MasterBrand Stock price
Compare with Peer Group
📊 Peer Group
📈 What is it?
The peer group consists of the companies with the most similar business model. They serve as a benchmark for putting a stock into context.
🧮 How is it selected?
Based on similarity of business model, meaning companies from the same industry with comparable products and a similar customer base. That's the only way to compare apples to apples.
🏛️ Why does it matter?
Whether a stock is cheap or expensive is best judged by comparison. A P/E of 18 or an EV/FCF of 20 can look cheap or expensive depending on the yardstick. The peer group gives you the most accurate one: companies with a similar business model that operate under the same conditions.
🎯 What does it mean for investors?
When a metric sits below the peer average, the stock is valued more cheaply relative to its competitors, and above the average more expensively. A discount to the peer group can be an opportunity, but it can also have a reason (for example lower growth). The comparison is a starting point, not a verdict.
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $1.45b | Revenue (TTM) = $2.78b
Market Cap = $1.45b | Estimated Revenue = $3.53b
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $2.60b | Revenue (TTM) = $2.78b
Enterprise Value = $2.60b | Forward Revenue = $3.53b
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
MasterBrand Stock Analysis
Analyst Opinions
9 Analysts have issued a MasterBrand forecast:
Analyst Opinions
9 Analysts have issued a MasterBrand forecast:
MasterBrand Events
Past Events
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AUG
4
Q2 2026 Earnings Call
about 2 months ago
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MAY
5
Q1 2026 Earnings Call
5 months ago
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FEB
10
Q4 2025 Earnings Call
8 months ago
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NOV
4
Q3 2025 Earnings Call
11 months ago
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StocksGuide Free
MasterBrand — Q2 2026 Earnings Call
1. Management Discussion
Good afternoon, and welcome to MasterBrand's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded.
I would now like to turn the call over to Henry Harrison, Senior Director of Corporate Financial Planning and Analysis.
Thank you, and good afternoon. We appreciate you joining us for today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer of MasterBrand; and Andi Simon, Executive Vice President and Chief Financial Officer.
We issued a press release earlier this afternoon disclosing our second quarter 2026 financial results. This document is available on the Investors section of our website at masterbrand.com.
I'd 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 the press release we issued today. More information about risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full year 2025 Form 10-K and updated as necessary in our subsequent 2026 Form 10-Qs, which are available at sec.gov and at masterbrand.com.
The forward-looking statements in this call speak only as of today, and the company does not undertake 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 are in the press release issued earlier this afternoon and are also available at sec.gov and at masterbrand.com.
Our prepared remarks today will include a business update from Dave, followed by a discussion of our second quarter 2026 financial results from Andi, along with our second half 2026 financial outlook. Finally, Dave will make some closing remarks before we host a question-and-answer session.
With that, let me turn the call over to Dave.
Thank you, and good afternoon, everyone. We appreciate you joining us for today's call. The second quarter marked an important milestone for MasterBrand. On May 28, we completed our merger with American Woodmark, bringing together 2 industry leaders to create the most comprehensive portfolio of trusted cabinet brands in North America.
I want to start by welcoming our new associates from American Woodmark and thanking our teams for staying focused on executing and delivering for our customers through the close. This is our first earnings call as a combined company, and the commitment we have seen across the organization in these first weeks has only strengthened our conviction in what this combination can deliver.
Today, I'll cover our second quarter results, the state of our end markets and the combined company's path forward.
Now turning to the quarter. We generated net sales of $815 million in the quarter, which includes $126 million of American Woodmark net sales from the close date. Legacy MasterBrand net sales were $690 million, in line with our guidance range, following a mid- to high single-digit year-over-year market decline, slightly offset by favorable net average selling price due to the flow-through of tariff pricing.
Adjusted EBITDA for the quarter was $63 million, including $4 million of partial period contribution from American Woodmark and adjusted EBITDA margin was 7.7%. Legacy MasterBrand adjusted EBITDA was $58 million and adjusted EBITDA margin was 8.4%. The lower margin was primarily due to market-driven volume declines and the related unfavorable fixed cost leverage, unfavorable product mix and material, labor and freight inflation, partially offset by the flow-through of tariff mitigation, our continuous improvement efforts and previously announced cost actions.
For the quarter, free cash flow was $129 million compared to $67 million in the same period last year, primarily reflecting improved working capital. This quarter, we are introducing second half 2026 outlook for the combined company. Now that the merger is complete and integration planning has converted to execution, we have better visibility into the combined business than earlier this year and have grown more confident in our ability to navigate the dynamic trade environment.
The introduction of the second half guide reflects our improved line of sight and confidence in the actions and plans underway. It's not a change in our view of the market. Andi will walk you through the details shortly.
Let me now briefly review our end markets in the quarter. During the second quarter, as anticipated, the broader single-family new construction market softened further, down mid- to high single digits, driven by ongoing pressures on completions and persistent affordability challenges. With inflation picking back up, the higher for longer outlook on interest rates continues to weigh on both builders and buyers.
Builder confidence remains near its weakest level since the housing crisis era and more than 60% of builders are offering sales incentives. Against that backdrop, our new construction business declined low single digits, excluding the impact of partial period American Woodmark sales in the quarter, continuing to outperform the broader market.
Shifting to the repair and remodel market served by our dealer and retail customers, we saw continued softness in demand, consistent with recent quarters as end markets remain impacted by affordability pressure, low existing home turnover and historically weak consumer sentiment.
Consumers continue to defer large discretionary projects and the trade down trend we've been seeing persisted as consumers opted for value products and pared back features in made-to-order categories, a key driver of this quarter's mix pressure. Excluding the partial period contribution from American Woodmark, our repair and remodel business declined mid- to high single digits, in line with the broader market and our expectations.
Layered on top of these market dynamics, the ongoing conflict in the Middle East continues to introduce added consumer uncertainty and broader market volatility that remain difficult to size at this stage, including rising fuel costs that are adding further pressure to an already cautious consumer.
Taken together, our view of the 2026 addressable market down mid-single digits is directionally unchanged from our previous view, and our outlook assumes no improvement in demand conditions this year with the broader market expected to begin its recovery in 2027.
Now turning to the merger and why we're so excited about the combined company. As we said at the announcement, this combination brings together 2 customer-centric platforms with highly complementary strengths, strong broad portfolios of trusted cabinet brands and streamlined low-cost manufacturing profiles.
Both are long established American companies with the vast majority of manufacturing operations based in the United States, a differentiator we believe matters more than ever in today's trade environment. We believe this combination will ultimately enable us to drive growth and improve margins beyond what either company could achieve on its own.
New construction in the home centers have been the 2 most resilient segments of the market through this downturn, and we believe they hold significant potential when the eventual recovery comes. Together, MasterBrand and American Woodmark can build the most efficient, cost-effective model for serving these large channels.
In new construction, the combination gives us the geographic reach with an industry-leading model to better meet the customer where they are, whether direct or through distribution. The combination also strengthens our position in key new construction markets and enhances our product portfolio.
We plan to apply the same disciplined approach to the combined business that has helped legacy MasterBrand outperform the new construction market, and we're confident in our ability to earn back the share American Woodmark has ceded in this channel prior to the merger.
In the home centers, the added scale across our combined network enables better inventory management, more product options and an operating footprint that is well positioned to bring the high service levels our partners expect.
In the dealer channel, the clearest opportunity is cross-selling American Woodmark's products into MasterBrand's much larger dealer population, allowing us to meet customers and consumers at every price point with the best value, quality and design.
Realizing the full sales potential of this channel will take more time given current market conditions. It also requires thoughtfully organizing a combined product portfolio and brand package, including meaningful brand and price point white space for a highly fragmented market.
We expect this work will simplify our offering for the channel over time. Across new construction, home centers and dealer, these cross-sell and white space opportunities were not built into our original deal model, and we view them as upside to the transaction economics.
Stepping back, the strategic logic of this combination comes down to 2 factors: scale and flexibility. Our scale reduces inefficiencies and duplication and extends service across a broader geographic footprint. The flexible operating model that we have championed over the past 6 years creates a simple connected product continuum that consumers can choose from with ease. And because we are investing in a much larger platform, our investments make an outsized impact, including increased investment in next-generation automation, product innovation and enhanced in-person and digital engagement, all aimed at greater efficiency and a better customer experience.
Turning to integration and cost synergies. Integration is off to a strong start. We've aligned our senior leadership structure, and we're now organizing the next layers of the business. Where processes overlap, we're adopting the best of what each company has built. Where they differ, we're implementing the strongest approach, along with the systems that come with it. Additionally, across the 2 companies, we have overlapping capabilities and products as well as excess capacity in our manufacturing network.
We intend to apply the same manufacturing network optimization and disciplined integration track record we've built over time to capture greater efficiency. We're already realizing early procurement and overhead synergies, and we've initiated 2 plant closures to begin consolidating our production footprint. We've also begun the process of cross-selling our product portfolios into the dealer network.
As of the end of July, we've executed approximately $30 million of annualized cost synergies, and we expect roughly $15 million of savings in the second half of 2026, with corporate overhead and procurement the primary sources executed to date.
In total, we now expect over $100 million of annual run rate cost synergies by the end of year 3 post close, exceeding our original synergy target, and we continue to expect the transaction to be accretive to adjusted diluted earnings per share in year 2 post close.
Importantly, the stated $100 million plus annual run rate synergy target excludes both the $30 million of Legacy MasterBrand cost actions we announced last quarter and American Woodmark's previously announced closure of its Monterrey, Mexico facility, which has already completed its wind down. Both of those programs are incremental savings on top of the synergy target.
Now turning to capital allocation. For the second half of 2026, we expect capital expenditures of $71 million or 3% of net sales, including integration capital. We are prioritizing high-return projects and by eliminating planned spending in overlapping areas of the network, we estimate $4 million of CapEx synergies in the second half of 2026 alone.
Beyond CapEx, our priorities are clear. The near-term focus is the balance sheet. We're currently targeting a net leverage ratio below 2x by the end of 2028. As synergies build and the integration process progresses, we expect our financial flexibility will grow. We anticipate that achieving our target leverage range will open the door to resuming share repurchases and opportunistic M&A. The path is straightforward, and we have a clear line of sight to executing against it.
Before I turn it over to Andi, I want to step back and talk about the earnings potential of this combined business because it follows the same principle, focusing on what we can control. After an initial assessment, we believe there's a path to structurally higher profitability for the combined business, independent of the market recovery, meaning any improvement in demand will be upside to that path. There are 4 levers that drive it.
First and our top priority is cost discipline. The last 3 years have taught us, we can't count on a market recovery. So we're removing that variable from the equation. Across SG&A and our manufacturing footprint, it is clear that both companies carried excess costs from operating independently through a prolonged downturn and the merger closing process. We're aligning that cost base to a level appropriate for a combined company of our scale, and that work is already underway.
Second, resetting our product portfolio and the supply chain behind it. Consecutive years of inflation and market decline forced fast pricing and portfolio decisions at both companies and not all of them are optimized for where the market has landed.
Similarly, the need to rapidly mitigate tariffs required us to make quick supply chain decisions that prioritize speed over optimization. Legacy MasterBrand already carried the industry's most comprehensive product portfolio and the combination with American Woodmark presents a natural opportunity to rebalance the portfolio of the combined company, while maintaining complete coverage and a range of choices across the full price spectrum.
In parallel, we are implementing the MasterBrand way to optimize our sourcing and manufacturing configuration to ensure the combined business operates as efficiently as possible without sacrificing key service metrics. We have a strong track record here.
Over the past 5.5 years, we've closed 11 plants while consolidating production into our remaining network, all the while preserving capacity and service levels, and we intend to bring that same discipline to the combined footprint.
Third, leveraging the portfolio to support a healthier product mix across end markets and drive profitable growth. This opportunity is particularly meaningful in new construction, where we believe our breadth of products and price points, combined with our deep relationships and service expertise enables the combined company to serve builders better and more efficiently.
And finally, we're investing behind dealer share gains. We believe the continued investment in technology, quality and service across the combined dealer network will position us to grow with our dealer partners even in a flat market, and we expect that to meaningfully advance that path.
Despite persistent challenging market conditions, the completion of this merger marks the start of a new chapter for MasterBrand, a combined platform with a clear path to growth, tangible synergy targets and strong early momentum on integration.
I'm pleased to announce that we will host an Investor Day in the first quarter of 2027, where we plan to size each of these levers and lay out the time-bound plan behind. We will also introduce the full combined company story, including our strategy and refresh long-term financial targets. This is a company we are proud to be building, and we look forward to seeing many of you there.
With that, I'll turn it over to Andi for a detailed review of our financial results and outlook.
Thanks, Dave, and good afternoon, everyone. I'll start with how we are reporting the quarter as a combined company, then review our second quarter results and close with our outlook for the second half of 2026.
First, on reporting conventions. Our results include American Woodmark from the May 28 close date, 32 days of contribution and prior year comparisons reflect legacy MasterBrand only. It should be noted that purchase accounting estimates included in our second quarter results are preliminary and remain subject to finalization within the 1-year allowed measurement period.
American Woodmark's results have been conformed to MasterBrand's fiscal calendar and account categorizations. Article 11 pro forma financial statements were filed via Form 8-K/A on June 26, 2026.
Now turning to our second quarter results. Net sales in the second quarter were $815.2 million with a contribution of $125.5 million of American Woodmark net sales from the close date. Legacy MasterBrand net sales were $689.7 million, down 5.6% compared to $730.9 million in the same period last year, driven by the mid- to high single-digit market decline and slightly offset by favorable net average selling price due to the flow-through of tariff pricing.
Gross profit was $205.5 million with partial period contribution of $16.7 million from American Woodmark and gross profit margin was 25.2%. Legacy MasterBrand gross profit was $188.8 million compared to $239.7 million in the same period last year.
Legacy gross profit margin was 27.4% compared to 32.8% in the second quarter of 2025, down 540 basis points year-over-year amid a choppy spring selling season, primarily reflecting market-driven volume decline and the related unfavorable fixed cost leverage, unfavorable product mix and material freight and personnel inflation, partially offset by our continuous improvement efforts and favorable average selling price driven by tariff pricing.
