MasterBrand - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue and EPS exceeded Street: net sales $730.9M (+8% YoY) vs S&P Global consensus $683.3M; Primary EPS $0.40 vs $0.34; EBITDA also beat ($105.4M vs $91.6M). The company maintained full‑year guidance. The quarter was supported by the Supreme acquisition and new construction share gains, offset by R&R softness and fixed cost deleverage. Consensus values from S&P Global.*
• Margins improved sequentially but declined YoY: gross margin 32.8% (−130 bps YoY), adjusted EBITDA margin 14.4% (−110 bps YoY); CFO cited lower base‑business volume and fixed cost leverage pressure, partially offset by pricing, CI savings, and Supreme.
• Full‑year 2025 outlook reaffirmed (net sales down low‑single digits; adjusted EBITDA $315–$365M; adj. EPS $1.03–$1.32; FCF > net income), while tariff risk is being monitored (potential Section 232 actions) with mitigation via pricing, sourcing, and footprint actions.
• Strategic catalyst: definitive all‑stock merger with American Woodmark (5.15x exchange ratio), targeting ~$90M run‑rate cost synergies by year 3, EPS accretion in year 2, and closing in early 2026, positioning the combined entity with broader portfolio, channel diversification, and stronger balance sheet.

What Went Well and What Went Wrong

• What Went Well

  • Revenue and EPS beat Street; adjusted EBITDA above internal expectations; new construction builder‑direct sales up 5% YoY; acquisition and pricing tailwinds supported top‑line.
  • Sequential margin improvement versus Q1; CEO highlighted “strong quarter” with share gains and integration progress: “deliver[ed] second quarter adjusted EBITDA above our expectations”.
  • Merger announced with expected ~$90M run‑rate synergies by year three and pro forma net leverage at close below MasterBrand’s 2.0x target; expected EPS accretion in year two.

• What Went Wrong

  • Base‑business volume decline (R&R weakness) pressured fixed cost leverage and YoY margins (gross −130 bps, adj. EBITDA −110 bps).
  • GAAP diluted EPS declined YoY to $0.29 (from $0.35) and net income margin fell to 5.1% (−160 bps YoY) despite top‑line growth.
  • Tariff uncertainty persists (potential reinstatement/expansion of Section 232) with unknown demand impact; management withheld quantification given scope/timing ambiguity.

Transcript

Speaker 6

Good morning and welcome to today's joint conference call hosted by MasterBrand Inc. and American Woodmark Corporation to discuss the proposed merger between the two companies. This call will also include MasterBrand's second quarter 2025 earnings conference call, which was previously scheduled for August 6 at 4:30 P.M. Eastern Standard Time. In addition, American Woodmark will provide commentary on select preliminary first quarter fiscal 2026 financial results, which were announced earlier today in connection with the proposed transaction. During the company's prepared remarks, all participants will be in a listen-only mode. Following management's closing remarks, callers are invited to participate in a question and answer session. Please note that this conference call is being recorded. I will now pass the call over to Henry Harrison, Senior Director of FP&A at MasterBrand. Sir, the floor is yours.

Speaker 5

Thank you and good morning. With me on the call today are Dave Banyard, President and Chief Executive Officer of MasterBrand; Scott Colbert, President and Chief Executive Officer of American Woodmark; and Andi Simon, Executive Vice President and Chief Financial Officer at MasterBrand. MasterBrand and American Woodmark issued a joint press release earlier this morning regarding their definitive agreement to combine in an all-stock transaction. Additionally, MasterBrand issued a separate press release earlier this morning disclosing its second quarter 2025 financial results. The joint press release and investor presentation that will be used on today's call are available on the investors' section of each company's website at masterbrand.com and americanwoodmark.com. The MasterBrand earnings investor presentation is also available on the investors' section of MasterBrand's website at masterbrand.com.

I would like to remind you that this call will include forward-looking statements in either our prepared remarks or the associated question and answer session. These forward-looking statements are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. Additional information regarding these factors appears in the section entitled "Forward-Looking Statements in a Joint Press Release Issued by MasterBrand and American Woodmark" earlier this morning and in a section entitled "Forward-Looking Statements in a Press Release Issued by MasterBrand" earlier this morning disclosing MasterBrand's second quarter 2025 financial results.

More information about risks can be found in MasterBrand's filings with the Securities and Exchange Commission, including under the heading "Risk Factors" in MasterBrand's full-year 2024 Form 10-K and updated as necessary in its subsequent 2025 Form 10-Qs, which are or will be available once filed at sec.gov and at masterbrand.com and in American Woodmark's filings with the Securities and Exchange Commission, including under the heading "Risk Factors" in its fiscal 2025 Form 10-K and updated as necessary in its subsequent fiscal 2026 Form 10-Qs, which are or will be available once at americanwoodmark.com. The forward-looking statements in this call speak only as of today, and neither MasterBrand nor American Woodmark undertakes any obligation to update or revise any of these statements except as required by law. Today's discussion includes certain non-GAAP financial measures.

