GMS Inc. reported financial results for the third quarter ended January 31. Third Quarter Fiscal 2025 Highlights (Comparisons are to the third quarter of 2024) Net sales of $1.3 billion increased 0.2 percent; organic net sales decreased 6.7 percent. Net loss of $21.4 million, or $0.55 per diluted share, including a $42.5 million non-cash goodwill impairment charge, decreased from net income of $51.9 million, or $1.28 per diluted share. Adjusted net income of $36.2 million, or $0.92 per diluted share, decreased from $68.8 million, or $1.70 per diluted share. 

Adjusted EBITDA of $93.0 million decreased $35.0 million, or 27.3 percent. Cash provided by operating activities and free cash ow were $94.1 million and $83.1 million, respectively, compared to cash provided by operating activities and free cash ow of $104.3 million and $94.1 million, respectively, in the prior year period; Net debt leverage was 2.4 times at the end of the quarter, up from 1.5 times a year ago. 

“Our results in the quarter reflect the impact of soft end market demand and steel pricing, both of which deteriorated meaningfully during the last half of the quarter, ultimately driving both lower than expected sales and gross margin compression, despite experiencing price and mix improvement in Wallboard and Ceilings,” said John C. Turner, Jr., President and CEO of GMS. “Economic uncertainty, general affordability and tight lending conditions,1 combined with adverse winter weather disruptions, all contributed to reduced levels of activity in each of our end markets.” “During the quarter, we delivered a net reduction in organic SG&A primarily as a result of the cost reduction efforts we took earlier this year. Moreover, given that we expect the macro-level conditions to continue at least into the back half of calendar 2025, we are taking additional actions to further rationalize our operations and align the business with the now lower expected volumes in our end markets. As such, leveraging our investments in technology and efficiency optimization, we are implementing an additional estimated $20 million in annualized cost reductions, which will bring our total annualized run rate of reductions to $50 million since the start of our fiscal year.” 

“While the broader construction environment in our industry remains challenged, continuing year-over-year price resilience in Wallboard and Ceilings was a bright spot during the quarter, and we expect this to continue during our fourth quarter. In addition, we are demonstrating the strength of our business model through our ability to generate significant levels of cash ow and maintain our solid balance sheet. We are confident that GMS is positioned to navigate the evolving backdrop and benefit from our scale, wide breadth of product offerings and balanced mix of end markets served, to capitalize on opportunities when demand trends improve.” Third Quarter Fiscal 2025 Results (Comparisons are to the third quarter of fiscal 2024 unless otherwise noted) Net sales for the third quarter of fiscal 2025 of $1.3 billion increased 0.2%, while organic net sales declined 6.7%. Benefits to total net sales from recent acquisitions and favorable Ceilings mix were offset by demand contraction across multi-family, commercial and single-family markets amid broader economic uncertainty. 

Unfavorable winter weather conditions were also a factor. Year-over-year quarterly sales changes by product category were as follows: Wallboard sales of $501.7 million decreased 3.6% (down 7.4% on an organic basis). Ceilings sales of $180.7 million increased 16.0% (up 4.4% on an organic basis). Steel Framing sales of $179.7 million decreased 11.6% (down 17.9% on an organic basis). Complementary Product sales of $398.6 million increased 5.3% (down 4.3% on an organic basis). Gross profit of $393.1 million decreased $21.6 million from the prior year quarter. Gross margin was 31.2%, down 180 basis points as compared to 33.0% a year ago. Gross margins contracted year-over-year across all major product lines driven by weak demand and continued negative price and cost dynamics. 

Additionally, vendor incentive income was challenged by reduced volumes. Absent the lower incentive income, we were pleased to experience generally resilient pricing and margins sequentially, consistent with our expectations, despite the current competitive market pressures. Steel pricing, however, once again was a headwind, declining both sequentially and year-over-year. Selling, general and administrative (“SG&A”) expenses were $310.8 million for the quarter, up from $295.7 million. Of the $15.1 million year-over-year increase, approximately $24 million related to recent acquisitions, $4 million related to higher than usual insurance claim development, and $1.2 million related to an increase in severance costs primarily associated with the previously disclosed cost containment actions. Despite the headwind of unfavorable weather-related inefficiencies, these increases were offset by lower overall operating costs, reflective of the realized savings from the previously disclosed cost reduction actions and reduced activity given the changes in demand. SG&A expense as a percentage of net sales increased 120 basis points to 24.7% for the quarter, compared to 23.5%. In what is typically our seasonally slowest quarter, our results were further impacted by several unusual items, including greater than normal disruptions from winter weather and higher than usual insurance claims development, which together contributed 70 basis points of deleverage.