Matthew Bouley

Matthew Bouley inquired about the drivers of SG&A productivity and the potential for leverage in Q2. He also questioned the level of conservatism in the back-half of the full-year revenue guidance, given strong Q1 share gains and an improving inflation outlook.

Answer

CFO Robyn Bradbury confirmed organic SG&A productivity gains in Q1 and expects further year-over-year rate improvement in Q2 as M&A synergies are realized. She reiterated the full-year market outlook of roughly flat, with a stronger first half and more uncertainty in the second half due to tariffs and interest rates, adding that pricing is expected to be flat at a minimum for the full year.

An analyst on behalf of Matthew Bouley asked for Core & Main's view on its end markets, questioning where the most potential upside lies between residential and non-residential construction. The analyst also sought details on the key drivers and cadence of the expected gross margin expansion in fiscal 2025.

Answer

CFO Mark Witkowski explained that while both residential and non-residential markets have upside potential, a release of pent-up demand in residential is contingent on lower mortgage rates. He identified private label products as the primary lever for gross margin expansion, followed by sourcing optimization and pricing initiatives, noting significant progress in private label penetration in 2024.

Matthew Bouley asked about the company's greenfield strategy, including the typical ramp time for new branches and the outlook for 2025 openings. He also questioned how the 2025 EBITDA margin expansion would be split between gross margin and SG&A leverage.

Answer

CFO Mark Witkowski explained that greenfield branches typically break even within the first year and mature over 3-5 years, serving as a key component of their above-market growth strategy. He stated that the planned 30-50 basis points of operating margin expansion in 2025 is expected to come from a combination of both gross margin initiatives and SG&A productivity.

Matthew Bouley sought confirmation on the gross margin outlook, asking if margins are expected to be stable or increase going forward. He also requested a breakdown of the $200 million revenue guidance reduction and color on August's organic growth rate compared to Q2.

Answer

CFO Mark Witkowski confirmed that gross margin normalization is complete and that he expects margins to grow sequentially from the Q2 level. He attributed the guidance cut to the Q2 miss ($100M from weather/market softness) and lower second-half volume expectations ($100M), noting August organic volumes were in line with expectations.

Matthew Bouley from Barclays questioned the reason for the reduction in the full-year CapEx guidance. He also sought more detail on the drivers behind Infiltrator's strong organic growth, particularly the double-digit growth in on-site wastewater tanks.

Answer

CFO Scott Cottrill clarified that the reduced CapEx guidance from $275 million to the $200-$225 million range is purely a matter of timing for some larger projects and does not impact the company's ability to meet anticipated demand. President & CEO D. Scott Barbour attributed Infiltrator's strength to its tank products, which are gaining share through new models and expanded distribution.

Matthew Bouley asked about the expected revenue cadence for fiscal 2026, particularly for Q1 and the second half, and sought more rationale for postponing the Investor Day despite the company providing annual guidance.

Answer

An executive stated that the revenue split for fiscal 2026 is expected to follow the typical pattern of 55-60% in the first half and 40-45% in the second half, with Q1 having a slightly easier year-over-year comparison. Regarding the Investor Day, CFO Scott Cottrill explained that due to high dynamism and uncertainty in the construction economy, the management team did not feel comfortable establishing a solid three-year plan, which is a key component of the event. They preferred to wait for a clearer economic picture to present a more robust long-term outlook.

Matthew Bouley inquired about the wide range in the fourth-quarter guidance and the performance drivers for the nonresidential end market, such as market share gains and regional strength.

Answer

CFO Scott Cottrill explained the Q4 guidance reflects a tough year-over-year comparison but noted that sequentially stable pricing and flattening material costs provide confidence. Executive Michael Higgins and CEO D. Barbour added that nonresidential strength is driven by material conversion, a focus on the South and Southeast regions, and a successful push in Allied Products.

Matthew Bouley asked for more detail on the price-cost dynamic, questioning the historical ability to implement price increases during inflationary periods and whether a better demand environment is the key prerequisite. He also asked about the impact of recent capital investments on manufacturing and transportation efficiencies.

Answer

CEO Scott Barbour stated that in a weak demand environment, it's more difficult to recapture slowly rising material costs compared to periods of sharp inflation. He confirmed that a faster cost increase can make it easier to push price. Regarding investments, he highlighted significant efficiency gains, lower scrap rates, and better throughput at both Infiltrator and the ADS pipe network, attributing these improvements directly to recent capital projects.

Matthew Bouley asked about Insulation segment margins, questioning the relative profitability of residential versus non-residential and how the business is maintaining high margins despite residential volume declines that historically caused volatility.

Answer

CFO Todd Fister attributed the margin resilience to a decade of structural improvements in the residential business, including network optimization and a refined commercial strategy. He also noted that current margins reflect the impact of production curtailments to manage inventory discipline. While not providing a sub-segment margin breakdown, he stated the work in both residential and non-residential is proving effective.