Please refer to the reconciliation tables, which in the case of MasterBrand are in the press release issued earlier this morning disclosing MasterBrand's second quarter 2025 financial results, which is available at masterbrand.com, and in the case of American Woodmark are in the joint press release issued by MasterBrand and American Woodmark earlier this morning, which is available at masterbrand.com and americanwoodmark.com. Our prepared remarks today will include a discussion on the transaction for MasterBrand President and CEO Dave Banyard, American Woodmark President and CEO Scott Colbert, and MasterBrand Executive Vice President and CFO Andi Simon, as well as an overview of American Woodmark's select preliminary first quarter fiscal 2026 financial results, followed by a discussion of MasterBrand's second quarter 2025 financial results from Dave Banyard and Andi Simon, along with MasterBrand's 2025 financial outlook.

Finally, Dave Banyard will make some closing remarks before we host a question and answer session. With that, let me turn the call over to MasterBrand President and CEO Dave Banyard.

Speaker 4

Thanks, Henry, and good morning, everyone. We appreciate you joining us for today's call on short notice. I'm very pleased to be here today alongside the President and CEO of American Woodmark, Scott Colbert, and MasterBrand CFO Andi Simon to discuss MasterBrand and American Woodmark's definitive agreement to combine in an all-stock merger transaction that we believe will accelerate value delivery to customers, associates, and shareholders. This all-stock transaction is a transformative step forward for both companies and brings together two customer-centric platforms to create the industry's most comprehensive portfolio of trusted cabinet brands and products across a broad price spectrum, delivering even better overall choice, service, and value to customers and consumers. MasterBrand and American Woodmark bring highly complementary strengths: strong and broad portfolios of world-class cabinet brands and products, and streamlined low-cost manufacturing profiles.

Importantly, both MasterBrand and American Woodmark are long-established American companies with the vast majority of manufacturing operations based in the United States, a key differentiator we believe will enable the combined entity to compete more effectively in today's complex and evolving market environment. Through our combined strengths and resources, we are confident in our ability to unlock and deliver meaningful value with speed, agility, and diligence. With the industry's most comprehensive product and brand portfolio, broader geographic reach, enhanced support and marketing capabilities, and greater operational flexibility, we believe the combined company will be well-positioned to drive accelerated growth and innovation while optimizing the customer and consumer experience. Further, we have strong complementary cultures, which are rooted in a shared commitment to customer focus and operational excellence. This positions us well to deliver value.

We expect to realize, following close, approximately $90 million in run-rate cost synergies by the end of year three and for the transaction to be accretive to adjusted diluted EPS in year two, while generating significant cash flow. Combining the resources of both MasterBrand and American Woodmark is expected to enable increased investments in next-generation automation to drive further efficiencies, advance production innovation, and provide an enhanced customer experience. Before I turn it over to American Woodmark President and CEO Scott Colbert, I'd like to give an overview of the transaction terms. Under the terms of the agreement, American Woodmark shareholders will receive 5.15 shares of MasterBrand common stock for each share of American Woodmark common stock owned at the closing of the transaction.

Upon closing of the transaction, which we expect to occur in early 2026, subject to shareholder approvals and receipt of regulatory approval, MasterBrand shareholders will own approximately 63%, and American Woodmark shareholders will own approximately 37% of the combined company on a fully diluted basis. MasterBrand's board will expand to 11 total directors, with eight directors from the current MasterBrand board and three directors from the current American Woodmark board following close. I will serve as CEO, and MasterBrand non-executive chairman David Petraitis will remain as chairman of the board for the combined company, which will be called MasterBrand. The combined company will be headquartered in Beachwood, Ohio, and will maintain a significant presence in Winchester, Virginia. With that, I'll turn it over to Scott.

Speaker 5

Thanks, Dave, and good morning. Today is an exciting day for MasterBrand and one that we believe will advance our mission of creating value for people. We are pleased that MasterBrand shareholders will receive meaningful immediate value and benefit from substantial ownership in a stronger, more diversified company with significant value creation potential. Together with American Woodmark, we will unlock new opportunities to accelerate growth, innovation, and value creation for our customers, our communities, and our team members. Our portfolios align strategically, spanning the full spectrum of customer needs, and following close, MasterBrand will continue to offer our legacy brands that customers know and trust. Overall, through the added scale, resources, and operational agility created by this merger, we expect to become a stronger company positioned to grow faster than we would on a standalone basis.