The net tariff impact in the quarter was relatively neutral with the tariff landscape developing largely as we expected. On a combined basis, our exposure is currently offset, aided in part by the IEEPA refund. Legacy MasterBrand's pricing and supply chain mitigation actions have now largely reached a full run rate offset, and we will continue executing additional actions at American Woodmark over the second half of the year to reach that same run rate level.
SG&A expenses totaled $216.7 million with partial period contribution of $24.3 million from American Woodmark. Excluding American Woodmark and merger-related costs of $38.4 million, legacy MasterBrand SG&A was $154 million, up 50 basis points as a percentage of net sales, driven by the impact of increased fuel costs on distribution, partially offset by the initial benefits of cost actions in the quarter.
Fuel and freight costs were a significant headwind in the quarter, driven by a shrinking pool of available drivers, stricter federal regulations and persistent operating cost inflation across the trucking industry. We are working to offset this pressure through pricing, though these actions take time to fully flow through.
Interest expense was $20.8 million compared to $18.9 million in the same period last year. The increase reflects the previously announced refinancing of American Woodmark's debt. Our effective tax rate in the quarter was negative 18.8% and positive 13.7% year-to-date.
I would like to spend a moment on the negative tax rate. When the merger closed in the second quarter, nondeductible merger-related costs were incurred, which, as expected, negatively impacted our full year estimated tax rate. Because the first quarter was properly recorded at the premerger close effective tax rate, in the second quarter, we were required to record a catch-up tax expense related to the first quarter in the amount of $16 million. This catch-up expense will not repeat in future quarters and thus is an add-back in our reported second quarter adjusted diluted earnings per share.
However, the full year expected tax rate is now estimated at 12% to 15%, reflecting the impact of nondeductible merger-related costs. Net loss for the quarter was $57.6 million, which includes $28.9 million of partial period impact from American Woodmark and net loss margin was 7.1%.
Legacy MasterBrand net loss was $28.7 million in the second quarter compared to net income of $37.3 million in the same period last year. Legacy MasterBrand net income margin was negative 4.2% compared to positive 5.1% in the prior year, reflecting lower gross profit, higher SG&A expenses and a higher tax expense, as discussed, partially offset by the initial benefits of cost actions taken during the quarter.
Adjusted EBITDA for the quarter was $62.5 million, which includes $4.3 million of partial period contribution from American Woodmark and adjusted EBITDA margin was 7.7%. Legacy MasterBrand adjusted EBITDA was $58.2 million compared to $105.4 million in the prior year period. and adjusted EBITDA margin was 8.4%, down 600 basis points due to market-driven volume declines and the related unfavorable fixed cost leverage, unfavorable product mix and higher material, labor and freight inflation as fuel costs continue to rise, partially offset by the flow-through of tariff mitigation, our continuous improvement efforts and previously announced cost actions.
Diluted loss per share was negative $0.38 in the second quarter based on 153.6 million outstanding shares, which is reflective of the additional shares issued at close proportionate to the timing of the closing within the quarter. This compares to earnings per share of $0.29 in the second quarter of 2025 based on 129.1 million outstanding shares.
Adjusted diluted earnings per share was positive $0.05 in the current quarter based on 153.6 million outstanding shares compared to earnings of $0.40 in the prior year period based on 129.1 million outstanding shares.
Before turning to the balance sheet, I want to spend a moment on American Woodmark's performance. Since American Woodmark last reported public results, its fiscal third and fourth quarter performance came in below our expectations. More specifically, the underperformance was driven by excess fixed capacity and the related absorption pressure amid lower volumes, compounded by capacity decisions that were understandably delayed pending the close of the merger.
We saw American Woodmark's volume begin to improve in June, moving more in line with our legacy business at the end of the second quarter. Addressing this excess capacity is a top priority in our integration efforts, and we've already begun the work.
We have announced 2 manufacturing facility consolidations since the merger closed, the first steps in rightsizing the combined footprint, and we've identified further consolidation opportunities as we continue evaluating the network. These closures will take time to work through, and they are just the beginning of the actions that underpin our confidence in the earnings potential of the combined platform.
Turning to the balance sheet. We ended the quarter with $241.6 million of cash on hand and $393.9 million of liquidity available under our revolving credit facility. Net debt at the end of the second quarter was $1.15 billion, reflecting the financing associated with the American Woodmark acquisition. The trailing 12-month net leverage ratio, including American Woodmark's full trailing 12-month adjusted EBITDA was 3.9x. I want to take a moment to provide context on how our leverage ratio is calculated for covenant purposes as it differs from the reported figure.
Under our credit agreement, the bank covenant calculation permits the inclusion of full trailing 12-month adjusted EBITDA for American Woodmark, along with other certain additional add-backs as well as 18 months of anticipated merger synergies. On that basis, our covenant leverage ratio was 3.4x at quarter end within the 3.75x maximum permitted under the post-close 4-quarter leverage ratio holiday in our credit agreement.
Similarly, our interest coverage ratio, which measures adjusted EBITDA relative to net interest expense, was 5.1x on a covenant basis, above the 3x minimum required. Both measures reflect the full benefit of the combined business and confirm that we have headroom under our covenant at this stage of the integration.
Our deleveraging path is clear. We are targeting net leverage below 2x by the end of 2028. That target reflects tariffs currently in effect, including Section 232 and its current 25% rate. As I'll discuss in a moment, the scheduled increase to 50% on January 1, 2027, remains in place. Should that increase take effect, it would extend our deleveraging time line.
Once we achieve our leverage target, we expect to resume share repurchases. From a liquidity perspective, our post-close cash and revolver availability of $393.9 million and the absence of any near-term debt maturities, while synergies and cost actions flow through to adjusted EBITDA, we believe, give us ample financial flexibility to execute the integration while continuing to reduce debt.
Turning to cash flow and capital expenditures. Net cash provided by operating activities was $138.8 million in the second quarter compared to $84.8 million in the prior year period. For the same period, free cash flow was $128.6 million compared to $66.7 million in the same period last year, primarily reflecting the timing of home center collections, which we manage proactively within our existing contract terms.
Capital expenditures in the quarter were $10.2 million and for the second half of the year, we expect capital expenditures of $71 million or 3% of net sales, including integration capital.
On synergies and cost actions, Dave covered the framework, so I'll be brief. Our updated $100 million plus annual run rate cost synergy target is composed of footprint, SG&A and procurement opportunities, roughly 60% in cost of goods sold and 40% in SG&A and indirect. We expect onetime costs to achieve these synergies to total a 1:1 ratio of the run rate synergy target.
For the second half of 2026, we expect those onetime costs to total approximately $30 million. Revenue synergies are expected to represent upside over time.
Turning to the current trade environment. Let me provide an update on our exposure as a combined company. The tariff landscape has continued to evolve since our last call, adding additional layers of complexity. On July 20, the administration announced additional Section 338 tariffs on certain Canadian imports. On July 23, the administration replaced the expired 10% global tariff with Section 301 tariffs ranging from 10% to 12.5% on imports from approximately 60 trading partners.
Section 232 tariffs on wood and wood products, however, remain the primary driver of our exposure. Unlike the expired global tariffs, these measures have no sunset date. The scheduled increase in the Section 232 tariff rate to 50% previously delayed until January 1, 2027, remains in place. We have contingency plans and are prepared to act should it take effect.
Similar to MasterBrand, American Woodmark entered the combination with a comprehensive tariff mitigation program already underway, including pricing and surcharge actions, supplier renegotiations, sourcing optimization and manufacturing footprint initiatives, including the closure of its Monterrey, Mexico facility.
With that said, in the second quarter, combined company gross tariff costs were $41.9 million with a net impact essentially breakeven after mitigation and IEEPA duty refunds. For the full year of 2026, we expect the combined company's tariff exposure to be approximately 5% to 6% of net sales, inclusive of American Woodmark's total tariff exposure and net sales since the merger close. This figure also includes the newly announced Section 338 and Section 301 tariffs and the Section 232 tariffs at 25%.
We continue to expect to fully offset this tariff exposure on a dollar-for-dollar run rate basis by year-end, though further work is still required to offset the newly announced tariffs as we continue to adapt to the evolving landscape. Additionally, following the Supreme Court's ruling invalidating tariffs imposed under IEEPA, we have begun receiving refunds for $14.9 million in tariffs previously paid by MasterBrand and American Woodmark.
In the second quarter, we received $1.2 million of refunds, which we recognized as a reduction in cost of goods sold. Given uncertainty in the refund and administrative approval process, we are recognizing these refunds as they are collected rather than accruing a receivable. Since second quarter end, we have received an additional $9.2 million in refunds, which we will recognize in the third quarter, along with any further portion of the outstanding $4.5 million in expected refunds that are collected during the quarter.
Turning to outlook. This quarter, we are introducing second half 2026 outlook. This shift in approach reflects that the combination is complete, integration planning has converted execution, and we are more confident in our ability to navigate tariffs, though the broader macro and demand environments remain uncertain.
This outlook reflects the combined company with American Woodmark included for the full second half and includes our second half tariff impact and mitigation expectations for tariffs currently in effect. The outlook also embeds approximately $15 million of synergy capture and approximately $11 million of IEEPA duty refunds received and expected to be received over the period.
As Dave mentioned, the ongoing conflict in the Middle East adds another layer of complexity to an already uncertain consumer environment with fuel and related input costs representing a direct exposure that has already weighed on our margins this year. We are monitoring developments closely. Our outlook does not attempt to quantify any incremental impact to the market at this time.
With that said, for the second half of 2026, we expect net sales of $2.05 billion to $2.11 billion. At the midpoint, American Woodmark is expected to contribute approximately $730 million or 35% of the combined total with legacy MasterBrand comprising the remainder. This reflects an addressable market down mid-single digits year-over-year, partially offset by the full period contribution from American Woodmark and price and mix dynamics.
We expect second half adjusted EBITDA of $129 million to $149 million, representing an adjusted EBITDA margin of 6.3% to 7.1%. It is worth noting the key building blocks embedded in this range. Approximately $20 million reflects the contribution from American Woodmark's legacy business, $15 million is derived from integration synergies already executed and flowing through and approximately $11 million relates to anticipated IEEPA tariff refunds, of which $9 million has already been received in July.
We continue to expect decremental adjusted EBITDA margins to improve versus the first half as tariff mitigation, cost actions and synergies continue to phase in. Additionally, in the second half, we expect interest expense to be approximately $50 million, reflecting the newly arranged $375 million delayed draw Term A loan used to retire American Woodmark's debt at close.
We expect second half adjusted diluted earnings per share of negative $0.05 to positive $0.03. As a reminder, the effective tax rate and the pro rata increase in our diluted share count over the course of the year as a result of the merger introduced variability into this measure.
We anticipate diluted shares outstanding to reach 203.6 million by year-end and effective tax rate of 12% to 15%. Finally, we continue to expect free cash flow for 2026 to be in excess of net income for the year.
Stepping back, our focus in the second half is straightforward, disciplined execution on costs and synergies and steady progress on the balance sheet. As integration progresses and our visibility into both the combined business and the broader trade environment continues to improve, we expect to return to full year guidance beginning in 2027. And at our Investor Day in the first quarter of 2027, we plan to lay out the long-term financial targets behind the path Dave described. Between the 2, we aim to provide a complete picture of the combined company.
Now I'd like to turn the call back to Dave.
Thanks, Andi. This is a transformational quarter for MasterBrand. We believe the combination with American Woodmark positions us to navigate through this cycle and outperform in the recovery. And the early progress on integration gives us confidence that we will capture the full value of this transaction.
As I said earlier, we see a path to structurally higher profitability for this business, one that doesn't depend on the market and executing against the 4 levers to achieve that path is central to our focus in the second half and beyond.
At the same time, our confidence in the long-term demand fundamentals of our industry is unchanged. The structural underbuild of housing, the millennial generation entering prime home buying years and aging housing stock prime for remodel activity and rising home equity all support our expectation that pent-up demand remains intact with the broader market expected to begin its recovery in 2027.
When that recovery comes, our goal is for it to be upside to a business we've already made structurally stronger. The strategy is clear. Execution is underway, and we're confident this combination positions MasterBrand to deliver meaningful growth.
And with that, I'll open up the call to Q&A.
[Operator Instructions] Our first question is from McClaran Hayes with Zelman & Associates.
2. Question Answer
Yes, I guess maybe starting off, it's been about 2 months now since the merger closed. Can you talk a bit more about what your experience has been in these early days getting closer to the Woodmark team and starting to integrate the businesses?
And maybe a bit more on the cost synergies as well. It seems like the team is off to a really strong start so far. What gave you the confidence to bring that target up with just a few months in the book so far?
Yes. Thanks, McClaran. I'd say I'd start by saying the teams are working really well together. There is a -- we're in the same business in a lot of ways. And so there's a lot of commonality. There's some maybe different language in a few different processes. But the team has really come together very well and gotten after the work. I think both teams were ready to go. It was a long wait for the regulatory process. And so I think everyone was just ready to hit the ground running on day 1, which was great.
I think what I've observed, and I've been to I've been to most of the legacy American Woodmark factories now. There is a lot of commonality, but there's also some best practices that both companies have come up with on their own.
And one of the main tasks for the team is to pick those best processes from each company and then spread those to the other side, if you will. Where there's differences that maybe don't make sense, then let's kind of figure out what's better and go from there. And so if you think about the work that the team is doing, it starts with a lot of that. It's looking at how we do things. There's a couple of examples where we've already adopted some processes that the legacy American Woodmark team implemented and they're working really well across the broader enterprise.
Obviously, some of -- when you're changing a large process, it takes time. So I wouldn't say there's a ton of those yet, but we've certainly identified quite a few -- when it comes to the synergies, obviously, we had a really strong plan from what we could look at as an independent teams prior to the close.
