Why American Woodmark shares tumbled 11% on Tuesday

American Woodmark (AMWD -11.13%) shares sold off sharply Tuesday morning, down 11% by 12:30 a.m. ET after reporting a big earnings beat.

Before the company’s first-quarter fiscal 2025 report that it presented before the opening bell, analysts had expected the Virginia-based cabinetmaker to earn $2.40 per share on sales of $476.6 million. In contrast, American Woodmark reported earnings of $1.89 per share and sales of $459.1 million.

US Woodmark First Quarter Fiscal Earnings

Not all the news was bad. CEO Scott Culbreth blamed weak demand among homebuilders for the company’s 8% year-over-year sales decline, noting that sales to homebuilders actually rose in the quarter.

Fair enough, but the company’s 32% drop in revenue was four times the drop in sales. Why the big discrepancy?

Apparently, that was mainly due to an “unfavorable adjustment to our foreign currency hedging instruments” that cost the company $6.3 million — which doesn’t sound too bad.

More worryingly, the company’s free cash flow appears to be suffering even more than its earnings. Although the company has yet to file its full 10-Q, which will provide full data on its capital expenditures, its operating cash flow fell by more than half to just $40.8 million. This implies that when all the data is available, American Woodmark’s free cash flow may end up falling even more than net income.

Is American Woodmark stock being sold?

Trading at a price-to-earnings ratio of just 12.8 after its sale, American Woodmark looks pretty cheap — at least at first glance. However, when full free cash flow data becomes available, we estimate the company’s price-to-free cash flow ratio to be closer to 17.3.

It’s still not terribly big. But with management warning of a “recent slowdown in new single-family construction starts,” on top of weakness in renovations and revenues down by at least single-digit percentages this year, it’s probably best to be cautious about this stock.