MasterBrand has built a reputation for quality, innovation, and efficiency, driven by our steadfast commitment to the customer experience, a core focus that we share with American Woodmark. I'm confident that our shared approach will ensure we continue exceeding expectations and building lasting relationships. As referenced in our joint transaction press release, we announced today's select preliminary first quarter fiscal 2026 financial results. Please refer to our guidance and the transaction release we issued this morning, accessible on our investor relations website. Shortly, Dave and Andi will speak to the current market conditions. Our belief remains that our products and platforms will allow us to capitalize on tailwinds generated in the industry when mortgage interest rates decline and consumer confidence, new home construction, and existing home sales increase.

Together with the proposed transaction with American Woodmark, we will enhance our ability to serve customers and deliver profitable growth and long-term value for our shareholders. We're excited about the future and what we can achieve together. Now I'll turn it back to Dave to walk through the strategic benefits of the transaction.

Speaker 4

Thanks, Scott. As I mentioned previously, this combination brings together two customer-centric platforms to create the cabinet industry's most comprehensive portfolio of trusted brands and products. Customers and consumers of both MasterBrand and American Woodmark are expected to benefit from increased access to an expanded portfolio of world-class brands, including stock, semi-custom, and premium products across the full price spectrum. Importantly, we remain committed to growing each company's legacy brands, which channel partners know and trust. For MasterBrand, the addition of American Woodmark's portfolio further enhances MasterBrand's existing portfolio and brings MasterBrand closer to customers through a diversified channel mix and expanded geographical footprint. We believe the addition of American Woodmark's semi-custom brands offers an exciting opportunity for growth and expands MasterBrand's existing offering at this price point, offering customers increased optionality.

For American Woodmark, the addition of premium, semi-custom, and additional stock brands provides access to a broader and even more balanced channel mix that we believe will drive meaningful value creation and greater opportunities for a superior customer and consumer experience. The enhanced diversity of the pro forma channel mix is anticipated to bring the combined company even closer to more customers, providing direct access to more high-growth markets and increased touchpoints for customer support with an enhanced service offering and offering customers greater access and flexibility to where and how they purchase. With that, I'll now turn it over to MasterBrand Executive Vice President and Chief Financial Officer Andi Simon to walk through the combined company's financial profile.

Speaker 3

Thanks, Dave, and good morning. We believe this transaction will accelerate value and delivery for all shareholders and provide customers and consumers with a unique and distinctive offering. From a balance sheet perspective, we expect the combined company's pro forma net debt to adjusted EBITDA ratio at close to be below MasterBrand's stated 2x target leverage ratio. This positions the combined company to maintain exceptional flexibility to continue to invest in our customers and our business, as well as deliver even greater value to shareholders. The combined company is expected to generate significant free cash flow, and on a trailing 12-month basis, we would drive approximately $639 million in pro forma adjusted EBITDA, inclusive of anticipated run-rate cost synergies of approximately $90 million by the end of year three following close.

While the transaction consideration is comprised solely of MasterBrand stock, MasterBrand plans to arrange a revolver expansion with its current banking group to refinance American Woodmark's debt following the close of the transaction. Now turning to expected synergies. As mentioned previously, following close, the combined company is expected to achieve run-rate cost synergies of approximately $90 million by the end of year three. These anticipated cost synergies are in addition to the savings initiatives already underway at both MasterBrand and American Woodmark and the continued expected synergies from MasterBrand's acquisition of Supreme Cabinetry Brands last year. These expected synergies are primarily driven by procurement and overhead optimization, manufacturing network optimization, and operational excellence through the implementation of best practices and technologies from both companies, and we are confident in our ability to realize these significant value creation opportunities.

Additionally, following close, MasterBrand will appoint Executive Vice President, Corporate Strategy and Development, Nat Leonard, as Chief Integration Officer to lead the implementation of the integration plan under Works. In this critical role, Nat will be responsible for carrying out the detailed planning and diligence completed by both companies and turning it into tangible results, aligning teams, processes, and systems to realize the full value of these projected synergies and position the combined company for long-term success. I will now hand it back to Dave to further highlight the strategic benefits of the transaction.

Speaker 4

Thanks, Andi. In addition to our shared customer-centric cultures, I want to emphasize our shared commitment and relentless focus on innovation to elevate the customer experience and fuel sustainable growth. As Andi mentioned, the combined company is expected to generate significant cash flow to drive our capital allocation strategy. Together, we see a powerful opportunity to invest across areas of our business to create a more agile foundation that we believe will enable us to further optimize operational efficiency, advance product innovation, expand e-commerce capabilities, enhance both in-person and digital engagement, and elevate the customer experience. Further, our shared commitment to fostering mission-driven cultures that drive innovation, uplift customers, empower partners, and strengthen communities creates a powerful foundation for long-term success. We believe this alignment not only differentiates the combined company but also enhances our ability to deliver lasting value.

