Glenn Eanes - VP and Treasurer Kent Guichard - Chairman and CEO Scott Culbreth - SVP and Chief Financial Officer.

Mark Zikeli - Longbow Research Scott Rednor - Zelman Rick Johnson - Thompson Research Group.

Good day, and welcome to the American Woodmark Corporation Conference Call. Today's call is being recorded. The company has asked us to read the following Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.

All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that may be beyond the company's control. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements.

Such factors include, but are not limited to those described in the company's filings with Securities and Exchange Commission and the annual report to shareholders.

The company does not undertake to publicly update or revise its forward-looking statements and even as experienced or future changes make it clear that any projected results expressed or implied therein will not be realized. At this time, I would like to turn the call over to Mr. Glenn Eanes, Vice President and Treasurer. Please go ahead..

[Technical Difficulty] financial results for our first fiscal quarter ending July 31, 2014. Thank you for taking to participate. Participating on the call today from American Woodmark will be Kent Guichard, Chairman and Chief Executive Officer; and Scott Culbreth, Senior Vice President and Chief Financial Officer.

Scott will begin with a review of the quarter and an outlook on the future. After Scott's comments, Kent and Scott will be happy to answer your questions.

Scott?.

Thanks Glenn. Good morning everyone. Today, we released results of our first fiscal quarter ended July 31, 2014. The financial headlines for the quarter; net sales were $212 million, representing an increase of 19% over the same period last year.

Reported net income was $9.2 million or $0.59 per diluted share in the current fiscal year versus $6.7 million or $0.43 per diluted share last year. Excluding the onetime benefit of research and experimentation credits from fiscal years 2011 to 2014, net income was $8.2 million or $0.52 per diluted share, an improvement of 23%.

For the quarter, the company generated $9.3 million in cash from operating activities compared to $2.3 million from last year. Some additional comments on sales performance starting with the new construction market. Single family housing starts impacting the company’s new construction business were up 6.5% for the first quarter.

Single family starts during March, April and May of the prior period averaged $600,000. Starts over the same time period from the current year averaged $639,000. With the 60 to 90-day lag between start and cabinet installation, the overall market activity in single family homes was up 6.5% for the financial first quarter.

Our new construction based revenue increased over 21% for the quarter.

Our growth in excess of starts continues to be driven by our partnerships with national and regional builders; they are gaining share of total starts and increasing share penetration with those builder partners, and the better-than-average health of the markets where we concentrate our business.

On the remodel side of the business, the picture continues to remain mixed. On the negative side, residential investment as a percent of GDP for the second calendar quarter of 2014 remained flat at 3.1%. The index has remained flat for the last three calendar quarters and the index remains well below the historical average of 4.6% from 1960 to 2000.

Existing home sales continued to decline through the second quarter of 2014. Between April and June of 2013, existing home sales averaged 5.1 million units. That same period for 2014 averaged 4.9 million units, a decline of 4.5%. All cash purchases continued to rise. 32% of all transactions were paid in cash in June versus 31% a year ago.

This trend is concerning since cash purchases signals investor activity and they are less likely to remodel than an own-to-occupy buyer. Interest rates declined slightly in the quarter from 4.34% to 4.13% in June, but it has still risen approximately 65 basis points since the beginning of 2013 from 3.5% to 4.1% for a 30-year fixed rate mortgage.

Combined with an over 4% rise in average home prices, the 28th straight month of year-over-year gains, the affordability index has declined, both disqualifying first time buyers and reducing discretionary funds available for major remodel activity on the part of the successful buyer. On the positive side, unemployment continues to improve.

The U3 unemployment rate dropped to 6.2%, U6 remains high but stable at 13% for the second quarter of 2014. In our view, the remodel market overall seems to have improved but remains subdued versus historical levels.

Within the overall remodel market, big box retailers saw growth, but under indexed due to their primary consumer, the $50,000 to $60,000 household income that continues to be unable or at least reluctant to pull the trigger on a discretionary big ticket remodel project.

We gained share in the big box channel, but we were still impacted by these dynamics. The dealer channel over indexed to the remodel market, largely due to the more affluent nature of the customer base.

As we continue to ramp up the development of our Waypoint brand, we gained share and grew our dealer business at a faster rate than both the overall remodel and dealer channels. Our combined big box and dealer remodel revenue grew 17% during the quarter.

Regarding gross margin performance, company’s gross profit margin for the first quarter of fiscal year 2015 was 17.5% of net sales versus 18.9% reported in the same quarter of last year. Although unfavorable to prior year, we did see an improvement of 50 basis points versus the fourth fiscal quarter 2014 result of 17%.

The company generated year-over-year incremental gross margin of $3.4 million on incremental net sales of $33.8 million, resulting in an incremental gross margin rate of 10%. This is still below our target of 25% but we believe we are making progress.

Gross margin was negatively impacted by both material inflation and costs associated with accruing and infrastructure to support higher levels of sales and installation activity.

We continue to experience inflationary pressure across the broad range of direct material inputs during the first quarter, most notably on hardwood lumber but the pace has slowed, averaging the material cost increase almost 12%.

