 2nd quarter steel framing sales of $232,100,000 were down 16.6% versus the prior year Quarter. As deflationary pricing drove a 30.7% decline in price and mix, while volumes increased 14.1 percent organically steel framing sales were down 17.4% With a 30.5% decline in price and mix, partially offset by a 13.1% increase in volume. While steel framing has been a headwind over the last year, raw material pricing has increased with the underlying commodity indices Given what is traditionally a 4 to 6 month lag post commodity index change, we currently expect steel price to continue to be pressured in the 3rd quarter before flattening out sequentially in the Q4 and then turning positive on a sequential basis during fiscal 2025.

Speaker 3

Complementary product sales of $428,300,000 for the quarter grew 4.8% year over year As we benefited from positive contributions from acquisitions, organically sales of complementary products declined 1.4% Reflecting pricing pressures in lumber and volume declines in our Canadian roofing and lumber product lines given the currently soft residential demand. As we've discussed in previous quarters, we are especially focused on our tools and fasteners, EIFs and stucco and insulation product lines, We are leveraging significant opportunities to share best practices across our operations and drive growth in these areas. For our fiscal Q2, these lines grew 10.6% in the aggregate. Now turning to slide 6, which highlights our profitability for the quarter. Gross profit of $458,600,000 decreased 1 point Gross margin of 32.3% compared to 32.5% a year ago, Just slightly ahead of our expectations for the quarter.

Speaker 3

Volatility in steel pricing and realization of Purchasing incentive tiers were the principal factors in both comparisons. Selling, general and administrative expenses increased $21,900,000 during the quarter to $300,900,000 including Excluding these expansions, we were very pleased that the remaining increase in SG and A expenses lagged our consolidated increase in sales volumes, Even as our high cost to serve end markets led the way in our volume growth for the quarter. I would like to thank our teams for their discipline in controlling costs And driving inefficiencies out of the business. Our rightsizing of the business last winter, coupled with efficiencies gained from ongoing productivity initiatives, Enabled us to achieve these favorable SG and A results. SG and A as a percentage of net sales was 21.2% for the quarter, an increase of 170 basis points from 19.5 percent a year ago, with 120 basis points of the difference Due to steel price deflation, 30 basis points due primarily to increased labor costs, mostly with the higher level of commercial and multifamily activity levels we experienced during the quarter and the remaining 20 basis points due to recent Acquisitions in Greenfields.

Speaker 3

Adjusted SG and A expense as a percentage of net sales of 20.6 percent Net income decreased 21.5 percent to $81,000,000 for the quarter or $1.97 per diluted share Compared to net income of $103,200,000 or $2.41 per diluted share a year ago. Adjusted EBITDA of $167,600,000 decreased $28,000,000 as compared with a year ago. On single family demand pressure, steel framing price declines and the activity based operating cost increases in the quarter, adjusted EBITDA margin Decreased to 11.8% compared to last year's Q2 level of 13.7%. Now shifting to our balance sheet, which is highlighted on slide 7. At quarter end, we had cash on hand of We have no near term debt maturities and our net adjusted EBITDA debt leverage at the end of the quarter was 1.5 times compared to 1.6 times a year ago.

Speaker 3

Cash generation improved again this quarter. Cash provided by operating activities was $118,100,000 compared to Improved from $96,500,000 a year ago. Year to date, we've generated 19% more free cash flow than a year ago. With relative strength of cash flows in the second half, for the full year, we expect free cash flow generation to be between 50 percent of adjusted EBITDA. Capital expenditures of $16,000,000 for the quarter compared to $10,700,000 a year ago.

Speaker 3

We now expect that for the full year fiscal 2024 capital expenditures will be approximately $55,000,000 In October, our Board of Directors approved an expanded share repurchase program under which the company is authorized to repurchase up to 2 During the quarter, we repurchased approximately 689,000 shares, leaving 200 and We are well positioned with a solid balance sheet with no near term maturities on our capital structure. We expect to continue to balance investing in our strategic initiatives, including additional M and A opportunities with paying down debt and opportunistically leveraging favorable market conditions for share repurchases. I'll close my remarks today with thanks to our team for again successfully delivering solid results amidst ever changing market conditions. I'll now turn the call over to JT for a review of our outlook, starting on Slide 8.

Speaker 2

Thank you, Scott. Our end markets remain dynamic. Permits and starts on U. S. Multifamily structures have declined, but a solid backlog remains and is expected to deliver year over year growth, albeit at declining rates through at least the end of this fiscal year.

