Exchange: NYSE | Sector: Industrials | Industry: Construction
Q1 2026
Published: Aug 28, 2025
Earnings Highlights
Revenue of $1.41B up 0.1% year-over-year
EPS of $1.13 decreased by 19.7% from previous year
Gross margin of 30.9%
Net income of 43.56M
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GMS Inc. (GMS) QQ1 2026 Results Analysis: Revenue Resilience in a Moderately Slower Construction Cycle with Margin Discipline
Executive Summary
GMS Inc. reported QQ1 2026 results that showcased revenue resilience amid a largely stable demand environment for construction materials, underpinned by cost discipline and a favorable product mix. Revenue came in at $1.4143 billion, flat versus the prior year on a YoY basis but up 12.2% sequentially, reflecting seasonality and modest mix shifts. Gross profit rose to $436.5 million for a gross margin of 30.9%, up from the year-ago period, signaling some margin restoration as price realization and productivity efforts took hold. However, net income declined by 22.8% year over year to $43.6 million, with EPS of $1.14, as higher interest expense and a few non-operating items offset a portion of operating leverage.
From a cash flow perspective, currency of record remained tight: operating cash flow was negative by $30.9 million and free cash flow was negative by $39.4 million, driven primarily by working capital movements (notably a $119.8 million cash outflow from working capital). The balance sheet remains solid but leveraged: total assets $3.84 billion, total debt $1.66 billion with net debt around $1.62 billion, and a current ratio of roughly 2.1x suggesting adequate near-term liquidity. Net debt to adjusted EBITDA (annualized) sits in the mid-3x range, indicating modest deleveraging headroom but a need to monitor cash conversion as the year progresses.
Overall, GMS exhibits a cautious but constructive setup for 2026: the business benefits from a stable demand backdrop and improving gross margins, yet the near-term cash generation and leverage trajectory will be the principal performance drivers to watch as the company navigates a cyclical Industrials environment and continued profitability leverage at modest scale.
Revenue and profitability analysis (QQ1 2026 vs prior year and prior quarter):
- Revenue: $1.4143 billion. YoY change: +0.1%. QoQ change: +12.2%.
- Gross Profit: $436.525 million. Gross margin: 30.86% (grossProfitRatio: 0.3086). YoY gross profit increase: +5.04%. QoQ gross profit increase: +11.05%.
- Operating Income: $81.227 million. Operating margin: 5.74% (operatingIncomeRatio: 0.0574). YoY: -20.21%. QoQ: +1597.89% (notable sequential improvement as cost structure and revenue mix align).
- Net Income: $43.56 million. Net margin: 3.08%. YoY: -22.75%. QoQ: +303.47%.
- EPS: $1.14 (basic); $1.13 (diluted). YoY EPS: -19.72%. QoQ: +307.27%.
- EBITDA: $123.052 million; EBITDA margin 8.70% (EBITDARatio: 0.0870).
- Cash flow and liquidity: Net cash provided by operating activities: -$30.94 million. Free cash flow: -$39.39 million. Cash at end of period: $39.93 million. Working capital movement contributed -$119.75 million to operating cash flow (accounts receivable -$43.11 million, accounts payable -$35.32 million, other working capital -$44.41 million).
- Balance sheet highlights: Total assets $3.845 billion; total liabilities $2.393 billion; total stockholders’ equity $1.452 billion. Cash and cash equivalents: $39.93 million. Long-term debt: $1.559 billion; total debt: $1.656 billion. Current assets $1.540 billion vs current liabilities $0.729 billion; current ratio ~2.11x.
- Leverage and coverage: Net debt approximately $1.616 billion. Trailing twelve-month EBITDA (annualized from QQ1 2026 EBITDA of $123.052 million) ~ $492 million; Net debt/EBITDA ~ 3.3x, indicating a solid but leverage-sensitive balance sheet.
- Cost structure and efficiency: Cost of revenue $977.8 million; SG&A expenses $314.4 million; other expenses $40.9 million; depreciation & amortization $41.9 million. Interest expense $21.1 million; income before tax $61.1 million; tax expense $17.5 million.
Notes: All figures are in USD unless otherwise stated. YoY and QoQ deltas reflect reported comparables where available in the data provided.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.41B
0.09%
12.19%
Gross Profit
436.53M
5.04%
11.05%
Operating Income
81.23M
-20.21%
1 597.89%
Net Income
43.56M
-22.75%
303.47%
EPS
1.14
-19.72%
307.27%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Note: The dataset provided does not include the earnings call transcript text or management quotes. Consequently, transcript highlights and verbatim quotes could not be extracted from source materials within this input. For a complete transcript-based section, please provide the earnings call transcript or a linked source.