Matthew Bouley followed up on insulation capacity, asking about the company's flexibility to adjust investments or idle higher-cost lines to prevent industry overcapacity.

Answer

CFO Todd Fister emphasized that strategic choices, like the Santa Clara facility exit, have created a more flexible network. He noted the company entered this period with low inventories, which they can now rebuild. Management will continue to optimize production by utilizing its lowest-cost assets to match market conditions while remaining positioned for future growth.

Matthew Bouley inquired about the potential impact of new industry-wide capacity on roofing industry margins and pricing dynamics.

Answer

CEO Brian Chambers explained that OC's new plant is needed to meet strong demand for its products in the growing Southeast U.S. market. He believes much of the announced industry capacity is not incremental but is replacing older, less efficient assets. He noted that past capacity additions have not disrupted the industry's pricing or margin structure, as the business model allows for flexible production.

Matthew Bouley of Barclays asked about the outlook for Insulation volumes in the first half of 2025, given the guidance for a negative turn in Q4, and questioned if there was a need to rightsize production due to high fixed costs.

Answer

Chief Financial Officer Todd Fister attributed the Q4 volume dip to a temporary 'air pocket' from weaker housing starts earlier in the year. He expressed confidence that the Insulation business has been reengineered to deliver attractive margins at current market levels and that long-term fundamentals, like the underbuilt housing market and stricter energy codes, remain supportive, mitigating the need for immediate production adjustments.

Matthew Bouley asked about the drivers for the sequential gross margin decline implied by the Q2 guidance and the outlook for SG&A leverage given the revenue forecast.

Answer

EVP, CFO & Treasurer Lori Hough explained that the Q2 gross margin guidance of 25% to 26% reflects a balance against cautious consumer sentiment and softer demand in certain markets. She confirmed this range is the near-term expectation and noted that SG&A spending will continue to be managed in line with demand.

Matthew Bouley questioned the specific factors driving the expected sequential gross margin decline in Q2 back to the 25-26% range, the path to the longer-term 26-27% target, and the outlook for SG&A leverage amid flatter revenue growth.

Answer

EVP & CFO Laurie Hough explained that the Q2 gross margin guidance of 25% to 26% reflects a necessary balance against cautious consumer sentiment and softer demand in certain markets. She noted this range is likely to persist in the near term due to normal fluctuations in product and channel mix. Regarding SG&A, she stated that spending will continue to be managed in line with prevailing demand trends.

Matthew Bouley of Barclays questioned the revised near-term gross margin guidance of 25-26%, asking if this represented a temporary pressure or a new structural level for the business. He also requested more detail on the potential removal of the permanent chassis requirement, including its cost impact, likelihood, and how Champion Homes would adapt its product and pricing strategy.

Answer

EVP, CFO & Treasurer Laurie Hough clarified that the 25-26% gross margin range is considered a short-term expectation, with the long-term structural target remaining at 26-27%. President & CEO Tim Larson explained that removing the chassis would improve product design flexibility for things like two-story homes, aid in zoning approvals, and offer potential cost savings, which the company would balance between enhancing value and driving margins.

Matthew Bouley from Barclays asked about the company's plans to participate in the rebuilding efforts in California, particularly regarding ADUs, separate from any FEMA involvement. He also sought to clarify if the Q3 order slowdown was normal seasonality or influenced by other factors like interest rates.

Answer

CEO Tim Larson confirmed that Champion is eager to assist with the California rebuild and is already in local conversations. He noted that while site preparation will take time, the company is proactively preparing to supply homes when the communities are ready. Regarding Q3 demand, Larson attributed the slowdown to normal seasonality, stating that activity has since started to pick up in line with the typical start of the spring selling season.

Matthew Bouley asked about the impact of labor availability on the value proposition of fiberglass pools in a down market and requested a more detailed breakdown of the drivers behind the significant gross margin improvement.

Answer

CEO Scott Rajeski asserted that labor challenges persist for concrete pool builders, which enhances the value proposition of fiberglass and is driving conversions, citing the example of major concrete builder Shasta Pools now installing Latham fiberglass. CFO Oliver Gloe broke down the 400+ bps gross margin gain, attributing roughly half to the accretive Coverstar acquisitions and the other half split evenly between lean/value engineering initiatives and volume leverage.

Matthew Bouley of Barclays sought clarity on the 2025 adjusted EBITDA margin guidance, asking if potential tariff impacts were included and how the margin expansion would be split between gross margin and SG&A. He also inquired about future M&A opportunities.

Answer

CFO Oliver Gloe clarified that the guidance includes the impact of China tariffs and the company believes it can mitigate further impacts from Canada/Mexico through supply chain shifts and pricing. He stated that more than the guided 150 basis points of EBITDA margin expansion will come from gross margin, as SG&A will increase to fund growth initiatives. Executive Scott Rajeski added that while there are other M&A targets, the current focus is on integrating the recent Coverstar acquisitions, and there is nothing actively pending.