Speaker 2

Commercial, while solid with improved volumes over a year ago, And for our Canadian business, the news is even more encouraging as we've seen improving starts levels and government backed programs to promote immigration With that as our backdrop, let me move to the expectations for our Q3. First, looking at Wallboard, As I said at the start of the call, the backlog in multifamily is still expected to be relatively strong for the quarter and should continue to provide positive year over year growth. With price mix flat to down just slightly from a year ago, as single family residential reverts to a more normal component of our mix. As we've reported, pricing for wallboard has remained steady in a relatively balanced capacity environment. Additionally, continued investment is required by our manufacturing partners to adjust to the declining availability of synthetic gypsum.

Speaker 2

As such, we expect continued relative stability in wallboard pricing for the remainder of our fiscal year, with the potential for increases as the single family market recovers. In ceilings, for our fiscal Q3, given our expectation of continued solid demand in our We expect a mid to high single digit increase year over year in ceiling volumes with price and mix up low single digits. For steel framing, demand should remain solid with volumes expected to be up low double digits as compared with a year ago. Pricing will continue to be challenging for our fiscal Q3 with expectations of sequential improvement as we move into the year end. As compared with the Q3 of fiscal 2023, price and mix for steel framing is expected to be down nearly 25%, As we continue to focus on expanding our sales of these offerings, for our fiscal Q3, our complementary products year over year sales growth should be up high single digits To low double digits for the quarter.

Speaker 2

Given all these expectations, we anticipate total net sales for our fiscal third quarter To be up low single digits as compared with a year ago. Gross margin will likely be consistent with last quarter And adjusted EBITDA is expected to be in the range of $123,000,000 to $127,000,000 for the quarter. Overall, we expect another solid level of performance for the Q3. And as we approach the end of calendar 2023 and look ahead, Given the fundamentals underlying and supporting housing demand, coupled with an improving interest rate outlook, we expect improving sequential trends in single through the balance of our fiscal year and likely beyond. Commercial too is expected to continue to do well for the time being.

Speaker 2

While tighter lending standards May cause an air pocket in demand at some point next calendar year, activity levels are solid for now and we believe easing within the credit markets We'll drive expansionary improvements. All in all, we believe that we are well positioned with flexibility built into our operations To pivot our efforts as demand levels change in our end markets, which we are confident will help us to continue to drive growth and profitability as we deliver long term value for all of our stakeholders. I'd like to close out our call today by thanking our customers, our suppliers, Teammates and shareholders for your continued support. And I'd like to wish you all a joyous holiday season. Operator, please open the line for questions.

Operator

Thank you. We'll now be conducting a question and answer Our first question comes from the line of Trey Grooms with Stephens. Please proceed with your question.

Speaker 4

Good morning. This is Noah Murkowski on for Trey. Thanks for taking my questions and congrats on the strong results.

Speaker 2

Thank you. Good morning. Good morning.

Speaker 4

So starting off here. First, thank you for all the detailed commentary on your demand outlook. But If we maybe dig a little bit deeper here on the single family side, still expecting some volume pressure as we look at the Q3, but It sounded pretty constructive in terms of the potential for sequential improvement from there. So I guess, is it reasonable to expect Maybe some growth as we look at the 4Q or just given where Wallboard is typically installed in the building process. Is that potentially later, more of a fiscal 2025 event?

Speaker 2

So we should be getting some sequential growth based on what we expect to see from continuing starts. What we have seen from starts already should indicate some growth As early as our Q4, yes. Very slight, but yes.

Speaker 4

Got it. That makes sense. And then As we think, again, maybe longer term into fiscal 'twenty five, potentially seeing growth on the single family side, Sounds like commercial is holding in for now, but in a scenario where you've got those 2 end markets diverging, can you just remind us of the mix impacts as it relates To price, I know it has different impacts on the gross margin and SG and A, but when you get down to EBITDA, is there really Much of a difference there?

Speaker 5

No, there's not.

Speaker 2

You summarized it perfectly.

Speaker 6

A little bit of gross margin difference, a little bit of

Speaker 2

SG and A difference on the commercial and multifamily. So a little bit better margins, Gross margins, a little bit higher cost, but at the end of the day, they both end up both the new single family ends up being very similar in profitability to commercial and

Operator

Our next questions are from the line of David Manthey with Baird. Please proceed with your questions.

