GI
GMS Inc. (GMS)·Q3 2025 Earnings Summary
Executive Summary
- Q3 FY2025 net sales were $1.26B (+0.2% YoY), GAAP diluted EPS was -$0.55 due to a $42.5M goodwill impairment, and adjusted diluted EPS was $0.92; gross margin compressed to 31.2% and adjusted EBITDA fell to $93.0M (7.4% margin) .
- Management cited “soft end market demand” and steel price deterioration in December–January as drivers of lower volumes, margin pressure, and reduced vendor incentives; price/mix remained resilient in Wallboard and Ceilings, but steel was a headwind .
- Q4 outlook was cut: net sales down high-single digits YoY, gross margin ~31.2%, and adjusted EBITDA $100–$110M (~8% margin), reflecting continued demand headwinds and weak vendor incentives near term .
- Cost actions accelerated: an additional ~$20M annualized cuts bring total to ~$50M since FY25 start; full run-rate expected in Q1 FY2026, with ~one-third realized in Q4 .
- S&P Global consensus estimates were unavailable via our tool; relative to management’s lowered Q4 outlook and Q3 miss vs prior guidance, sell-side estimates may need to be reassessed (consensus unavailable).
What Went Well and What Went Wrong
What Went Well
- Ceilings strength and mix: Ceilings net sales rose 16% YoY to $180.7M, helped by architectural specialties and data center/education/healthcare projects; price/mix up 11.1% organically .
- Wallboard price resilience: Like-for-like wallboard pricing held up despite weaker demand; average realized price ~up YoY and sequentially, and management expects resilience to continue .
- Cash generation and liquidity: Q3 free cash flow was $83.1M (89% of adjusted EBITDA), cash from ops $94.1M, and available liquidity on revolvers was $469.7M; FCF conversion guided to ~60–65% for FY25 .
What Went Wrong
- Demand deterioration and weather: Activity fell across multi-family, commercial, and single-family; adverse winter weather and holiday timing had an estimated ~$20M net sales headwind .
- Steel pricing and vendor incentives: Steel deflation pressured margins; vendor incentive income came in below expectations due to weaker volumes, contributing to gross margin compression .
- Q3 miss vs prior guide: Q2 call guided Q3 adjusted EBITDA of $113–$118M and gross margin 31.5–31.7%; actuals were $93.0M and 31.2% amid weaker demand and reduced incentives .
Financial Results
Segment breakdown (Q3 FY2025 vs Q3 FY2024):
KPIs and cash/returns:
Guidance Changes
Earnings Call Themes & Trends
Management Commentary
- “Our results in the quarter reflect the impact of soft end market demand and steel pricing… driving both lower than expected sales and gross margin compression, despite experiencing price and mix improvement in Wallboard and Ceilings” — John C. Turner, Jr., CEO .
- “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” — CEO .
- “The challenging demand backdrop… is expected to continue through the end of our fiscal year in April and most likely beyond… adjusted EBITDA for the [Q4] quarter is expected to be in the range of $100 million to $110 million” — CEO .
- “We did receive less vendor incentive income during the quarter than expected… inventory adjustments and a relative shift in sales mix… contributed to overall margin compression” — CFO .
Q&A Highlights
- Steel outlook and tariffs: “We will see [steel] inflation, but it’s probably going to be post this quarter… rolled steel lead times are out to 13 weeks… tariffs… will come through the supply chain” — CEO .
- Bottoming and cost timing: “We’re in the bottom of this cycle… next couple of quarters… [cost] $20M run-rate: maybe 1/3 in this fourth quarter; full maturation in the first quarter” — CEO/CFO .
- Commercial deterioration specifics: “Retail is absolutely dead. Private financing projects, dead. Office is dead… health care flat, public education okay, data centers great” — CEO .
- Ceilings mix: “Architectural specialties… our sales teams continue to become more successful… a couple of large projects… we don’t see any reason why that trend is going to reverse” — CEO .
- Margin drivers: “We are clawing back price [in wallboard]… what’s holding us back is volume incentive income… vendor incentives at risk near term” — CEO .
Estimates Context
- S&P Global consensus estimates (EPS/Revenue/EBITDA) were unavailable via our tool due to a mapping issue; therefore, we cannot provide a vs-consensus comparison at this time (consensus unavailable).
- Given management’s lowered Q4 outlook (net sales down high-single digits YoY, adjusted EBITDA $100–$110M, gross margin ~31.2%), analysts may need to reassess near-term estimates to reflect weaker demand and reduced vendor incentives .
Key Takeaways for Investors
- Q3 underperformed prior guidance: adjusted EBITDA $93.0M vs $113–$118M guided; gross margin 31.2% vs 31.5–31.7% guided; miss driven by demand deterioration, steel pricing, and vendor incentive shortfall .
- Near-term outlook remains cautious: Q4 net sales down high-single digits YoY, gross margin ~31.2%, EBITDA $100–$110M (~8% margin); likely a catalyst for estimate resets and cautious positioning .
- Mix shift favors Ceilings and complementary: data center/education/healthcare exposure supports Ceilings pricing/mix; complementary categories (tools/fasteners, EIFS/stucco, insulation) continue to be strategic growth areas .
- Wallboard pricing resilient but implementation lag: like-for-like pricing stable; manufacturer increases may take longer to pass through until demand improves (particularly single-family) .
- Steel could turn from headwind to tailwind later: near-term flat; tariffs and longer lead times could lift pricing post-Q4, offering potential margin relief in FY2026 as activity recovers .
- Strong cash generation and buybacks: Q3 FCF $83.1M; ongoing repurchases ($39.3M in Q3) balanced with debt reduction and selective M&A, though leverage (~2.4x) constrains near-term M&A capacity .
- Cost discipline is intensifying: total annualized cost reductions now ~$50M with full run-rate in Q1 FY2026; watch for margin stabilization as savings offset demand pressure .
Additional Notes
- Non-GAAP impact: $42.5M goodwill impairment (Ames) drove GAAP net loss; adjusted metrics exclude impairment and other items per reconciliation .
- Discrepancy/clarification: Gross margin vs expectations — pricing claw-back is progressing, but vendor incentives and inventory adjustments outweighed transactional gains, explaining the shortfall vs prior guide .