Matthew Bouley inquired about any planned 2025 price increases, the status of the early buy program, and channel inventory levels for distributed products. He also asked for the rationale behind increasing sales and marketing spend during a soft market.

Answer

CEO Scott Rajeski stated that no broad-based price increases have been announced. He noted that distributor inventory levels are now normalized and expects a 'wait-and-see' approach before restocking. Regarding S&M spend, Rajeski explained the investment is a long-term strategy to recruit and train new fiberglass dealers in target markets during the off-season, positioning Latham for the eventual recovery.

Matthew Bouley from Barclays asked about price elasticity, questioning the 2026 outlook of strong sales growth on flat volumes despite significant price hikes. He also sought clarification on the implied 2026 EBITDA margin decline, asking if it was purely a mathematical effect of tariff pass-through.

Answer

CFO Robert Kraft explained that repair and maintenance products have low price elasticity, but reiterated the 'flat market' is an assumption, not a guide. He confirmed the 2026 margin pressure is primarily due to lapping a temporary tariff timing 'windfall' in Q3 2025. President & CEO Jon Michael Adinolfi added that the company is running more efficiently than ever.

Matthew Bouley inquired about the expected growth trajectory for the RDS segment in 2025, asking if it would turn positive in Q1 and how customer attrition might affect the ramp. He also sought clarification on the pricing outlook, noting the implication of a price increase in the second half of the year.

Answer

CFO Robert Kraft confirmed they expect RDS to return to low-to-mid single-digit growth as early as Q1 2025, driven by the MinuteKey 3.5 rollout. CEO Jon Adinolfi acknowledged that planned customer attrition will create negative pressure but is confident that new initiatives will more than offset it. Regarding pricing, Adinolfi affirmed the expectation to take price increases in strategic categories in H2 2025, driven by broad-based inflation, separate from any potential tariffs.

Matthew Bouley inquired about recent demand trends, asking to compare foot traffic in October versus September, and sought insights into the company's expectations for Repair & Remodel (R&R) growth in 2025. He also asked about Hillman's strategy to mitigate the impact of potential future tariff increases on goods sourced from China.

Answer

CEO Doug Cahill responded that overall market volume remains soft, consistent with recent trends, but the company's product mix and margins are strong. He noted that while retailers are optimistic about a multi-year run once existing home sales recover, the timing remains uncertain. COO John Michael Adinolfi added that regarding tariffs, Hillman's sourcing is diversified (one-third from China), and the company's established practice is to work with retail partners to pass through any tariff-related cost increases on a dollar-for-dollar basis.

Matthew Bouley from Barclays asked about Trex's strategy for defending its position in the retail channel and sought clarification on the gross margin trajectory between Q3 and Q4.

Answer

President & CEO Bryan Fairbanks cited strong sales performance and long-standing, collaborative relationships with home centers as key to defending their market leadership. SVP & CFO Brenda Lovcik confirmed that Q3 will have the peak gross margin for the year, with Q4 declining from that level, partly due to lower sales volume and fixed cost absorption.

Matthew Bouley from Barclays asked about Trex's competitive positioning in the retail channel and how it defends its leadership. He also sought to clarify the expected gross margin trajectory between the third and fourth quarters.

Answer

President & CEO Bryan Fairbanks highlighted strong sales performance and long-standing, collaborative relationships with home centers as key to defending their position. SVP & CFO Brenda Lovcik confirmed that Q3 is expected to have the peak gross margin for the year, with a subsequent decline in Q4.

Matthew Bouley requested clarification on the potential dollar impact from tariffs, asking if the full-year EBITDA margin guidance assumes these costs are fully mitigated. He also asked for more color on the relative sales performance of entry-level versus premium products.

Answer

CEO Bryan Fairbanks maintained that the tariff impact is less than 5% of COGS and that costs are not yet fully mitigated, though the team is actively working on it. He emphasized the complexity includes indirect purchases, making a precise figure difficult. Regarding product performance, he reiterated that premium products continue to sell very strongly, while the entry-level category is showing continued sequential improvement.

Matthew Bouley asked about the gross margin outlook for Q4 and the potential for a rebound in early 2025. He also questioned if the assumed 2025 revenue growth would be evenly spread or accelerate through the year.

Answer

CEO Bryan Fairbanks noted that Q4 is typically the weakest quarter for gross margin due to lower sales and production. He suggested that 2025 revenue growth would likely accelerate as the year progresses, in line with external R&R forecasts, and clarified that sales volume from the non-repeated Q1 channel fill would shift into Q2 and Q3.

Matthew Bouley asked for details on the Connected Products business, including its new subscription model and revised 2025 sales forecast, and also inquired about market share dynamics in the Water business across builder, retail, and e-commerce channels.

Answer

CEO Nicholas Fink confirmed the Connected Products sales forecast is now $250 million for 2025, with an expected year-end run rate approaching $300 million. He explained the pipeline is broader but converting slower than anticipated and highlighted the upcoming Q3 pilot of a subscription model. For the Water business, Fink noted strong share gains with large builders for the Moen brand, solid retail performance, and ongoing efforts to enforce pricing discipline in e-commerce. He also mentioned the House of Rohl luxury brand continues to see excellent results due to resilient high-end consumer demand.