Speaker 7

Hi, good morning, everyone.

Speaker 6

Good morning.

Speaker 7

Really encouraging results here and good outlook. Thank you. So first off, with the steel and the visibility you have into pricing there along with your balance sheet Strength, can you typically raise prices slightly faster than the pace of that higher cost inventory working through Your balance sheet and into your P and L, there might be a slight margin opportunity, especially given the visibility you have on that now?

Speaker 2

Dave, what I would say is there's 2 dynamics there. You've got the quoted piece, which is kind of a locked in piece, Which is a large percentage of it, which is your quoted commercial work. And then there's your stocks deal work. In your stocks deal work, I would expect Yes, the availability is to tighten up as we think, then yes, there is the opportunity to be a little bit in front of the pricing that we're receiving. On the other hand, the negotiation around the quoted piece is one that we probably could see a little bit of in the near term when prices go up, A little bit of squeezing.

Speaker 2

So I would just say all in all, through this increased cycle, if we're going to get into a new increased cycle, Certainly, it appears like we're going to at least in the near term. We'll probably be able to keep margins flat during that period. I don't think we'll be able to increase them significantly, But because of those two offsets.

Speaker 3

I'll just reiterate too from past discussions. We turned steel inventory pretty fast too about So there typically isn't much inventory impact as we work through those pricing changes.

Speaker 7

Yes. Okay. Thank you, Scott. And then there's clearly a lot of folks there at GMS That has lived through more than one cycle. And I'm just wondering if we can tap your brains.

Speaker 7

I assume you tapped theirs Just in terms of any wisdom that they've shared relative to the current interest rate situation and sort of how things might play out, things that we may not Thought of at this point would be helpful.

Speaker 2

Are you speaking primarily about a commercial cycle? Because I think we're in the bottom of the The new residential seems to have bottomed. And most likely, if we come off of this interest rate environment, There shouldn't be much of a lag and there isn't apparently according to the most of the homebuilders reports, there isn't much of a lag in activity from interest coming down to building of homes. The commercial one, on the other hand, it's a longer period of time. So we're still experiencing the strength Of projects that, of course, broke ground a year ago and remodel projects that were basically financed when things were a little bit easier out there.

Speaker 2

I do think we'll see an air pocket in commercial, but we have a real strong remodel component and remodel historically has Less volatile than new in commercial. And so I think that will help us. And also, we were back looking again, Dave, at The volumes, we're still not back. Our industry ourselves in our industry, I would guarantee that, are still not back to pre COVID levels In volumes in wallboard and steel, in the neighborhood of 10%. So whatever happens in commercial going forward, I just don't see it being A draconian event.

Speaker 2

I don't see it being off 20% like we saw single family just hit the brakes so hard a year ago. And now we're down in there, the course of the last couple of quarters having significant double digits declines in volume. I just don't see commercial doing that. Will it soften? Certainly will.

Speaker 2

I think you can't with the ABI and the financing being as tight as it has been, I think it will soften into 2025, the back half Of our fiscal 2025, I also think it's going to be fully offset by single family activity, because I don't think it's going to be A real dramatic change. And post that period, I also think that there's a lot of pent up demand out there. You're reading about it every day, Whether it's the conversion of office space to single or to multifamily or just in general, our channel checks are indicating increased Remodel activity in office, some of that being driven purely because it hasn't been done in a long time. So I do feel like we'll see some slowdown in commercial, but we're not expecting it to be off 15% or something like that.

Speaker 7

Yes. Commercial is about 2 thirds remodeled, correct?

Speaker 2

Yes. Historically, that's right. It's a little less than that right now because The softness in office, so it's closer into that fifty-fifty range. But in a historical market, our remodel would be 2 thirds. That's right.

Speaker 7

Okay. Thank you very much.

Speaker 6

Thanks, Dave. Thanks, Dave.

Operator

Our next questions come from the line of Matthew Bouley with Barclays. Please proceed with your question.

Speaker 8

Good morning. This is Anika Delacchia on for Matt. Thanks for taking my question. So first off, just curious if you could give us a little more detail on the strength in multifamily that you guys are seeing this quarter. And moving forward, I know you guys Noted that backlog should carry you through fiscal year and further growth into 2024.

Speaker 8

So I guess given just starts are so much weaker, when do you see this Is it more of a fiscal 2025 story or could it potentially be earlier? Thanks.

