GMS Inc reported a solid top-line quarter (Q2 fiscal 2025) with net sales of $1.471 billion, up 3.5% year over year, driven by acquisitions and volume growth in Ceilings, Steel Framing and Complementary Products. Organic sales declined 4.6% as hurricanes Helene and Milton disrupted activity in southern regions and high interest rates weighed on multifamily and commercial demand. Gross margin stood at 31.4%, a 90-basis-point year-over-year decline driven by Wallboard pricing dynamics, mix shift toward lower-margin single-family activity, and onetime operational effects; EBITDA/operating margins compressed versus the prior year as volume softness persisted in core end markets. Management remains focused on four strategic pillars, accelerated Complementary Products growth, ongoing cost-savings initiatives targeting $30 million annualized savings, and a disciplined M&A program that has added Kamco, Yvon and RS Elliott to expand Ceilings and Complementary Products capabilities. The company guided for 3Q fy2025 to deliver modest net sales growth (low single digits), a continued gross margin around 31.5%-31.7%, and Adjusted EBITDA of $113-$118 million (≈9% EBITDA margin). Robust free cash flow generation (FCF ≈60%-65% of Adjusted EBITDA for 2025) supports deleveraging and ongoing buybacks, while a strengthened balance sheet (net debt at ≈$1.70 billion; leverage ≈2.3x) funds acquisitions and shareholder returns. Near-term headwinds include event-driven disruptions (hurricanes) and a soft macro cycle in certain end-markets; long-term drivers remain favorable: housing undersupply, population growth, and infrastructure-related demand supporting Wallboard, Ceilings and Complementary Products.
Net income: $53.5 million; Net income margin: 3.64%; EPS: $1.37 (diluted $1.35)
Financial Highlights
Financial highlights (Q2 FY2025):
- Revenue: $1.471 billion, +3.5% YoY; Organic sales: -4.6% (hurricanes and demand softness)
- Gross profit: $461.1 million; Gross margin: 31.4% (−90 bps YoY; −60 bps due to Wallboard price dynamics and mix shift, −15 bps from onetime items)
- Operating income: $94.8 million; Operating margin: 6.45%
- EBITDA: $138.2 million; EBITDA margin: 9.34% (adjusted EBITDA: $152.2 million; Adjusted EBITDA margin: 10.34%)
- Net income: $53.5 million; Net income margin: 3.64%; EPS: $1.37 (diluted $1.35)
- Cash flow: Operating cash flow $115.6 million; Free cash flow $101.5 million (≈67% of Adjusted EBITDA)
- Balance sheet: Cash and equivalents $83.9 million; Revolving liquidity $458.6 million; Net debt $1.697 billion; Leverage 2.3x
- Capex: $14.1 million; Annualized capex guide: $45–$50 million for FY2025
- Share repurchases: 593k shares, $52.3 million at $88.19/sh; Board renewed authorization up to $250 million
- Full-year 2025 guidance: Free cash flow target 60–65% of Adjusted EBITDA
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.47B
3.51%
1.54%
Gross Profit
461.13M
0.54%
2.12%
Operating Income
94.82M
-24.02%
-3.61%
Net Income
53.54M
-33.87%
-6.48%
EPS
1.37
-31.50%
-5.52%
Key Financial Ratios
currentRatio
2.23
grossProfitMargin
31.4%
operatingProfitMargin
6.45%
netProfitMargin
3.64%
returnOnAssets
1.33%
returnOnEquity
3.64%
debtEquityRatio
1.21
operatingCashFlowPerShare
$2.95
freeCashFlowPerShare
$2.59
priceToBookRatio
2.39
priceEarningsRatio
16.42
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management themes from the QQ2 2025 earnings call:
- Strategy and growth pillars: John Turner highlighted progress against the four strategic pillars, with ongoing emphasis on growing or maintaining share across core product categories, and prioritizing Complementary Products (Tools & Fasteners, EIFS, stucco and insulation) which grew meaningfully on a quarterly basis.
