GMS Inc

NYSE:GMS

Earnings Call Analysis

GMS's Resilient Q2 Amid Mixed Market Dynamics

GMS reported Q2 earnings with a revenue of $1.4 billion, a net income boost to $81 million, and improved cash flow, with free cash flow up 10% to $102 million. The company navigated challenges like a 30% steel price deflation resulting in $85 million reduced net sales and softer single-family demand contributing to an overall 5.7% decline in residential sales. However, multifamily sales grew 9.3% year-over-year, neutralizing single-family sales which decreased by 10.3%. Wallboard volumes remained flat with strong pricing, averaging $476 per thousand square feet. The outlook for multifamily and commercial sectors is optimistic with expected steady activity levels, while a positive turn in single-family demand is on the horizon.

Steel Framing Segment Faces Headwinds

For investors looking at the performance of Steel Framing, it's important to note that sales in this segment were down 17.4%, with a significant 30.5% decline in price and mix, partially offset by a 13.1% increase in volume. The raw material costs for cold-rolled and galvanized steel have surged nearly 50% per ton since the low point in the fall, causing uncertainties and leading to regional availability issues and price increase notifications from manufacturing partners. Recovery is expected, but not until the latter half of the next fiscal year, indicating a medium-term pressure on this segment.

Muted Gross Profit and Net Income

The company's gross profit edged down by 1.3% to $458.6 million, with a minor reduction in gross margin from 32.5% to 32.3%. These were slightly better than anticipated, primarily impacted by deflation in steel prices. General expenses rose, mainly due to acquisitions, leading to a jump in selling, general, and administrative expenses to $300.9 million. Rigorous cost control mitigated these increases, but net income took a hit, falling 21.5% to $81 million, equivalent to $1.97 per diluted share, down from $103.2 million or $2.41 per diluted share in the previous year.

Balance Sheet and Capital Allocation

On the financial health front, the company exhibited a robust balance sheet with $76.5 million in cash and $823.7 million available in credit facilities. With no pressing debt maturities and a net leverage ratio improving to 1.5x from 1.6x, the company is in a comfortable fiscal position. Cash flow has also been a strength, with free cash flow up 19% year-to-date and expected to be 50% to 60% of adjusted EBITDA for the full year. Investors would also be interested to know that the company has authorized a new $250 million share repurchase program, signaling confidence in the stock's value.

Outlook for Coming Quarters

Looking ahead, the company is cautiously optimistic. U.S. multifamily segment permits and starts have seen a decrease, yet a significant backlog is anticipated to bring growth at least through the end of this fiscal year. The single-family market is looking up, buoyed by lower mortgage rates and a housing supply shortage. Notably, the Canadian market presents more promising prospects due to improving starts levels and governmental support. For the third quarter, growth in Wallboard volumes, Ceilings, and Complementary Products is expected, leading to an overall low single-digit increase in net sales compared to last year.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings. Welcome to GMS Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a note, this call is being recorded. At this time, I'll turn the conference over to Carey Phelp, Vice President of Investor Relations. Carey, you may begin.

[Carey Phelp, executive]

Thank you, Rob. Good morning, and thank you for joining us for the GMS earnings conference call for the second quarter of fiscal 2024. I'm joined today by John Turner, President and Chief Executive Officer; and Scott Deakin, Senior Vice President and Chief Financial Officer.

In addition to the press release issued this morning, we have posted PowerPoint slides to accompany this call in the Investors section of our website at www.gms.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties, many of which are beyond our control and may cause actual results to differ from those discussed today.

As a reminder, forward-looking statements represent management's current estimates and expectations. The company assumes no obligation to update any forward-looking statement in the future. Listeners are encouraged to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC, including the Risk Factors section in the company's 10-K and other periodic reports.

Today's presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides. Please note that references on this call to the second quarter of fiscal 2024 relate to the quarter ended October 31, 2023. [Operator Instructions]

With that, I'll turn the call over to John Turner, whose discussion will be starting on Slide 3. J.T.?