Matthew Bouley asked for details on the building blocks of the 150 basis points of growth from connected products in 2025 and inquired about the company's strategy to mitigate potential tariffs from Mexico and Canada.

Answer

CFO David Barry explained that connected products growth would contribute ~100 bps in H1 and ~200 bps in H2, driven by strong Flo POS and a recovery in the Yale business. CEO Nicholas Fink stated the company's strategy is built on supply chain agility and a strong North American manufacturing footprint. Barry clarified the guide includes China tariffs, while the EPS range covers potential Mexico/Canada tariffs, which would be offset by price and supply chain actions.

Matthew Bouley asked about the drivers for 'meaningful margin progress' in 2025 and sought more detail on the decking business, specifically regarding the destocking and improving trends.

Answer

CFO David Barry outlined that 2025 margin gains would come from productivity, SG&A efficiency, and favorable mix, with the main offset being the level of reinvestment back into the business to unlock growth. Regarding decking, Barry explained the destocking was a one-time event driven by a softer-than-expected season. He noted that POS, which was down mid-single digits in Q3, has shown improvement over the last four weeks, giving confidence heading into Q4.

Matthew Bouley of Barclays asked how Builders FirstSource is strengthening its competitive position with builders through value-add and digital investments during a market downturn, and questioned the drivers behind the sequential gross margin improvement in Q2 and the outlook for the second half.

Answer

CEO Peter Jackson explained that the company is strengthening its position by improving on-time delivery, helping builders with affordability via product solutions, and leveraging digital tools to remove waste. CFO Pete Beckmann attributed the slight sequential Q2 gross margin improvement to better-than-expected performance in multifamily and R&R, while noting that margins are still expected to decline sequentially through the rest of the year.

Matthew Bouley from Barclays asked about BLDR's market share performance in the single-family segment, questioning if the strategy is to gain share in a declining market. He also inquired about the company's tolerance for lower gross margins to achieve this.

Answer

CEO Peter Jackson affirmed that the company always aims to increase market share, regardless of market conditions, and that the team is executing well. CFO Pete Beckmann added that while margins are expected to drift lower due to competitive pressures and normalization, they remain strong. Both executives stressed the daily balance between share and margin, leveraging BLDR's cost advantages and bundled product offerings.

Matthew Bouley asked about the 2025 core organic revenue outlook, questioning if headwinds from smaller home sizes and vendor price reductions were stabilizing, and inquired about the drivers of the 30-32% gross margin guidance.

Answer

CEO Peter Jackson stated the market is stable but at a low level due to affordability challenges. CFO Pete Beckmann added that the decline in average home size is moderating and the gross margin guidance reflects a balance between competitive pressures and the strength of the value-added product mix, noting a Q4 exit rate of approximately 31.5%.

Matthew Bouley asked about Builders FirstSource's growth relative to the market for the remainder of 2024 and into the 2025 scenarios, questioning the balance of market share and sales versus housing starts. He also sought confirmation on the gross margin exit rate for 2024 and its potential trajectory in 2025.

Answer

CEO Designate Peter Jackson acknowledged market choppiness and noted that the primary headwind has been the decline in the value per home start, which has impacted sales relative to start volumes. CFO Designate Pete Beckmann confirmed they anticipate a margin headwind of about 100 basis points from the year-to-date average as they exit 2024, split between multifamily and core business normalization, leading to an exit rate around 31.5%.

Matthew Bouley from Barclays asked new CEO John Nudi about his early priorities and strategic goals, and also inquired about the potential impact of future tariffs not included in the current guidance, such as those on copper or from Vietnam.

Answer

CEO John Nudi stated his first 100 days are focused on listening and learning, with a key priority on accelerating profitable top-line growth, potentially through digital levers. CFO Rick Westenberg noted it is premature to quantify the impact of potential future tariffs, as the final rates and regulations are unknown, but affirmed Masco will remain transparent as details become clear.

Matthew Bouley sought clarification on the 2026 tariff mitigation plan, asking if the goal is to offset the full $675 million annualized impact and whether the strategy would shift more towards sourcing changes. He also asked if pulling the 2026 margin targets reflects a change in the company's structural profitability or is simply a matter of timing.

Answer

CFO Richard Westenberg confirmed the goal is to mitigate the full $675 million annualized tariff impact by the end of 2026. CEO Keith Allman added that the mitigation efforts in 2026 would lean more heavily on sourcing footprint changes compared to 2025. Regarding the margin targets, Allman stated the company remains confident in its ability to achieve them, framing the withdrawal of guidance as a question of "when, not if," due to the current market uncertainty.

Matthew Bouley requested more detail on the China tariff mitigation strategy, including the role of incremental pricing, and asked if the prolonged decline in DIY paint suggests a structural industry shift toward 'do-it-for-me' services.