Scott and his team have built a strong culture of deep customer relationships, operational excellence, and leading with integrity in every facet of their business. We're energized by the opportunity to bring together exceptional talent across MasterBrand and American Woodmark and are confident in the impact we can make together. With that, I will now turn to MasterBrand's second quarter 2025 financial results. MasterBrand's strong results for the second quarter of 2025 reflect our team's continued focus on disciplined execution, operational consistency, and resilience across our business. Despite ongoing market softness and a challenging external backdrop, we've remained committed to our strategic priorities and what we can control: serving our customers with excellence, managing costs effectively, preserving margins, and executing on our ongoing Supreme integration strategy. This morning, I'll provide an overview of the market environment and key trends, and Andi will walk through our financial results and outlook.

During the second quarter, the broader single-family new construction market declined low single digits, driven by ongoing pressure on housing starts and completions. Despite that backdrop, we outperformed the market with our builder-direct sales up 5% year over year. Our consistent service performance has helped us continue to gain share with both existing and new builders, despite elevated interest rates and persistent macroeconomic uncertainty. Looking ahead, we continue to expect overall new construction and market demand to be down mid-single digits for the full year 2025. However, we believe our strong position, operational discipline, and trusted service model will allow us to continue delivering value in this evolving landscape. Shifting to the repair and remodel markets serviced by our dealer and retail customers, we saw continued choppiness in demand as end markets have been impacted by higher housing costs, low existing home turnover, and low consumer sentiment.

Our legacy repair and remodel business, excluding Supreme, declined approximately mid-single digits year over year, which was aligned with the broader market and our expectations. Reduced consumer confidence led to softer traffic at our retail partners, with impact most pronounced in stock cabinetry and across our e-commerce platforms. Our semi-custom products demonstrated growth in the quarter as consumers trended towards the middle of the portfolio options, underscoring the value of our multi-tiered product offering. We anticipate the end market softness to continue in repair and remodel throughout the remainder of the year as consumers continue to defer large discretionary purchases in the uncertain economic environment. We continue to expect this market will be down high to mid-single digits for the full year 2025, in line with our outlook for the market more broadly.

Against that backdrop, we are executing well on the integration of Supreme Cabinetry Brands, with the majority of our planned consolidation initiatives in North Carolina nearing completion. We remain aligned with our synergy realization timeline and expect these benefits to ramp meaningfully in the second half of 2025. The integration of Supreme Cabinetry Brands remains a major unlock for our business as we navigate a challenging market environment. While 2025 remains defined by external complexity, it's equally a year of focused execution and opportunity. We're doing what we said we would do: managing costs, advancing integration, funding innovation, and delivering for our customers. With this said, we're reaffirming our full-year guidance, a reflection of our confidence in the business and the momentum we're carrying into the back half. Now, with that, let me turn the call over to Andi.

Speaker 3

Thanks, Dave. I'll begin with a review of our second quarter financial results, then provide context for our full-year 2025 outlook. Second quarter net sales were $730.9 million, an 8% increase compared to $676.5 million in the same period last year. Similar to what we saw in the first quarter, our top-line growth was driven primarily by the continued contribution from the Supreme Cabinetry Brands acquisition, which remains on track with our expectations. We also benefited from the flow-through of planned price improvements and share gains, particularly in the new construction market. These gains were partially offset by overall softness across the markets we serve and the corresponding volume decline. Gross profit was $239.7 million, up 3.8% compared to $231 million in the same period last year.

Gross profit margin was 32.8%, down 130 basis points from last year, but improving by 220 basis points from the first quarter of this year. This sequential improvement reflects expected seasonality, while the year-over-year decline was driven primarily by lower volumes and associated fixed cost leverage. That pressure was partially offset by contributions from Supreme Cabinetry Brands, our continuous improvement efforts net of inflation, and higher net ASP. Tariffs were a minor factor in the quarter, and I'll touch more on our full-year mitigation strategy in a moment. SG&A expenses totaled $159.4 million, up 8.7% compared to $146.7 million in the same period last year. This was primarily driven by the addition of Supreme Cabinetry Brands' SG&A expenses. Net income was $37.3 million in the second quarter compared to $45.3 million in the same period last year.

