Glenn Eanes - Vice President and Treasurer Cary Dunston - President and Chief Executive Officer Scott Culbreth - Senior Vice President and Chief Financial Officer.

Nick Coppola - Thomson Research Group Scott Rednor - Zelman & Associates Garik Shmois - Longbow Research Tim Wojs - R W Baird.

Good day and welcome to the American Woodmark Corporation Fourth Quarter 2016 Conference Call. Today’s call is being recorded June 2, 2016. We will begin the call by reading the company’s 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 maybe 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 the Securities and Exchange Commission and the Annual Report to shareholders.

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

Thank you. Good morning, ladies and gentlemen. Welcome to this American Woodmark conference call to review our fourth fiscal quarter and full year results for fiscal 2016 ended April 30, 2016. Thank you for taking time to participate.

Participating on the call today from American Woodmark Corporation will be Cary Dunston, President and Chief Executive Officer and Scott Culbreth, Senior Vice President and Chief Financial Officer. Cary will begin with opening comments followed by Scott with a detailed review of the quarter and year and an outlook on the future.

After Cary and Scott’s prepared remarks, we will be happy to answer your questions.

Cary?.

All right. Thank you, Glenn. And good morning to you all. Our fourth quarter brought to an end a very successful fiscal year for our company. For the quarter, we grew sales 16% over prior year with key drivers once again being our new construction and dealer channels.

Similarly, for the year we grew revenue 15% continuing to outperform the industry as a whole. Looking specifically in new construction we had a very strong quarter growing our Timberlake business 27% over prior year. For the fiscal year we grew by 21% far outpacing single family starts that were in the lower teens.

Our message has been very consistent regarding our market share gain associated with our winning direct service model. From the industry perspective, we've seen little change in the underlying dynamics. Labor and the land shortages remain as key bottleneck which when combined with the low existing home inventory continue to drive up home pricing.

With meeting a new home prices over $320,000 and lending remaining difficult for first time homebuyers, entry level home demand remain soft. And although numerous initiatives exist try to bring the first time homebuyers back to the market; I personally do not believe we will see significant change within calendar year 2016.

On the positive though, demand for higher end homes are strong and we do expect it to remain so into our fiscal 2017. Taking a look at our dealer channel. We had a very strong revenue comp for the fourth quarter growing 35% over prior year. For the fiscal year, we grew our revenue at 31%.

Our Waypoint team continues to do an outstanding job of differentiating themselves relative to our competition. The results are very evident with a significant market share gain year-over-year. As we look forward we expect to continue to over index within the dealer channel and comp favorably due to our ongoing share gain.

Within home center, a more challenging quarter. We were up only 1% for the quarter and 4% for the year. Home center themselves reported lower than average comps in our category. However, as I mentioned last quarter, we are seeing much greater competitive promotional activity.

Although, we moved up some in our promotional spend in our fourth quarter, we remain far less than competition. The result has been some shift to market share. Up to now we have resisted following the trend as the cost is high and is not having any significant impact on bringing additional consumers into the door.

It simply moving share from one to another. Historically, over the long term it is been our position to respond appropriately to strong competitive promotional activity to minimize any shift in share. As we move forward, we will continue to evaluate our promotional strategy and make sound business decisions.

Regardless, we will remain very focused on working with the home centers on longer term strategic solutions to drive market growth. From gross margin perspective, we came in at 20.3% for the fourth quarter; this was down from our prior year margin of 20.9% with an incremental gross margin of 16.3%.

Scott will provide more detail about the key drivers were higher healthcare and increased depreciation as we brought on the second phase of our south branch expansion. For the fiscal year, I am extremely pleased with our gross margin at 21.1%, an improvement of 260 basis points from prior year. Likewise incremental gross margin was very strong at 39%.

Our manufacturing system continues to operate very efficiently with much greater stability. On net income, we generated $13.4 million in the quarter, up 18% from prior year as we continue to leverage our SG&A spend. Before the year our net income was up 65% simply exceptional performance.

With an operating margin of 9.2% for the quarter and 9.8% for the year, we have reached a level of performance rarely achieved in the history of the company. As we look forward, we are getting more assertive regarding our investment to continue to profitably grow our business in the long run.

