MasterBrand, Inc. (MBC) Earnings

Management highlights

**Merger Completion & Strategic Rationale** - Completed merger with American Woodmark on May 28, 2026, creating the most comprehensive portfolio of trusted cabinet brands in North America, with nearly all manufacturing operations based in the U.S. - The combination delivers complementary strengths, scale, and operational flexibility: it strengthens position in new construction and home center channels, adds geographic reach, and enables cross-selling opportunities in the fragmented dealer channel, with upside from cross-selling and white space opportunities not included in the original deal model. **Integration & Cost Synergy Updates** - Integration is off to a strong start: senior leadership structure is aligned, and the business is adopting best practices from both companies where processes overlap. - As of end of July 2026, ~$30 million in annualized cost synergies have been executed, with ~$15 million in net savings expected in H2 2026 (primarily from corporate overhead and procurement). - Updated total annual run-rate cost synergy target is now over $100 million by the end of year three post-close, exceeding the original target; this excludes $30 million in previously announced Legacy MasterBrand cost actions and completed cost savings from American Woodmark's closed Monterey, Mexico facility, which are incremental. **Profitability Growth Levers (Independent of Market Recovery)** 1. **Cost discipline**: Align the combined cost base to current scale, addressing excess costs from independent operation during the prolonged market downturn. 2. **Portfolio and supply chain optimization**: Rebalance the combined product portfolio to reflect current market conditions, and optimize sourcing and manufacturing configuration while maintaining full price-point coverage and service levels. 3. **Leverage combined portfolio for healthier mix**: Leverage expanded product/price-point breadth and deep builder relationships to improve profitability in the new construction segment. 4. **Invest for dealer channel share gains**: Invest in technology, quality, and service across the combined dealer network to drive share gains even in a flat market. **Capital Allocation Strategy** - Near-term priority is deleveraging the balance sheet, with a target net leverage ratio below 2.0x by the end of 2028. - Once the leverage target is met, the company plans to resume share repurchases and pursue opportunistic M&A. - H2 2026 capital expenditures are expected to be $71 million (3% of net sales), with $4 million in CapEx synergies already identified in H2 2026 from eliminating overlapping planned spending. **End Market Performance** - Broader single-family new construction softened further, declining mid to high single digits, pressured by high interest rates and persistent housing affordability challenges; Legacy MasterBrand outperformed the broader market with a low single-digit decline. - Repair and remodel demand remained soft, with consumers deferring large discretionary projects and shifting to lower price points and fewer features; Legacy MasterBrand's mid to high single-digit decline was in line with market expectations. - Management's view of a 2026 addressable market decline of mid-single digits remains unchanged, with broader market recovery expected to begin in 2027.

Guidance

This is the first guidance provided for the combined company after the merger close, with full-year 2026 guidance expected to resume in 2027. Key H2 2026 guidance points are: - Net sales: $2.05 billion to $2.11 billion, with American Woodmark expected to contribute ~$730 million (35% of the combined midpoint), reflecting a mid-single-digit year-over-year decline in the addressable market partially offset by full-period American Woodmark contribution and price/mix dynamics. - Adjusted EBITDA: $129 million to $149 million, with an adjusted EBITDA margin of 6.3% to 7.1%; the range includes ~$20 million contribution from American Woodmark, ~$15 million from captured integration synergies, and ~$11 million from expected IEPA tariff refunds. - Adjusted diluted earnings per share: negative 5 cents to positive 3 cents, with an expected 203.6 million diluted shares outstanding by year end and an effective tax rate of 12% to 15%. - Interest expense: ~$50 million for H2 2026. - Capital expenditures: $71 million, equal to ~3% of net sales, including integration-related capital spending. - Management expects adjusted EBITDA margin pressure to ease in H2 2026 compared to H1, as tariff mitigation, cost actions, and synergies continue to phase in, and 2026 full-year free cash flow is expected to exceed net income. - No change to the long-term expectation of market recovery starting in 2027, with the merger positioned to deliver upside once recovery begins. The company will announce long-term financial targets at its Investor Day in Q1 2027.