The year-over-year decline reflects the higher SG&A just mentioned, as well as increased amortization and restructuring costs. These were partially offset by lower interest and tax expenses. Interest expense declined to $18.9 million from $20.6 million in the same period last year, driven by the absence of one-time charges associated with the senior notes issued in June 2024 to fund the acquisition of Supreme Cabinetry Brands. Income tax was $11.7 million, or a 23.9% effective tax rate in the quarter, consistent with our expectations, and compared to $14.8 million, or a 24.6% rate in the second quarter of 2024. The slight decline in our effective rate was primarily driven by the mix of earnings across domestic jurisdictions. Adjusted EBITDA was $105.4 million, relatively flat compared to $105.1 million in the same period last year.

Adjusted EBITDA margin came in at 14.4%, reflecting a 110 basis point decline year over year, driven by the same volume-related leverage challenges I referenced earlier. However, these were offset in part by continuous improvement savings net of inflation, contributions from Supreme, and pricing actions. Diluted earnings per share were $0.29 in the second quarter of 2025, based on 129.1 million diluted shares outstanding. This compares to $0.35 in the second quarter of 2024, which was based on 130.7 million diluted shares outstanding. Adjusted diluted earnings per share were $0.40 in the current quarter compared to $0.45 in the prior year period. Turning to the balance sheet, we ended the quarter with $120.1 million of cash on hand and $418.6 million of liquidity available under our revolving credit facility.

Net debt at the end of the second quarter was $878.6 million, a $66.1 million reduction sequentially, resulting in an improved net debt to adjusted EBITDA leverage ratio of 2.5 times, in line with our expectations. We remain on track to achieve a sub-2 times leverage ratio by the end of the year. Net cash provided by operating activities was $53.4 million for the six months ended June 29, 2025, compared to $96.1 million in the comparable period last year. Second quarter cash generation improved significantly sequentially as several non-recurring outflows from the first quarter did not repeat. Capital expenditures for the six months ended June 29, 2025, were $27.9 million compared to $18.3 million in the comparable period last year. The increase reflects planned investments related to the integration of Supreme and our ongoing footprint realignment efforts. These investments are aligned with our full-year capital allocation plan.

Free cash flow was $25.5 million for the six months ended June 29, 2025, compared to $77.8 million in the comparable period last year. This year-over-year decline was anticipated and consistent with our internal expectations. We remain committed to our full-year objective of generating free cash flow in excess of net income. As we look to the back half of the year, we expect free cash flow to normalize, supported by the absence of certain one-time payments, more typical seasonal patterns, and growing benefits from our integration initiatives. We continued share repurchases in the second quarter via a pre-established 10(b)(5)(1) program. During the 13 weeks ended June 29, 2025, we repurchased approximately 576,000 shares of our common stock. The shares were repurchased at a total cost of approximately $6.7 million, or an average of $11.69 per share. Now turning to our outlook.

Our full-year 2025 financial outlook includes only those tariffs currently in effect and is consistent with our previous outlook. It does not reflect potential implications from proposed trade policy changes. We continue to monitor the dynamic tariff environment closely and are closely watching the potential reinstatement of Section 232 tariffs on steel, aluminum, and lumber, which could take effect as early as August 15. If implemented, we anticipate these could have a significant impact on cost, and the overall impact on demand remains unknown at this time. We believe it is prudent not to quantify that impact at this stage, given the lack of clarity around scope, timing, and duration. That said, we are continuing to prepare for a range of mitigation strategies, including targeted price increases, supplier renegotiations, and longer-term shifts in sourcing and footprint.

As Dave mentioned, MasterBrand is reaffirming its expectation that our addressable market in 2025 will be down high to mid-single digits year over year, with continued variability by end market. We continue to expect our annual net sales to decline low single digits overall, including a mid-single digit contribution from Supreme, and organic net sales are still expected to be down mid-single digits. We are reaffirming our full-year adjusted EBITDA guidance of $315 to $365 million, with a corresponding margin range of 12% to 13.5%. In addition, we are reiterating our previous expectations on interest expense, effective tax rate, and adjusted diluted earnings per share, consistent with what we shared on our most recent quarterly earnings call. Given the uncertainty around tariffs and in particular the potential impacts on demand, we believe maintaining a wider range remains prudent.

Please note, this outlook does not reflect any anticipated financial benefits from the proposed merger with American Woodmark, nor does it include expected transaction or integration-related costs. We are very excited about the announced merger between MasterBrand and American Woodmark. By leveraging our respective strengths and harnessing the expected synergies between our businesses, we believe the combined company will be able to drive greater value for customers and shareholders. Now I would like to turn the call back to Dave.

Speaker 4

Thanks, Andi. We're executing well in what continues to be a challenging environment. Our culture and associates' dedicated use of our business system, the MasterBrand Way, is proving to be effective. Our Supreme integration initiatives are progressing on schedule, and as a result, we delivered a strong second quarter. We're taking proactive steps to manage tariff and sourcing risks, and we are maintaining a balanced view of 2025, cautious in the near term but confident in our long-term trajectory. Additionally, I want to reiterate our excitement about partnering with Scott and the American Woodmark team. This transaction brings together two highly complementary businesses with strong customer-centric cultures, extending our combined geographic reach, enhancing our support and marketing capabilities, and increasing our operational flexibility.