Once we close, that team really hit the ground -- the entire integration team hit the ground running and really just sat down and started putting numbers down on the page to compare to what we thought versus the reality. And I think we found more opportunities there. And I think not the least of which is we've recalibrated our view of where we think the market is over the last 9 months, and I think it's unfortunately different. And so we have more capacity that we need to take out.
I think we're just looking at the business holistically here and being realistic about what we can afford. And the teams are going through that methodically to right-size the cost of the entire business, and that's the primary mission over the next couple of years.
Awesome. And I guess maybe how have conversations been with your customers so far? I think you hinted at it in your prepared remarks, but do you see potential for any revenue synergies as you go to market with this combined product portfolio? Are there any channels where you think that, that might be a more near-term target versus other channels?
Yes. I've met with several customers through this period. And I think that it's -- the conversations have been good. I think it does take time for things to develop. They want to understand what we bring to the table as a combined enterprise, which we're in the process of building those at that picture for them.
I think early days, I think, in the new construction paths to market that we have, I think we've demonstrated over the past couple, I'd say, year, 1.5 years that the MasterBrand approach that allows for a broader set of paths to market has been successful. And I think that there's opportunity there to take what is a great team from the Legacy Woodmark side, great products work with those products, perhaps introduce different product selection into that -- into their model, but also take a look at how they're going to market and really using what we call a more flexible model of how you address the customer needs.
And I think that's really a big area of focus for us because I think they have not performed as well as the market in that particular portion of the market, and we want to go and gain that back. And I think that's going to be job one.
Elsewhere, I think things take time. The home centers don't move really fast. I mean, they have both companies in their stores. We want to help them organize and make that easier for the consumer. That's a primary goal and help them sell more. And then in the dealer network, it's really much like with Supreme, bringing our product portfolio together in the most logical way takes a lot of time. It takes time to train your sales force. We've already started that, but that -- those will develop more over years rather than months, but I think that's the order in which we're thinking of things.
[Operator Instructions] Our next question is from Steven Ramsey with Thompson Research Group.
I wanted to start with the core MasterBrand's performance in the builder channel. You said you're outperforming there, which is good to see. Can you talk about how you're able to do this? And is there any connection to Woodmark's struggles in the channel being connected to your success?
Yes. I think if you remember, we go to market with a combination of direct to builders and distribution. And I think that for a variety of reasons, builders like that model. And I think that's -- we're going to lean into that with the combined enterprise. And I think there's also some product differences. And again, if you talk about things that we knew, but we didn't know all the details, I think there's opportunity there with the Timberlake product as an example, where it's -- there's been a lot of trade down in the market, and that's -- you have to move with that.
I think our team has done a nice job of flexing with that, albeit they're a lower price point product, obviously. And we have some work to do there to bring the performance of that product line and that group of products back to where it was several years ago. But I think there's a lot of lessons we've learned over the last 12 months on how to navigate the current market conditions that I think the combined enterprise can really benefit from.
Okay. Okay. That's helpful. If you think 2, 3 years down the road, and maybe this is an Investor Day topic. But when you think about the potential sales benefit, do you think the new construction market offers more opportunity than through the dealer channel as you get a couple of years down the road?
I don't know if it's more. I think it's sooner. So maybe we'll address that in more detail, as you said at Investor Day. But I think it's a less fragmented market. So those are -- you can target things easier when there's less fragmentation. But by the same token, the dealer R&R market is larger. And so there's -- the population opportunity is larger. So I think I wouldn't -- I'm not in a position today to scope the size of each, but I think it's more of a timing question.
Okay. And then lastly for me, make sure I heard you correctly and understand this correctly. The second half guide for Woodmark was $730 million of sales and EBITDA around $20 million. That points to a margin that's a little bit lower than what they contributed in the second quarter. Maybe you can connect the dots here, make sure I've got my numbers right and kind of the margin gains you expect in the second half for Woodmark?
Yes. Maybe I'll say a couple of things and then maybe Andi can fill in. We only disclosed the June -- effectively the last 32 days of the quarter where we were a combined entity. And if you look at that margin, about $126 million in sales, $4 million of EBITDA, it's roughly on par with what you're seeing in the second half. And that's where we think we are with -- and we got some work to do there. It's not what we expected. I think the business can perform better than that, but we've got some work to do there. Is there anything else, Andi?
No, you got it right. That's right.
Our next question is from Jeffrey Stevenson with Loop Capital.
All the detail around the merger with Woodmark. It's been very helpful. But as you're looking at the back half of the year, are you expecting the trade down to lower-priced cabinetry to continue at a similar rate as the first half? Or are you seeing any signs of stabilization in mix as we stand here in early August?
Yes. I think the trend that we're on is going to continue. And I think that we will start annualizing that in the fourth quarter. That's when we really started seeing a market difference last year. And again, like we talked a little bit about -- we've had to reorganize the supply chain around inflation, around tariffs. There's been pricing involved in that. And now as a combined enterprise, I think we have the opportunity to rethink that portion of the market.
If this is the new -- and I think it will -- there's going to be a portion of this market that's always going to look for this kind of lower price point product. And we -- when you change your supply chain so drastically over a short period of time, it's -- you do it for speed, you do it for certain optimizations, but I think there's better choices we can make, and that's the beauty of having this larger enterprise is that we've got good ideas on both teams, and we're going to be implementing those over the next couple of periods.
And that will prepare us. If our thought is that -- and our belief is that as the market returns, you still do compete on features. And consumers want more features when they're healthier. But we're in this mode for a bit of time here, and we've got to be prepared for that. And so we're going to do that as well. It doesn't preclude us from having the features down the road nor the capacity down the road to handle that. But I think in the near term, we've got to be prepared for this and that requires some change.
Understood. And then it's encouraging to hear you offset tariffs on a dollar-for-dollar basis of what was there. But at a high level, how should we think about price cost given the additional tariff changes we've seen in the market and higher energy prices? Just how we should think about overall price cost during the back half of the year?
Yes. I think we have some more catch-up to do with -- particularly with freight. I call it freight because it's partially fuel -- but trucking rates, as Andi highlighted in her remarks, have come up as well for a number of reasons that she outlined. And don't forget that petroleum goes into other things, paint being one and resin being another. And so we're still fighting inflation. And as we've said many times before, we don't have instantaneous ability to price or to counteract that. And so it takes some time. And that's what you're going to see through the rest of the year here.
This now concludes our question-and-answer session. Ladies and gentlemen, thank you for joining MasterBrand's Second Quarter 2026 Earnings Conference Call. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
MasterBrand — Q2 2026 Earnings Call
MasterBrand — Q1 2026 Earnings Call
1. Management Discussion
Good afternoon, and welcome to the MasterBrand's First Quarter 2026 Earnings Conference Call.
[Operator Instructions]
Please note that this conference call is being recorded.
I would like to now turn the call over to Henry Harrison, Senior Director of Corporate Financial Planning and Analysis.
Thank you, and good afternoon. We appreciate you joining us for today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer of MasterBrand; and Andi Simon, Executive Vice President and Chief Financial Officer.
We issued a press release earlier this afternoon disclosing our first quarter 2026 financial results. This document is available on the Investors section of our 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 the press release we issued today.
More information about risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full year 2025 Form 10-K and updated as necessary in our subsequent 2026 Form 10-Q, which are available at sec.gov and at masterbrand.com. The forward-looking statements in this call speak only as of today, and the company does not undertake 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 are in the press release issued earlier this afternoon and are also available at sec.gov and masterbrand.com. Our prepared remarks today will include a business update from Dave, followed by a discussion of our first quarter 2026 financial results from Andi, along with our second quarter 2026 financial outlook. Finally, Dave will make some closing remarks before we host a question-and-answer session.
With that, let me turn the call over to Dave.
Thank you, and good afternoon, everyone. We appreciate you joining us for today's call. Our first quarter results reflect the disciplined execution of our near-term priorities against a challenging backdrop. Despite persistent demand softness and ongoing macroeconomic uncertainty, we delivered net sales and adjusted EBITDA in line with our expectations. We continue to advance our tariff mitigation efforts, fully executed our previously announced $30 million cost actions and remain focused on the actions within our control as we navigate near-term headwinds and position MasterBrand to emerge stronger when the market recovers.
In the first quarter, we generated net sales of $618 million, a 6.4% decrease compared to the same period last year. Our performance reflected a mid-single-digit year-over-year market decline and a slower pace of housing completions, partially offset by the continued flow-through of previously implemented pricing actions. Adjusted EBITDA for the quarter was $28 million compared to $67 million in the prior year period, and adjusted EBITDA margin was 4.5%. The lower margin was primarily driven by lower volume and the related unfavorable fixed cost leverage as well as unfavorable product mix across channels as consumers continue to shift towards value products and forgo features in made-to-order categories.
At current volume levels, these mix dynamics carry an outsized impact on margins as reduced fixed cost absorption amplifies the effect of even modest product mix shifts. Compounding these pressures, weather-related disruptions during the quarter resulted in more down days than typical across certain facilities, driving unplanned production downtime that created additional drag on our fixed cost absorption. These headwinds were partially offset by previously announced pricing actions, operational tariff mitigation efforts that progressed ahead of schedule and savings from our ongoing cost reduction initiatives.
As is typical for our first quarter, free cash flow reflected seasonal working capital outflows. This, in combination with our net loss position, resulted in free cash outflow of $146 million compared to a $41 million outflow in the same period last year. Looking ahead, we expect these dynamics to normalize as we move through the year, and we continue to expect free cash flow for the full year to exceed net income.
Turning to our end markets. Demand remained pressured through the first quarter as affordability concerns, elevated interest rates and cautious consumer sentiment continue to constrain activity across both new construction and repair and remodel markets. The ongoing conflict in the Middle East introduced an additional headwind to consumer confidence late in the quarter and further contributed to broader market volatility. In new construction, U.S. single-family new construction was down mid- to high single digits in the quarter as weak consumer sentiment and elevated mortgage rates continue to weigh on buyer activity.
To stimulate sales, builders sustained elevated incentive and rate buydown programs. The market also continued to work through a reset in the spec and quick move-in inventory cycle with completed spec inventory down meaningfully year-over-year. Adding to these headwinds, housing starts outpaced completions on a seasonally adjusted basis for the first time since the fourth quarter of 2024. This dynamic creates an outsized near-term impact on our business as cabinets are typically purchased later in the construction cycle closer to completion. Against this backdrop, MasterBrand results largely tracked broader market trends, while outperforming on a completions basis. Looking ahead, we expect new construction demand to remain under pressure as mortgage rates stay elevated and affordability challenges persist.
In repair and remodel, demand remained soft through the first quarter as low existing home turnover and weak consumer confidence continue to suppress larger discretionary remodel activity. Consumer sentiment towards large household purchases fell to 40-year lows during the quarter. And while rising home prices have supported homeowner equity, this has not yet translated into meaningful remodel spending. Housing turnover remains structurally constrained as well, driven in part by the significant share of homeowners locked into sub-4% mortgages, limiting the remodel activity that typically accompanies a home sale. Where there is remodel activity, we continue to observe trade-down behavior across our portfolio with consumers gravitating towards lower-priced options.
Reflecting this environment, our R&R business declined mid-single digits, consistent with the broader market. Looking ahead, we expect consumer sentiment to remain the primary driver of R&R demand and affordability constraints and low housing turnover to remain the primary headwinds.
In Canada, first quarter conditions remain challenging, mirroring the trends in the U.S. Our Canadian business declined low single digits, consistent with the broader market. With the Bank of Canada holding rates steady, we expect these dynamics to continue weighing on the market through 2026.
Stepping back, we continue to view 2026 as a transitional year with end market demand softness persisting across both new construction and repair and remodel. Affordability pressures, low consumer confidence and the complex and evolving trade environment remain primary headwinds. Federal Reserve is expected to hold rates steady through 2026 amid persistent inflation concerns, limiting the rate relief that would foster a meaningful improvement in housing activity. Additionally, the ongoing conflict in the Middle East introduces further layers of consumer uncertainty and outlook volatility that are difficult to size at this stage. While the near-term outlook remains challenging, we remain confident in the underlying long-term fundamentals that we believe will ultimately drive a recovery across our end markets.
The approximately 3 million homes underbuilt, the millennial generation entering prime home buying years, and aging housing stock prime for remodel activity and rising home equity levels all support our expectation that pent-up demand remains intact. We continue to manage the business responsibly through this period. And while we do not expect the market to begin to recover until 2027, we are focused on ensuring MasterBrand is well positioned to capitalize when conditions do improve.
Turning to the trade environment. Since our last call, the trade landscape has continued to evolve. Following the Supreme Court's ruling that invalidated tariffs imposed under the International Emergency Economic Powers Act, a 10% global tariff was implemented, which effectively returns us to a similar tariff environment as under the reciprocal tariff regime. This tariff is time limited and is set to expire in late July, at which point we anticipate further changes to the tariff landscape. While wood and wood product tariffs remain the primary driver of our overall tariff exposure, tariffs continue to stack across categories and the broader environment remains highly volatile and fluid. We are actively monitoring further developments and remain prepared to adjust our mitigation strategy as the landscape continues to evolve.
In the first quarter, gross tariff costs were approximately $25 million, and I'm pleased to share that our teams executed exceptionally well against these headwinds, delivering mitigation efforts that exceeded our expectations for the quarter. This outperformance was driven primarily by the speed and effectiveness of our supply chain actions, including sourcing flexibility initiatives and supplier engagement efforts that progressed ahead of schedule. While supply chain actions were the primary driver of our first quarter mitigation performance, pricing remains an important and necessary component of our overall mitigation strategy, and we will continue to lean on both levers as we move through the year. We continue to monitor the potential indirect impact of tariffs on consumer demand and housing affordability, which remain inherently difficult to size.
Operationally, our teams navigated a challenging first quarter, managing through demand volatility while working to maintain service levels across our network. We took further actions to align our cost structure with current demand conditions, including targeted line and shift adjustments and workforce actions across our manufacturing network as well as facility closure consistent with our ongoing Supreme integration efforts. On the Supreme integration, we remain on track to achieve our target of $28 million in annual run rate cost synergies by year 3 post-close. We continue to identify additional opportunities to expand the benefits of the merger over time as end markets recover.
