Sign in

You're signed outSign in or to get full access.

AC

AZEK Co Inc. (AZEK)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY2025 delivered 19% year-over-year net sales growth to $285.4M, driven by 22% Residential segment growth and double-digit sell-through; GAAP EPS fell to $0.12 due to lapping a prior-year Vycom divestiture gain, while adjusted EPS rose to $0.17 .
  • Gross margin compressed to 36.3% (adjusted 37.4%) on start-up costs and lower plant utilization; adjusted EBITDA grew 20% to $65.9M with margin at 23.1% .
  • Management raised FY2025 guidance: consolidated net sales to $1.52–$1.55B (from $1.51–$1.54B) and adjusted EBITDA to $403–$418M (from $400–$415M); Q2 guide: net sales $437–$448M and adjusted EBITDA $115–$120M .
  • Narrative/catalysts: Continued outperformance via wood conversion, new product platforms (vinyl/steel rail, Versatex XCEED siding, TrimLogic), channel expansion, and recycling acquisitions; conservative guide implies flat R&R market, leaving room for positive revisions if demand persists .

What Went Well and What Went Wrong

What Went Well

  • Residential segment net sales +22% YoY to $272.0M; segment adjusted EBITDA +24% YoY to $64.4M, with 23.7% margin despite ramp investments .
  • CEO highlighted “strong double-digit sell-through growth” and expanded market presence across Deck, Rail & Accessories and Exteriors; focus areas: wood conversion, product innovation, consumer journey, brand, and channel expansion .
  • Raised FY25 outlook on stronger Q1 demand signals and low channel inventories; ample capacity to serve customers, with adjusted EBITDA margin expected at 26.5–27.0% for FY25 .

What Went Wrong

  • Gross margin declined 140 bps to 36.3% (adjusted −190 bps to 37.4%) due to new product start-up costs, lower plant utilization, and weakness in Commercial (Scranton Products) .
  • GAAP net income −28% YoY to $18.1M (EPS $0.12) from lapping prior-year Vycom gain; net margin fell 420 bps to 6.3% .
  • Commercial segment net sales −23% YoY to $13.4M and segment adjusted EBITDA −48.8% YoY; material input cost pressure expected to normalize in 2H FY25 .

Financial Results

MetricQ1 FY2024Q4 FY2024Q1 FY2025
Net Sales ($USD Millions)$240.4 $348.0 $285.4
GAAP Diluted EPS ($USD)$0.17 $0.19 $0.12
Adjusted Diluted EPS ($USD)$0.10 $0.29 $0.17
Gross Margin (%)37.7% 37.3% 36.3%
Adjusted Gross Margin (%)39.3% 38.4% 37.4%
Adjusted EBITDA ($USD Millions)$54.9 $92.0 $65.9
Adjusted EBITDA Margin (%)22.8% 26.3% 23.1%

Segment breakdown (Q1):

SegmentQ1 FY2024 Net Sales ($MM)Q1 FY2025 Net Sales ($MM)YoY %Q1 FY2024 Seg Adj EBITDA ($MM)Q1 FY2025 Seg Adj EBITDA ($MM)YoY %Q1 FY2025 Seg Adj EBITDA Margin (%)
Residential$223.0 $272.0 +22.0% $52.0 $64.4 +23.9% 23.7%
Commercial$17.4 $13.4 −23.0% $2.9 $1.5 −48.8% 11.1%

Key KPIs and balance sheet/cash flow:

KPIQ1 FY2025
Residential sell-through growthDouble-digit (not quantified)
Contractor backlog6–7 weeks
Channel inventory vs historical~15% below historical average days on hand
Cash & Equivalents ($MM)$148.1
Net Debt ($MM)$386.1
Net Leverage (TTM)1.0x
Net Cash from Ops ($MM)$13.6
Free Cash Flow ($MM)$(8.0)
CapEx ($MM)$21.6

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Net Sales ($B)FY2025$1.51–$1.54 $1.52–$1.55 Raised
Adjusted EBITDA ($MM)FY2025$400–$415 $403–$418 Raised
Adjusted EBITDA Margin (%)FY2025N/A26.5–27.0 New explicit range
CapEx ($MM)FY2025$85–$95 $85–$95 Maintained
Residential Net Sales ($B)FY2025$1.439–$1.466 $1.452–$1.479 Raised
Residential Seg Adj EBITDA ($MM)FY2025$388–$401 $392–$405 Raised
Commercial (Scranton) Net Sales ($MM)FY2025N/A$68–$71 New detail
Commercial Seg Adj EBITDA ($MM)FY2025N/A$11–$13 New detail
Consolidated Net Sales ($MM)Q2 FY2025N/A$437–$448 New quarter guide
Adjusted EBITDA ($MM)Q2 FY2025N/A$115–$120 New quarter guide
Residential Net Sales ($MM)Q2 FY2025N/A$422–$432 New quarter guide
Residential Seg Adj EBITDA ($MM)Q2 FY2025N/A$114–$118.5 New quarter guide
Effective Tax Rate (%)FY2025~27 25–26 Lowered