Speaker 2

We think it's fiscal 2025. I mean, we just did the math on starts and completions. I think it's the same math that you guys have done and everybody does. And we just experienced, Of course, the single family backlog environment and worked ourselves through that. And so between that experience and the math,

Speaker 8

Understood. Thank you. And then for my second question, I know steel deflation was a large headwind this quarter and Thank you.

Speaker 3

We talked about sort of the $85,000,000 impact in the 3rd quarter. I'd say based on our projections For Q3, it's probably still meaningful, but less than that, probably in the ballpark of about 50,000,000 And then you can flow that down through the P and L in a similar fashion to what we saw in Q2. Still impactful, but less than we saw in Q2.

Speaker 8

Perfect. Thank you, guys. I'll pass it on.

Operator

Our next questions are from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question.

Speaker 5

Good morning. Thanks for taking my questions. I want to stick with multifamily. I mean, I think it's helpful the way you articulated the balance between Single family and commercial on that by the time commercial seasons decline, single family could make up for it. It does seem like multifamily declines could be More meaningful and those cycles can potentially

Speaker 7

last a

Speaker 5

little longer given it is credit and cap rate induced. So how are you I guess if single family offsets commercial, how are you thinking about the impact from Multifamily in 2025 and beyond. And just remind us at this point, what percentage of your business is multifamily?

Speaker 2

Well, we use wallboard as a proxy, right? In our wallboard volume, it's about 17%. It's less than that as a total revenue component, probably down in that 12% to 15% range It's multifamily. And so I almost throw multifamily and commercial together. And so you got to put those 2 markets together.

Speaker 2

And single family is 50% plus The overall wallboard business and probably when we get into a more normalized market, 50% plus of our overall revenue. Again, my expectation of commercial is not to be off in the teens. Probably, I would imagine Single digits to maybe at the bottom low double at the best. And then multifamily can be off its 15% or 20%, and you'd still get a full offset of Single family. I'm hoping it's not that bad on the multifamily and the commercial side.

Speaker 2

It just doesn't feel like whatever Next year is coming into that we're going to have that deep of a correction from a commercial perspective. We certainly will bounce and it will be very volatile in multifamily. The other offset to multifamily down the road, of course, is you are hearing more and more every day about the conversion from office Multifamily. So that's going to happen. And that's more of a remodel activity.

Speaker 2

And again, we're very strong in that area. So I would expect that to be A degree of an offset as we get there. And then, I mean, the reality is further down the road, every day you can't pick up the paper and not read for the long haul because it's the only way to provide affordable housing. And I feel like we're going to get through whatever this air pocket Going to be in 2024 or fiscal 2025. And you're really going to have a pretty strong fundamental position for housing, all housing going out End of the end of the decade.

Speaker 3

And that last point is particularly notable in Canada, where the relative mix of multifamily is higher Versus single family in that market.

Speaker 5

Got it. Yes, that's all very helpful. Certainly, the last point, I fully agree with in terms of the importance longer term of multifamily and serving affordability. With these puts and takes, potential for price increases in wallboard as single family strengthens. So you'd have potentially the half inch market Weakening and then single family strengthening, How does that typically play out in terms of then what happens with pricing?

Speaker 5

Would you still expect broad increases across wallboard Products or would it be a little bit more targeted in terms of maybe not seeing Increases on 0.5 inches but seeing increases on your Single family business, how have you typically seen that play out?

Speaker 2

When single family is strong, it's the capacity situation. It eats up lot more capacity is a much bigger part of the overall market historically. So it's across the board. It's across the board. I mean really If you look at the commercial products, they actually run slower.

Speaker 2

And so generally speaking, if you're capacity constrained, Because you're running all single family product, there's no reason to consider a 5.8s a decline in price in 5.8s.

Operator

Our next question is from the line of Kurt Yinger with D. A. Davidson. Please proceed with your question.

Speaker 9

Great. Thanks and good morning everyone.

Speaker 3

Good morning. Hi, Kurt.

Speaker 2

Hi, Kurt.

Speaker 9

On the Sealing side, The last couple of quarters, you've talked about kind of the greenfields and some expanded vendor relationships. Can you maybe talk about how those factors Played into the strength you saw this past quarter and maybe also touch on just competitive dynamics and

Speaker 2

About that, I would probably though point out more to the strength in the remodel sector and Our channel checks telling us that the increase in office remodel and tenant improvement work, smaller work, medium sized work, Suburban work, all those things seem to be strengthening a little bit right now. And so that would really be the bigger driver and probably why we're expecting again A pretty strong quarter going forward.