During the first quarter, we also fully executed our broader $30 million cost savings initiative with benefits expected to phase in over the remainder of the year. Our continuous improvement efforts delivered strong results in the quarter with notable contributions across our manufacturing network and standout performance from several of our key facilities. Our teams continue to make progress on core efficiency gains using daily management practices, standard work processes and operating discipline. These efforts contributed meaningfully to our financial performance in the quarter, offsetting material, personnel and utility inflation. We're encouraged by the impact of our continuous improvement system, and we remain confident in its ability to drive further gains throughout the year.
Turning to our pending merger with American Woodmark. Our teams continue to make meaningful progress on integration planning and readiness, ensuring we are well positioned to move quickly and capture value following close while maintaining the customer service levels and operational continuity our customers expect. We continue to expect approximately $90 million in annual run rate cost synergies by the end of year 3 post-close based on the assumptions underlying our analysis at the time of announcement. Following close, we plan to assess these estimates in the context of the current operating environment and provide updated guidance as appropriate. We remain confident in the strategic and financial merits of the merger and are progressing through the regulatory review process. As disclosed in our 8-K filed on April 22, we now expect the transaction to close in the second calendar quarter of 2026.
Finally, turning to capital allocation. We remain disciplined in our approach to capital deployment, prioritizing investments that support our operational execution, integration activities and long-term value creation. Capital expenditures in the quarter were in line with our expectations, and our balance sheet and liquidity position remained healthy. We expect our leverage ratio to remain elevated in the near term, primarily reflecting lower trailing 12-month adjusted EBITDA in the current demand environment. Andi will provide additional details in her remarks.
In closing, the first quarter unfolded largely as we expected, a challenging environment defined by persistent demand softness, a complex trade landscape and cautious consumer sentiment. While these conditions are not without difficulty, I'm proud of the way our teams have responded, executing our mitigation strategy ahead of schedule, advancing our cost savings initiatives and maintaining focus on the operational and strategic priorities that will position MasterBrand for the recovery ahead. We have a clear line of sight to the long-term drivers of demand across our end markets, and we remain confident that the actions we're taking today are building a stronger, more resilient MasterBrand.
With that, I'll turn it over to Andi for a detailed review of our financial results and outlook.
Thanks, Dave, and good afternoon, everyone. I'll start with a review of our first quarter financial results, then I'll share more details on our guidance for the second quarter of 2026 and provide some thoughts on the full year. As a reminder, we provide formal guidance on a quarterly basis. Any commentary we make about the full year reflects our current expectations and assumptions and is directional in nature rather than formal guidance.
Now turning to our first quarter results. Net sales were $618 million, a 6.4% decrease compared to $660.3 million in the same period last year, reflecting continued softness across our addressable market and a slower pace of housing completions. Anticipated flow-through of prior pricing actions was outweighed by unfavorable channel and product mix. Gross profit was $156.6 million compared to $202.2 million in the same period last year. Gross profit margin was 25.3%, down 530 basis points year-over-year, primarily reflecting lower volume and the related unfavorable fixed cost leverage and unfavorable product mix.
Material, personnel, fuel and utility inflation, combined with the impact of tariffs, contributed to overall margin pressure. These headwinds were partially offset by continuous improvement initiatives and targeted tariff mitigation actions. As Dave mentioned, gross tariff exposure in the quarter was approximately $25 million. Our mitigation efforts performed better than we initially anticipated, driven by the timing and effectiveness of operational actions taken across the business, a reflection of the strong execution from our teams.
While we are pleased with this progress, tariff costs continue to flow through the business, and we have more work to do, particularly as pricing actions remain a necessary and important component of our go-forward mitigation strategy. The more pronounced headwinds in the quarter came from product mix and continued trade-down activity across certain categories versus historical norms, which reflect broader market conditions. Taken together, these factors have created a challenging operating environment, but we believe we are managing through it thoughtfully.
SG&A expenses totaled $155.9 million in the first quarter compared to $154 million in the same period last year, with the year-over-year increase primarily driven by acquisition-related costs associated with our pending merger with American Woodmark and higher outbound freight expenses reflecting rising fuel costs. Importantly, excluding acquisition-related costs, SG&A decreased year-over-year. As Dave mentioned, we took a number of structural SG&A cost reduction actions during the quarter. While it takes time for the impact of these measures to fully flow through our financial results, we expect our SG&A to net sales ratio, excluding deal and restructuring costs to improve in the second half of 2026 as these benefits phase in.
Interest expense declined to $18.4 million from $19.4 million in the same period last year as we continued to pay down our debt over the last 12 months. Net loss was $15.4 million in the first quarter compared to net income of $13.3 million in the same period last year. Net income margin was negative 2.5% compared to positive 2% in the prior year, reflecting lower gross profit and higher deal-related SG&A expenses, partially offset by the initial benefits of cost actions taken in the quarter. Adjusted EBITDA was $28 million compared to $67.1 million in the prior year period. Adjusted EBITDA margin was 4.5%, a decline of 570 basis points year-over-year, primarily due to lower gross margins, partially offset by reduced SG&A expenses, excluding deal-related costs, reflecting the cost actions implemented during the quarter.
Diluted loss per share was $0.12 in the first quarter based on 127.5 million diluted shares outstanding. This compares to earnings per share of $0.10 in the first quarter of 2025, which was based on 130.7 million diluted shares outstanding. Adjusted diluted earnings per share were $0.06 in the current quarter compared to adjusted earnings per share of $0.18 in the prior year period.
Turning to the balance sheet. We ended the quarter with $138.4 million of cash on hand and $332.3 million of liquidity available under our revolving credit facility. Net debt at the end of the first quarter was $946.5 million, resulting in a net debt to adjusted EBITDA leverage ratio of 3.7x. While net debt remained approximately flat year-over-year, our leverage ratio reflects the impact of lower trailing 12-month adjusted EBITDA in this challenging demand environment.
During the quarter, we proactively amended our existing credit agreement to provide additional flexibility related to our leverage and interest coverage covenants as we navigate the current environment and work towards the planned closing of the American Woodmark transaction. We continue to prioritize debt reduction with available cash, consistent with our track record. Net cash used in operating activities was $133 million for the first quarter of 2026 compared to $31.4 million in the first quarter of 2025, driven by lower net income, less favorable movements in working capital and an increase in our income tax receivable.
Capital expenditures for the first quarter were $13.2 million compared to $9.8 million in the first quarter of 2025, in line with our expectations. As is typical for our first quarter, free cash flow reflected seasonal working capital outflows of $146.2 million compared to outflows of $41.2 million in the same period last year. The year-over-year variance was primarily driven by lower net income, less favorable working capital movements due to timing and an increase in our income tax receivable. We did not repurchase any shares during the quarter. Our merger agreement with American Woodmark restricts share repurchase activity until the transaction closes.
Turning to our outlook. Our second quarter outlook reflects the current uncertainty of the demand environment, driven by ongoing affordability concerns, recent geopolitical tensions and the uncertain trade environment. The outlook incorporates tariffs currently in effect but does not reflect potential implications from other proposed or future trade policy changes. Further, our outlook does not reflect any anticipated financial benefits from the pending merger with American Woodmark nor does it include expected transaction or integration-related costs.
For the second quarter, our end markets are expected to be down mid- to high single digits year-over-year. Despite the market backdrop, we expect a meaningful sequential performance improvement in net sales versus the first quarter, driven by several factors that give us confidence in the outlook.
Net sales are expected to benefit from normal seasonal volume uplift, coupled with an anticipated modest improvement in product mix in addition to the further flow-through from previously implemented pricing actions, including tariff-related pricing. Taken together, these dynamics are expected to position us broadly in line with our end markets on a year-over-year basis in the second quarter. Against that backdrop, we expect second quarter 2026 net sales to be down mid- to high single digits versus the prior year. As I mentioned, to help manage near-term pressure on profitability, we took decisive action on our $30 million cost reduction initiative to align our cost structure with current demand levels.
We completed key implementation steps in the first quarter and expect the full benefit will phase in over the course of 2026. We believe these steps, in combination with our tariff mitigation strategy will help offset margin pressures, preserve liquidity and position MasterBrand to remain resilient through this period of elevated uncertainty. Given these considerations, we expect second quarter adjusted EBITDA to be in the range of $51 million to $61 million, representing an adjusted EBITDA margin of 7.8% to 8.8%. We expect second quarter adjusted diluted earnings per share of $0.03 to $0.13. The wider adjusted diluted earnings per share guidance range for the second quarter reflects a higher-than-normal degree of uncertainty due to potential variability in the effective tax rate. Against low pretax income, the impact of nondeductible deal-related expenses relating to the pending merger with American Woodmark as well as other potential discrete tax items is amplified. As a result, the actual effective tax rate and the adjusted diluted earnings per share may differ materially from the guidance provided.
Looking at the full year, we continue to expect our addressable market in 2026 to be down mid-single digits year-over-year with continued variability across end markets. We continue to expect decremental margins to remain elevated through the first half of 2026, driven by year-over-year volume declines, mix and the timing of tariff mitigation. We anticipate that our decrementals will improve in the second half of the year as our tariff mitigation and cost rationalization actions phase in further. For the full year, we also continue to expect interest expense to be flat to down as we continue to pay down our outstanding debt. Our effective tax rate is expected to be elevated and variable relative to the prior year, primarily reflecting the previously mentioned impact of nondeductible deal-related expenses relating to the pending merger with American Woodmark. Additionally, we continue to expect free cash flow for 2026 to be in excess of net income for the year.
Finally, despite recent changes and based on the trade policies currently in effect, we continue to estimate our unmitigated gross tariff exposure for the full year at approximately 5% to 6% of 2026 net sales. Additionally, we continue to expect to offset 100% of tariff dollar costs on a run rate basis exiting 2026 through our mitigation efforts, which will take time to fully materialize. We will continue to monitor the evolving trade environment while executing our comprehensive mitigation strategy and providing quarterly updates as conditions evolve.
In closing, while near-term conditions remain challenging and the industry continues to navigate an extended period of softer demand and a complicated tariff environment, we are managing the business with discipline and purpose. We are executing against our cost reduction and mitigation initiatives, maintaining financial flexibility and making meaningful progress on the integration planning work that is designed to allow us to move quickly following the close of the pending American Woodmark transaction. These are the right priorities for this moment, and we believe the actions we are taking today are building a more resilient and capable MasterBrand.
Now I'd like to turn the call back to Dave.
Thanks, Andi. While the first quarter brought its share of challenges, our confidence in the long-term outlook for our business remains unchanged. Affordability pressures, cautious consumer sentiment and volatility in the trade environment are shaping near-term outcomes, but they do not change the underlying demand drivers that we believe will fuel a meaningful recovery. Over time, we expect macroeconomic and trade conditions to normalize and demand to recover with the broader market beginning to improve in 2027.
What we are navigating today is a direct reflection of the current market environment, not of our operating model or the underlying strength of the business. Our priorities are clear and our strategy is built for exactly these kinds of cycles, designed to carry us through periods of uncertainty and position us to win when conditions improve. We are executing our mitigation strategies, progressing toward the close of our pending merger with American Woodmark and managing the business with the discipline and accountability that defines the MasterBrand way. With our strong portfolio, resilient operating model and a team that has demonstrated its ability to execute through adversity, we believe we are well positioned to capitalize on the eventual market recovery and deliver long-term value for our shareholders.
Now with that, I'll open the call up to Q&A.
[Operator Instructions]
Our first question is from McClaran Hayes from Zelman & Associates.
2. Question Answer
So it looks like your outlook for the market in the second quarter is similar to the environment you guys had in the first quarter at down mid- to high single digits. But rates are a bit higher, and it seems like there's more uncertainty now than there was a few months ago. So I guess, does that kind of market outlook tell us that at this point, you haven't necessarily seen any impacts to your consumer, whether that's in order trends or foot traffic patterns?
Yes. I think our outlook is a little bit tilted down. We were saying kind of mid- to high single digits down. I think it's more of a bit of a weight on new construction than R&R. R&R is down. So it's kind of hard to tell over a long period of time how far down is down, but it feels sort of steady, if you will, in this current mode. But I think new construction has been very choppy. The March starts number was a little higher than we expected, which is good. But it's still that market with the reset that they're doing of eliminating spec homes makes our business a bit more choppy. So I think we're going into it with that in mind.
And I think the spring selling season has generally shaped up how we thought it would sort of reflected in our Q1. But I think it's -- in terms of a material difference in behavior over the last, say, month or 2, we haven't necessarily seen that. It's just -- it's not getting better. It's just kind of moving the way it was prior to that.
Okay. Got it. That makes sense. And then on pricing, can you help give us more detail on how pricing trended in the first quarter relative to the fourth quarter? Did it accelerate or stay in a similar range? And also, do you anticipate needing additional pricing given some of the cost inflation that we've seen over the past few months that I imagine might be impacting paints and stains at the minimum in your business?
Yes. I think probably the bigger impact is directly on fuel and logistics, but there's pressure in a number of different spots. So I think the plan is -- we've been executing on our plan for pricing throughout the year. As we've highlighted plenty of times in the past, it does take time for that price to get into the market. So we're continuing to execute on that. We're looking at other options regarding fuel. I mean, obviously, that's the one that everybody sees every day, and that's come up significantly over the past month. And so we're continuing to look at that and using the mechanisms that we have. We have a typical mechanism that you would have for something like that, that's, I'd say, near-term volatile, and we'll have to monitor how that plays out over the coming months with the situation in the Middle East.
Our next question is from Garik Shmois with Loop Capital Markets.
Wondering if you could speak to your view on product mix improving here as you go into the second quarter. I'd love to get a little bit more color on that.
Yes. I think we're continuing to see the general trade down behavior. So I think that there's just a relative -- when you go into the spring selling season with more volume, you tend to see a slightly better mix in all channels. And so that's what's driving that. I think generally speaking, though, the overall market still on a year-over-year basis, will continue to be in a trade down mode, which, again, offsets any benefit that we're getting from price to some extent.