[John Turner, executive]

Thank you, Carey, and thank you all for joining us today. We are pleased to report another solid quarter, which exceeded our stated expectations for net sales, net income, and adjusted EBITDA. Continued demand in commercial and multifamily construction drove volume increases in ceilings, steel framing, and complementary products, all of which helped to offset a more challenging steel pricing environment and relative softness in single-family residential demand. Despite the single-family market, Wallboard experienced only a slight overall volume decline, which was offset by continued resilient pricing.

For the quarter, net sales were $1.4 billion, net income was $81 million, and adjusted EBITDA totaled $168 million. Cash flow improved again this quarter, as we recorded cash from operations of $118 million and free cash flow of $102 million, up 10% and 6%, respectively, from the prior quarter.

Net debt leverage improved to 1.5x from 1.6x a year ago. Our well-balanced portfolio of products and end markets, combined with our team's expertise and the company's scale, continues to provide us with the ability to flex our operations as dynamics in our end markets change.

In the near term, multifamily activity is expected to continue at or near current levels as backlog is worked through over the next few quarters. Commercial is also expected to continue at its current pace into the spring. And we are optimistic about the sequentially improved levels of activity we've seen in single-family demand.

As the recent easing of mortgage rates, limited supply of existing homes for sale and favorable demographics seemed to be setting up promising conditions for this end market, particularly as we look out into fiscal 2025. Our teams have done a remarkable job so far this fiscal year under challenging circumstances to continue to focus on our strategic pillars, which are highlighted on Slide 4.

First, we have continued to grow in our core products with higher Wallboard sales as a percentage of Gypsum-associated shipments versus the prior year, reflecting at least in part, our strength in serving the nation's largest homebuilders, as they too gain share and as they report a more positive outlook. We've also increased share in Steel Framing according to the Steel Framing Industry Association data, and we've continued to gain share in Ceilings as evidenced by manufacturing partner disclosures and channel checks.

Second, our team continues to put great focus on growing our complementary products category, which made up 30% of our sales for the quarter and delivered its 14th consecutive quarter of year-over-year growth. We are placing particular emphasis on Tools & Fasteners, EIFS and Stucco, and Insulation, which collectively continued to grow faster than the overall category during the quarter.

Third, expansion through M&A and greenfield openings continues to be one of our key levers of growth. During the quarter, we acquired AMW Construction Supply, a highly respected distributor of tools and fasteners and other complementary products in the Phoenix, Arizona market. And we also opened 2 new greenfield locations.

Post-COVID, we have acquired 14 companies, representing a total of 30 distribution centers and 91 AMES stores with estimated annual revenues at the time of deal closings of nearly $600 million, and we've also opened 26 greenfield locations. We continue to have a promising pipeline of opportunities and an appetite to expand our footprint in key markets where we are under-penetrated, while we also broaden our service territories and product offerings in existing markets.

Finally, we are successfully driving improved productivity and profitability throughout the business, reducing complexity costs and becoming more efficient and effective operators with enhanced tools and data to facilitate better decision-making and offerings that provide an overall enhanced customer experience. The benefits of these efforts are evident in the levels of SG&A we recorded this quarter, which Scott will detail during his remarks.

Before turning the call over, I want to thank our team for maintaining our high level of performance and commitment to delivering outstanding customer service during the quarter. We have demonstrated our flexibility and expertise in supporting all of our end markets and believe that we are well-positioned as demand dynamics progress in the coming quarters.

With that, I will turn the call over to Scott.

[Scott Deakin, executive]

Thanks, J.T. Good morning, everyone. Starting with Slide 5, I'll now provide some further perspective on our second quarter results. Net sales for the quarter decreased just slightly year-over-year to $1.4 billion as steel price and mix deflation of more than 30% drove an $85 million reduction in net sales.

