Executive Summary

Q3 2024 net sales were $4.23B, down 6.7% year over year; gross margin held at 32.8% and adjusted EBITDA margin remained mid‑teens at 14.8% despite multi‑family normalization and competitive pressures .
Management narrowed FY24 guidance: net sales trimmed to $16.25–$16.55B (from $16.4–$17.2B), adjusted EBITDA tightened to $2.25–$2.35B, and free cash flow raised to $1.2–$1.4B; exit gross margin expected around ~31.5% .
Digital adoption continued but 2024 incremental sales outlook was reduced to ~$110M (from $200M), while cumulative orders reached nearly $600M; target of $1B incremental in 2026 reiterated .
Strategic/catalyst items: CEO succession (Dave Rush retiring; Peter Jackson promoted), aggressive M&A (six Q3 deals), and continued share buybacks ($160M in Q3; $840M remaining authorization) .

What Went Well and What Went Wrong

What Went Well
- Maintained resilient profitability: gross margin 32.8% and adjusted EBITDA margin 14.8% despite sales decline; “maintained a mid‑teens EBITDA margin by leveraging our distinct competitive advantages” (Dave Rush) .
- Strong cash generation and disciplined capital allocation: Q3 operating cash flow $730M, free cash flow $634.7M; repurchased ~0.9M shares at $176.73 and completed six tuck‑in acquisitions (aggregate 2023 sales ~$190M) .
- Productivity execution: $27M savings in Q3, $104M YTD; continued operational excellence initiatives and supply chain efficiencies .
What Went Wrong
- Top‑line pressure: core organic sales –7.2% with multi‑family down ~31% YoY and single‑family down ~4.6% amid lower value per start; commodity deflation also weighed on net sales .
- Margin normalization: gross margin down 210 bps YoY and adjusted EBITDA margin down 310 bps; SG&A as % of sales rose 190 bps given reduced operating leverage .
- Digital ramp slower than planned: 2024 incremental revenue cut to ~$110M from $200M given targeted customer headwinds, though longer‑term 2026 target remains intact .

Financial Results

Metric	Q1 2024	Q2 2024	Q3 2024
Net Sales ($USD Millions)	$3,891.4	$4,456.3	$4,232.5
Gross Profit ($USD Millions)	$1,299.9	$1,462.7	$1,386.3
Gross Profit Margin %	33.4%	32.8%	32.8%
Net Income ($USD Millions)	$258.8	$344.1	$284.8
Diluted EPS ($)	$2.10	$2.87	$2.44
Adjusted Net Income ($USD Millions)	$327.4	$420.4	$359.5
Adjusted EPS ($)	$2.65	$3.50	$3.07
Adjusted EBITDA ($USD Millions)	$540.9	$669.7	$626.5
Adjusted EBITDA Margin %	13.9%	15.0%	14.8%

Segment/Product Mix (Q3 YoY):

Product Category	Q3 2023 Net Sales ($MM)	% of Net Sales	Q3 2024 Net Sales ($MM)	% of Net Sales	YoY %
Manufactured products	$1,200.4	26.5%	$997.6	23.6%	(16.9%)
Windows, doors & millwork	$1,093.3	24.1%	$1,084.8	25.6%	(0.8%)
Value‑added products (sum)	$2,293.7	50.6%	$2,082.4	49.2%	(9.2%)
Specialty building products & services	$1,083.4	23.9%	$1,081.0	25.5%	(0.2%)
Lumber & lumber sheet goods	$1,157.2	25.5%	$1,069.1	25.3%	(7.6%)
Total Net Sales	$4,534.3	100.0%	$4,232.5	100.0%	(6.7%)

KPIs and Operating Metrics:

KPI	Q1 2024	Q2 2024	Q3 2024
Value‑added products (% of net sales)	51.6%	48.7%	49.2%
Installed sales growth YoY (%)	17%	—	11%
Productivity savings ($MM)	$40	$37	$27
Free Cash Flow ($MM)	$227.6	$366.7	$634.7
Liquidity ($B)	~$2.4	~$1.7	~$2.0
Net Debt / LTM Adjusted EBITDA (x)	1.1x	1.4x	1.4x