Segment performance

This quarter is the first reported period after MasterBrand completed its merger with American Woodmark on May 28, 2026, including 32 days of American Woodmark contribution. Combined net sales for the quarter totaled $815.2 million: Legacy MasterBrand contributed $689.7 million (84.6% of total combined net sales), and American Woodmark contributed $125.5 million (15.4% of total combined net sales). Combined adjusted EBITDA was $62.5 million, with Legacy MasterBrand contributing $58.2 million (93.1% of total adjusted EBITDA) and American Woodmark contributing $4.3 million (6.9% of total adjusted EBITDA). By end market, Legacy MasterBrand's new construction business declined low single digits year-over-year (outperforming the broader new construction market decline of mid to high single digits), while its repair and remodel business declined mid to high single digits year-over-year, in line with broader market expectations.

Risks & headwinds

- Persistently high interest rates and ongoing housing affordability challenges continue to pressure both new construction and repair & remodel demand, with consumers deferring large discretionary home projects. - Ongoing conflict in the Middle East has introduced additional consumer uncertainty and market volatility, and has driven rising fuel costs that create incremental margin pressure, with the full impact difficult to quantify at this stage. - Evolving trade policy and tariffs create ongoing uncertainty: the scheduled increase of Section 232 tariffs on wood products to 50% from the current 25% is set to take effect January 1, 2027, which would extend the company's deleveraging timeline if implemented. Newly announced Section 338 and Section 301 tariffs add additional exposure that requires mitigation work. - American Woodmark's performance since its last public reporting came in below pre-merger expectations, driven by excess fixed capacity and absorption pressure from lower volume, requiring accelerated footprint consolidation efforts. - Freight and fuel costs are a significant near-term headwind, driven by a shrinking driver pool, stricter federal regulations, and industry-wide operating cost inflation; offsetting pricing actions take time to fully flow through to results. - Achieving full synergy targets requires completing manufacturing footprint consolidations and organizational changes that will take multi-year execution, with one-time integration costs equal to the annual run-rate synergy target.

Analyst Q&A

• Q: Two months after the merger close, how has early integration progressed, and what gave management confidence to raise the cost synergy target above the original goal? /

  A: Integration teams from both companies have collaborated well, with substantial commonality in processes and a shared focus on adopting best practices from each firm. Pre-close synergy planning was updated after closing, when the integration team conducted a full review of combined operations. A weaker than expected market outlook left the combined business with more excess capacity than originally modeled, leading to identification of additional cost reduction opportunities to right-size the overall cost base, resulting in the higher synergy target.

• Q: What is the timeline for revenue synergies across channels, and which channel will see near-term opportunities first? /

  A: Early customer conversations have been positive, but revenue synergies will develop over different timelines across channels. The highest near-term opportunity is in new construction: the combined company will apply MasterBrand's successful flexible go-to-market model to gain back share American Woodmark lost in the channel. Home center opportunities will develop more slowly, as the business works to organize the combined portfolio to simplify consumer choices. Dealer channel cross-selling will take the longest, as it requires sales force training and portfolio rationalization in a highly fragmented market, developing over years rather than months.

• Q: Why has Legacy MasterBrand outperformed in the builder channel, and when will sales benefits of the merger materialize across channels? /

  A: Legacy MasterBrand's combined direct-to-builder and distribution model is preferred by builders, and the team has successfully adapted to recent consumer trade down to lower price point products. New construction offers earlier opportunities because it is a less fragmented market that is easier to target for share gains, while the larger but more fragmented dealer repair and remodel market will deliver opportunities over a longer timeframe. Full sizing of potential sales benefits will be discussed at the 2027 Q1 Investor Day.

• Q: Will the consumer trade down to lower price point cabinets continue in H2, and how should we think about overall price vs. cost dynamics amid new tariffs and higher energy prices? /

  A: Management expects the trade down trend to continue in the near term, and the combined enterprise is re-optimizing its product portfolio to better serve the permanent lower price point segment of the market. Additional inflation from higher fuel/energy prices (which impact freight, paint, and resin input costs) and new tariffs means there is still catch-up pricing to implement, and pricing actions take time to fully flow through and offset incremental cost pressure, so this pressure will be visible through the remainder of 2026.