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Why American Woodmark Stock Dropped 14% Today

By Rich Smith – Aug 31, 2021 at 10:22AM

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It's an earnings miss, and it's kind of a bad one.

What happened

Shares of American Woodmark (AMWD -0.39%) had crashed 14.2% by 9:40 a.m. EDT on Tuesday after the Winchester, Virginia, cabinetmaker reported a sizable miss on its fiscal first-quarter 2022 earnings this morning.

Analysts had forecast that American Woodmark would earn $1.55 per share (pro forma) this past quarter, on sales of $461.8 million, but the company reported a profit of only $0.70 and sales of $442.6 million instead.  

Simple red arrow declining stock chart on a white checked background

Image source: Getty Images.

So what

The news wasn't all bad. Although American Woodmark missed earnings, its sales nonetheless grew a respectable 13.5% year over year. Repair and remodeling sales grew in the high teens, while new construction sales enjoyed upper-single-digit growth. Indeed, all channels of the company's sales grew well last quarter.  

But much of the news was bad. Not only did American Woodmark earn less than half of what Wall Street had predicted on its sales. Its net profit for the quarter was far less than even the $0.70 it claimed for adjusted EPS per diluted share.

When calculated according to generally accepted accounting principles (GAAP), earnings were just $0.18 per share. And free cash flow for the quarter was a negative $8.1 million.

Now what

American Woodmark blamed "rapidly evolving inflationary pressures outpacing our pricing actions" for its profits shortfall, but there's a bit of good news here as well.

Management says it is "implementing significant pricing actions" to offset this cost inflation, and expects raising prices in this manner to generate over $25 million per quarter in extra revenue in the final two quarters of the year.

In the third quarter alone, that should just about cover the company's revenue shortfall from the first quarter.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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