Single-family demand softness was also a headwind while robust activity levels in both our commercial and multifamily end markets with volume increases in Steel Framing, Ceilings, and complementary products were a favorable offset. Our recent acquisitions, including EMJ, Tanner, Blair, Home Lumber, and AMW also contributed positively to our quarter's results. Organically, sales were down 3.1%.

From a U.S. end market perspective, multifamily sales dollars grew 9.3% year-over-year while single-family sales dollars declined 10.3%, resulting in a total residential sales dollar decline of 5.7%. Commercial sales dollars in the U.S., on the other hand, were roughly flat as increased sales volumes were offset by the noted steel price deflation.

As we highlighted last quarter, many of our regional markets are continuing to experience favorable commercial demand with active projects underway or scheduled to start in the coming quarters across nearly all sectors. For example, we expect to participate in the Tampa Airport expansion, multiple new hospitals and other medical facilities, student housing and other higher education facilities, a new casino, several manufacturing facilities, a number of mixed-use residential projects and even some tenant build-out projects in the office space.

While financing is tight and could become a headwind for the commercial end market, we are capitalizing on the attractive level of demand that we've been seeing currently. Now, looking at our second quarter results for each of our product segments. Wallboard sales dollars of $585.2 million were roughly flat with a year ago, while multifamily and commercial wallboard volumes were up 17% and 6.5%, respectively.

Single-family wallboard volumes declined 11.4%. Overall, wallboard volumes were approximately flat with resilient prices that remained steady with a year ago, again reflecting the realities facing wallboard manufacturers, which are high input and production costs, a lack of excess capacity, and increasingly pressured access to synthetic gypsum.

Organically, second quarter wallboard sales were also roughly flat with the prior year period, comprised of a 1% decline in volume and a 0.7% increase in price and mix. For the second quarter, the average realized wallboard price was $476 per thousand square feet, up slightly from both a year ago and sequentially from our fiscal first quarter.

Given this continued resilience in pricing, we now expect roughly flat sequential wallboard price and mix through the end of our fiscal year. Second quarter Ceiling sales of $175.3 million, increased 9.9% year-over-year, comprised of an 8.5% increase in volumes and a 1.4% benefit from price and mix. Organic sales in Ceilings grew 7.2% with a 5.8% increase in volumes and a 1.4% benefit from price and mix.

Second quarter Steel Framing sales of $232.1 million were down 16.6% versus the prior year quarter. This deflationary pricing drove a 30.7% decline in price and mix while volumes increased 14.1%. Organically, Steel Framing sales were down 17.4% and with a 30.5% decline in price and mix, partially offset by a 13.1% increase in volume.

While Steel Framing has been a headwind over the last year, raw material pricing has increased with the underlying commodity indices for cold rolled and galvanized up nearly 50% per ton since the low point this fall. Additionally, lead times continue to extend with inconsistent availability regionally. Accordingly, we have received multiple notices of upcoming price increases from our manufacturing partners.

Given what is traditionally a 4- to 6-month lag post-commodity index change, we currently expect steel prices to continue to be pressured in the third quarter before flattening out sequentially in the fourth quarter and then turning positive on a sequential basis during fiscal 2025.

Complementary product sales of $428.3 million for the quarter grew 4.8% year-over-year as we benefited from positive contributions from acquisitions. Organically, sales of complementary products declined 1.4%, reflecting pricing pressures in lumber and volume declines in our Canadian roofing and lumber product lines given the currently soft residential demand.

As we've discussed in previous quarters, we are especially focused on our Tools & Fasteners, EIFS and Stucco and Insulation product lines, where we are leveraging significant opportunities to share best practices across our operations and drive growth in these areas. For our fiscal second quarter, these lines grew 10.6% in the aggregate.

Now, turning to Slide 6, which highlights our profitability for the quarter. Gross profit of $458.6 million decreased 1.3% compared to the prior year quarter. This decline was nearly entirely driven by market deflation and steel pricing. Gross margin of 32.3% compared to 32.5% a year ago, just slightly ahead of our expectations for the quarter.