While the higher material cost was partially offset through customer management, product mix, and pricing relief, gross margin was still adversely impacted by some 130 basis points. We do anticipate the material inflation will continue to impact us in the future.

Our prior two fiscal quarter results included negative gross margin impacts from our decision to retain crewing and infrastructure necessary to support higher volumes. We further narrowed the gap in the first fiscal quarter and believe we made a correct decision to retain the headcount.

The negative impact from rising material cost and additional infrastructure was partially offset by operating efficiencies and leverage on fixed and semi-fixed overhead. The company generated leverage on overhead was spending increasing 13% on the 19% increase in sales. Regarding operating expenses.

Total operating expenses improved from 12.8% of net sales in the first quarter of the prior year to 11.3% this fiscal year. Selling and marketing expenses were 7.3% of net sales in the first quarter of this year, compared with 8.1% in the prior year. We generated leverage in selling and marketing costs through expense management and higher sales.

General and administrative expenses were 4% of net sales in the first quarter of fiscal year 2015 compared with 4.7% in the prior year. Improvement in our operating expense ratio is a result of leverage from higher volume.

Regarding taxes, the company realized a $1.1 million reduction in tax liability due to a Federal research and experimentation credit for fiscal years 2011 to 2014. With respect to cash flows, the company generated operating cash flow of $9.3 million during first fiscal quarter of 2015, an improvement of $7 million over the same period last year.

The improvement in operating cash flow was driven by higher operating profitability and changes in working capital which included increases in inventory levels to support higher sales. Net cash used by investing activities was $3.3 million during the quarter compared with $3 million during the same period of the prior year.

The increase was due primarily to higher investment in plant property and equipment. The company repurchased 130,000 shares of common stock in the fiscal first quarter at a cost of $4.1 million. The company increased cash by $2.4 million during the quarter to $138.1 million. In closing, we are pleased with our progress in the quarter.

Our gross margins improved 50 basis points from the fourth quarter of fiscal 2014 and we delivered solid sales and earnings growth. We continue to generate favorable leverage on our semi-fixed and fixed overhead with additional volume.

At our single-family housing starts remain stuck at 600,000 units and confidence in the middle income consumer's appetite to purchase a new home or begin big-ticket discretionary home improvement projects remains a concern.

Material inflation continues to place pressure on margins, but hardwood lumber pricing appears to be stabilizing for some species. In spite of the uncertainty, we believe the company has established a three to four year trend of improvement which mirrors the improving housing market.

Some quarters have been below the trend line and some have been above the trend line. The first quarter was a good quarter and it was above that trend line. Looking forward, we are cautiously optimistic and maintain our expectation we shared in our last call that we will increase margin rates [annual] of net income in fiscal year 2015.

This concludes our prepared remarks. We'll be happy to answer any questions you have at this time..

Thank you. (Operator Instructions). And we'll now take our first question from Garik Shmois from Longbow Research..

Hey, good morning, this is Mark Zikeli on for Garik this morning. Good quarter guys. Just wondering if you can walk through revenue growth by channel for the quarter again? That would be helpful..

Sure. So, taking a look back at the breakdown, our overall remodel business grew 17% in the quarter and new construction was 21%..

Okay.

Any color on the dealer channel?.

Just say that we over-indexed the marketplace as we continue to grow that Waypoint brand ..

Okay, that's helpful.

Just next, I guess how was mix in the quarter and what was the benefit to sales growth?.

Mix was a favorable trend for us within the quarter, exact impact, I don’t have here in front of me, but it did trend positive in most of our retailers..

Okay. That's all from me. Thank you..

And we'll now take our next question from Scott Rednor from Zelman. Please go ahead..

Hey. Good morning guys. Very nice quarter.

Scott or Kent, can you on the remodel side, it sounds like that was better than you would have expected and better than the market, so I was hoping you could drill down there what specifically you guys saw or did to drive that outsized growth relative to the market?.

I don't think there is anything specifically related to the quarter. And again, you’ve got some kind of year-over-year play, but we, on the big box side, we did see a little bit of lift there. Going back to Scott's comment, some of it was jobs unit volume, but we also got some lift there on the mix of business. We launched some new products last fall.

That takes about six months to really get those in the pipeline and get going. And those new products certainly helped our take. So we saw a little bit more in jobs, but we also saw a nice uptick in take. But the big box was probably a little bit stronger than we had anticipated.

We've been kind of flat lined there for a while, and we had projected that to kind continue, and we got a lift like I said in jobs and take. The other one which Scott just briefly mentioned to the answer to the last question was our Waypoint brand continues to really kind of offer a compelling value in marketplace for that channel.

We started that program about 4 years ago, 4, 5 years ago, and it took us a couple of years to get some critical mass going, but we've really got now a good stable of dealers that are ordering on a regular basis, and because we really started at a pretty low level there through that channel, we've really been able to accelerate that growth.

So, not only the dealers been over-indexing to the remodel market, because they have taken share particularly from the big box, but we're over-indexing it even to dealers, because again where we started on the Waypoint side, so we were a little bit surprised from that standpoint.

