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MasterBrand, Inc. (MBC)·Q1 2025 Earnings Summary

Executive Summary

  • Net sales rose 3% year over year to $660.3M, but gross margin and profitability compressed; adjusted diluted EPS of $0.18 missed Wall Street normalized EPS consensus of $0.225, while revenue was essentially in line versus consensus $660.75M . Values retrieved from S&P Global.*
  • Management cut full‑year 2025 guidance: net sales now expected to decline low single digits (prior “up mid‑single digits”), adjusted EBITDA cut to $315–$365M (from $380–$410M), and adjusted EPS reduced to $1.03–$1.32 (from $1.40–$1.57). CapEx trimmed to $75–$85M (from $85–$95M) .
  • Margin pressure driven by weaker‑than‑expected spring demand, unfavorable fixed-cost leverage during footprint consolidations, and tariff timing; Supreme acquisition added ~10% to sales and helped mix, but base business volumes fell ~9% .
  • Near-term catalysts: guidance reduction and tariff surcharge implementation; management expects margin improvement in H2 2025 as footprint realignment benefits materialize and pricing/tariff mitigation takes hold .

What Went Well and What Went Wrong

What Went Well

  • Supreme acquisition performed in line and contributed ~10% to sales; builder direct sales grew >4% YoY despite broader new construction declines .
  • Continued traction from prior pricing actions and channel-specific offerings; management reaffirmed strategy (Align to Grow, Lead Through Lean, Tech Enabled) and expects continuous improvement savings of ~$50M in 2025 .
  • Liquidity remained solid ($113.5M cash; $358.6M revolver availability); board authorized new $50M repurchase program (839k shares repurchased for $11.4M in Q1) .

What Went Wrong

  • Base business volumes declined ~9% YoY (R&R softness), compressing gross margin to 30.6% (-150 bps YoY) and adjusted EBITDA margin to 10.2% (-220 bps YoY) .
  • Tariff uncertainty and delayed surcharge implementation pressured Q2 margin trajectory; management “ate” tariff costs in Q2 while pricing works through, keeping decrementals below target near term .
  • Free cash flow turned negative (-$41.2M vs +$11.7M last year) on choppy demand, inventory carry, and bond interest timing; net debt/TTM adj. EBITDA rose to 2.7x .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Net Sales ($USD Millions)$718.1 $667.7 $660.3
Gross Profit ($USD Millions)$238.0 $203.3 $202.2
Gross Margin (%)33.1% 30.4% 30.6%
Adjusted EBITDA ($USD Millions)$104.5 $74.6 $67.1
Adjusted EBITDA Margin (%)14.6% 11.2% 10.2%
Diluted EPS (GAAP) ($)$0.22 $0.11 $0.10
Adjusted Diluted EPS ($)$0.40 $0.21 $0.18

Comparison vs prior year and consensus:

MetricQ1 2024Q1 2025 ActualYoY DeltaConsensusSurprise
Net Sales ($USD Millions)$638.1 $660.3 +3.5% $660.75*In line (−$0.45M)*
Adjusted Diluted EPS ($)$0.31 $0.18 −41.9% $0.225*Miss (−$0.045)*

Values retrieved from S&P Global.*

KPIs and cash/credit:

KPIQ1 2024Q1 2025
Net Cash from Operating Activities ($USD Millions)$18.7 $(31.4)
Free Cash Flow ($USD Millions)$11.7 $(41.2)
Capital Expenditures ($USD Millions)$7.0 $9.8
Cash & Equivalents ($USD Millions)$153.7 $113.5
Total Debt ($USD Millions)$708.0 $1,058.2
Net Debt / TTM Adjusted EBITDA (x)1.5x 2.7x
Shares Repurchased—839k for $11.4M

Guidance Changes

MetricPeriodPrevious Guidance (Q4 2024 call)Current Guidance (Q1 2025)Change
Net SalesFY 2025Up mid‑single digits Low single‑digit decrease Lowered
Organic Net SalesFY 2025Flat YoY Mid‑single‑digit decrease Lowered
Acquisition Contribution (Supreme)FY 2025Mid‑single digits Mid‑single digits Maintained
Adjusted EBITDA ($USD Millions)FY 2025$380–$410 $315–$365 Lowered
Adjusted EBITDA Margin (%)FY 2025~13.5–14.3% ~12.0–13.5% Lowered
Adjusted Diluted EPS ($)FY 2025$1.40–$1.57 $1.03–$1.32 Lowered
CapEx ($USD Millions)FY 2025$85–$95 $75–$85 Lowered
Free Cash FlowFY 2025> Net Income > Net Income Maintained
Tariffs AssumptionFY 2025In‑effect tariffs only In‑effect tariffs only Maintained