So the price mix, we've seen that, that's a challenge for us. And so we're working on how do we upsell more. Some of those efforts we are going to see here in the second quarter. But I think just in general, the consumer is under pressure. And so you've got to meet them where they are. But generally speaking, with higher volume, we tend to see a slightly better mix. And so that's what we're anticipating here.
Okay. And then just my follow-up question is on incremental margins. You mentioned they're expected to improve in the second half of the year. Should we think about incrementals improving? Is that related to a sequential improvement quarter-on-quarter in the second half of the year? Should we think about incrementals on a year-on-year basis? And any more detail on what kind of level of improvement on incrementals is possible?
Yes. We're not really giving full year guidance at the moment, Garik. But I think when we talk about that, we're talking year-over-year. I mean you're seeing sequential improvement from Q1 to Q2, which is normal seasonality. But again, it goes back to volume is the issue we have. So when you go from Q1 lower volume into Q2 higher volume, you see pretty good flow-through on that. And that's the challenge we face on a year-over-year basis throughout the year. But because of the mitigation on tariffs as we go through the year, we will see better decrementals as the -- as we said, we see the market being down for the full year.
So I would anticipate -- though we're not guiding yet for the full year, I would anticipate revenue to be down through the year. And so -- but we're expecting those decrementals on a year-over-year basis, quarter-by-quarter to improve.
[Operator Instructions]
Our next question is from Steven Ramsey with Thompson Research Group.
I wanted to hear a bit more on the pricing actions that you're taking in response to tariffs and rising fuel costs. First, do you feel like the pricing that you're taking and that you're seeing from competitors is near parity with one another? Or is anyone using this time to maybe take less price to gain some share? And then connected to this, price actions on fuel, you have not taken any so far. So just to clarify, the margin guide for the second quarter does not include that you might take actions for rising fuel costs?
I'll answer the last part first, and that's incorrect. We have taken some action already on rising fuel costs. I'd rather for competitive reasons, not go into the details of how we do that. But suffice to say, we have short-term mechanisms that we use for any kind of, what I'll say, volatile commodity inputs like fuel. In terms of the market, I think it's no different than I highlighted back in the previous earnings call, Steven, which is it's a very competitive market.
And so you've got to meet the consumer where they are. And that involves a number of different aspects of what you're trying to bring to the consumer, and that's why you see a lot of trade down in our mix because we have a lot of different alternatives we can bring to the consumer and the customer. But I think ultimately, that's -- it's more competitive now than it has been. The market is still very fragmented, and we're leaning into that, but I think it's -- we also understand the cost burden that we're facing. And so we -- it's a dual approach.
Okay. That's helpful. And then on the gross tariff cost, $25 million in the first quarter, about 4% of sales and a little bit lower than the full year outlook for the gross tariff cost as a percentage of sales. Do you expect that you kind of get into that 5% to 6% zone in the second quarter and it sustains? Or I know there's a lot of moving parts, but definitely good to see a little bit better to start the year.
Yes. I mean it's a combination of things, Steven. Some of it is our mitigation. It's part of mitigating tariffs is coming up with ways to not have to pay them. So that's part of it. It's also the mix that we're using -- the mix of our portfolio is pretty broad and there are different impacts from tariffs. So I wouldn't necessarily look at that as the run rate moving forward. It's why we reiterated that it's the 5% to 6% because that's what we think it will be. Also, the tariffs have changed slightly.
So we just want to make sure that the changes are understood to not really be material in terms of the different impact to our P&L. So I think it's a combination of part of how we're mitigating these things is coming up with ways to avoid. And then other ways, otherwise, it's mostly mix. And you do see a lower volume in Q1, so you're going to have a lower tariff dollar number as part of that.
This now concludes our question-and-answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
MasterBrand — Q1 2026 Earnings Call
MasterBrand — Q4 2025 Earnings Call
1. Management Discussion
Good afternoon, and welcome to MasterBrand's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]. Please note that this conference call is being recorded. I would now like to turn the call over to Henry Harrison, Senior Director of Corporate Financial Planning and Analysis.
Thank you, and good afternoon. We appreciate you joining us for today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer of MasterBrand; and Andi Simon, Executive Vice President and Chief Financial Officer. We issued a press release earlier this afternoon disclosing our fourth quarter and full year 2025 financial results. This document is available on the Investors section of our 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 the press release we issued today. More information about risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full year 2024 Form 10-K and updated as necessary in our subsequent 2025 Form 10-Qs, which are available at sec.gov and at masterbrand.com.
The forward-looking statements in this call speak only as of today, and the company does not undertake 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 are in the press release issued earlier this afternoon and are also available at sec.gov and at masterbrand.com. Our prepared remarks today will include a business update from Dave, followed by a discussion of our fourth quarter and full year 2025 financial results from Andi, along with our first quarter 2026 financial outlook. Finally, Dave will make some closing remarks before we host a question-and-answer session. With that, let me turn the call over to Dave.
Thank you, and good afternoon, everyone. We appreciate you joining us for today's call. Our fourth quarter and full year 2025 results were shaped by ongoing demand pressure and a complex trade backdrop. Despite these pressures, our teams remain focused on supporting customers, advancing our integration efforts and maintaining financial flexibility through targeted cash management. While near-term results remain under pressure, we made meaningful progress on the priorities within our control to navigate ongoing volatility while ensuring MasterBrand remains positioned to capture meaningful upside when demand returns.
In the fourth quarter, we generated net sales of $645 million, a 3.5% decrease compared to the same period last year. Our performance reflected a mid-single-digit year-on-year market decline, partially offset by the continued flow-through of previously implemented price and tariff-related pricing actions. Adjusted EBITDA for the quarter was $35 million compared to $75 million in the prior year period, and adjusted EBITDA margin was 5.4%.
The variance in our results versus our implied fourth quarter outlook was primarily driven by a sharper-than-expected late quarter slowdown in new construction, which pressured price and mix and reduced factory utilization and operating leverage. Free cash flow for the quarter was $53 million compared to $69 million in the same period last year. While cash generation declined year-over-year due to lower profitability and deal-related expenses, we remain focused on preserving liquidity and financial flexibility. Looking ahead, we continue to expect full year free cash flow to exceed net income on an annual basis, reinforcing our long-standing commitment to disciplined cash conversion across cycles.
Turning to our end markets. 2025 marked the third consecutive year of market contraction with elevated interest rates, ongoing affordability concerns and lower consumer confidence continuing to constrain activity across new construction and repair and remodel. U.S. single-family new construction declined high single digits in the quarter and mid-single digits for the full year, with the fourth quarter slowdown sharper than expected. Builders remained under pressure, driven by tighter financing conditions, lower consumer sentiment and greater uncertainty around input costs. However, consistent with prior quarters, MasterBrand's new construction sales again outperformed the broader market, driven by our exposure to production builders, the breadth of our portfolio and our continued focus on service reliability and execution.
We expect current headwinds in the new construction market to continue in 2026 as affordability and uncertainty around trade and pricing continue to influence buyer behavior. In repair and remodel, demand was uneven throughout the fourth quarter, reflecting a consumer that remains pressured. The U.S. cabinet R&R market declined mid-single digits in both the quarter and the full year, with demand constrained by low existing home turnover, which historically underpins larger discretionary kitchen and bath remodel activity. Elevated interest rates, affordability concerns and uncertainty in the job market continue to weigh on consumer confidence. Across our portfolio, we continue to observe trade-down behavior. Stock customers shifted towards our opening price point offerings, while in our premium tier, demand migrated towards semi-custom and value semi-custom options, reflecting a continued focus on value even in traditionally less price-sensitive channels.
Looking into 2026, we anticipate U.S. cabinet R&R demand will remain subdued and closely tied to financing conditions, consumer confidence and housing turnover. We are helping offset these pressures with our broad refreshed portfolio and continued technology investments that enhance the end-to-end experience, making ordering, fulfillment and support more seamless. Until affordability improves and housing turnover normalizes, demand is likely to remain below historical levels, but we remain confident that the long-term structural drivers of R&R are intact. In Canada, market conditions remained challenging in the fourth quarter, driven by the same affordability and turnover dynamics we saw domestically. The Canadian market declined mid-single digits in the quarter and for the full year with new construction and R&R demand both down mid-single digits.
We expect the Canadian market to remain pressured in 2026 with demand continuing to be constrained by consumer sentiment and low resale activity. As in prior periods of subdued demand, our focus remains on disciplined execution and targeted commercial actions to remain competitive and effective. Stepping back, we view 2026 as a continuation of the industry's extended period of muted demand with end market conditions expected to remain soft and decline roughly mid-single digits across most categories as affordability pressures persist. Following multiple years of market contraction and with tariff-related costs still continuing to flow through, we expect competitive discounting to be elevated across the industry. In that environment, our ability to pass through additional pricing could be more limited. Where tariff mitigation actions require incremental pricing, those moves could further weigh on demand in select value-oriented categories, particularly stock cabinetry, adding uncertainty to near-term demand elasticity.
At the same time, historically low existing home turnover is expected to continue to suppress cabinet repair and remodel activity. Looking ahead, we expect market conditions to stabilize and modestly improve in 2027, supported by historically low comps, improving affordability, easing financing conditions and a gradual normalization in housing turnover. As a reminder, because cabinets are typically purchased later in the cycle, we expect a modest lag between the general market recovery and when the momentum is reflected in MasterBrand's results. In the meantime, we're maintaining rigorous cash discipline, pursuing targeted cost reductions and preserving financial flexibility, so we're well positioned to capitalize on an eventual recovery as conditions improve.
As part of these actions, we are implementing $30 million of planned cost reductions in 2026, which Andi will discuss more in detail in a few minutes. Turning to the trade environment, which remains an important and dynamic input to our planning and operations. As a reminder, in October 2025, new Section 232 tariffs on timber, lumber, kitchen cabinets, vanities and related wood products went into effect, introducing meaningful additional duties across our materials and imports. While the scheduled January 1, 2026, tariff rate increase was deferred, the current 25% tariff on cabinets, vanities and related products remains in place throughout 2026, with a 50% tariff rate now scheduled for January 1, 2027, absent further developments.
Although timing has shifted, the trade environment remains challenging. Existing tariffs continue to pressure costs across the system and require ongoing management across sourcing, operations and pricing. As we discussed last quarter, the impact of these measures is not limited to direct cost. It also has the potential to influence housing affordability and consumer behavior over time, effects that tend to emerge gradually rather than immediately. In response, we are continuing to execute a coordinated mitigation strategy across the organization. This includes enhancing sourcing flexibility and supplier engagement to reduce exposure, making targeted manufacturing footprint and operational adjustments to better align with demand and cost dynamics, adjusting product component design to lower overall tariff exposure and maintaining a consistent surcharge methodology where appropriate to provide transparency and predictability for our customers.
These actions require careful sequencing and disciplined execution, and they remain a key focus for our teams. We are closely monitoring ongoing trade and macroeconomic developments and have incorporated the updated tariff time line into our planning assumptions. We expect the benefits of our tariff mitigation and cost reduction actions to phase in over the course of 2026, supporting stronger profitability towards the later part of the year. Andi will provide additional details in her remarks. Operationally, we stayed focused on execution in the fourth quarter and throughout the year, keeping service levels strong, aligning production with demand and continuing to build capability across the organization, even as the external environment remained pressured.
Turning to Supreme. 2025 represented our first full year operating as an integrated organization. We made strong progress capturing the cost synergies we targeted with benefits coming through across procurement, network and logistics efficiencies and overhead alignment. Just as importantly, we've been able to do this while maintaining critical operational continuity and customer service. As we look ahead, we remain on track to realize our target of $28 million in annual run rate cost synergies by year 3 post close, and we continue to see additional opportunity to expand the benefits of the Supreme combination over time, particularly on the commercial side as end markets recover through broader portfolio access, cross-selling and channel expansion. As for the pending American Woodmark transaction, we continue to advance our planning and are encouraged by our progress to date.
Our teams remain focused on the integration planning and readiness work so we can move quickly following close while protecting customer service levels and maintaining continuity. We're excited about the strategic and financial opportunity the combination represents for customers and shareholders, and we anticipate closing the transaction early this year, subject to remaining customary regulatory approvals. Importantly, we continue to expect approximately $90 million in run rate cost synergies by the end of year 3 post close. Finally, turning to our continuous improvement efforts and capital allocation priorities. Our continuous improvement efforts remain a core enabler of operational excellence and long-term value creation. Our programs again outperformed plan, helping to partially offset volume pressure and tariff-related cost impacts. Importantly, continuous improvement broadened and deepened across the organization, gaining traction not only in production, but also in back-office functions.
Collectively, these actions are strengthening productivity, enhancing cost and performance visibility and enabling more consistent decision-making, positioning the organization to sustain and build on these gains over time. From a capital allocation perspective, capital expenditures were in line with expectations in 2025, and we remain focused on operational execution and flexibility, consistent with the MasterBrand Way. Our balance sheet and liquidity position remain healthy, providing the flexibility to support integration activities and long-term shareholder returns. In closing, while near-term market and trade challenges persist, our strategy remains intact and guided by the MasterBrand Way. We have a resilient operating model, strong portfolio and a proven integration playbook. As industry conditions stabilize and demand recovers, we believe MasterBrand is well positioned to emerge stronger and deliver longer-term value. With that, I'll turn the call over to Andi for a detailed review of our financial results and outlook.
Thanks, Dave, and good afternoon, everyone. I'll start with a review of our fourth quarter financial results, followed by a brief recap of the full year. Then I'll share more details on our guidance for the first quarter of 2026 and provide some perspective on the full year ahead. Now turning to our fourth quarter results. Net sales were $644.6 million, a 3.5% decrease compared to $667.7 million in the same period last year. The continued softness across our addressable market, which was down mid-single digits, was partially offset by the anticipated flow-through of prior pricing actions, including tariff mitigation price actions.