We anticipate that the proposed merger between MasterBrand and American Woodmark will position the combined company to unlock and deliver meaningful value for our customers, associates, and shareholders. Now, with that, I'll open the call up to Q&A.

Speaker 6

Thank you. The floor is now open for questions. If you do have a question, you may press star one on your telephone keypad at this time. If your question has been answered, you can remove yourself from the queue by pressing one. Again, ladies and gentlemen, it's star one. Our first question comes from Garik Shmois from Loop Capital Markets. Go ahead.

Speaker 8

Oh, hi. Thanks. Congrats on the merger announcement. I was wondering if you could just, first off, start with the timing of the transaction. Why now? Clearly, the markets are still pretty choppy. I'm just kind of curious as to the decision to come together at this point.

Speaker 9

Yeah, good morning, Garik. Thanks. I think what we like about this transaction is it's a really compelling combination of two great U.S. companies with great value-generating opportunities, lots of opportunity and value to generate for our customers with the expanded product portfolio and our operational footprint that, you know, we think bringing together makes it more efficient and delivers higher value to our customers. Plus, coming together really fortifies our financial profile, which has a couple of benefits. One, it allows us to really continue to invest in our business, but also bolsters us for whatever financial or market dynamic we're seeing out there. Lastly, I think the transaction and the combination really expands the opportunity for our associates and team members. We have very complementary cultures that we mentioned in our prepared remarks.

I think you put all those things together, and it makes it a good time to do this transaction. Scott, did you have anything to add?

Speaker 5

I'm just going to add to those comments, Dave. I think in three key stakeholder groups, Garik, specifically when I think about customers and consumers, what's this going to allow us to do? We're going to be able to better provide choice, service, value to that particular group. I think about shareholders and value creation that comes from the synergies that have been framed by Andi at the $90 million in year three. Then, as Dave just mentioned, with respect to our team members and associates, growth opportunities as being part of a larger organization or resources.

Speaker 9

I think I'll add one last thing, Garik, you know, if you look at the presentation, and I know it's a quick turn here, but I think we cut at close, we come out with a better balance sheet combined, and we're anticipating being below our stated goal of 2.0 on the leverage ratio. I think that prepares us well, again, like I said, for whatever market environment that we're in.

Speaker 8

Okay. That makes sense. On the cost synergies, I was wondering if you can go into a little bit more detail, you know, within the different buckets, where you see the most opportunities.

Speaker 9

I think to start, we did a very deep dive, a joint deep dive. We also brought in a third-party independent resource to look at all of the opportunities there. We've done a very detailed analysis. I think at this point in time, as we presented in the presentation, it's about a little over 40% G&A and indirect costs, and then a little under 60% in costs. There's a lot to be done there. I think that's the level of detail we're comfortable sharing right now.

Speaker 8

Okay. That's fair. The last question is just on the combined entity. You know, we'll have meaningful exposure across the different channels, and you know, just wondering how you're thinking about concentration or even cannibalization issues that you might experience, both on the channel perspective and any thoughts to any regulatory hurdles that the merger might face.

Speaker 9

Yeah, I mean, I think I'd start by saying we recognize it's a competitive environment out there. We've got to earn our place every day, and we do that individually today. I think combined, as I said earlier, and Scott also focused on, we think that bringing our two portfolios together really offers a lot of choice and value both to our channel partners as well as to consumers. I think that the other piece of that, which I think is as important, is that combined financial profile allows us to really invest in that customer and consumer experience. I think you put those things together, and you have a compelling story for how we can continue to go out and win with our existing customer base. That's a compelling story. As it comes to the regulatory hurdles, we're very confident that we can get through that process.

We have great advisors. We've analyzed this, and I think we're ready to go on that front.

Speaker 5

Just one additional comment I'd add to that. When you do look at the pro forma data here at MasterBrand specifically, I would tell you that I think it's a better diversification from a channel standpoint going forward as opposed to the two standalones.

Speaker 8

Okay. Very good. I'll leave it there. Congrats for the float moving forward.

Speaker 6

Thank you. Our next question comes from McLaren Hayes from Zelman & Associates. Go ahead.

Speaker 7

Hey, guys. Congratulations. On the cost synergies piece, any more detail that you could share around the phasing of that $90 million over the three-year period?