Answer

CFO Rick Westenberg outlined that tariff mitigation is a multi-faceted approach involving sourcing changes, supplier negotiations, and pricing, with the net impact already factored into the 2025 guidance. President and CEO Keith Allman acknowledged a minor structural shift but believes it is counteracted by millennial household formation, maintaining that paint is an ideal DIY project.

Matthew Bouley of Barclays asked about the impact of commodity and freight costs on plumbing margins and whether additional price increases would be needed in 2025. He also sought initial thoughts on the 2025 R&R market outlook.

Answer

CFO Rick Westenberg explained that commodity costs, particularly copper and zinc, were a headwind in Q3 and will be in Q4, as expected. Despite this, cost initiatives are driving margin expansion. He noted that elevated commodity costs will be a factor in the 2025 pricing strategy. CEO Keith Allman deferred providing a specific 2025 outlook until the next earnings call, reiterating confidence in long-term fundamentals.

Matthew Bouley of Barclays asked for a quantification of the performance in the new residential construction end market. He also sought more detail on price inflation, asking about the magnitude of price increases for tariff-exposed products and the drivers for the rest of the portfolio outside of grass seed and PVC.

Answer

CEO Doug Black estimated that the new residential construction market is down in the low-single digits overall, with more pronounced declines in previously high-growth markets. CFO John Guthrie specified that tariff-related price increases on products like lighting and irrigation are in the mid-single-digit range. Black added that the negative impact from seed deflation is concentrated in Q3, which will allow overall pricing to turn positive in Q4 as the seed season passes.

Matthew Bouley asked about the potential for demand elasticity following tariff-related price increases and requested an update on sequential trends for commodity products like PVC and grass seed.

Answer

CEO Doug Black explained that demand is relatively inelastic to material price hikes because materials are a small portion (10-25%) of a total landscaping job's cost. He identified broader economic uncertainty as a greater risk to demand. Executive Vice President John Guthrie added that the full-year guidance still assumes a single-digit price decrease for grass seed and continued deflation for PVC pipe, although the rate of decline for PVC is expected to moderate from the 20% seen in Q1.

Matthew Bouley of Barclays inquired about the timing of announced price increases on finished goods and the expected cadence of gross margin improvement throughout 2025.

Answer

Executive John Guthrie stated that new 2025 pricing was being implemented and would be fully rolled out by mid-February. He also indicated that gross margin could face some pressure in Q1 due to tough comps from an early spring in the prior year, with the majority of the year's improvement expected in Q2 and Q3.

Matthew Bouley asked about the housing market's dynamics, specifically the relationship between home prices and transaction volumes across different geographies, and whether falling prices are spurring unit growth. He also inquired about any market disruption from the private listings dispute and if Anywhere's public stance is aiding agent recruitment and retention.

Answer

CEO, President & Director Ryan Schneider responded that in July, both units and prices were up, indicating demand remains strong. He noted that in markets with slight price drops, like Florida, unit volume also declined, suggesting lower prices are not currently spurring transactions. Schneider confirmed their stance on broad listing distribution is helping with agent recruiting and that the company has rolled out new technology to its franchisees to manage private listings compliantly while also preparing for any future market shifts.

Matthew Bouley of Barclays inquired about the relationship between home prices and transaction volumes across different geographies and asked if the company's public stance on private listings is aiding agent recruitment.

Answer

CEO Ryan Schneider noted that July data showed a positive trend with both transaction units and prices increasing. He clarified that in markets with slight price drops, like Florida, transaction volumes also declined, suggesting lower prices are not currently spurring activity. Schneider also confirmed that Anywhere's stance on broad listing distribution is a significant advantage in agent recruiting and retention, and the company has rolled out technology to support various listing strategies.

Matthew Bouley asked about the specific drawbacks of an exclusive listing platform, whether the company's stance is based on data or agent feedback, and how this position impacts agent recruiting. He also shifted to the balance sheet, inquiring about plans to address the 2026 debt maturity and the current M&A environment.

Answer

CEO Ryan Schneider cited third-party studies and internal analysis showing broad listing distribution leads to higher home prices, which he believes is best for the customer and a strong agent recruiting tool. CFO Charlotte Simonelli added this is also the better long-term financial decision. Regarding the balance sheet, Simonelli stated they plan to refinance the 2026 convertible notes opportunistically when market volatility subsides. Schneider commented on M&A, noting that while consolidation is inevitable, activity has been slow due to a bid-ask gap, with the most significant deals focused on building end-to-end capabilities.

Matthew Bouley asked about the underlying assumptions for the 2025 operating EBITDA guidance of $350 million and for clarification on Anywhere's stance on the NAR's clear cooperation policy.

Answer

CFO Charlotte Simonelli explained that while the housing market is the largest variable, the guidance is supported by consistent factors like the $100 million cost savings target and stable agent commission splits. CEO Ryan Schneider added that Anywhere advocates for relaxing, not repealing, the clear cooperation policy to balance seller flexibility with market transparency. He also confirmed Anywhere is prepared to compete with a private listing network if the industry moves in that direction, leveraging its significant listing scale.