Not only are we planning on two significant product launches in fiscal 2017 but we are focused on continued core and strategic investments. We've built an indisputable competitive advantage in the markets we serve and are determined to strategically leverage this advantage. As such we remain extremely confident in our long-term journey.

With that now I'll turn it over to Scott for the detailed financials. .

Thanks, Cary. And good morning, everyone. The financial headlines for the quarter, net sales were $240.9 million, representing an increase of 16% over the same period last year. Reported net income was $13.4 million or $0.81 per diluted share in the current fiscal year versus $11.3 million or $0.69 per diluted share last year.

Exclusive of after-tax non-operating charges related to idle land disposal of $0.8 million or $0.05 per diluted share, the Company generated $14.2 million, or $0.86 per diluted share of net income for the fourth quarter of the current fiscal year compared with $11.3 million or $0.69 per diluted share for the same period of the prior fiscal year.

For the 12 months ended April, year-to-date net sales were $947 million representing an increase of 15% over the same period last year. Net income was $58.7 million or $3.57 per diluted share in the current fiscal year versus $35.5 million or $2.21 per diluted share last year.

Exclusive of after-tax non-operating charges related to idle land disposal of $0.8 million, or $0.05 per diluted share, the Company generated $59.5 million, or $3.62 per diluted share of net income for the entire current fiscal year compared with $35.5 million or $2.21 per diluted share for the same period of the prior fiscal year.

For the current fiscal year, the company generated $71.8 million in cash from operating activities compared to $58.7 million for last year.

Some additional comments on sales performance starting with the new construction market, recognizing a 60 to 90-day lag between start and cabin installation, the overall market activity in single-family homes was up over 18% for the financial fourth quarter.

Single-family starts during December, January and February of the prior period averaged 675,000 units. Starts over that same time period from the current year averaged 795,000 units. Our new construction based revenue increased 27% for the quarter.

As we have stated on prior calls, we continue to over-index the market due to share penetration with our builder partners and the health of the markets where we concentrate our business. The remodel business continued to be challenging. On the positive side, unemployment continues to improve.

The April U3 unemployment rate dropped to 5% and U6 dropped to 9.7%. Both measures were lower than the April 2015 reported figures. Residential investment as a percent of GDP for the first calendar quarter of 2016 improved to 3.4% versus 3.2% for the prior year.

Although the percentage is improving, the index remains well below the historical average of 4.6% from 1960 to 2000. Existing home sales increased during the first calendar quarter 2016. Between January and March of 2015, the existing home sales averaged 5.05 million units. That same period for 2016 averaged 5.3 million units, an improvement of 5%.

Interest rates remained low in the quarter with a 30-year fixed rate mortgage at 3.61% in April, a decrease of approximately six basis points versus last year. All cash purchases in April were 24%, down from 25% in March, and unchanged from last year. The share of first-time buyers improved.

The April reported rate was 32%, better than the prior year rate of 30%, but well below the historical norm of 40%. On the negative side, the median existing home price rose 6.3% for April, the 50th straight month of year-over-year gains impacting our consumers’ affordability index.

Consumer sentiment dropped to 89% in April versus the 92% reported in the beginning of the calendar year. Homeownership rates remained low versus historical averages. The percent of Americans who owned their own home in the first calendar quarter was 63.5%, or 0.2% below last year’s rate.

Our combined home center and dealer remodel revenues were up 7% for the quarter. Waypoint represents over 10% of our overall revenue and grew 35% in the quarter. Promotional activity remained higher than the prior year for the fiscal fourth quarter as we responded to competitive positioning and market conditions.

The company’s gross profit margin for the fourth quarter of fiscal year 2016 was 20.3% of net sales versus 20.9% reported in the same quarter of last year. The company generated a year-over-year incremental gross margin rate of 16% for the fourth fiscal quarter.

Gross margin was negatively impacted in the quarter by higher health care and incentive cost plus higher depreciation cost related to the previously announced plan expansion. Year-to-date gross profit margin was 21.1% compared to 18.5% for the same period in the prior year.