- M&A and expansion: The company opened a new greenfield location and added RS Elliott in Florida, with Kamco acquisition contributing meaningfully to Ceilings and data-center related opportunities; Scott Deakin stressed the long-standing M&A discipline, noting over $1 billion invested since COVID across 16 acquisitions.
- Cost discipline and productivity: Management reiterated a target of approximately $30 million in annualized cost savings from simplification and efficiency programs, with roughly half realized in Q2 and the remainder expected in Q3.
- Market dynamics and margin drivers: Hurricanes impacted volumes and profitability; Wallboard price-cost dynamics remain a key driver of gross margin, with management noting ongoing price pass-through challenges in a highly competitive market. Data centers and healthcare/education projects provided pockets of strength for Ceilings, helping offset some weakness in traditional commercial activity.
- Outlook and demand signals: Management expects market choppiness to persist into calendar 2025, with potential upside from housing demand and infrastructure-related government programs; management sees single-family and data-center activity as key near-term catalysts, while multifamily remains more uncertain due to financing constraints and rate sensitivity. The team remains constructive on long-term housing fundamentals, demographics, and supply-demand imbalances driving medium-term recovery.
"I think we've gotten about as much as we can get, particularly in some of the residential markets."
— John Turner
"We're fighting every single day to get pricing. And we continue to get it, albeit trickling in versus pouring in."
— John Turner
Forward Guidance
Near-term outlook (Q3 FY2025):
- Net sales expected to be up low single digits versus the prior-year quarter, led by continued acquisitions and Ceilings strength; Organically, Wallboard volumes expected to be down mid- to high-single digits due to multifamily and commercial softness, with single-family relatively flat.
- Gross margin projected to be 31.5%–31.7%, modest sequential improvement from Q2 as price-cost dynamics stabilize and on-time pass-through actions continue.
- Adjusted EBITDA guidance: $113–$118 million, implying an EBITDA margin near 9% for the seasonally soft third quarter.
- Commentary on demand: Management identifies housing (single-family and multifamily) and infrastructure-driven projects as the principal drivers of demand, with potential lift from mortgage-rate relief and policy initiatives in the U.S. and Canada.
Assessment: The guidance incorporates expected headwinds from the current cycle while reflecting the offsetting impact of acquisitions and cost-savings. The path to higher profitability hinges on volume stabilization or growth, continued price pass-through in Wallboard, and meaningful leverage from Complementary Products and data-center related projects. The company’s robust FCF generation supports ongoing deleveraging and capital allocation flexibility (M&A, buybacks, debt repayment). Investors should monitor: (1) the pace of Wallboard price realization as market demand recovers, (2) effectiveness of cost-containment savings in sustaining margin at ~9% EBITDA, (3) cadence of acquisitions and integration progress, and (4) housing-market trajectory (mortgage rates, permits, and permit-driven housing starts).
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
GMS Focus
31.35%
6.45%
3.64%
16.42%
AWI
40.90%
19.00%
9.85%
18.52%
NX
20.80%
7.75%
2.72%
17.75%
JELD
19.30%
0.52%
-2.40%
-15.53%
JBI
40.10%
20.90%
4.96%
16.69%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Base-case view: GMS is navigating a cyclical construction environment with modest near-term volume headwinds but favorable long-run catalysts. The combination of acquisitions and Complementary Products growth, supported by a disciplined cost-savings program and a resilient cash-generating model, positions GMS to weather a choppy 2025–2026 backdrop. The company’s 3Q guidance implies a continuation of margin stability around 31.5%–31.7% and Adjusted EBITDA in the $113–$118 million range, suggesting that management expects the cost savings and pricing actions to offset volume declines gradually. If housing activity improves (driven by lower mortgage rates and supply-demand imbalances) and wallboard price-cost dynamics normalize, GMS could see a meaningful lift in organic volumes and margin upside. A bull case would hinge on a faster-than-expected recovery in single-family volumes and a rebound in multifamily/commercial activity, amplified by higher price realization and continued Accretive M&A integration. A bear case would imply persistent end-market softness, slower price realization, and potential disruption from weather or policy shifts.