Note on estimates: S&P Global consensus data was unavailable at this time (tool limit exceeded); comparisons vs Street not shown.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Sales	FY 2024	$16.4–$17.2B	$16.25–$16.55B	Lowered/Narrowed
Gross Profit Margin	FY 2024	31.5%–32.5%	32.0%–33.0%	Raised
Adjusted EBITDA	FY 2024	$2.2–$2.4B	$2.25–$2.35B	Narrowed (low end ↑, high end ↓)
Adjusted EBITDA Margin	FY 2024	13.4%–14.0%	13.8%–14.2%	Raised
Free Cash Flow	FY 2024	$1.0–$1.2B	$1.2–$1.4B	Raised
Total Capex	FY 2024	$400–$500MM	$375–$425MM	Lowered
Effective Tax Rate	FY 2024	23.0%–25.0%	22.5%–23.5%	Lowered
Interest Expense	FY 2024	$205–$215MM	$205–$215MM	Maintained
D&A	FY 2024	$525–$575MM	$525–$575MM	Maintained
Avg. Commodity Price (mbf)	FY 2024	$380–$400	$380–$400	Maintained
Selling Days vs 2023	FY 2024	+2	+2	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
Digital platform adoption	Q1: Orders >$60M; ~$10M incremental; 2024 target $200M . Q2: Focus continued (no quantitative update in PR).	Nearly $600M orders; $83M incremental; 2024 incremental now ~$110M; 2026 incremental target $1B reaffirmed .	Adoption rising; near‑term ramp slower than plan.
Multi‑family normalization	Q1 headwind; consistent YoY declines expected . Q2: −31.3% YoY core organic multi‑family; margin normalization in MF .	MF sales −~31%; MF manufactured products down ~45–50%; normalization expected to fade and largely normalize by Q1 2025 .	Headwind moderating; near normalization by early 2025.
Gross margin trajectory	Q1 GM 33.4%, guide 30%–33% . Q2 GM 32.8% .	GM 32.8%; exit ~31.5% due to MF/core normalization .	Slight downward exit; sustained strong baseline.
Install services	Installed sales +17% YoY in Q1 .	Installed sales +11% YoY; complementary margin profile .	Growing contribution; supports margin resilience.
M&A and capital deployment	Q1: 2 deals; $1B notes; repurchases $20M . Q2: 3 tuck‑ins; ~$1B buyback; new $1B authorization .	6 deals in Q3; $160M buybacks; ~$840M remaining authorization; pipeline strong .	Accelerating activity; disciplined capital returns.
R&R/Other	Q1 down ~4.7% on weather . Q2 up ~1.5% .	R&R/Other +0.8% weighted; central region strength; positive medium‑term setup .	Improving; potential tailwind with rate relief.
Commodities (lumber/OSB)	Q1: deflation; competitive battle in commodities .	Prices bouncing off bottom; modest increases healthy; watch affordability; R&R bigger demand driver than new construction .	Stabilizing; potential modest tailwind.

Management Commentary

“I'm proud of our resilient third quarter performance as we maintained a mid‑teens EBITDA margin by leveraging our distinct competitive advantages and differentiated business model.” — Dave Rush, CEO .
“We delivered $27 million in productivity savings in Q3 and $104 million year‑to‑date.” — Company statement .
“We now expect total incremental digital sales of approximately $110 million in 2024 versus our initial goal of $200 million; we remain confident in $1 billion in incremental sales in 2026.” — Peter Jackson, CEO .
“We anticipate an exit gross margin around ~31.5%, with normalization half from multi‑family and half from core.” — Pete Beckmann, CFO .
“In the third quarter, we completed 6 deals… reinforcing our commitment to growing value‑added products.” — Peter Jackson, CEO .

Q&A Highlights

Margin exit and 2025 scenarios: Management guided to ~100 bps exit headwind vs YTD average margins, split between multi‑family and core normalization; scenario analysis implies resilient margins supported by productivity and value‑add mix .
Digital trajectory: Adoption strong but near‑term incremental revenue trimmed to ~$110M; long‑term 2026 $1B target intact; focus on smaller builders under pressure from rates .
Multi‑family specifics: MF manufactured products down ~45–50%; normalization expected to largely complete by Q1 2025; lapping tough comps through Q4 .
Commodities strategy: Lumber/OSB prices off the bottom; modest increases seen as healthy; R&R demand key; maintain affordability balance .
Install penetration: Installed sales ~11% YoY increase; margin profile complementary across product categories, supporting overall mix .

Estimates Context

S&P Global consensus data for Q3 2024 (EPS, revenue, EBITDA) was unavailable due to a daily request limit, so we cannot quantify beats/misses vs Street at this time. Based on company guidance and narrative, expectations for FY24 margins and free cash flow were raised or narrowed, which may drive estimate revisions higher for FCF and gross margin but lower for net sales due to guidance tightening .

Key Takeaways for Investors

Profitability resilience: Mid‑teens adjusted EBITDA margin and stable gross margin amid sales pressure confirm the transformed margin profile; exit 2024 around ~31.5% gross margin sets a credible base heading into 2025 .
Cash flow strength: Q3 free cash flow of $635M and FY24 FCF raised to $1.2–$1.4B offer valuation support and flexibility for buybacks/M&A through cycle .
Mix and normalization: Multi‑family normalization is late‑innings; as lapping completes and single‑family value per start stabilizes, mix should gradually improve into 2025 .
Digital optionality: Near‑term revenue contribution trimmed, but platform adoption and 2026 $1B incremental target create medium‑term share gain potential; monitor quarterly adoption metrics .
Capital deployment: Active tuck‑in pipeline and continued buybacks ($840M remaining authorization) should compound EPS and bolster value‑add capacity .
Operating efficiency: Sustained productivity savings (Q3 $27M; YTD $104M) and SG&A discipline provide offset to competitive dynamics; leveragable when volumes return .
Risk watch: Affordability, competitive pressure in commodities, and slower digital monetization near‑term; offset by strong FCF, liquidity (~$2B), and late‑cycle MF normalization .

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