Earnings Call Themes & Trends

TopicQ3 2024 (prior)Q4 2024 (prior)Q1 2025 (current)Trend
Tariffs/macroWatching macro indicators; pricing actions underway; sequential inflation pressuring margins Detailed tariff exposure and plans; outlook only includes in‑effect tariffs Surcharges being implemented; near‑term tariffs “eaten” in Q2; demand/headwinds; mitigation via price, sourcing, supplier terms Deteriorated near term, mitigation in progress
Demand: R&RSoft; consumers hesitant; low turnover Holidays very soft; delayed price realization Weaker than anticipated spring; stock products particularly weak; expect down high‑ to mid‑single digits FY Weaker
Demand: New constructionMid‑single-digit growth YTD; builder wins Pocket of softness early 2025; expect flat to down low single digits FY Down mid‑single digits FY; builder direct grew >4% in Q1 on wins Moderating
Footprint optimizationSupreme integration; Waterloo center of excellence NC consolidation; Colton→North Las Vegas relocation Ongoing; expect benefits from Q3; near‑term fixed-cost leverage pressure Benefits expected H2
Pricing/ASPPrice actions to benefit Q4; promotions affect mix Negative price/cost in Q4; slower price realization in lower price points Surcharges for tariffs; timing varies by channel; ASP tailwinds vs year‑ago Improving through year
Continuous improvement/CITargeting $50M CI savings Reinforced CI, variable cost flexing $50M incremental CI savings reiterated Consistent
CanadaSoft across markets New construction soft; 2025 risk lower Both markets down mid‑single digits expected FY Weaker
Tech EnabledCloud/data and MasterBrand Connect progress Plan $15M incremental 2025 Spend reduced ~20% vs plan; long‑term differentiation Invest with moderation

Management Commentary

  • “End market demand was weaker than anticipated… Softer demand put pressure on margins… while we anticipate near‑term pressure on margins, we believe [network changes, CI savings, cost reductions, investment] will allow us to deliver competitive full year adjusted EBITDA margins.” — CEO Dave Banyard .
  • “Our revised guidance reflects the negative impact of general economic uncertainty on our end market demand, as well as the net impact of enacted tariffs on our profitability.” — CFO Andi Simon .
  • “We anticipate headwinds to fixed cost leverage in the second quarter with margin performance improving in the second half of 2025.” — CFO Andi Simon .

Q&A Highlights

  • Pricing/tariff surcharge: Company is implementing surcharges to offset tariffs, with timing/customer negotiation varying; noted some pre‑buying behavior and expects demand impact later in Q2/Q3 .
  • Seasonality and margins: Q2 should improve vs Q1, but decrementals remain below target; tariffs costs and incomplete footprint adjustments weigh on Q2, with benefits expected in Q3/Q4 .
  • Footprint optimization/cost saves: Consolidations in NC and relocation to North Las Vegas to lower costs and improve service; workforce reductions (~500 production roles) and discretionary spend cuts to preserve margins while investing for growth .
  • Tariff comparative positioning: ~80% of production in the U.S.; better insulated vs import‑heavy competitors; can absorb volume domestically if tariff regime changes, though costs would rise .
  • Inventory: Some carry tied to choppy demand and modest pre‑buy; plan to normalize working capital as year progresses .

Estimates Context

  • Q1 2025: Revenue $660.3M vs consensus $660.75M (in line); Adjusted/normalized EPS $0.18 vs consensus $0.225 (miss). Values retrieved from S&P Global.*
  • Consensus inputs were thin (two estimates), limiting breadth; EBITDA consensus $73.85M vs actual adjusted EBITDA $67.1M also implies pressure. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • The print was mixed: small top‑line beat/in‑line but clear margin/earnings pressure; the more material driver is the guidance reset across sales, EBITDA, and EPS on weaker R&R/new construction demand and tariff timing .
  • Near‑term setup skews cautious: Q2 decrementals below target as tariff surcharges/pricing lag and fixed-cost leverage remains unfavorable during consolidations; H2 improvement depends on execution and demand stabilization .
  • Supreme remains a structural positive (mix, channel diversity, synergies), but base business volumes must stabilize to unlock margin expansion back toward mid‑teens adjusted EBITDA margin targets longer term .
  • Cash discipline intact, but FCF seasonality and interest timing drove Q1 usage; management still targets FCF > net income for FY25; leverage elevated (2.7x net debt/TTM adj. EBITDA) but guided below 2x by year‑end contingent on EBITDA delivery .
  • Watch tariff developments and pricing pass‑through cadence as key narrative drivers; management indicated multi‑pronged mitigation (price, supplier terms, sourcing shifts, footprint adjustments) .
  • Trading lens: the guidance cut and EPS miss are likely overhangs; evidence of H2 margin improvement (footprint benefits, surcharge realization) and demand stabilization are potential positive catalysts .
  • Medium‑term thesis: scale leadership, lean culture, tech enablement, and acquisition synergies support share gains and margin recapture when housing turnover improves; execution on consolidations and CI remains critical .

Footnote: Values retrieved from S&P Global.*