- The Washington Times - Monday, July 5, 2004

American Woodmark Corp.’s plan to build a new manufacturing plant has boosted analysts’ confidence after the company posted lower profit margins last month.

The Winchester, Va., bathroom and kitchen cabinet manufacturer announced last week it will spend $12 million to build a 250,000-square-foot facility in Allegany County, Md.

The plant, which will create about 500 jobs in the area, is expected to be operational by January.

“I think it reflects that the company is growing and expanding its capacity,” said David Campbell, retail analyst for Davenport & Co. LLC, a Richmond brokerage firm that has no business with American Woodmark.

About one-third of American Woodmark’s sales come from new-home construction, while the rest are from home-renovation projects. The company’s cabinets are sold in home-improvement chains Home Depot and Lowe’s.

Mr. Campbell, who does not own any American Woodmark stock, advised investors to buy while the price was relatively low.

Shares of American Woodmark closed Friday on Nasdaq Stock Market at $58.77, up $1.78 from a week earlier at $56.99. The stock markets were closed yesterday for the Fourth of July holiday.

The stock reached a 52-week high of $69.19 in April before falling to the high-$50 range. Analysts expect shares to hit $73 to $85 in the next 12 months.

But analyst Sam Darkatsh said he was concerned about the company’s lower-than-expected profit margin.

In its fiscal fourth quarter ended April 30, American Woodmark’s profits jumped 11 percent to $8.37 million ($1 per diluted share) from $7.55 million (91 cents) a year earlier. Diluted earnings include the value of convertible warrants and stock options.

However, the gross margin in that quarter fell 2 percent from last year. American Woodmark blamed increased plywood prices and benefit expenses for the slip.

For the fiscal year, profits fell 3 percent to $31.7 million ($3.80) from $32.7 million ($3.89) in fiscal 2003.

“We do not believe the investor is adequately protected despite the currently heady growth rates,” said Mr. Darkatsh of Raymond James & Associates Inc., a St. Petersburg, Fla., investment firm.

Sales for the quarter surged 24 percent to $180 million from $144 million last year. Annual revenue rose 18 percent to $667 million from $563 million in fiscal 2003.

Mr. Darkatsh, who rated the company as in line with the stock market, said a slowdown in the home-construction market also could hurt sales.

Mr. Darkatsh does not own any company stock, but Raymond James is seeking a banking relationship with American Woodmark.

Equity analyst Daniel Romanoff shrugged off the concerns, saying the robust business in the home-building markets will sustain American Woodmark’s expected 14 to 20 percent annual growth.

“Everyone says that the housing market is risky, but they have been saying that for two years and it still hasn’t collapsed,” said Mr. Romanoff with New York investment bank Credit Suisse First Boston.

Mr. Romanoff, who rated the company as outperforming the market, does not own any American Woodmark shares. Credit Suisse has no banking relationship with the company.

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