Gross profit was $167.5 million, down 17.6% from $203.3 million in the same period last year. Gross profit margin was 26%, down 440 basis points year-over-year, primarily reflecting lower volume, mix and the related unfavorable fixed cost leverage, tariffs net of supply chain mitigation and restructuring-related expenses. These headwinds were partially offset by higher net average selling price improvement from prior pricing actions, including our tariff mitigation actions, our continuous improvement efforts and Supreme integration synergies.
Tariffs had a negative impact of nearly 300 basis points to our gross margin in the quarter, though we were able to offset approximately 1/3 of this impact through mitigation actions. SG&A expenses totaled $186.9 million compared to $152.3 million in the same period last year. This was primarily driven by a $17 million onetime provision for bad debt related to a specific customer, personnel costs and inflation, acquisition-related costs, restructuring-related costs and depreciation costs and continued investments in our strategic initiatives, particularly around digital, technology and marketing, partially offset by lower commission and freight costs following volume decline.
Interest expense declined to $17.6 million from $19.3 million in the same period last year, reflecting progress as we continue to pay down our debt. Net loss was $42 million in the fourth quarter compared to net income of $14 million in the same period last year. Net income margin was negative 6.5% compared to positive 2.1% in the prior year, reflecting the items I just outlined, partially offset by lower interest expense and lower income tax expense. Adjusted EBITDA was $35.1 million compared to $74.6 million in the prior year period.
Adjusted EBITDA margin was 5.4%, a decline of 580 basis points year-over-year due to lower volume and the related unfavorable fixed cost leverage, tariffs net of supply chain mitigation and material freight and personnel inflation, partially offset by continuous improvement savings, the flow-through of our prior pricing actions and Supreme integration synergies. As Dave mentioned, the variance in adjusted EBITDA relative to our implied fourth quarter guide was primarily driven by a late quarter slowdown in new construction. The late quarter demand change created a more unfavorable mix and lower price realization than we had embedded in the outlook we shared in November.
At these lower volume levels, mix has a greater impact on our bottom line. The shift reduced factory utilization, resulting in a mid-single-digit increase in down days versus our plan, which drove fixed cost under absorption and contributed to manufacturing inefficiencies. Given this dynamic, we expect continued margin pressure if trade-down behavior persists across the portfolio or if mix shifts further unfavorably. Diluted loss per share was $0.33 in the fourth quarter of 2025 based on 126.8 million diluted shares outstanding. This compares to earnings per share of $0.11 in the fourth quarter of 2024, which was based on 131.2 million diluted shares outstanding.
Adjusted loss per share was $0.02 in the current quarter compared to earnings per share of $0.22 in the prior year period. Moving to our full year results. We delivered 2025 net sales of $2.7 billion, up 1% versus the prior year, driven by the contribution from Supreme and improvements in net average selling price despite a market that we estimate declined mid-single digits year-over-year. Supreme contributed approximately 5% to full year net sales, consistent with our expectations and pricing contributed to offsetting underlying market pressure. Gross profit was $827.6 million, down 5.6% compared to $877 million in the prior year. Gross profit margin declined 220 basis points year-over-year from 32.5% to 30.3%.
The full year margin decline was due to lower unit volume and the related unfavorable fixed cost leverage, inflation and tariffs. This was partially offset by net average selling price improvements and the full year inclusion of Supreme and its related synergies. Notably, tariffs had a negative impact of approximately 115 basis points to our gross margin throughout the year, and we were able to offset over half of this impact through mitigation actions. SG&A expenses were $667.8 million compared to $603.1 million in the same period last year. This increase was primarily driven by the addition of Supreme's SG&A expenses, the same onetime bad debt provision impacting the quarter, digital and technology investment and freight inflation, partially offset by lower volume-related variable SG&A costs.
Income tax was $19.6 million for the year or a 42.3% effective tax rate compared to $42.4 million or a 25.2% rate in 2024. The increase in effective tax rate was driven by nondeductible expenses and a jurisdiction valuation allowance driven by the tariff impact on products sourced internationally. Without these items, our effective tax rate for the year would have been approximately 23.5%. Net income was $26.7 million compared to $125.9 million in the prior year. The decrease was primarily related to lower gross profit and higher SG&A, partially offset by lower income tax expense. Adjusted EBITDA was $298.2 million in 2025, down 18% compared to $363.6 million in the prior year, and adjusted EBITDA margin declined 260 basis points to 10.9% for the full year compared to 13.5% in the prior year.
These results were driven by lower volume and the related unfavorable fixed cost leverage, inflation, tariffs, net of supply chain mitigation and incremental strategic investments. This was partially offset by net average selling price improvements, including tariff-related pricing and Supreme contributions and integration synergies. Diluted earnings per share were $0.21 in 2025, down from diluted earnings per share of $0.96 in 2024 based on 129.2 million and 130.9 million diluted shares outstanding, respectively.
Adjusted diluted earnings per share were $0.91 compared to $1.40 in the prior year. Despite a soft end market in 2025, we believe our long-term financial targets remain attainable, although delayed as we enter our fourth year of market decline in 2026. As discussed at our 2022 Investor Day, these targets were based on some level of annual market growth. While we continue to execute operationally, position the company for future growth and augment our growth through acquisitions, market growth will be necessary to fully realize the benefits of these efforts and achieve our stated long-term financial targets. Turning to the balance sheet. We ended the year with $183.3 million of cash on hand and $441.9 million of liquidity available under our revolving credit facility.
Net debt at the end of the fourth quarter was $791.2 million, resulting in a net debt to adjusted EBITDA leverage ratio of 2.7x. Despite a sequential reduction in net debt, our leverage ratio increased due to a lower trailing 12-month adjusted EBITDA. Net cash provided by operating activities was $195.7 million for full year 2025 compared to $292 million in the full year 2024, driven by lower net income, increased restructuring-related cash outflows and deal costs. Capital expenditures for the full year 2025 were $78.2 million compared to $80.9 million for the full year 2024, in line with our plan and driven primarily by the Supreme integration. Free cash flow was $117.5 million for the full year 2025 compared to $211.1 million for the full year 2024, reflecting lower net income.
Our merger agreement with American Woodmark restricts share repurchase activity until the transaction closes. Before turning to our outlook, I want to take a moment to address recent tariff developments and the implications for our business. Since our third quarter call in early November, the trade backdrop has become more volatile with actions announced, revised, implemented and postponed in quick succession, directly impacting our industry and increasing near-term uncertainty around cost and timing. As Dave noted earlier, in late 2025, the planned Section 232 tariff rate increase on finished wood products, including kitchen cabinets and bathroom vanities was postponed. To be clear, existing 25% Section 232 tariffs remain in place throughout 2026.
In addition, Mexico announced tariffs on Chinese imports, reflecting further uncertainty in the global trade environment. Finally, countervailing and antidumping duties on hardwood and decorative plywood imports were delayed from the fourth quarter of 2025. The countervailing duties went into effect on January 12, and the antidumping duties are now anticipated to be fully implemented later this month. We are actively managing tariff impacts through targeted price adjustments, supplier renegotiations, alternative sourcing and manufacturing optimization. As I've noted previously, these efforts take 1 to 12 months to fully materialize. As we prepare for the potential combination with American Woodmark, we are also intentionally sequencing certain actions and deferring select decisions to avoid implementing stand-alone changes that could prove disadvantageous post close.
In parallel, we are continuing to monitor potential trade measures, including the antidumping duties on plywood. Above all, we remain focused on minimizing disruption, protecting customer value and sustaining our competitive position. Given the dynamic nature of the recent trade actions we just discussed, the related ongoing macroeconomic uncertainty and actions deferred ahead of the anticipated American Woodmark merger, our visibility into key performance drivers, cost inputs and near-term demand has become more limited. While we have a clear plan and are actively executing mitigation actions, the timing and magnitude of their impact can vary significantly as the trade environment shifts.
As a result, MasterBrand is taking a measured approach to its outlook and transitioning to providing quarterly guidance until longer-term visibility improves. We believe this is the most transparent way to communicate our expectations in the current environment and provide stakeholders decision useful updates as we navigate these changing dynamics. Our financial outlook includes those tariffs currently in effect and the anticipated antidumping plywood duties. It does not reflect potential implications from other proposed or future trade policy changes. Further, our outlook does not reflect any anticipated financial benefits from the pending merger with American Woodmark nor does it include expected transaction or integration-related costs.
With those assumptions in mind, for the first quarter, our end markets are expected to be down mid- to high single digits year-over-year. Against that backdrop, we expect first quarter 2026 net sales to be down mid- to high single digits versus prior year. To help manage near-term pressure on profitability, we are taking action to reduce costs and align our cost structure with current demand levels. We are implementing $30 million of planned cost reductions in 2026 and anticipate we will begin to realize savings in the first quarter with full realization expected by year-end.
We believe these steps, in combination with our mitigation strategy will help offset margin pressures, preserve liquidity and position MasterBrand to remain resilient through this period of elevated uncertainty. Given these considerations, for the first quarter, we expect adjusted EBITDA in the range of $23 million to $33 million, representing an adjusted EBITDA margin of 3.9% to 5.3%. We expect first quarter adjusted diluted loss per share of $0.06 to $0.00. This outlook primarily reflects the impact of lower expected volumes on fixed cost absorption as well as the timing of our tariff mitigation and cost rationalization actions.
Notably, this outlook also reflects our typical fourth quarter to first quarter seasonal step down. Based on our fourth quarter performance and expectations around the first quarter, net debt to adjusted EBITDA leverage at close of the pending American Woodmark transaction is no longer expected to be sub 2x, reflecting the current trade environment and our decision to sequence certain mitigation and integration actions to avoid stand-alone changes ahead of closing. We remain focused on disciplined cash generation and deleveraging post close and continue to expect leverage to trend down towards the end of the year as mitigation actions and synergies are realized.
On the full year, as Dave mentioned, we continue to expect our addressable market in 2026 to be down mid-single digits year-over-year with continued variability across end markets. For the first half of 2026, we expect decremental margins to remain elevated, driven by year-over-year volume declines, mix and the timing of tariff mitigation. We anticipate that our decrementals will improve in the second half as our tariff mitigation and cost rationalization actions phase in further. For the full year, we also expect interest expense to be flat to down as we continue to pay down our outstanding debt. Our effective tax rate is expected to improve year-over-year, primarily due to the absence of certain onetime costs.
Additionally, we continue to expect free cash flow for 2026 to be in excess of net income for the year. Finally, based on our current sourcing profile and product mix, the trade policies currently in effect and the anticipated antidumping duties on plywood, we estimate that our unmitigated gross tariff exposure for the full year is approximately 5% to 6% of 2026 net sales. We anticipate tariff pressures to be partially offset by the benefits of our mitigation efforts, which will take time to fully materialize.
As such, we expect more than 85% of the full year net negative tariff impact to be reflected in the first half of 2026. Importantly, we expect to fully offset 100% of tariff dollar costs on a run rate basis by the end of 2026 through our mitigation initiatives. We will continue to closely evaluate the impact of tariffs and remain committed to executing our comprehensive mitigation strategy, providing quarterly updates as we navigate these dynamics. In closing, while the industry has worked through a prolonged period of soft demand over the past 3 years and near-term conditions remain challenging, we are using this period to strengthen the business and position it for the next up cycle through thoughtful execution of our strategic initiatives. As we progress toward the pending combination with American Woodmark, we remain focused on maintaining continuity for customers while preparing to capture the value of the transaction.
By leveraging our complementary capabilities and realizing the expected synergies, we are confident the combined enterprise will be primed to emerge stronger and better positioned to deliver enhanced value to customers and shareholders as demand returns. Now I'd like to return the call back to Dave.
Thanks, Andi. As we close out 2025, we recognize that the operating environment remains challenging with demand softness, affordability pressures and an evolving trade landscape continuing to shape near-term outcomes. At the same time, we are encouraged by the progress we've made in advancing integration initiatives, maintaining strong customer relationships and preserving the flexibility needed to navigate uncertainty. Looking into 2026, we expect the year to be transitional for the industry as market trends persist and tariff mitigation efforts continue to work their way through our business.
Our focus is clear: execute with discipline, support our customers, manage cash and liquidity thoughtfully and continue strengthening the business so we're positioned to capitalize as conditions improve. We continue to expect a more meaningful recovery to take shape in 2027 as affordability improves and housing activity normalizes.
The MasterBrand Way continues to guide how we operate, driving consistency, accountability and execution across the organization. And it's the same approach underpinning our readiness for the proposed combination with American Woodmark. Planning continues to progress well, and we remain on track to close in early 2026, subject to remaining customary regulatory approvals. With a strong portfolio, a resilient operating model and a talented team, we believe we're well positioned to deliver long-term value for customers, associates and shareholders. Thank you to our associates for their continued dedication and to our customers, partners and shareholders for their trust and ongoing support. Now with that, I'll open the call up to Q&A.
[Operator Instructions]. First question comes from the line of McClaran Hayes with Zelman & Associates.
2. Question Answer
Yes, starting with the full year outlook for the market to be down mid-single digits. [indiscernible] Just wondering if you could maybe help us break that down by end channel, talk to what you're assuming for the builder market broadly this year versus home improvement.
Yes. I think -- thanks for the question, McClaran. The -- I think they're both about the same. The builder may be a little worse in the beginning, but then I think you're going to catch up with easier comps. I think the R&R market, which is what we consider retail is kind of down mid-single digits fairly consistently throughout the year. So it's our best guess at this point. I think part of the reason that we've gone to quarterly guidance is it's a little unclear still what the spring season is going to look like. So that's going to guide a bit of what the full year ends up being. But we wanted to at least signal that we believe the year to be down. And a lot of that in the near term is being driven by the pace of starts, which we saw declining last year.
Got it. And then on pricing, it looks like price realization sequentially decelerated about 100 basis points from 3Q to 4Q. Any way you could split out maybe how much of that was driven by the channel headwind from weaker builder sales that you spoke about? And how much was maybe tied to that step-up in promotions or competitive behavior?
