- Second Quarter Net Sales Increased 28.7 percent to a Record $833.8 Million
- Second Quarter Net Income Improved by 38.2 percent to $24.9 Million
- Second Quarter Adjusted EBITDA Increased by 60.7 percent to a Record $87.1 Million
- Announces Authorization of $75 Million Stock Repurchase Program
GMS Inc. reported financial results for the second quarter of fiscal 2019 ended October 31, 2018.
Net sales for the fiscal second quarter ended October 31, 2018 increased 28.7 percent to a record $833.8 million from $648.0 million for the fiscal second quarter ended October 31, 2017. Reported net income increased to $24.9 million, or $0.58 per diluted share in the fiscal second quarter ended October 31, 2018, compared to $18.0 million, or $0.43 per diluted share in the fiscal second quarter ended October 31, 2017. Adjusted EBITDA for the fiscal second quarter increased to a record $87.1 million from Adjusted EBITDA of $54.2 million for the second quarter of fiscal 2018.
Mike Callahan, President and CEO of GMS, stated, “We delivered a strong fiscal second quarter highlighted by record net sales and adjusted EBITDA. Our organic sales increased 8.7 percent year-over-year, reflecting broad-based sales growth across each of our product groups. Adjusted EBITDA increased more than 60 percent, reflecting contributions from the Titan acquisition, our continued focus on price discipline and our steadfast commitment to operational improvement. Driven by improved profitability, we generated strong free cash flow of $88 million during the second quarter, which allowed us to reduce our net leverage nearly a half turn from 4.2 times to 3.8 times.”
Mr. Callahan continued, “As we look toward the second half of the fiscal year, we remain confident in the health of our end markets and see continued growth opportunities across our product portfolio. We feel very good about our leading North American platform with significant scale advantages and a well-balanced portfolio built for growth and value creation. I am also pleased to announce that our Board of Directors has approved the repurchase of up to $75 million of the Company’s common stock. We plan to opportunistically purchase our common stock while at the same time continue with our stated strategy to use expected operating cash flows to reduce our net leverage to under 3.0 times by the end of fiscal 2020.”
Second Quarter 2019 Results
Net sales for the second quarter of fiscal 2019 ended October 31, 2018 were $833.8 million, compared to $648.0 million for the second quarter of fiscal 2018 ended October 31, 2017.
- Wallboard sales of $334.7 million increased 16.0 percent compared to the second quarter of fiscal 2018, with the positive impact of the June 1st acquisition of Titan and pricing improvement.
- Ceilings sales of $118.4 million rose 16.5 percent compared to the second quarter of fiscal 2018, mainly due to greater commercial activity, pricing improvement and the positive impact of acquisitions.
- Steel framing sales of $135.8 million grew 31.5 percent compared to the second quarter of fiscal 2018, mainly driven by greater commercial activity, pricing improvement and the positive impact of acquisitions.
- Other product sales of $245.0 million were up 58.4 percent compared to the second quarter of fiscal 2018, as a result of the positive impact of the acquisition of Titan and pricing improvement.
Gross profit of $268.2 million grew 26.3 percent compared to $212.3 million in the second quarter of fiscal 2018, mainly attributable to increased sales from the Titan acquisition. Gross margin decreased by approximately 60 basis points to 32.2 percent compared to 32.8 percent in the second quarter of fiscal 2018.
Selling, general and administrative expense as a percentage of net sales, was 22.2 percent for the quarter compared to 24.7 percent in the second quarter of fiscal 2018. Adjusted Selling, general and administrative expense as a percentage of net sales was 21.8 percent compared to 24.5 percent in the prior year quarter. 200 basis points of the 270 basis point reduction is the result of increased cost efficiencies, primarily the result of previously announced cost reduction initiatives taken during the fiscal year, as well as contributions from the Titan acquisition. The remaining 70 basis points was the result of the amendment of certain equipment operating leases that are now being accounted for as capital leases. These improvements were partially offset by continuing inflation pressures, primarily in logistics.
Net income of $24.9 million, or $0.58 per diluted share, increased by 38.2 percent or $6.9 million compared to $18.0 million, or $0.43 per diluted share, in the second quarter of fiscal 2018. Adjusted net income of $38.3 million, or $0.89 per diluted share, increased 40.4 percent or $11.0 million, compared to $27.3 million, or $0.65 per diluted share, in the second quarter of fiscal 2018. Second quarter net income was positively impacted by an increase of $16.4 million in operating income, partially offset by a $11.3 million increase in interest expense related to the June 1, 2018 acquisition of Titan.
Adjusted EBITDA of $87.1 million increased from $54.2 million in the second quarter of fiscal 2018, representing an Adjusted EBITDA margin of 10.5 percent. This improvement was driven by the contribution of a full quarter of Titan results, benefits from the restructuring actions taken earlier this fiscal year, continued pricing improvement, and favorable lease accounting changes.
As of October 31, 2018, GMS had cash of $52.9 million and total debt of $1.24 billion, compared to cash of $19.8 million and total debt of $610.5 million, as of October 31, 2017.
On August 7, 2018, the Company acquired Charles G. Hardy, Inc. a leading distributor of interior building products that serves residential and non-residential customers in the Los Angeles market. The acquisition marks GMS’ entry into the Los Angeles area, the second largest metropolitan area nationwide.
Stock Repurchase Program
The Company announced that its Board of Directors has approved on November 30, 2018 the repurchase of up to $75 million of the Company’s common stock. The repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. The Company has approximately 41.9 million shares of common stock outstanding on a fully diluted basis as of October 31, 2018.
Conference Call and Webcast
GMS will host a conference call and webcast to discuss its results for the fiscal second quarter ended October 31, 2018 and other information related to its business at 8:30 a.m. Eastern Time on December 4, 2018. Investors who wish to participate in the call should dial 877-407-3982 (domestic) or 201-493-6780 (international) at least 5 minutes prior to the start of the call. The live webcast will be available on the Investors section of the Company’s website at www.gms.com. There will be a slide presentation of the results available on that page of the website as well. Replays of the call will be available through January 4, 2019 and can be accessed at 844-512-2921 (domestic) or 412-317-6671 (international) and entering the pass code 13682840.