Volatility in steel pricing and realization of purchasing incentive tiers were the principal factors in both comparisons. Selling, general, and administrative expenses increased $21.9 million during the quarter to $300.9 million, including an increase of $12.6 million related to recent acquisitions in our newly opened greenfield locations.

Excluding these expansions, we were very pleased that the remaining increase in SG&A expenses lagged our consolidated increase in sales volumes even as our high cost to serve end markets led the way in our volume growth for the quarter.

I would like to thank our teams for their discipline in controlling costs and driving inefficiencies out of the business. Our rightsizing of the business last winter, coupled with efficiencies gained from ongoing productivity initiatives, enabled us to achieve these favorable SG&A results.

SG&A as a percentage of net sales was 21.2% for the quarter, an increase of 170 basis points from 19.5% a year ago, with a 120 basis points of a difference due to steel price deflation, 30 basis points due primarily to increased labor costs, mostly associated with the higher level of commercial and multifamily activity levels we experienced during the quarter, and the remaining 20 basis points due to recent acquisitions and greenfields.

Adjusted SG&A expense as a percentage of net sales of 20.6% was also up 170 basis points from the prior year quarter. All in, and with 16.7% higher interest expense, net income decreased 21.5% to $81 million for the quarter or $1.97 per diluted share compared to net income of $103.2 million or $2.41 per diluted share a year ago.

Adjusted EBITDA of $167.6 million decreased $28 million as compared with a year ago. On single-family demand pressure, steel framing price declines, and the activity-based operating cost increases in the quarter, adjusted EBITDA margin decreased to 11.8% compared to last year's second quarter level of 13.7%.

Now, shifting to our balance sheet, which is highlighted on Slide 7. At quarter end, we had cash on hand of $76.5 million and 823.7 million of available liquidity under our revolving credit facility. We have no near-term debt maturities, and our net adjusted EBITDA debt leverage at the end of the quarter was 1.5x compared to 1.6x a year ago.

Cash generation improved again this quarter. Cash provided by operating activities was $118.1 million compared to $107.3 million in the prior year period, while free cash flow for the quarter was $102.1 million, improved from $96.5 million a year ago. Year-to-date, we've generated 19% more free cash flow than a year ago.

And with relative strength of cash flows in the second half, for the full year, we expect free cash flow generation to be between 50% to 60% of adjusted EBITDA. Capital expenditures of $16 million for the quarter compared to $10.7 million a year ago. We now expect that for the full year fiscal 2024, capital expenditures will be approximately $55 million.

In October, our Board of Directors approved an expanded share repurchase program, under which the company is authorized to repurchase up to $250 million of its outstanding common stock. This expanded program replaces our previous repurchase authorization. During the quarter, we repurchased approximately 689,000 shares, leaving $241.3 million of authorization remaining as of the end of the quarter.

We are well-positioned with a solid balance sheet with no near-term maturities on our capital structure. We expect to continue to balance investing in our strategic initiatives, including additional M&A opportunities. We're paying down debt and opportunistically leveraging favorable market conditions for share repurchases.

I'll close my remarks today with thanks to our team for, again, successfully delivering solid results amidst ever-changing market conditions.

I'll now turn the call over to J.T. for a review of our outlook starting on Slide 8.

[John Turner, executive]

Thank you, Scott. Our end markets remain dynamic. Permits and starts on U.S. multifamily structures have declined, but a solid backlog remains and is expected to deliver year-over-year growth albeit at declining rates through at least the end of this fiscal year. Commercial, while solid with improved volumes over a year ago, has still not yet returned to full pre-COVID levels. And the most recent put in place figures support a continuation of the activity levels we've been experiencing, at least in the near term.

Meanwhile, the single-family market in the U.S. appears poised for a rebound in the coming quarters with recently declining mortgage rates and the fundamental demand for new housing given the supply shortage of existing homes for sale.