Yes. I think it's a combination of several things, one of which is mix. There's more trade down occurring. So we've seen higher volumes in the low opening price point than we anticipated in the fourth quarter. And then it is a combination of the pace at which we can capture price to mitigate tariffs. I think if I was looking at price, we were effective by the end of the year of pricing for the liberation day tariffs, but then we got additional tariffs later in the year and now there's more, at least with the plywood side of things coming in this year. And we've tried to place pricing in a controlled sort of organized fashion and not constantly be changing price. We've tried to bake all these things in, but all the changes that require constant maneuvering of that over time.
So -- but generally speaking, in the fourth quarter, the bigger impact on results in general was overall volume in the business, but then tilting the business a lot more towards the opening price point trade down.
Our next question comes from the line of Garik Shmois with Loop Capital Markets.
I wanted to follow up just on the new residential construction weakness that you saw late in the quarter. I think your sales actually exceeded your prior guidance, if I remember correctly. So just kind of wondering if you could provide a little bit more detail on how sales during the quarter progressed and some more color on what you saw at the end of the quarter on the residential side.
Yes. That piece actually behaved in some ways similar to the prior year where we saw a pretty big drop off in late November, which we weren't expecting this year. In order to cover that, there was other volume that was stronger. As I just mentioned, it was an opening price point in different parts of the business. In all, we did miss what we thought we could do from a forecast standpoint internally. So we were off to that as well overall. But I think that it was primarily a mix shift that you're seeing in terms of the end result.
So we were able to get to down a couple of percentage points, but it was not through -- there were certain factories that just were very inefficient in the quarter, which results in our bottom line outcome.
Okay. On the cost side, you could go into a little bit more detail on the restructuring actions. And just to be clear, the $30 million in expected savings to be realized in '26, is that an exit rate? Or is that the dollar amount you're expecting to...
That's the dollar amount in the year. So annualized, it's a little higher than that. It's broad-based, adjusting our cost structure for the pace of demand, and it's mainly structural cost.
Okay. And then just lastly on the tariff mitigation efforts. Just given the more challenged pricing environment, can you go into a little bit more color to what gives you confidence in your ability to offset the dollar cost impacts associated with the tariffs?
Yes. I think it's -- I'm looking over a long horizon here, Garik. I think the challenge that the pricing environment presents to us is the timing of that. And so I think that as we've said many times in the past, price doesn't happen overnight for us. It takes time to work through. I think that the current pricing -- we're flagging that in the current pricing environment because it may take longer. I think we're still aiming to cover that cost throughout the year. But again, price is one of the levers. It is a fairly large lever. So I'm not going to say that it's not important. It is. I think it's really more going to affect the timing of when we're able to cover the cost of tariffs.
It also is our current plan and actions cover the cost of tariffs. So it does diminish profitability a bit because we're not covering that piece of it yet in the plans that we have. So our teams are continuing to work on operational actions. The switch from 50% back down to 25% kind of negated a few of the actions that we were considering. So it's a constantly changing plan, but the actions we've taken so far are working, and we saw that in the fourth quarter. So we're going to continue to work the problem, but it is a -- it's the kind of thing you're working daily.
And again, we're going to continue to push the teams to go further on both execution on the price we have put out to the market and additional operational actions to cover a broader part of the P&L.
And ladies and gentlemen, this does conclude today's -- this is the end of the question-and-answer session. And this also concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.
MasterBrand — Q4 2025 Earnings Call
MasterBrand — Q3 2025 Earnings Call
1. Management Discussion
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2. Question Answer
” Loop Capital Markets LLC, Research Division
Good afternoon, and welcome to MasterBrand's Third Quarter 2025 Earnings Conference Call. Please note that this conference call is being recorded.
I would now like to turn the call over to Henry Harrison, Senior Director of Corporate Financial Planning and Analysis. Please go ahead.
Thank you, and good afternoon. We appreciate you joining us for today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer of MasterBrand; and Andrea Simon, Executive Vice President and Chief Financial Officer.
We issued a press release earlier this afternoon disclosing our third quarter 2025 financial results. This document is available on the Investors section of our 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 the press release we issued today. More information about risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full-year 2024 Form 10-K and our subsequent 2025 Form 10-Qs, which will be available once filed at sec.gov and at masterbrand.com.
The forward-looking statements in this call speak only as of today, and the company does not undertake 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 are in the press release issued earlier this afternoon and are also available at sec.gov and at masterbrand.com.
Our prepared remarks today will include a business update from Dave followed by a discussion of our third quarter 2025 financial results from Andy, along with our 2025 financial outlook. Finally, Dave will make some closing remarks before we host a question-and-answer session.
With that, let me turn the call over to Dave.
Thank you, and good afternoon, everyone. We appreciate you joining us for today's call. Our third quarter results reflect disciplined execution in a persistently challenging demand environment and proactive management of evolving trade dynamics. Amid these conditions, our team made significant progress on our integration initiatives and has continued to deliver for our customers while strengthening MasterBrand's foundation for both near-term stability and long-term growth.
In the third quarter, we generated net sales of $699 million, a 3% decrease compared to the same period last year, consistent with our expectations. The decline reflected mid- to high single-digit end market contraction, partially offset by the continued flow-through of previously implemented pricing actions and share gains in our distributor and builder channels.
Demand across our retail and dealer channels remained soft, particularly in stock cabinetry, while semi-custom offerings performed relatively better as consumers with discretionary income continue to seek value within the midrange of the portfolio. We delivered adjusted EBITDA of $91 million compared to $105 million in the third quarter of last year, representing an adjusted EBITDA margin of 13%, a 160 basis point decline year-over-year due to lower volume and related fixed cost absorption as well as tariffs, partially offset by continuous improvement efforts net of inflation, continued net average selling price improvements and Supreme synergies. While margin was slightly below expectations, we view this as a solid performance in a difficult operating environment.
Free cash flow for the quarter was $40 million compared to $65 million in the same period last year, driven by lower net cash provided by operating activities and higher capital expenditures related to the integration of Supreme. We continue to expect free cash flow for the full-year to exceed net income, consistent with our long-term objectives of balancing investment in growth with strong cash conversion.
Turning to our end markets. While conditions remain challenged, they were generally consistent with our expectations. In new construction, single-family housing starts were down mid- to high single digits as affordability and buyer confidence remain constrained. Despite this backdrop, our new construction sales outperformed the broader market, reflecting the strength of our broad product portfolio and consistent service execution, underpinned by superior cycle time reliability, effective supply chain coordination and proactive design and specification support, all of which customers consistently cite as key differentiators.
Looking at the remainder of the year, we continue to expect overall new construction end market demand to be down mid-single digits on a full-year basis. However, through our strong builder relationships, reliable service performance and focused execution, we are positioned to continue to outperform the broader market.
In the repair and remodel market, serviced by our dealer and retail customers, demand remained choppy as elevated total project costs, low existing home turnover and low consumer sentiment continue to weigh on large discretionary projects. Our repair and remodel business was down mid- to high single digits year-over-year, which was aligned with the broader market and our expectations.
The impact was most evident in entry price stock cabinetry and digital retail channels where softer project demand weighed on volume. In contrast, mid-tier semi-custom products delivered stronger performance, benefiting from consumers trading down from premium offerings and placing greater emphasis on value amid the broader macro backdrop. This emphasizes the strength of our multi-tier product portfolio. We continue to expect the repair and remodel market to be down mid- to high single digits for the full-year as consumers delay larger home renovation projects amid ongoing affordability pressures.
Turning to Canada. Our third quarter performance was down mid-single digits, consistent with the market and in line with our expectations. Housing affordability remains a persistent challenge with elevated prices and limited resale inventory continuing to constrain buyer activity. We continue to expect full-year Canadian end market demand to be down mid-single digits year-over-year.
We anticipate the market more broadly to be down mid- to high single digits for the full-year 2025. As we look further ahead, we currently expect demand across both new construction and repair and remodel to remain subdued through next year with gradual improvement anticipated in late fiscal 2026 or early fiscal '27. However, we recognize that trade and market conditions could rapidly change, potentially shifting our outlook. In the meantime, our focus remains on servicing our customers, aligning production with demand and controlling costs, positioning the business for growth when the market does return.
Turning to the current trade environment. The tariff landscape has evolved meaningfully since our last call and remains a major area of focus for us. As many of you know, the Section 232 lumber tariffs took effect on October 14, and we are diligently evaluating the implications of the 25% tariff and impending 50% tariff on kitchen cabinets, bathroom vanities and related products. This said, we've been contingency planning for several months in anticipation of these potential changes. Our teams across sourcing, manufacturing and pricing are executing a coordinated mitigation strategy as we refine our assessment and work with the administration to understand certain specifics of the Section 232 lumber tariffs.
While these tariffs will introduce incremental costs, we believe MasterBrand is well positioned to navigate them effectively. As discussed last quarter, we've taken steps to enhance our sourcing flexibility and are actively engaging suppliers to minimize exposure. We are working through various manufacturing footprint and operational adjustments to mitigate the impact of tariffs and best serve our customers in growth regions. Finally, we are maintaining consistency in our surcharge methodology to provide pricing transparency for our customers as the landscape continues to evolve.
While we remain confident in our mitigation plans, we continue to monitor potential indirect impacts on consumer demand and housing affordability, which are inherently more difficult to quantify. Importantly, the MasterBrand Way, our structured data-driven operating system enables us to adapt quickly through rapid problem solving and execution across our network. That said, with Section 232 tariffs already in effect and set to double in the first quarter of 2026, we do anticipate some phasing challenges in the fourth quarter of 2025 and into full-year 2026 as we work to fully implement our mitigation initiatives. Andy will outline several key considerations to help frame the potential impact of these tariffs on our business later in the call.
Operationally, we continue to execute well despite the challenging demand environment. Our teams made significant progress in the third quarter on Supreme integration execution, our potential merger with American Woodmark is progressing as expected, and our continuous improvement and strategic deployment initiatives remain effective.
The team is executing the Supreme integration on schedule and within plan, a clear demonstration of the organizational capability and rigor embedded in the MasterBrand way. These efforts are driving the cost efficiencies we expected despite market and volume-related headwinds. Additionally, we expect revenue synergies from the Supreme integration to begin coming through as the market returns, which, as a reminder, were excluded from our disclosed synergy targets.
Building on our continued success with Supreme, we're now focusing our resources on supporting the potential combination with American Woodmark, applying the same disciplined playbook that has proven effective. We are pleased with the progress on the pending merger. Integration planning is well underway, and we're prepared to begin executing immediately following close. We continue to expect approximately $90 million in run rate cost synergies by the end of year 3 post close, driven by procurement, overhead and manufacturing network efficiencies.
Importantly, on October 30, both MasterBrand and American Woodmark shareholders independently voted to provide the necessary shareholder approvals for the proposed transaction. We are also progressing through the regulatory process and continue to expect that the transaction will close in early 2026.
Together, MasterBrand and American Woodmark would enhance the industry's most comprehensive portfolio of trusted cabinetry brands, products and services, and the combined company is expected to unlock and deliver meaningful value for our customers, associates and shareholders as well as to the end consumer, reinforcing our confidence in the long-term potential of this merger.
Finally, turning to our continuous improvement efforts and capital allocation priorities. Across our facilities, continuous improvement programs again exceeded plan, driving measurable savings that partially offset volume-related headwinds. These programs remain an essential part of our ability to manage through near-term softness while positioning us for long-term margin expansion.
Our technology investments are intentional, aligned with MasterBrand's strategic priorities and designed to build scalable, resilient systems that support long-term growth. This quarter, we advanced several cornerstone initiatives, including the deployment of the centralized order management system, which are designed to improve accuracy, efficiency and visibility across the network while simplifying core processes.
In parallel, we are executing a phased infrastructure modernization and risk mitigation program across our facilities to enhance network, server and factory system durability, ultimately ensuring greater protection and long-term support for the core operations. Additionally, the Las Vegas facility start-up was completed this quarter and marks a significant realignment of our operational footprint to better serve the Western regional market. Together, these investments are delivering measurable gains in productivity, precision and agility while positioning our organization for accelerated innovation and growth.
From a capital allocation perspective, we remain focused on operational execution and flexibility. Capital expenditures were aligned with our expectations. Additionally, our balance sheet remains healthy with sufficient liquidity to support growth initiatives, integration activities and shareholder returns.
In closing, we executed with discipline, continue to advance the Supreme integration and are planning for the proposed merger with American Woodmark and further strengthen our operations and balance sheet. While near-term challenges persist, our long-term strategy is intact and our confidence in the business remains strong. As the housing market stabilizes, we are well positioned to capitalize on recovery with greater efficiency, scale and flexibility than ever before.
With that, I'll turn the call over to Andy for a detailed review of our financial results and outlook.
Thanks, Dave, and good afternoon, everyone. I'll begin with a review of our third quarter financial results, and then I'll provide more detail on our updated full-year 2025 outlook.
Notably, this quarter marked the anniversary of our Supreme acquisition, which closed on July 10, 2024. Because the transaction occurred at the beginning of the quarter, Supreme's results did not materially impact our year-over-year comparisons. However, integration synergies continue to support our overall performance.
As Dave noted, with the Supreme integration progressing as expected, our integration team is focused squarely on applying the same proven framework to American Woodmark integration planning, where we continue to expect approximately $90 million in run rate cost synergies by the end of year 3 post close.
Now on to our third quarter results. Net sales were $698.9 million, a 2.7% decrease compared to $718.1 million in the same period last year. The continued softness across end markets, which was down mid- to high single digits was partially offset by the anticipated flow-through of prior pricing actions and continued share gains, particularly in the new construction market. Notably, approximately 40% of the volume decline was mitigated by price and another 20% was offset by share gains.
Gross profit was $218.2 million, down 8.3% from $238 million in the same period last year, and gross profit margin was 31.2%, down 190 basis points year-over-year, primarily reflecting lower volumes, related unfavorable fixed cost leverage and tariffs. These headwinds were partially offset by higher net average selling price improvement from prior pricing actions, our continuous improvement efforts net of inflation and Supreme integration synergies.