Matthew Bouley asked for quantification of the one-time employee and legal expenses that impacted Q3 earnings and sought on-the-ground color regarding the adoption of new buyer agreements and any consumer pushback.

Answer

CFO Charlotte Simonelli clarified that the employee-related expense headwind was due to a tough prior-year comparison from a one-time benefit in Q3 2023, while the legal expenses in the current quarter were considered one-time in nature. CEO Ryan Schneider added that regarding new buyer agreements, the long-term exclusive agreement has been the most widely adopted by a significant margin, which he sees as a positive indicator of consumers valuing their agents' services.

Matthew Bouley of Barclays inquired about the outlook for community count growth into 2026 and how the company is managing its pace of new openings. He also asked about recent buyer traffic trends and their response to interest rate volatility.

Answer

President and CEO Paul Romanowski indicated that community count growth is expected to moderate from double-digits to a mid-to-high single-digit rate. He described buyer traffic as 'choppy' but noted that consistent incentive offerings and strong realtor relationships have helped maintain sales pace, even as incentives have risen.

Matthew Bouley from Barclays inquired about the community count outlook for fiscal 2026 and how the company is managing the pace of new community openings. He also asked about recent buyer traffic trends, particularly in response to interest rate volatility and into the early summer.

Answer

President and CEO Paul Romanowski projected that community count growth will moderate from double-digits to a mid-to-high single-digit rate in fiscal 2026. He described recent buyer traffic as 'choppy' but noted that consistent rate offerings and targeted incentives have successfully maintained sales momentum into July.

Matthew Bouley of Barclays asked about recent homebuyer traffic and conversion trends amid policy uncertainty and questioned how the company would achieve its second-half delivery guidance with current inventory levels.

Answer

President and CEO Paul Romanowski noted that traffic remains good, though higher incentives are needed for conversions, and highlighted that the large first-time buyer cohort may be less sensitive to market volatility. EVP and COO Michael Murray explained that the delivery guide is achievable due to an expected acceleration in starts and significantly improved construction cycle times, which allow for faster inventory turns.

Matthew Bouley from Barclays sought to understand the confidence in the significant step-up in closings guided for the second half of the year. He also asked for more color on the Q2 gross margin guidance, specifically if it assumes margins on new sales will be lower than December's levels.

Answer

President and CEO Paul Romanowski expressed confidence in hitting the full-year closings guide, citing operational efficiency and strong inventory positioning, contingent on a healthy spring selling season. COO Michael Murray explained the Q2 margin outlook is colored by the higher mortgage rate environment at the start of Q2 compared to the beginning of Q1, suggesting margins could be a bit lower than December's levels.

Matthew Bouley inquired about the 2025 delivery guidance relative to starting inventory, asking if it implies a significant ramp in starts or relies on cycle time improvements. He also asked for details on the trend of building smaller floor plans, including the recent change in home size and the strategy behind it.

Answer

EVP & COO Michael Murray confirmed the plan involves both leaning into starts in the spring and leveraging significant cycle time improvements. EVP Jessica Hansen added that Q1 starts will see a slight increase before a larger pickup in the spring, and noted home square footage was down 1% due to a higher mix of attached products. President & CEO Paul Romanowski explained that smaller plans enhance efficiency and affordability.

Matthew Bouley of Barclays asked about the future impact of product mix on gross margins, specifically comparing the margins of the growing active adult business versus the pressured move-up segment. He also questioned if there was room to drive construction costs lower.

Answer

President & CEO Ryan Marshall reiterated the margin hierarchy: move-up communities generate about 200 basis points more than first-time, and active adult adds another 200 basis points on top of move-up. He noted the favorable impact of new Del Webb communities on 2026 closings but did not provide a 2026 margin guide. EVP & CFO James Ossowski and Marshall both stated that procurement teams are constantly pushing for cost reductions, and while some categories have seen decreases, they are offset by increases elsewhere.

Matthew Bouley of Barclays questioned the rationale for reducing the land spend guidance to $5 billion and its potential impact on growth in 2026. He also asked if the assumption of holding incentives steady at 8% was contingent on successfully reducing spec inventory.

Answer

CEO Ryan Marshall described the land spend reduction as a prudent delay that will not affect 2026 or 2027 growth, given the company's strong existing land pipeline of 244,000 lots. He confirmed that the ability to hold or reduce incentives is linked to getting spec inventory back into the target 40-45% range, which would reduce the need for aggressive promotions.

Matthew Bouley of Barclays questioned how the company balances moving spec inventory with its assumption of flat incentives, and asked what factors allow for flat gross margins despite rising land and construction costs.