Key catalysts to watch:
- Homebuilding/mortgage-rate trajectory and permit activity (impact on single-family and multifamily demand).
- Wallboard price realization in the face of demand variability; potential third price increases from manufacturers in H1 2025.
- Acquisitions execution and integration milestones in Kamco, RS Elliott, and Yvon; incremental scale in Complementary Products.
- Data-center and CHIPS/Infrastructure-related project momentum supporting Ceilings, Wallboard, and Steel Framing.
- Progress on cost-savings realization and potential further optimization of SG&A and operations.
- Steel pricing dynamics and tariff environment affecting Steel Framing and Tools & Fasteners.
Key Investment Factors
Growth Potential
Growth potential stemming from: (a) accelerated Complementary Products subcategories (Tools & Fasteners, EIFS, insulation) which have shown stronger growth momentum; (b) data-center and government-incentive project exposure (e.g., CHIPS/Infrastructure) that bolster Ceilings, Wallboard and Steel Framing demand; (c) expansionary M&A trajectory, with Kamco and RS Elliott integration enabling geographic and product-line scale; (d) continued geographic diversification with a Canada presence reinforcing the one-stop, broad-line model.
Profitability Risk
Primary downside risks include: (a) cyclicality and volatility in end-market demand (single-family, multifamily, commercial), (b) hurricane- and weather-related disruptions, (c) ongoing Wallboard price-cost pass-through challenges in a competitive market, (d) interest-rate sensitivity impacting housing starts and construction financing, (e) potential tariff/steel-market fluctuations and broader macro policy shifts, (f) execution risk from integrating multiple acquisitions and achieving targeted cost savings.
Financial Position
Balanced and resilient capital structure enabling strategic actions: (a) net debt at ~$1.70 billion and leverage of ~2.3x, (b) liquidity of $839k in cash and $458.6 million available on revolver, (c) strong FCF generation (free cash flow ~67% of Adjusted EBITDA in Q2) supports debt repayment, shareholder returns, and growth investments; (d) disciplined capital allocation including ongoing buybacks (Board renewed authorization up to $250 million) and a target of 60–65% of Adjusted EBITDA as free cash flow for FY2025.
SWOT Analysis
Strengths
Diversified product portfolio across Wallboard, Ceilings, Steel Framing, and Complementary Products, enabling flexible mix shifts.
Strong cash flow generation and deleveraging capacity (FCF 60–65% of Adj EBITDA guidance for FY2025).
Robust M&A capability with a track record of ~16 acquisitions since COVID, expanding core products and Complementary Products.
Resilient national footprint and scale facilitating service to large national builders and local contractors alike.
Cost-savings program targeting approximately $30 million annualized savings, with 50% realized in Q2 and the rest in Q3.
Weaknesses
Significant end-market cyclicality, with hurricanes and demand softness pressuring Wallboard volumes and overall margins.
Gross margin pressure from product mix shift toward lower-margin single-family activity and Wallboard price dynamics.
Near-term reliance on positive mortgage-rate trends and housing market recovery to drive volume growth.
Concentration in the U.S. and Canada; weather and policy changes in NAFTA regions could impact volumes.
Opportunities
Growth in data-center and government-incentive-driven projects benefiting Ceilings, Wallboard, and Steel Framing.
Expansion of high-growth Complementary Products categories (Tools & Fasteners, EIFS, stucco and insulation).
Continued M&A pipeline and integration opportunities to broaden product breadth and cross-market reach.
Rising construction activity from infrastructure and housing supply constraints in North America.
Threats
Macro headwinds from higher rates and mortgage volatility, delaying housing starts and commercial projects.
Price pass-through risk in a highly competitive Wallboard market; potential pricing power remains limited until demand improves.
Weather-related disruptions (hurricanes) continuing to affect volumes and costs in key regions.
Steel price volatility and tariff dynamics affecting Steel Framing profitability.