Tariffs had a negative impact of nearly 100 basis points to our gross margin in the quarter, though we were able to offset approximately 90% of this impact through mitigation actions. I'll provide an update on our mitigation strategy and full-year impact in more detail in a moment.
SG&A expenses totaled $167.5 million, up 0.7% compared to $166.3 million in the same period last year. SG&A as a percentage of net sales increased 81 basis points year-over-year to 24%, reflecting comparable levels of acquisition-related costs. This was primarily driven by continued investments in our strategic initiatives, particularly around digital technology and marketing, partially offset by lower commission and freight costs following volume decline.
Net income was $18.1 million in the third quarter compared to $29.1 million in the same period last year, and net income margin was 2.6% compared to 4.1% in the prior year as a result of lower gross profit, partially offset by lower income tax expense. Interest expense declined to $18.2 million from $20 million in the same period last year, reflecting progress as we continue to delever our balance sheet.
Income tax was $5.3 million or a 22.6% effective tax rate in the quarter, slightly better than our expectations and compared to $10.3 million or a 26.1% rate in the third quarter of 2024. The decrease in our effective tax rate was primarily driven by the mix of earnings across jurisdictions.
Adjusted EBITDA was $90.6 million, down 13.3% from $104.5 million in the prior year period. Adjusted EBITDA margin was 13%, a decline of 160 basis points year-over-year, driven by market-related volume declines and the associated leverage challenges as well as tariffs. These headwinds were partially offset by continuous improvement savings net of inflation, the flow-through of prior pricing actions and Supreme synergies.
Diluted earnings per share were $0.14 in the third quarter of 2025 based on 129.5 million diluted shares outstanding. This compares to $0.22 in the third quarter of 2024, which was based on 130.8 million diluted shares outstanding. Adjusted diluted earnings per share were $0.33 in the current quarter compared to $0.40 in the prior year period.
Turning to the balance sheet. We ended the quarter with $114.8 million of cash on hand and $461.9 million of liquidity available under our revolving credit facility. Net debt at the end of the third quarter was $839.3 million, resulting in a net debt to adjusted EBITDA leverage ratio of 2.5x, in line with our expectations given American Woodmark deal-related cash outflow. We remain well positioned to reduce our leverage ratio by year-end. However, the incremental impact of tariffs will keep us above our year-end sub 2x target.
In anticipation of the pending merger with American Woodmark, we have amended our existing credit agreement to secure commitments for a new $375 million delayed draw Term A facility, the funding of which is contingent upon the closing of the transaction. The proceeds from this facility will be used to repay and terminate American Woodmark's existing debt following the close of the transaction, further supporting the combined company's capital structure and financial flexibility. Importantly, on a pro forma basis, net debt to adjusted EBITDA leverage at close is expected to be approximately 2x, in line with our expectations and in achievement of our long-term goal.
Net cash provided by operating activities was $108.8 million for the 39 weeks ended September 28, 2025, compared to $176.9 million in the comparable period last year. Third quarter cash generation was impacted by lower net income, required bond interest payments, timing of collections and deal-related expenditures.
Capital expenditures for the 39 weeks ended September 28, 2025, were $43.8 million compared to $34.6 million in the comparable period last year. This increase reflects planned investments tied to the integration of Supreme and our ongoing footprint realignment initiatives in line with our full-year capital allocation strategy.
Free cash flow was $65 million for the 39 weeks ended September 28, 2025, compared to $142.3 million in the comparable period last year. As we look to the fourth quarter, we continue to expect free cash flow to normalize, supported by the absence of certain onetime payments related to the proposed American Woodmark merger, more typical seasonal patterns and growing benefits from our synergies realized from our Supreme integration initiatives. We remain committed to our full-year objective of generating free cash flow in excess of net income.
We did not repurchase any shares during the quarter. Our merger agreement with American Woodmark restricts activity under our preestablished Rule 10b5-1 program until the transaction closes.
Before turning to our outlook, I wanted to take a moment to address recent tariff developments and the implications for our business. Since our second quarter call in early August, several new trade actions have been announced and implemented that directly affect our industry. In mid-August, the administration reinstated and expanded Section 232 tariffs on steel and aluminum and in late September, announced new Section 232 actions targeting lumber and wood products. These new tariffs up to 25% on kitchen cabinets and vanities took effect on October 14, with additional phase increases planned for the first quarter of 2026, increasing the rate to 50% on kitchen cabinets and vanities.
Looking at our cost of goods sold, the cost components are consistent with prior disclosures. Approximately, 45% to 55% of our cost of goods sold is materials, 15% to 25% is labor and 25% to 35% is overhead, varying by product mix and plant utilization. Breaking components down by geographical source, about 70% to 80% are sourced domestically with about 15% to 20% sourced from Asia, primarily Vietnam, and only low single digits from China. The remainder comes from Canada, Mexico, Europe and South America.
Breaking down by material type, a little more than half of our components are wood and wood-related materials. About half of our wood and wood-related materials are domestically sourced. In addition, about half of our wood and wood-related product materials are hardwood. Beyond our component exposure to tariffs, we also import certain finished goods from Canada and Mexico, which historically have represented slightly more than 10% of consolidated net sales.
Prior to the Section 232 tariffs, these imports were exempt from tariffs given they were USMCA compliant. This exemption does not apply to the new 232 tariffs. Based on our current sourcing profile and product mix, we estimate that unmitigated gross tariff exposure equates to 7% to 8% of 2025 net sales with the degree of impact varying significantly by product category.
We are executing a comprehensive strategy to offset these impacts through targeted price increases, supplier renegotiations, alternative sourcing and manufacturing footprint optimization and relocations. As you've seen in our P&L, these mitigation efforts take time to fully materialize, typically between 1 and 12 months. However, we still expect to offset roughly half of the 232 tariff-related cost increase this year, and we remain on track to fully offset previously implemented tariffs on a run rate basis by year-end.
With the introduction of the new Section 232 tariffs, our expected net unmitigated exposure is $20 million to $25 million for the fourth quarter based on our current market outlook, net sales and product mix. Over time, we're confident these actions will fully mitigate the impact and preserve our long-term margin profile.
We are also closely monitoring additional trade measures under review, including potential countervailing and antidumping duties on plywood, which could further influence the trade landscape. As always, we remain focused on minimizing disruption, protecting customer value and maintaining our competitive positioning. We plan to provide a more detailed assessment of the anticipated 2026 impact when we report fourth quarter and full-year results in February.
Now turning to outlook. Our updated full-year 2025 financial outlook includes only those tariffs currently in effect, including the Section 232 lumber tariffs that went into effect on October 14, 2025. It does not reflect potential implications from proposed trade policy changes nor any potential demand impacts from tariffs on cabinets or broader housing activity as those effects remain difficult to estimate in the current environment.
Further, our 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.
As Dave mentioned, we continue to expect our addressable market in 2025 to be down mid- to high single digits year-over-year with continued variability across end markets. Against that backdrop, we expect annual net sales to be approximately flat overall, including a mid-single-digit contribution from Supreme with organic net sales expected to be down mid-single digits. This updated range reflects the continued realization of pricing actions and sustained market share gains.
We are updating our full-year adjusted EBITDA guidance to a range of $315 million to $335 million, representing an adjusted EBITDA margin of 11.5% to 12%. Following, we are updating our full-year adjusted diluted earnings per share to a range of $1.01 to $1.13. The lower midpoint and narrow range reflect the timing and impact of recently enacted tariffs. These pressures are partially offset by the early benefits of our mitigation efforts, which continue to progress as planned, but take time to fully materialize.
In addition, we are reiterating our previous expectations on interest expense, effective tax rate, capital expenditures and free cash flow. To help offset these near-term bottom line pressures, we are taking targeted actions to reinforce cost discipline across the business. This includes assessing reductions in non-volume-related SG&A, reducing select strategic investments and identifying additional efficiency opportunities for 2026.
Together with our mitigation strategy, these actions are designed to protect margins, preserve liquidity and ensure MasterBrand remains resilient through this period of elevated uncertainty. We'll provide a full update on these efforts in our 2026 planning when we report fourth quarter and full-year results in February.
We remain very excited about the pending merger between MasterBrand and American Woodmark, which we believe will create a stronger, more resilient company. By leveraging our complementary capabilities and realizing the expected synergies, we are confident the combined enterprise will be well positioned to deliver enhanced value for both customers and shareholders.
Now I'd like to turn the call back to Dave.
Thanks, Andy. As we close out the third quarter, it's clear that we continue to operate in a challenging environment. While demand remains uneven and new tariffs are adding near-term pressure, our operating discipline, strong customer partnerships and proven execution give us the ability to manage through volatility while continuing to strengthen our business for the future.
Optimization and integration planning for our proposed merger with American Woodmark are well underway. We continue to expect the proposed transaction to close in early 2026, and we remain confident in our ability to unlock and deliver meaningful value with speed, agility and diligence through our combined strengths and resources.
Looking ahead, the MasterBrand Wave continues to guide how we operate, keeping us focused, accountable and ready to adapt. We have a talented team, a resilient model and a long-term strategy built to deliver value as the market stabilizes and growth returns. Thank you to our associates for their continued commitment and to our customers, partners and shareholders for their ongoing support.
Now with that, I'll open up the call to Q&A.
[Operator Instructions] Our first question comes from Garik Shmois with Loop Capital Markets.
Just first on the sales guidance for the full-year, the revision, you're at flat now versus down low single digits previously. Just curious if you can go into the reason for the revision on the sales side.
Yes. I think, Garik, the main revision is I think that the pace that we're seeing is we kind of -- as we were evaluating the rest of the year a couple of months ago, we were kind of keeping our eye on what happened last year. I think that as we've come into the fourth quarter here, we don't see that same dynamic. I think it will be still a slightly down quarter, but I think we've performed coming through Q3 and into Q4 from a revenue standpoint a little better.
Plus, we do have the pricing actions that we've been taking over the past year to deal with the first round of tariffs are starting to really come through, and so that kind of bolsters us a bit there. Probably, the only question we have in terms of the fourth quarter is the impact of any additional pricing that we're working on for this latest round of tariffs, and what impact that would have on demand. It's too soon in the market to see that. Otherwise, I think in the middle point, I think we're comfortable that flat is the outcome that we're going to have for the year.
Speaking on pricing, as you've been pushing pricing to offset initial tariffs and you need to push additional pricing to offset current tariffs and future inflation. I was wondering if you can just speak to any unforeseen challenges in your ability to realize pricing and if you've seen any demand destruction as a result of price increases up until this point?
Yes. I think the -- that's a fair question. I think the odd part about this round of tariffs is it's not even neither was the last for the most part. We do a lot of sourcing domestically, and we do a lot of manufacturing domestically. But these rounds of tariffs, particularly Mexico and Canada, have an outsized effect on those product categories. Those are the ones that, a, have the biggest impact on the total bill that we're faced with from a tariff perspective, but it also is the one that's the biggest challenge, I think, from a pricing standpoint.
On the flip side, I think that's where we're focusing a lot of our energy on mitigation outside of price, and so remember, our mitigation efforts here are not just price. There are a wide range of things that we're working on doing, some of which are going to take some time, but the idea is to try to mitigate as much as we can operationally and then the remainder is what we put out in price.
I'll give you a specific example. We import almost all of our bathroom vanities from Mexico as a finished good. That product category is really not viable at a 50% price increase. We're working on mitigating that, but if we can't get some of the price that we need because we can't mitigate all of it, we're going to have to evaluate whether that product is viable. That's not factored into our guidance. We'll talk more to that when we come with 2026 guidance.
We should have better clarity at that point. The rest of it is, though, that there's a lot of other -- this is going to impact the whole market. We have to see, and that's not apparent yet what that's going to do, so we have to see how the overall market responds to all this. I think just for your planning and thinking, it's just remember, it's just a lag effect for us, and that's the hardest part of this tariff regime as it comes in fairly quickly, and it takes us time to mitigate it. We're going to have that dynamic for a couple of quarters as we work through this.
Just lastly, just to follow-up on that last point. You mentioned, the net unmitigated exposure, I believe, is $20 million to $25 million in the fourth quarter. It's certainly difficult to predict how all this is going to play out in '26 and not to ask you for kind of a guidance for next year, but how should we think about maybe the phasing of your unmitigated exposure as you move into next year beyond the fourth quarter?
Well, I mean, the easy part is the bill started coming due on October 14 and then the next round starts on January 1. That's when the cost starts coming in. I think I would -- if I were you I'd go back and look at our performance through the highly inflationary years of COVID, different in that it wasn't announced inflation. It just started happening to everyone in the industry, but the dynamic and the timing will be similar. Andy highlighted in her remarks, some mitigation takes a month, some takes 12 months, so it's going to spread out through the year. We'll go as fast as we can, but ultimately, we want to make sure we're not disrupting the customer and doing it in a controlled way, and that's going to take some time.
We have reached the end of our question-and-answer session, which concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
MasterBrand — Q3 2025 Earnings Call
Financial data from MasterBrand
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 2,777 2,777 |
0%
0%
100%
|
|
| - Direct Costs | 2,029 2,029 |
7%
7%
73%
|
|
| Gross Profit | 748 748 |
15%
15%
27%
|
|
| - Selling and Administrative Expenses | 702 702 |
15%
15%
25%
|
|
| - Research and Development Expense | - - |
-
-
|
|
| EBITDA | 46 46 |
83%
83%
2%
|
|
| - Depreciation and Amortization | 27 27 |
4%
4%
1%
|
|
| EBIT (Operating Income) EBIT | 20 20 |
92%
92%
1%
|
|
| Net Profit | -97 -97 |
203%
203%
-3%
|
|
In millions USD.
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MasterBrand Stock News
Company Profile
MasterBrand, Inc. engages in the business of manufacturing residential cabinets. Its product portfolio includes residential cabinetry products for the kitchen, bathroom, and other parts of the home. The company was founded in June 1954 and is headquartered in Jasper, IN.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Banyard |
| Employees | 12,633 |
| Founded | 1954 |
| Website | www.masterbrand.com |