We didn't expect that base quite frankly on the last couple of years the way we've been running. Whether that continues or not obviously that's the $64 question. So, hopefully that -- a little bit of volume, little bit of take, and the Waypoint side, the dealer side is really helping us to pull up that average..

And that's very helpful Kent.

And just concerning that you guys were commenting into the year, correct me if I'm wrong, talking about mid-single-digit growth for your remodeling channels, do you think that you could now do better than that just given where you are now and kind of what the run rate of the business is?.

Yes. I mean again we -- going back to Scott's comment, it's one quarter. And the quarter was a little bit above the trend line in a lot of ways. And certainly, if you look at the remodel segment, not only our growth, but the industry growth being in the low teens is above what we think the trend line has been for some time.

So whether that carries into the fall or not, I don't know, we've got a lot of dynamics coming at us in the fall; one is last year the industry did not have a good fall primarily because of the federal government shutdown happen right in the middle of the fall selling season.

So, the comps from that perspective, the comps are a little bit easier in terms of growth. If you look at it on a sequential basis, again I think it depends on what your crystal ball tells you for the fall and how people feel. As Scott mentioned in his comments, there is a little bit on both ways on the remodel side.

The news on the new construction side is probably a little bit more optimistic than it is on the remodel side, but we’ll see.

I think we’ll have a better view after the second quarter and we get through the fall selling season about whether what we’re seeing in the remodel side would support something above our kind of guidance or outlook that we gave last quarter or whether or not this quarter was just kind of an anomaly in the trend line..

Got it.

And then one last from me, on the capacity side, can you update us where you are in terms of the addition that you guys are expecting from the CapEx line? And Kent, given that you guys announced that maybe four to six quarters ago, depending on how the recovery comes, is there flexibility that you guys have to progress that spending if you need to or is this just you guys have been able to create capacity in the meantime and it will be a one-time kind of cost outlay?.

Well, in terms of – there’s couple of things I think in that question.

One, in terms of it was over a year ago that we talked about putting it in and then a few calls ago we rolled that out a year, based primarily on the impact that we saw again this time last year from the federal shutdown and we rolled into the year and there was a little bit of lingering impact than that and then we had a really harsh winter in a lot of areas in the country.

And so, that kind of slid out our timeline. If you go back to when we first talked about the capacity expansion, we talked about needing some meaningful capacity in the spring of ‘15 and we moved that out to the fall of ‘15.

So, part of it has been the volume, the demand side of it, the demand curve and the recovery kind of moved out say call it six months, maybe a little bit more which allowed us to put that out. We did get to do some things, we got a little more efficient internally, and we also did some more outsourcing which helped supplement our internal capacity.

As we look forward, currently our feeling is that we need some meaningful capacity; we are a little over a year from now, really in the fall, kind of mid to late fall of 2015.

If we do that primarily through outsourcing, that will be kind of an incremental thing that we do when we need; if we decide to do some piece of that internal, we are going to have to do plan expansion and that will be a onetime cost that will load in. And we’ll have to make that decision here probably in the next couple of months..

Great. Thank you guys..

Sure..

(Operator Instructions). And we’ll take our next call from Rick Johnson from Thompson Research Group..

Hey guys, this is Rick. I am filling in for Nick this morning, great quarter.

Quick question; where do you guys see the regional strength or weakness in new construction or remodeling? Is there any one region that’s really standing out or can you provide some more color?.

Yes, I mean the main places that we play when you look at the Northeast, down at the Southeast and Southwest, I think the area that I’d concentrate on as of late is we’ve seen softness in the Phoenix market, we see Southern California strengthening a bit and then we continue to track well in the Northeast as well as Florida in Southeast..

Okay.

Other question in terms of remodeling mix, have you seen any uptick in hiring clients, is there any more color you can shed there in terms of mix?.

Well, it goes back to kind of my comment about Waypoint. For us specifically, it is -- the mix is helping us but it's just because we continue to over index on our Waypoint brand as we've kind of that growth curve comes up.

If you look at the overall market, we’ve probably started talking a little over a year ago about this idea of the bifurcation and the remodel market. And going back to Scott's comments, our sense is that kind of middle income or lower middle income, they still really haven't come back in any force..

Okay..

And I think that's been more of a drag on the big box side, because that has tendency to be more of their target consumer that has been on the dealer side.

Although big box does get upper end consumers and dealers do get kind of middle market consumers, but as a general rule, I would say that we really haven't seen that middle to lower middle kind of consumer comeback in any force and that's I think is a result in the big box is under-indexing to the overall remodel market and the dealers kind of over-indexing to the market..

Thanks guys. They were my two questions..

Okay..

(Operator Instructions). And that does conclude today's conference or today's question-and-answer. And I'd like to turn the call back over to management..

Thank you folks for taking time to participate since there are no additional questions, this concludes our call. Speaking on behalf with the management of American Woodmark, we appreciate your continuing support. Thank you and have a good day..

This does conclude today's conference. Thank you for your participation..