Answer

CEO Ryan Marshall stated that management believes the Q4 incentive level is sufficient to achieve its Q1 volume and margin targets, especially when combined with normal spring seasonality. He further explained that the projected 3% increase in Average Selling Price (ASP) is enough to mostly offset the anticipated increases in lot and house costs, allowing margins to remain relatively stable.

Matthew Bouley questioned if the 5-10% long-term growth target is still the specific plan for 2025 and how the company might flex that target based on market conditions. He also asked if the land banking strategy influences the balance sheet's low leverage.

Answer

President and CEO Ryan Marshall deferred providing a specific 2025 guide, reiterating that the 5-10% target is a multiyear framework for business investment. Regarding the balance sheet, Marshall described leverage as an outcome of the investment strategy, not a driver. EVP and CFO Robert O'Shaughnessy added that increasing land options will actually free up cash and make the balance sheet more efficient, providing more capital allocation choices.

Matthew Bouley of Barclays questioned the company's pricing philosophy, asking if the strategy of adjusting base prices over using incentives would be maintained to hit delivery goals, given the softer demand in April and May. He also asked how the pullback in land investment would affect community count growth beyond 2025.

Answer

Chairman & CEO Jeffrey Mezger affirmed that KB Home will continue to respond to local market conditions on a community-by-community basis, with the necessary actions to meet sales targets already factored into guidance. Regarding future growth, Mezger stated that the company's large owned and controlled lot pipeline provides a platform for growth, and future land investment will be dictated by market conditions, with a slowdown in community count growth expected before a rebound in early 2026.

Matthew Bouley asked about the magnitude of price adjustments needed to stimulate consumer demand and how the company could distinguish these effects from typical seasonality. He also inquired about the drivers behind the second-half gross margin guidance, questioning how it holds up against price cuts and cost inflation.

Answer

CEO Jeffrey Mezger explained the company converted opaque 'pocket incentives' into transparent base price reductions, which immediately boosted sales. COO Rob McGibney specified that about half of communities saw price cuts averaging $15,000-$16,000, but the net margin impact was only about 75 basis points due to offsetting incentive reductions. Mezger added that the guided improvement in second-half operating margin is primarily driven by operating leverage on higher delivery volumes, not a significant change in per-home gross margin.

Matthew Bouley asked for the specific factors expected to drive an increase in sales pace for the remainder of Q1 after a slow start, and questioned the balance between housing starts and margins, particularly at what point the company would reduce starts.

Answer

Chairman and CEO Jeffrey Mezger clarified that the early part of the quarter is a seasonally slow period and that the expected improvement is a function of a significant number of new community openings, not a major market shift. He emphasized that the company's strategy is to optimize each asset for the highest return, using price and incentives to achieve a target sales pace rather than starting homes without confirmed demand.

Matthew Bouley inquired about the drivers behind the $7.5 billion revenue outlook for 2025, asking for a breakdown between volume and price, and how community growth factors in. He also asked how the company will approach pricing versus incentives in a lower mortgage rate environment.

Answer

EVP & CFO Jeff Kaminski stated that while the $7.5 billion estimate is supported by community count, backlog, and absorption assumptions, the company is withholding detailed components until January due to economic uncertainty. President & COO Rob McGibney added that as rates moderate, KBH expects to reduce mortgage concessions rather than prices, which should expand gross margins on new orders. He emphasized the strategy of adjusting home prices to optimize each asset rather than relying heavily on incentives.

Matthew Bouley of Barclays asked about the company's visibility into the single-family market, the lag from starts to sales, and the permanence of the recently announced SG&A cost savings.

Answer

President & CEO John Turner stated the lag from housing starts to shipments is three to six months and that visibility is strong for the upcoming quarter. He believes about half of the recent cost savings are permanent, with productivity investments allowing for some volume growth before variable costs would need to be added back.

Matthew Bouley asked for a quantification of the like-for-like pricing versus mix impact within Wallboard and how the mix headwind is expected to evolve. He also inquired about the M&A landscape, asking if GMS is entering a 'digestion period' and what its target leverage is.

Answer

CEO John Turner stated that like-for-like Wallboard pricing was up sequentially and that for Q3, they expect overall price/mix to be slightly up despite the negative mix from weaker commercial and multifamily markets. On M&A, Turner confirmed the pipeline remains strong and they will stay active, targeting a leverage ratio of 1.5x to 2.5x. CFO Scott Deakin added that they can flex the share repurchase program to manage cash for opportunistic acquisitions.

Matthew Bouley asked about balancing a promotional environment with announced price increases, questioning the potential for mix impacts and which product categories might exhibit better pricing power.

Answer

CEO Jeff Lorberbaum stated the market is expected to pass through tariffs via pricing actions, which should improve Mohawk's competitive position due to its local production. He suggested potential shifts between product categories, with alternatives like laminate, ceramic, and carpet possibly benefiting as LVT costs rise.

Matthew Bouley inquired about the typical timing and magnitude of a sales rebound following a hurricane disruption. He also asked whether the planned Q4 plant shutdowns are a temporary measure or if inventory reductions might continue into early 2025.

