MasterBrand, Inc. 2026 Q2 Earnings Call

Thank you. 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. They 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, 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. 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. They're 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 28th, we completed our merger with American Woodmark, bringing together two 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 remained impacted by affordability pressure, low existing home turnover, and historically weak consumer sentiment.

Consumers continued to defer large discretionary projects, 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.

Turning to the merger and why we're so excited about the combined company. As we said at the announcement, this combination brings together two 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 U.S., 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 and the home centers have been the two 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 a share American Woodmark has seeded 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 in 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 our 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 two 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 six years creates a simple, connected product continuum that consumers can choose from with ease. Because we're 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. 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 two 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. We've initiated two 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. We expect roughly $15 million of savings in the second half of 2026, with corporate overhead and procurement the primary sources executed to date.