Year-to-date the company generated a year-over-year incremental gross margin rate of 39%. Gross margin was positively impacted in the year by higher sales volume, customer management, product mix, pricing and improved operating efficiency.

Total SG&A expense decreased from 12.4% of net sales in the fourth quarter of the prior year to 11.1% this fiscal year. Through 12 months, SG&A improved from 11.9% of net sales to 11.3%. Selling and marketing expenses were 7.2% of net sales in the fourth quarter of this year compared with 8% in the prior year.

We generated leverage in selling and marketing costs through expense management and lower display and product launch costs. General and administrative expenses were 3.9% of net sales in the fourth quarter of fiscal 2016 compared with 4.4% in the prior year.

The decrease in our operating expense ratio was a result of leverage from increased sales and ongoing expense controls. With respect to cash flows, the company generated net cash from operating activities of $71.8 million during fiscal year 2016 compared with $58.7 million during the same period in the prior year.

Improvement in company’s cash from operating activities was driven primarily by higher operating profitability, which was partially offset by higher customer receivables. Net cash used by investing activities was $40.8 million during the fiscal year compared with $56.6 million during the same period of the prior year.

The improvement was due to a $27 million reduced investments in certificates of deposit which was partially offset by increased investment, promotional displays and property, plant and equipment of $10.7 million.

Net cash used by financing activities of $6.1 million increased $17.8 million during the fiscal year compared to the same period in the prior year as the company repurchased 243,143 shares of common stock at a cost of $16.6 million, an $11.5 million increase from the prior year, and proceeds from the exercise of stock options decreased $6.2 million.

In closing, the new construction market continues to improve with single family housing starts approaching 800,000 units. Land, labor shortages and low existing home inventories continue to increase new home pricing.

Unemployment rates and consumer confidence have improved, but the middle income consumers’ willingness to spend on a new home or begin big ticket discretionary home improvement projects remains low. Although the market remains uncertain, we continue to be pleased with our progress. We established all time highs in net sales and net income.

However, we also realized that our journey is only just begun. As Cary mentioned, we are excited about our future and our ability to continue to win in the market place. Regarding our fiscal year 2017 outlook, for the market we expect single family housing starts to grow approximately 10%.

Interest decline along with continued increases in the average price of new homes. Both factors will negatively impact affordability particularly for the important first time and first separated buyers. Unemployment should remain steady and cabinet remodeling sales continued to be challenged until economic trends remain consistently favorable.

Growth is expected at roughly mid-single digit rate during the company's fiscal 2017. In this environment, our expectations for company performance are as follows. The company expects that its home center market share will be relatively stable in fiscal 2017. And it will continue to gain market share in its growing dealer business.

This combination is expected to result remodel sales growth that exceeds the market rate. Some of this new residential construction sales growth outperforms the new residential construction market during fiscal 2016.

Management expects it will again outperform the new residential construction market during fiscal 2017 but by a lesser rate than fiscal 2016 as its comparable prior year sales levels become more challenging.

Inclusive of potential for modest sales mix and pricing improvement, the company expects it will grow as total sales at a low teen rate in fiscal 2017.

Despite anticipated material inflation cost related two product launches and impacts in the first half of fiscal year 2017 for the West Virginia plant expansion, the company expects to maintain operating margins for fiscal 2017. Before taking questions I know many of you who have followed American Woodmark for a number of years.

During that time there has been one constant with the investor relations community, Glenn Eanes. This will be his last earnings call as he will be retiring at the end of the month. I wanted to take this opportunity to say thank you to Glenn for over 40 years of service to our company. This now concludes our prepared remarks.

We would be happy to answer any questions you have at this time. .

[Operator Instructions] And we will take our first question from Nick Coppola with Thomson Research Group. .

Hi. Good morning. So helpful color on 2017 certainly there at your opening comments, wanted to drill in on the operating margin data point you gave us.

You are looking to hold operating margin in 2017, could you help us think about some of the puts and takes there?.

Yes. So going back to my closing remark there, we are anticipating some material inflation as we go into fiscal year 2017. We do have a couple of specific product launches that we will incur as well. And then we've got a bit of carry over associated with our plant expansion that went online in the second half of fiscal year 2016.