Speaker 9

Yeah, thanks for the question, McLaren. I think probably the best way to think about that is if you go back to how we phased the synergies with Supreme, it's going to follow a similar path. There are certain things that are easier and certain things that are harder. Without going into too much detail, because again, I think it's premature to do that, it'll phase in a similar fashion to what you saw from Supreme. There will be some early-stage things that are easier to do that we'll get after right away, things like supply chain consolidation and so forth. As you go further out, there are other things that take a little bit longer and require in-depth planning and thought before you make moves. I think that's, I would use that as a model of how to think about it.

Speaker 7

Okay. Yeah, I guess on Supreme, you know, relative to that $28 million three-year target, can you quantify, you know, where you expect to be by the end of the year on that?

Speaker 9

Yeah, I think we're on track to, we're in year two here, on track for those synergies. As we've highlighted in the past call, I'll give you a little more detail. Our North Carolina consolidation is largely complete. We're making cabinets at run rate for all the brands that we've moved around there, which is quite an accomplishment because those are premium brands, so they're a bit more complicated than your stock products, for example. The other consolidation that we're working on is really, again, phased in. We expect that to be largely complete, certainly by this time next year, but probably a bit earlier than that. You should start seeing that run rate happen in the next 12 to 18 months.

Speaker 7

Great. Dave, I think you called out some pre-buy activity on your last call. Could you quantify that in the quarter, or give us some detail on how demand's shaping up so far in the third quarter?

Speaker 9

Yeah, I think the way I'd frame it is we saw steady demand in Q2 in the single-family new construction, although, as we highlighted last quarter, we see the storm clouds, if you will, on the horizon with starts and completions. That's carried a bit through July, but I think we're starting, you know, we're getting into that zone where the completion rate coming down starts to affect our single-family new construction portion of our business. I think as you look at our guidance looking forward, we're expecting that that market's going to be softer moving forward. The team's done a great job in that category, has really been out there pushing hard to try to grow in the face of that, but I think that it's challenging as the market slows a bit here. I would characterize the new construction market as it's not a devastating decline.

I think it's a normalization to adjust for consumer demand and the fact that there are a large amount of spec homes still available on the market. That's how I'd characterize that. On the repair and remodel side, I think it's been very similar for the past several quarters of this choppiness. It's at a reduced level, and I think you can see that in our results and in our projections. I'd say there's no change in trajectory on R&R. It's just been down. I don't know, Scott, if you wanted to add anything on what you're seeing.

Speaker 5

Yeah, similar pattern. R&R has been kind of bouncing at the bottom. That's the way we frame that. It's been consistent. I would say new construction a little worse in our most recent quarter than the prior quarter as we started to see some of the impacts of the very soft, very selling season in that space.

Speaker 8

Got it. Appreciate all the color.

Speaker 6

Thank you. Again, ladies and gentlemen, that's star one to ask a question. Our next question comes from Trevor Allison from Wolfe Research. Go ahead.

Speaker 2

Hi, good morning. Thank you for taking my questions. You guys both have pretty notable presences in the home center channel. Do you expect on a combined basis that you're going to see any difference in your exposure there versus what the pro forma combined would be? A similar question on dealers versus builders. MasterBrand's historically bigger presence with dealers. American Woodmark historically bigger presence with the builders. Any early reads on if there's a preference to change the combined exposure versus where the pro forma numbers would shake out to?

Speaker 9

I think the way I'd answer it, Trevor, is what we like about this transaction is we think it actually brings more value to all of our customers in all those channels. We intend to bring these companies together with a comprehensive portfolio and footprint to drive overall value for them. I think where there's some interesting opportunity is our expanded dealer network is much more extensive than American Woodmark's. They have some great products, and we, much like we did with Supreme Cabinetry Brands, fully intend to introduce those products into our dealer network. There's a lot of similarity in that there's very complementary overlap. There's not a huge amount of overlap between our dealer networks. I know that's been a focus for Scott and his team. He just got a much bigger sales force to go execute on that and existing relationships that we can go deliver.

I'll say that we did not, in our deal modeling for either side, plan on these. They're not built into our model, much like we did with Supreme Cabinetry Brands. We still see, we do see compelling opportunity there for growth to expand the products offered to our extensive dealer network.

Speaker 5

Just adding on to that as well, Dave, you know, maintaining and expanding our customer relationships is going to be a top priority as we work through this integration plan. We're already actively engaging with our customers as early as the last hour to discuss the benefits of the companies coming together and our enhanced offerings and service capabilities. In our view, as Dave just highlighted with the expanded portfolio, you know, we're going to be looking at cross-selling opportunities for both companies.

Speaker 2

Okay. Thanks for that. Makes a lot of sense. A second question, you talked about the combination helping you compete better in today's environment. I think you mentioned, again, that an uncertain environment from a demand perspective, but I think maybe also you were alluding to an environment where bigger tariffs are potentially in play. Can you just talk about how the combined organization would be better suited to compete in that environment? Thanks.

