American Woodmark's Hard-Knock Q3

Virginia-based cabinet maker American Woodmark (Nasdaq: AMWD  ) posted impressive results for its fiscal third quarter on Tuesday, but difficulties could lurk in the offing.

Third-quarter sales grew more than 19%, compared to the year-ago numbers. While earnings did not quite keep that pace, they rose a healthy 15%. The company blamed higher costs for raw materials, such as hardwood and plywood, for a 1.4% decrease in gross margins. However, American Woodmark partially offset these costs by tightening up on sales, general and administrative expenses, bringing those down 1%.

American Woodmark sees the good news continuing at least into its fiscal fourth quarter. It predicts that sales growth will continue apace, with a 15% to 20% rise over last year's Q4. Earnings per share is expected to come in between $1.00 to $1.05.

Truth be told, American Woodmark really needs to hit those marks -- especially the earnings target. Over the past nine months, the company posted numbers indicating 16% revenue growth. One might think this quarter's actual sales growth and next quarter's projected sales growth indicate that the cabinet maker is doing better and better as time goes on.

One might think, but one would be wrong. American Woodmark's earnings numbers are not quite as encouraging as its revenue numbers. While the 15% earnings growth this quarter is nice, it barely made a dent in the past nine-months' numbers, which remain down 7.5% over the corresponding year-ago period.

So if sales are rising fast, and earnings are rising, too, but lagging sales growth, who is to blame?

My guess is that the guilty parties are American Woodmark's two biggest customers: Home Depot (NYSE: HD  ) and Lowe's (NYSE: LOW  ) . Both Home Depot and Lowe's are posting impressive sales and earnings growth recently. Both Home Depot and Lowe's buy American Woodmark's products. And both Home Depot and Lowe's are earning more this year than last year -- in contrast to American Woodmark and despite its sales growth.

I think it's clear what is going on here: American Woodmark is getting squeezed.

Are Home Depot and Lowe's squeezing supplier American Woodmark? Talk it out with other Fools on the Home Depot and Lowe's discussion boards.

Motley Fool contributor Rich Smith owns no shares in American Woodmark, Lowe's, or Home Depot.