It will show up in the first half of fiscal 2017. The other remark I would make is and I think will get questions on this, over the long -term, we said that our goal for operating margin was to be 8% to 10%. And we certainly got very close to the 10% mark in this last fiscal year.

But 2002 was honestly the last timeframe in which we came close to that operating margin level. So we wanted to make sure we build a plan and strategy in place that we can maintain that margin, I am not see that erode..

Yes. And this is Cary. I mean think about launch, sure the lot of questions are what's in store for us longer term. And right now we are -- I mentioned really past three calls about our strategic initiatives and the work we are doing. We have a lot of work underway that's really focused on longer term.

So to Scott's point if you were told me two or three years ago that we would up to 9.8% operating margin, I would have said no way, just given the challenges that we are facing, the economy, the industry. So obviously we got to kind of what our initial target was much, much more quickly.

So now that question is, do we have a different longer term target? And that's really what we are evaluating. So absolutely from a strategic and just from initiative perspective we would -- we definitely want to move beyond that 10%. What it is? We really don't have an answer yet.

It is hard to do an apples-to-apples comparison we trust and competition given our mix and the markets we serve and so forth. But we want to continue to focus on longer-term opportunities and yes we are evaluating and we feel we have some very significant longer-term opportunities to continue to grow not only top line but also bottom line. .

And so when you are looking at end margin performance even excluding the plant expansion and some inflation, to what extent your big cost leverage provide kind of a natural increase to kind of margin. .

Yes. We certainly got that factored in as well. Our team has a deck of productivity related projects that they will go after. We will clearly get leverage from incremental volume run across the platform that we got and then we got to manage those improvements with some of the other headwinds that we are expecting as we go forward. .

Yes. From a productivity we mean obviously labor cost fairly consistently go up, that's normal in any industry. Productivity is always focused on offsetting those labor cost. Then we are also having a number of projects really focused on productivity to help with inflation and so forth.

But we get the questions many; many times it has been while since we've done. We'll keep a very close eye on inflation. If you get from a lumbar perspective and the question comes back is how much that can you get back in the market through pricing. We are not at that stage yet but it's something that we are going to watch very, very closely. .

And our next question comes from Scott Rednor with Zelman & Associates..

Hey, good morning. Question on the product launches.

Could you maybe discuss some more what that relates to and how we should think about the share opportunities or the revenue opportunities with those launches?.

Sure, Scott. In our business, we traditionally the timing historically has been set by launches within the home center markets. It typically do one late summer early fall and other one mid winter.

If you look historically at the launches we has a company we follow that trend, this past year we were focused more significantly and really creating that stability and capability of our manufacturing platform which we achieved.

That resulting in a lot of confidence in us out in the market, and it's really one of the key drivers along with just the service that is getting the market share improvements we are seeing in new construction and in the dealer size. So that investment was well worth it, it is paid off.

And now we are really back to saying, okay, we got a stable platform, we can launch more product. We've spent the past six months doing lot of research with regards to what products we can launch and really where the market is going with trends are so not getting specific section what we are launching.

But we do have fairly -- two fairly significant launches late summer and then the winter that do come with associated launch cost.

We've talked about that many times even strategically it's one of the big initiatives for not just us the industry as a whole for home centers as the cost of launch product because you have to go out, you have to update all your displays, change our selling center doors, that cost we will bear during the year and obviously the delayed impact if you do launch when you actually start seeing a return on the investment, there is lag there.

So we build the cost in, we build in with obviously the late summer early spring -- early fall launch. We start to build in some revenue enhancement from that later in the year. That all the cost we incur in fourth quarter really won't such key return on that until fiscal year 2018. So two good launches really focused on product.

We are continuing to work on other I will say projects. We talked about solutions; we've got number of solutions that we are working on. That really I'll say innovative that we are not ready nor have we budgeted specific cost or savings to those. But pretty significant opportunities that we are also working on. .

Should we think about this from our standpoint similar to I guess what occurred in 2014 where you took some actions to invest in the business to compressing your return margin but ultimately four to six quarters from now there is margin expansion so is it a return here in terms of O&M improvements as well as sales improvement that we should expect for 2018?.