And for our Canadian business, the news is even more encouraging as we've seen improving starts levels and government-backed programs to promote immigration and population growth that are providing a stimulus to housing, setting up nicely the prospect of several years of residential growth.

With that as our backdrop, let me move to the expectations for our third quarter. First, looking at Wallboard, as I said at the start of the call, the backlog in multifamily is still expected to be relatively strong for the quarter and should continue to provide positive year-over-year growth. We expect multifamily Wallboard volumes to be up mid-teens as compared with a year ago. Commercial too should do well with Wallboard volumes in that end market expected to be up mid-single digits.

Single-family Wallboard volume is expected to be down low single digits, a marked improvement in year-over-year comparisons. In total, we expect Wallboard volume to be up mid-single digits with price mix flat to down just slightly from a year ago as single-family residential reverts to a more normal component of our mix.

As we reported, pricing for Wallboard has remained steady in a relatively balanced capacity environment. Additionally, continued investment is required by our manufacturing partners to adjust to the declining availability of synthetic gypsum. As such, we expect continued relative stability in Wallboard pricing for the remainder of our fiscal year, with the potential for increases as the single-family market recovers.

In Ceilings, for our fiscal third quarter, given our expectation of continued solid demand in our commercial end market, including encouraging prospects for increases in remodel projects as indicated by our backlog and channel checks, we expect a mid- to high-single-digit increase year-over-year in Ceiling volumes, with price and mix up low single digits.

For Steel Framing, demand should remain solid, with volumes expected to be up low double digits as compared with a year ago. Pricing will continue to be challenging for our fiscal third quarter, with expectations of sequential improvement as we move into the year-end. As compared with the third quarter of fiscal 2023, price and mix for Steel Framing is expected to be down nearly 25%, which will again impact our net sales, SG&A leverage, and other financial metrics for the quarter.

We expect to see solid growth in our Complementary Products, as we continue to focus on expanding our sales with these offerings. For our fiscal third quarter, our Complementary Products year-over-year sales growth should be up high single digits to low double digits for the quarter.

Given all these expectations, we anticipate total net sales for our fiscal third quarter to be up low single digits as compared with a year ago. Gross margin will likely be consistent with last quarter. And adjusted EBITDA is expected to be in the range of $123 million to $127 million for the quarter.

Overall, we expect another solid level of performance for the third quarter. And as we approach the end of calendar 2023 and look ahead, we have reasons to be optimistic. First, although multifamily in the U.S. will slow down once the backlog is worked through, given the fundamentals underlying and supporting housing demand, coupled with an improving interest rate outlook, we expect improving sequential trends in single family through the balance of our fiscal year and likely beyond.

Commercial too is expected to continue to do well for the time being. While tighter lending standards may cause an air pocket in demand at some point next calendar year, activity levels are solid for now, and we believe easing within the credit markets will drive expansionary improvements.

All in all, we believe that we are well positioned with flexibility built into our operations to pivot our efforts as demand levels change in our end markets, which we are confident will help us to continue to drive growth and profitability as we deliver long-term value for all of our stakeholders.

I'd like to close out our call today by thanking our customers, our suppliers, teammates, and shareholders for your continued support. And I'd like to wish you all a joyous holiday season.

Operator, please open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Trey Grooms with Stephens.

[Noah Merkousko, analyst]

This is Noah Merkousko on for Trey. Congrats on the strong results.

[John Turner, executive]

Thank you. Good morning.

[Noah Merkousko, analyst]

So starting off here first, thank you for all the detailed commentary on your demand outlook. But if we maybe dig a little bit deeper here on the single-family side, still expecting some volume pressure as we look at the third quarter, but it sounded pretty constructive in terms of the potential for sequential improvement from there. So I guess is it reasonable to expect maybe some growth as we look at the 4Q or just given where Wallboard is typically installed in the building process, is that potentially later more of a fiscal '25 event?

[John Turner, executive]

We'll probably lap the lowest points over the course of fourth quarter, first quarter, and second quarter of next year. So we should be getting some sequential growth based on what we expect to see from continuing starts. What we have seen from starts already should indicate some growth as early as our fourth quarter, yes. Very slight, but yes.