Speaker 6

Got it.

Speaker 9

Okay. That makes sense. And then just second within complementary products, Can you talk about any internal initiatives you have to maybe expand the strength in those categories across More of the footprint and what you're prioritizing to grow the business organically at this stage?

Speaker 2

Yes, it's both product it's both vendor relationships In our tools and of course, our M and A in tools and fasteners, right? We bought Tanner. We've just bought A and W out there in Phoenix. And so we'll continue down that path from an M and A perspective as well. But we those acquisitions also provide expertise for us To help grow organically, and we've been growing our sales teams in this area and our leadership teams in this area across all of our divisions and both in tools and fasteners, East and Stucco primarily a Southern United States effort and then insulation.

Speaker 2

So we've been growing. As we get bigger, we're able to specialize our Sales force and that's fairly meaningful when you're able to do that. When you can take these types of products and not have to have a generalist out there Selling them with the key volumes still for most of our generalists obviously are our core products. So when you get big enough and have scale and you can afford to have the sales

Speaker 9

Got it. Okay. Appreciate the color, guys. Thank you.

Speaker 2

Thank you. Thank you.

Operator

Thank you. Our last question is from the line of Steven Ramsey with Thompson Research Group. Please proceed with your question.

Speaker 6

Hey, good morning. This is actually Brian Biros on for Steven. Thank you for taking my questions. First, I guess, it sounds like you aren't really seeing any meaningful pauses or cancellations in non res activity yet, but obviously expecting air pocket eventually. I guess outside of August, which sounds like it's Not doing so bad right now.

Speaker 6

Are there any verticals or geographies that look like they would be the next to see kind of this downward pressure based on what you're seeing today?

Speaker 2

The West Coast has been the softest throughout the entire period. And so it's still soft, right, with multifamily has been fine But it's been soft across the board. When you ask about geography, that's really the softest geography is the West for us. But none of the verticals themselves are indicating any more softness each other. I mean, if you look at the put in place numbers too, it's fairly reflective of that.

Speaker 2

The key construction related Categories are all kind of in that high single to low double digit range as far as activity goes.

Speaker 6

Okay. And then, I guess, last follow-up would be, can you just provide more color on the I guess, kind of just the overall platform expansion I guess more kind of more specifically the AIM stores and the acquired Tools distributor you guys mentioned. I think you mentioned earlier, some of these acquisitions added some expertise. I guess I'd just be interested to hear how you guys think you can capitalize on that and kind of roll that expertise type stuff out across the platform? Thank you.

Speaker 2

Yes. It relates back to the so organically, it just relates back to the answer to the previous question and that is primarily using resources that really know and understand that business I'll give you an example. Our fasteners business was up pretty dramatically in the quarter as a percentage. It's still a small part of the overall business. But a lot of that is just us being smarter and better about how we buy those products, providing competitive price for all of our teams.

Speaker 2

So arm primarily for complementary products, but then also the focus on sales teams that I just answered. The more and more that we can generate enough volume to afford to have

Operator

That concludes our question and answer session. And this will also conclude our call for today.

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Key Takeaways

  • GMS delivered Q2 net sales of $1.4 billion, net income of $81 million and adjusted EBITDA of $168 million, while generating $118 million in operating cash flow and improving net leverage to 1.5x.
  • Robust commercial and multifamily construction drove volume gains in ceilings, steel framing and complementary products, offsetting steel price deflation of 30% and single-family softness, resulting in flat wallboard volumes and resilient pricing.
  • The company continued gaining share with its core products and saw its ceilings division achieve its 14th consecutive quarter of growth, while accelerating tools & fasteners, EIFS & stucco and insulation through organic focus and M&A (including AMW) plus two Greenfield openings.
  • For Q3, GMS expects low-single-digit net sales growth, ceilings volumes up mid- to high-single digits, steel framing volumes up low-double digits despite pricing headwinds, and complementary products up high-single to low-double digits, targeting $123–127 million in adjusted EBITDA.
  • Looking ahead, single-family demand is forecast to sequentially improve as mortgage rates ease and supply remains limited, commercial activity is set to stay solid into spring, and multifamily backlog is expected to support growth through fiscal 2025.
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Earnings Conference Call
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