Speaker 9

I don't know that I think that in general, the tariff environment is something that we're both managing well. I think as we consolidate here, we have the ability to manage that in a joint way that I think will be more effective. That's how I'd look at it. Scott, do you have any?

Speaker 5

I agree with those remarks, Dave.

Speaker 2

Okay. Thank you. Appreciate it. Good luck moving forward.

Speaker 5

Thank you.

Speaker 6

Thank you. Our next question comes from Steven Ramsey from Thompson Research. Go ahead.

Speaker 0

Hi, good morning, and congrats on the deal. Wanted to start with the network optimization and the synergy benefits from there. American Woodmark just the two new facilities in Hamlet and Monterey to help the business as demand gets better. I'm curious how you think about the network as it is and putting the companies together and where the benefits could come from.

Speaker 9

Yeah, thanks for the question. I think the way we look at it is we have complementary operational footprints. There's a lot of work to do to really dial into the details, which we're not going to go into today. I think what you do is you look at your customer footprint, the service levels that you provide to your customers, and you optimize off of that. Any of these kind of decisions start with the customer and how you serve them, and then you work back towards the combined factory footprint and you optimize around that. I think that's the best way to think about it. That's the work to be done once we go.

Speaker 0

Okay. That's helpful. Similar type of question, thinking about the brands of these two, really three companies if you include Supreme Cabinetry Brands, how you think about potentially pruning brands and focusing to get any marketing spend optimization, if that's baked into the synergy or how you're thinking about it.

Speaker 9

I think there's more to come there. I think we sort of see it as additive in a lot of ways. There may be some opportunity for that. As we started looking at this opportunity, I think we're looking more at where we both have gaps and where we can fill that in. The cabinet industry is interesting. There are a lot of different brands out there. It is a trade brand, not a consumer brand. I think that the trade brands have resonance. All of the American Woodmark brands have strong resonance with their channel partners. Ours do with ours. I think there's more opportunity here to bring those additional brands than I'd say take away at this point. Down the road, we are always looking at what's the most efficient way to serve our customers. I think in the near term, that's how we're approaching it.

Scott, did you have anything?

Speaker 5

Yeah, exactly. We're both wanting to grow our legacy brands. That would be the punchline takeaway from that standpoint. Today's your market down the road, you never know. Today, our focus will be to grow those legacy brands. They're powerful in the marketplace today.

Speaker 0

Okay. That's helpful. Last quick one for me, may have missed it, but wanted to get the cost of achieving the synergies for American Woodmark and then maybe just on a % basis, how it compares to the cost to achieve synergy within Supreme.

Speaker 3

The integration costs will phase as well, with some being upfront and then ramping as we do some of the consolidations. They will be, from a ratio perspective, from a dollar perspective, similar, but from a ratio perspective to the size of the company, less. That is because, when you look at consolidations and some of the complexities of Supreme Cabinetry Brands, they were premium businesses. Those are much more difficult to combine, where this is more on the value, semi-custom, stock product. I won't say it's easy, but it's less difficult than what a premium consolidation is.

Speaker 0

Great. That's helpful. Thank you.

Speaker 6

Thank you. Our last question comes from Tim Wallace from Bard. Go ahead, Tim.

Speaker 1

Hey, everybody. Good morning. Congrats on the acquisition and the deal here. Maybe just if, you know, first question, if you could talk a little bit about the process of this transaction and how the deal has kind of come together on both sides. If there's any sort of breakup fee or anything like that on either side, that would be helpful.

Speaker 9

Yeah, thanks, Tim. Scott and I started talking about this earlier in the year, and it quickly came to the conclusion that there's a compelling value to be generated in combining two great U.S. companies. We started and continued the conversations from there and did a lot of detailed work on both sides, good collaboration on understanding that value and on figuring out how we would go about unlocking it. In terms of the deal specifics, we're launching an 8-K. If it hasn't already been published, that's got all the deal specifics in it, and I'd direct you to that to look at any of it. It's a very market-based transaction merger agreement. I'd direct you to that to take a look at specifics.

Speaker 1

Okay. That sounds good. I guess on a pro forma basis, there's been a lot of acquisition activity in the cabinet space over the last five to eight years. Where do you think the combined entity would be from a market share perspective once the deal closes in total?

Speaker 9

Yeah, I think I'd rather not comment on that, Tim. I think we put some information in our presentation that talks about our channel coverage, the combined entities' product portfolio, and I think that's a good way to direct you to what this entity will look like at close.

Speaker 1

Okay. Okay. Sounds good. Rest of everybody.

Speaker 9

Thanks, Tim.

Speaker 6

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.