Yes. And you hit absolutely there is a delaying issue -- we absolutely will not launch something unless there is a return on it.

If you look at our mix and where we've grown share, absolutely we are going to launch new product and Scott talked about the comps getting little bit tougher out there and particularly that dealer world but we are planning to exceed our growth pretty aggressively. These new products are not when you required to do that.

So, yes, there is an investment made and there is return on that investment through market share gain in the dealer world. Certainly in the new construction market will continue to help us over index. The home center is always a challenge.

We mentioned that the promo costs are up and that we did see some share shift the last quarter and we are evaluating our promotional strategy. It's costly; it's not really not an ideal place where I like to spend money.

But if we need to spend more money in the promotion to get the share back in balance and then that's what we will evaluate and make a decision on. But also when you launch product like this, there is a lot of cost in home center.

It tends to be a little more where you have to launch product to defend your share because we are in similar scale, we are sitting with very, and very high shares in home center market. We want to maintain that share and opportunity to pick up a little share, yes, there is.

Then one channel specifically or one of the big box specifically we feel some opportunity and that just -- it's not going to be the return that you get say in a dealer world because the fact they are already saturated there. We have a big chunk of share in home center already. There is cost there.

You defend, you maintain share, hope it pick up a little share but that business is very critical to us so you have to make these investments. .

And then just lastly, Scott, can you provide some context around what the higher -- how much gross margin was impacted by the higher depreciation maybe for the quarter and for the year?.

Yes. I don't have that number here for me for the full year. Within the quarter from year-over-year perspective it was going to be about 40 basis points. .

[Operator Instructions] We will take our next question from Garik Shmois of Longbow Research. .

Hi. Thank you. And congratulation Glenn on your retirement. I wanted to ask just about a promotional environment. You did touch upon it earlier but we heard about the promotional environment in the last call is picking up.

Did the rate of promotions accelerate in the fourth quarter and you are evaluating your position and its place you really don't be at right now because of costly to enter into promotional environment. They also an indicative that you expect your home center share to be pretty stable in fiscal 2017.

So I was just wondering if you could talk about the promotional environment if it picked up into the degree it did in the last quarter and your degree of confidence in maintaining your overall market share in 2017..

Hi, Garik. It's Cary. If you go back to when we have the call last quarter, we did announce it gone up, that's been fairly stable since then at the high level. And we were I guess playing the wait and see game to hopefully see a comeback down. What we can say there is really not come down like we expected it to.

But now we are evaluating whether really what our strategy and position will be going forward. If that comes down to the financial return on the investment to take your promo cost up as high as our competitors are and hope we get out of it.

It's little bit different format for us just given our mix, where we play as a stock player versus semi-custom, so all that comes into equation when you look at our promotional cost. But like Scott said though it is our goal to defend our share.

I mean we are very high number one overall if you look at the SOS or special commentary in home center between Lowe's and depot and we want to maintain that position.

And obviously I want to focus more on strategic side of it and growing the business and getting consumers in the door about same time we do -- we will do more likely what's necessary to maintain our share over the long term. We just preferred to make I guess a financial sense. .

That makes sense. I just want to shift to raw material costs in the quarter. I think also looking back to the last quarter you started to see some nascent increases.

You didn't really call that out too much as far as what was impacting gross margin in the quarter, it was more on some of these one off depreciation and healthcare costs or maybe less sustainable costs if I can where do you see raw materials this quarter and how is the raw material outlook impacting your view on price mix as you look out to fiscal 2017?.

Yes. We've started to see some increases. I think I mentioned this even last quarter around particle board certainly on the fuel and transportation rates out as well. And in a bid of maple soft and hard maple. From a year-over-year perspective, there really wasn't much movement per se in lumbar.

There was some variation by species but an aggregate not a major player for us. But if you do the Q3 to Q4 look, we did see an increase predominately on the maple species in that period. So as Cary mentioned earlier, we always evaluate and look at this on a monthly basis.