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Forward Guidance
No formal full-year guidance was included in the QQ1 2026 materials provided. Given the macro backdrop for construction materials and the company’s current margin trajectory, the following qualitative considerations can inform a forward view:
- Revenue trajectory: The sequential revenue uptick of ~12.2% in QQ1 2026 suggests a seasonally stronger quarter and potential stabilization in demand. If macroactivity remains steady and pricing/mix benefits persist, mid-single-digit revenue growth could be plausible through 2026, assuming no material construction slowdowns.
- Margin progression: Gross margin near 30.9% indicates a modest improvement vs prior periods, aided by favorable product mix and price realization. Targeting mid- to high-30% gross margins would require further price discipline and cost efficiency across SG&A and logistics.
- Cash conversion and leverage: Ongoing working capital cycles contributed to negative CFO. Improvement in working capital efficiency could convert to meaningful free cash flow if revenue growth broadens and supplier terms stabilize. Leverage remains a consideration with net debt to EBITDA around 3.3x; deleveraging would likely require sustained cash flow improvements or targeted acquisitions financed conservatively.
- Sensitivity factors: Construction demand, commodity price volatility (steel framing, gypsum products), interest rates, and competitive dynamics in large, dispersed distribution networks are key sensitivities. Monitoring order pipelines, price realization, and the pace of supply chain normalization will be critical to gauge forward liquidity and profitability.
Key factors investors should monitor: (1) progress on working capital optimization, (2) sustainability of gross-margin gains, (3) any inflection in capex or acquisition activity, and (4) changes in net debt levels relative to EBITDA as the year progresses.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
GMS Focus
30.86%
N/A
N/A
N/A
AWI
39.20%
25.70%
8.71%
22.13%
NX
23.10%
-1.74%
-1.53%
-16.58%
JELD
14.40%
-23.80%
-38.90%
-71.30%
JBI
38.90%
12.00%
2.05%
23.28%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
GMS Inc. presents a balanced investment thesis. TheQQ1 2026 results show revenue resilience and a modest gross-margin recovery, consistent with a company that is stabilizing its cost structure and leveraging its broad distribution network. However, the near-term cash flow challenge and a leverage profile around 3.3x suggests that investors should expect a gradual improvement in cash generation before material deleveraging occurs. The key to upside lies in productivity gains, better working capital management, and disciplined capital allocation, including selective acquisitions or strategic capex that meaningfully enhance throughput and margin leverage. If macro construction activity holds and the company progresses on price realization and SG&A efficiency, GMS could generate mid-single-digit revenue growth with improving margins, driving a more favorable cash flow trajectory over the next 12–24 months. Investors should monitor working capital dynamics, changes in debt levels, and any guidance updates from management in subsequent quarters.
Key Investment Factors
Growth Potential
Growth potential centers on expanding the distribution footprint, optimizing price realization, and capturing higher-margin, value-added product mix. Additional center openings and potential acquisitions in regional markets could bolster volumes and improve operating leverage.
Profitability Risk
Key risks include cyclicality of construction volumes, commodity price volatility, competitive intensity among national distributors, and a heavy debt load that constrains free cash flow generation and capital allocation flexibility.
Financial Position
Solid liquidity with current ratio ~2.1x, but elevated leverage (net debt to EBITDA ~3.3x). Cash flow remains near-term negative due to working capital needs; longer horizon potential for deleveraging exists with stronger cash conversion.
SWOT Analysis
Strengths
Extensive national distribution network with ~300 branches across 44 states and 6 Canadian provinces, supporting broad coverage and service levels.
Diverse product portfolio in walls, ceilings, steel framing, and related building materials, enabling cross-selling and inventory efficiency.
Scale advantages in procurement and logistics that support competitive pricing power and delivery capabilities.
Weaknesses
Moderate to high leverage and net debt position relative to EBITDA, which can constrain capital allocation flexibility.
Negative free cash flow in QQ1 2026 driven by working capital outflows, indicating near-term cash-generation challenges.
Lower relative margins versus some peers, suggesting room for improvement in operating leverage and cost controls.
Opportunities
Price realization and product-mix optimization to lift gross margins toward mid- to high-30s.
Expansion of distribution footprint or targeted acquisitions to improve market share and operating leverage.
Digitalization and supply-chain enhancements to improve working capital and on-time delivery, potentially reducing days sales outstanding and inventory turns.
Threats
Cyclical construction downturns reducing volumes and pricing power.