Masonite International Corporation (NYSE: DOOR) is a leading global designer, manufacturer, marketer, and distributor of interior and exterior doors and door systems for the new construction and repair, renovation, and remodeling sectors of the residential and non-residential building construction markets. With a rich history dating back to 1925, Masonite has established itself as a trusted brand, known for its innovative products, superior service, and commitment to delivering value to its customers.
Business Overview
Masonite operates a diversified business model, serving a wide range of customers, including remodeling contractors, builders, homeowners, retailers, dealers, lumberyards, commercial and general contractors, and architects. The company's product portfolio encompasses an extensive range of interior and exterior doors, made from various materials such as wood, hardboard, steel, fiberglass, and composite. Masonite's doors are sold through well-established wholesale, retail, and direct distribution channels, allowing the company to reach a diverse customer base.
The company's reportable segments are organized and managed principally by end market: North American Residential, Europe, and Architectural. In the latest quarter, the North American Residential segment accounted for 79.4% of net sales, the Europe segment contributed 8.7%, and the Architectural segment generated 11.3% of net sales.
Financials
Masonite has demonstrated solid financial performance, with annual net income of $118,227,000, annual revenue of $2,830,695,000, annual operating cash flow of $407,730,000, and annual free cash flow of $295,070,000 in the most recent fiscal year.
In the first quarter of 2024, the company reported net sales of $668,339,000, a decrease of 7.9% compared to the same period in the prior year. This decline was primarily driven by lower volumes in the North American Residential and Architectural segments, partially offset by the acquisition of Fleetwood Aluminum Products, LLC in late 2023, which contributed $27,303,000 in net sales.
Gross profit in the first quarter of 2024 was $165,470,000, representing a gross margin of 24.8%, compared to 23.5% in the same period last year. The improvement in gross margin was driven by a decrease in material costs as a percentage of net sales, partially offset by increases in overhead, depreciation, distribution, and direct labor costs.
Selling, general, and administrative (SG&A) expenses in the first quarter of 2024 were $152,644,000, or 22.8% of net sales, compared to $101,705,000, or 14.0% of net sales, in the same period last year. The increase in SG&A expenses was primarily due to $36,500,000 in higher acquisition and due diligence-related costs, as well as incremental SG&A from the Fleetwood acquisition.
Operating income in the first quarter of 2024 was $11,432,000, compared to $65,108,000 in the same period last year. The decrease in operating income was mainly attributable to the higher SG&A expenses, partially offset by the improvement in gross profit.
Net income attributable to Masonite in the first quarter of 2024 was $61,055,000, compared to $38,491,000 in the same period last year. The increase in net income was primarily driven by a $85,250,000 gain related to the termination fee received from the cancelled acquisition of PGT Innovations, Inc.
Liquidity
As of March 31, 2024, Masonite had $230,441,000 in cash and cash equivalents, $249,100,000 in available borrowing capacity under its asset-based revolving credit facility, and $27,900,000 in available capacity under its accounts receivable sales program. The company's strong liquidity position provides it with the financial flexibility to fund its operations, make strategic investments, and pursue growth opportunities.
Masonite's capital structure includes $375,000,000 in senior unsecured notes due 2030, which bear interest at 3.50%, and $500,000,000 in senior unsecured notes due 2028, which bear interest at 5.375%. The company also has a $250,000,000 term loan facility, which matures in 2027 and bears interest at a variable rate of SOFR plus 2.25%.
Segment Performance
North American Residential Segment
The North American Residential segment, which accounted for 79.4% of net sales in the first quarter of 2024, reported net sales of $530,643,000, a decrease of 6.7% compared to the same period in the prior year. The decline was primarily due to lower base volumes, partially offset by the acquisition of Fleetwood, which contributed $27,303,000 in net sales. Adjusted EBITDA for the segment was $106,801,000, representing a margin of 20.1%.Europe Segment
The Europe segment contributed 8.7% of net sales in the first quarter of 2024, with net sales of $58,392,000, a decrease of 8.3% compared to the same period in the prior year. The decline was primarily due to lower average unit prices and base volumes, partially offset by favorable foreign exchange impacts. Adjusted EBITDA for the segment was $1,941,000, representing a margin of 3.3%.Architectural Segment
The Architectural segment generated 11.3% of net sales in the first quarter of 2024, with net sales of $75,539,000, a decrease of 14.1% compared to the same period in the prior year. The decline was primarily due to lower base volumes and lower sales of components to external customers. Adjusted EBITDA for the segment was $4,816,000, representing a margin of 6.4%.Outlook
For the third quarter of 2024, Masonite expects Marketplace GOV (Gross Order Value) to be in the range of $19.4 billion to $19.8 billion and Adjusted EBITDA to be in the range of $470 million to $540 million.
The company also provided the following guidance for the full year 2024: - Stock-based compensation expense is expected to be in the range of $1.1 billion to $1.2 billion. - RSU issuances are expected to be in the range of 6.0 million to 7.0 million, net of expected forfeitures. - Depreciation and amortization expense is expected to be approximately $560 million to $590 million.
Risks and Challenges
Masonite faces several risks and challenges that could impact its future performance, including: - Fluctuations in demand for new homes, home improvement products, and other building construction products due to changes in global economic conditions, interest rates, and consumer spending. - Intense competition in the building products industry, which could lead to pricing pressure and loss of market share. - Exposure to changes in raw material and fuel prices, as well as labor costs and availability. - Successful integration of acquired businesses, such as Fleetwood and Endura, and the ability to realize expected synergies. - Potential disruptions in the company's supply chain and manufacturing operations. - Regulatory and legal risks, including changes in environmental, health, and safety regulations.
Conclusion
Masonite International Corporation is a well-established player in the door manufacturing industry, with a diversified product portfolio, strong brand recognition, and a global footprint. Despite facing some headwinds in the first quarter of 2024, the company's solid financial performance, strategic acquisitions, and focus on innovation position it well for future growth. Investors should closely monitor Masonite's ability to navigate the evolving market conditions, integrate recent acquisitions, and capitalize on the opportunities in the residential and non-residential construction markets.