And if we see that those trends are going to sustain and be there for sometime then we will look at necessary actions to make sure we can offset that. .

[Operator Instructions] We will take our next question from Tim Wojs with Baird..

Hey, guys, good morning.

I guess first question I have just maybe on the pace of demand that you saw in the quarter and I know weather in some parts of the country was more favorable than it typically is and I guess I am curious how does the revenue trend through the quarter from February through April and what do you guys seeing in May?.

Yes, Tim, as far as February to May is fairly consistent, new construction market remain very strong. As you said there were some pluses and minuses on the weather. Some areas like Texas also getting lot of rain and in the north east we actually saw a lot of rain.

Not a big impact though so fairly stable on the new construction side throughout the quarter. There is lag there as you know so it's -- you can't really look at a direct impact from rain right now, the rain last month have really impact us 30 days from now, 30 or 60 days from now. On the remodel side, that's again fairly consistent.

Obviously with our growth in the Waypoint business we go out and it's hard to tell you exactly how much is really the industry as a whole or the remodel or that side of the dealer business is all growing versus our own share growth. And obviously very significant share growth in there.

But conversations with the dealers there, it's going very, very strong. They continue to see the more affluent customer walking into the door and it has been fairly consistent. Same with home center. Home center has enticed just because of the promotional calendar.

You get couple of months it may run the home center themselves may run heavy promotions and it empties a court log and then you will see a corresponding July for the next 30 days or so. So you really have to look at averages over three to four months to really trend that.

And it was as we said they reported it was down, lower than we expected for the fourth quarter, can't really give you any specifics as to why, it's just that middle income consumer that is not really walk into the door but for most part long answer but fairly consistent throughout the quarter.

As far as what we are overseeing for fiscal year 2017, it is May is completed; we are analyzing the data now. We are basically about where we had planned on expectation wise. We continue to grow on new construction and dealer and even home center once again that's based on prior promo is looking fairly decent, about where we expected it to. .

Okay. Now that’s really helpful. I appreciate that.

And then I guess as we think about I guess as we think about capacity, I know you guys are or have just really added some capacity into south branch but since you have started to add the capacity have grown kind of 16% -18% the last couple of quarters and you are looking for low teens revenue growth in fiscal 2017.

So just curious how are you thinking about capacity over the next couple of years and if you think six to nine months from now you may have to have another internal discussion about adding in some areas?.

Yes. We have that constant discussion and we evaluate that quite regularly with regards to the bottlenecks. We are good for now, good for a while here. And after the south branch expansion that was expansion on both finishing operations as well as we call it mill operations on the machining side. And we have plenty of assembly capacity.

During the recession lot of capacity taken out in the industry that something we continue to analyze ourselves as where the industry as a whole is sitting. On two productivity gains we are doing very, very well.

And nothing no major investments required for the foreseeable future but your question about long term, yes, I mean we do plan to continue to invest in our business and yet be careful because of cyclicality of this thing. It is a beast as we all know and we know it goes up and down and we don't want to put too much overhead in the ground.

But right now with the growth opportunity we feel we have as a company and some of the markets we are looking at. We do find to continue to grow. The question is what type of investment and win. There is a lot of variables in that. So for foreseeable future we are very good on capacity and we will continue to grow. But we will continue to evaluate it. .

Okay. And then just last question just on maybe the cadence of margins through the year.

Overall maintain the margins for fiscal 2017 versus 2016 but should we think about maybe margins being down a little bit in the first half of the year and maybe up a little bit in the second half of the year and kind of net sale to neutral, how should we think about the cadence through the year on the margin line?.

Yes. It's always a tough question right because we don't provide guidance from a quarterly perspective. We prefer to just keep you oriented around a full year perspective.

The only I guess comment I did reveal a bit was around the West Virginia plant expansion which should be more of first half but at the same time we will have project that will start to benefit in the second half. So I really I don't have anything to add about any big swings from a first half to second half. .

[Operator Instructions] As I do not see that there is anyone else waiting to ask a question. I'd like to turn the line over to Mr. Eanes for any closing comments. Please go ahead, sir. .

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

And that does conclude today's conference. Thank you for your participation. You may now disconnect..