Earnings Call Themes & Trends

TopicQ3 FY2024Q4 FY2024Q1 FY2025Trend
Sell-through & channel inventoriesDeck/Rail double-digit; Exteriors softer; early buy timing pulled into Q3; inventories near historical Double-digit Oct sell-through; inventories ~10% below historical; early buy shipping in Q2 Double-digit sell-through; channel inventory ~15% below historical; conservatism maintained Positive demand; disciplined inventory
New product ramp impacts marginsLaunches (Fulton rail, Exteriors capacity) with modest margin impacts Continued ramp; margin initiatives to offset; FY25 margin expansion plan Start-up costs and underutilization in Q1; expect improvement from Q3 as utilization rises Near-term headwind → back-half tailwind
Tariffs/macro exposureNot emphasizedFlattish R&R assumed; upside if recovery International sourcing ~$120M; exposure to Mexico/China in low single-digit millions; minimal tariff impact Limited direct exposure; conservative macro
Recycling/processing & cost programsRecycle content rising; LDPE/PVC initiatives outlined Margin programs: recycling, sourcing, utilization Acquisition of Indiana recycler; later Northwest Polymers; internal conversion to LD; expect savings ramp through FY25/26 Structural cost tailwinds building
Regional/channel expansionDoman expansion in Canada; Western U.S. setup Western distribution (Capital/Doman) upside ~$10M potential H1 Retail and Western distribution staging; merchandising/training investments in Q2 Broader reach; near-term “fill,” long-term sell-through
Leadership/technology—Hired Chief Digital & Technology Officer (AI/tech) CFO transition to Ryan Lada Strengthened team and capabilities

Management Commentary

  • CEO: “Our Residential segment grew net sales by 22% year-over-year driven by double digit sell-through growth… Our focus on wood conversion, product innovation, improving the consumer journey, brand and channel expansion continues to drive our success” .
  • CEO: “We invested in and began ramping up production of [TimberTech Fulton Rail, Reliance Rail, Versatex XCEED siding, TrimLogic] modestly impacting our margins… We expect these investments to continue during our second quarter” .
  • CFO: “Channel inventory… down roughly 15% from historical average days on hand… Adjusted EBITDA… increased by $11M or 20% year-over-year to $66M… Adjusted EBITDA margin… 23.1%” .
  • CFO: “Tax rate came in favorable at 7.5% versus 39.9% in prior year primarily driven by… stock options exercised and removal of the tax effects related to the sale of the Vycom business” .

Q&A Highlights

  • Guidance conservatism vs strong Q1: Management still assumes flat R&R and mid-single-digit sell-through; raised FY guide to reflect Q1 but kept core assumptions unchanged .
  • New product ramp cadence: Inefficiencies and underutilization in Q1/Q2 due to vinyl rail and siding facilities; expect normalization and margin improvement in back half .
  • Tariffs exposure: International sourcing ~$120M; exposure to Mexico/China in low single-digit millions; expected small impact .
  • Commercial (Scranton) margin pressure: Material input cost lag and pricing actions; normalization expected in Q3/Q4 .
  • Western distribution and retail “fill”: Staging in H1; benefits expected to flow through sell-through over subsequent quarters; guide does not rely on fill alone .

Estimates Context

  • Wall Street consensus via S&P Global was not retrievable at time of analysis due to a Capital IQ mapping issue for AZEK (GetEstimates returned mapping error). We attempted to fetch consensus EPS, revenue, and EBITDA for Q1 FY2025, Q2 FY2025, and FY2025, but the data was unavailable through the tool. Values from S&P Global could not be included; therefore, estimate comparisons are not presented. [Values intended from S&P Global]

Key Takeaways for Investors

  • Strong demand backdrop: Double-digit Residential sell-through and expanded shelf space underpin raised FY25 outlook; conservative channel inventories may support H1 shipments and H2 replenishment .
  • Near-term margin headwinds, improving trajectory: Start-up costs and underutilization weigh on Q1/Q2, but utilization and cost programs (recycling, sourcing) point to margin expansion in H2 and FY26 .
  • Mix-shift catalysts: New rail (vinyl/steel) and premium siding/trim platforms broaden addressable market and wood conversion, supporting multi-year top-line growth .
  • Commercial drag likely transitory: Scranton Products pressure expected to normalize in H2; limited overall exposure vs Residential scale .
  • Balance sheet capacity: Net leverage at 1.0x with $148M cash and revolver availability supports continued organic/inorganic investments and opportunistic repurchases .
  • Leadership continuity: CFO transition to Ryan Lada and added digital/technology leadership position AZEK to execute growth playbook and cost initiatives .
  • Tactical setup: Q2 guide implies modest YoY growth; watch for sell-through momentum, margin cadence, and any upside from Western distribution and recycling acquisitions (Indiana and Northwest Polymers) .