Answer

Executive James Brunk stated that the timing of a post-hurricane rebuild is pushed into 2025, as flooring is one of the last products installed. Regarding inventory, he explained that reducing inventory via shutdowns in Q4 is a prudent measure given slower demand and the hurricane impact. The goal is to end the year with inventory levels relatively flat on a dollar basis compared to the previous year-end.

Matthew Bouley asked about the current stage of Ferguson's growth investments, particularly in HVAC and large capital projects, and requested quantification of the OpEx impact in the second half, balanced against planned cost reductions.

Answer

CEO Kevin Murphy detailed the multi-pronged investment strategy, including converting over 500 counters for dual-trade HVAC and plumbing professionals, organic expansion into 20 new HVAC markets, and enhancing capabilities for large capital projects and Waterworks. CFO Bill Brundage quantified that of the 5.5% cost growth, the vast majority was driven by 5% volume growth, with headcount remaining flat year-over-year, indicating productivity gains. He noted that deflation accounted for about 40 of the 60 basis points of operating deleverage. Brundage confirmed cost reduction actions are underway, focused on non-customer-facing roles, with the goal of slowing cost growth in the second half.

Matthew Bouley questioned the 5% year-over-year OpEx growth, asking if the company might pull back on spending if markets weaken or if the investments are simply front-loaded. He also sought more detail on pricing, specifically on sequential commodity price trends and the level of finished goods inflation assumed in the full-year guidance.

Answer

CEO Kevin Murphy stated that Ferguson will continue investing to support current volume and prepare for a market recovery. CFO Bill Brundage added that some investments, like the trainee class and HVAC rollout, are front-loaded. On pricing, Brundage noted finished goods were flat in Q1 but are expected to see low single-digit inflation in the second half. He mentioned that while some commodity categories like copper are inflating, steel and PVC remain under pressure, with overall commodity deflation expected to ease through the year.

Matthew Bouley from Barclays asked for the specific end-market assumptions underlying the FY25 market decline forecast and inquired about how lower interest rates typically impact Ferguson's business segments.

Answer

CFO Bill Brundage detailed that the low single-digit market decline forecast for FY25 assumes residential markets will be down low-to-mid single digits, while non-residential will be roughly flat. He noted that August's organic growth was similar to Q4. CEO Kevin Murphy explained that lower interest rates would first benefit the Waterworks business through lot preparation, followed by the RMI business as existing home turnover increases. He added that customers remain cautious but optimistic.

An analyst on for Matthew Bouley requested a breakdown of the $150 million CapEx guidance for 2025. He also asked about any pockets of strength in the European market and the expected volume cadence for the region through the year.

Answer

CFO Samantha Stoddard explained that just under $100 million of CapEx is for asset maintenance, with the remaining ~$50 million allocated to transformational projects like network optimization, automation, and growth initiatives. CEO Bill Christensen stated that while Europe is improving, a significant recovery isn't expected until 2026 due to long build cycles, though they are seeing some project pipeline recovery.

Matthew Bouley of Barclays sought to unpack the 'unprecedented' negative mix shift driving the revenue guidance cut and questioned whether the lost Midwest customer's move to imported windows signals a new, broader competitive threat.

Answer

CFO Samantha Stoddard detailed the guidance revision, attributing it to softer R&R, the negative sales mix, the lost customer, European weakness, and multifamily headwinds. CEO William Christensen characterized the customer's decision to source windows from Asia as a 'unique choice' and a 'one-off,' not an emerging competitive trend, especially given the current tariff environment.

Inquired about the scale and planning of new product growth investments and asked for an update on the Capital Lumber distribution ramp, including its impact on Q1/Q2 and the overall guide.

Answer

The new product investments, while significant due to new facilities, were consistent with the original plan. The Capital Lumber inventory fill is proceeding as expected and was included in the guidance, with the West Coast ramp progressing well and supported by incremental investments.

Matthew Bouley asked about the impact of recent industry-wide rule changes on commission rates and for an update on near-term housing market trends, including inventory, transactions, and potential election uncertainty.

Answer

CEO Robert Reffkin stated that Compass has not seen any meaningful change in commission rates and believes the new environment favors experienced, full-time agents, which benefits the company. He also noted that leading indicators like purchase mortgage applications and pending sales have shown resilience and year-over-year growth in recent weeks, suggesting the market's worst may be over.

Matthew Bouley followed up on incentives, asking for a forward look on pricing resiliency and what differentiates Taylor Morrison's strategy. He also asked about the potential for future SG&A leverage given the company's growth outlook.

Answer

Chairman and CEO Sheryl Palmer reiterated that Q3 incentives were the lowest in two years, crediting their healthy buyer profile and personalized financing strategies for supporting margins. She expects continued stability relative to the market. Chief Corporate Operations Officer Erik Heuser confirmed the high 9% SG&A guide for the year and stated that with anticipated top-line growth, they expect to see improved leverage over time, with more specific guidance to come.