[Noah Merkousko, analyst]

Got it. That makes sense. And then, as we think, again, maybe longer term into fiscal '25, potentially seeing growth on the single-family side, it sounds like commercial is holding in for now. But in a scenario where you've got those 2 end markets diverging, can you just remind us of the mix impact as it relates to price? I know it has different impacts on the gross margin and SG&A. But when you get down to EBITDA, is there really much of a difference there?

[John Turner, executive]

No. There's not. You summarized it perfectly, a little bit of gross margin difference, a little bit of SG&A difference on the commercial and multi-family, so a little bit better margins -- gross margins, little bit higher costs. But at the end of the day, they both end up, both -- the new single-family ends up being very similar in profitability to commercial and multi-family.

[Operator]

Our next question is from the line of David Manthey with Baird.

[David Manthey, analyst]

Really encouraging results here and good outlook. So first off, with the steel and the visibility you have into pricing there, along with your balance sheet strength, can you typically raise prices slightly faster than the pace of that higher cost inventory working through your balance sheet and into your P&L that there might be a slight margin opportunity, especially given the visibility you have on that now?

[John Turner, executive]

Dave, what I would say is there's 2 dynamics there. You've got the quoted piece, which is kind of a locked-in piece, which is a large percentage of it, which is your quoted commercial work, and then there's your stocks deal work. In your stocks deal work, I would expect if the availability is to tighten up as we think, then, yes, there is the opportunity to be a little bit in front of the pricing that we're receiving.

On the other hand, the negotiation around the quoted piece is one that we probably could see a little bit of in the near term when prices go up, a little bit of squeezing. So I would just say, all in all, through this increased cycle, if we're going to get into a new increased cycle, and it certainly appears like we're going to, at least in the near term, we'll probably be able to keep margins flat during that period. I don't think we'll be able to increase them significantly, but because of those 2 offsets.

[Scott Deakin, executive]

I'd just reiterate too. From past discussions, we turned steel inventory pretty fast, too, about 9x. So there typically isn't much inventory impact as we work through those pricing changes.

[David Manthey, analyst]

Yes. Okay. And then there's clearly a lot of folks there at GMS that have lived through more than 1 cycle. And I'm just wondering if we can tap your brain, I assume you tap theirs just in terms of any wisdom that they've shared relative to the current interest rate situation and sort of how things might play out, things that we may not have thought of at this point, it would be helpful?

[John Turner, executive]

Speaking primarily about a commercial cycle because I think we're in the bottom of the residential, right? The new residential seems to have bottomed. And most likely, if we come off of this interest rate environment, there shouldn't be much of a lag, and there isn't apparently, according to the most of the homebuilders' reports. There isn't much of a lag in activity from interest rates coming down to building of homes.

The commercial one, on the other hand, it's a longer period of time. So we're still experiencing the strength of projects that, of course, broke ground a year ago and remodel projects that were basically financed when things were a little bit easier out there. I do think we'll see an air pocket in commercial, but we have a real strong remodel component, and remodel historically has been less volatile than new in commercial. And so I think that will help us.

And also, we were back looking again, Dave, at the volumes. We're still not back. Our industry -- ourselves and our industry, I would guarantee that, are still not back to pre-COVID levels in volumes in Wallboard and Steel in the neighborhood of 10%. So whatever happens in commercial going forward, I just don't see it being a draconian event. I don't see it being off 20%, like we saw single-family just hit the brakes so hard a year ago.

And now, we're down in there over the course of the last couple of quarters having significant double-digit declines in volume. I just don't see commercial doing that. Will it soften? Certainly will. I think you can't -- with the ABI and the financing being as tight as it has been, I think it will soften into 2025, the back half of our fiscal 2025.

I also think it's going to be fully offset by single-family activity because I don't think it's going to be a real dramatic change. And post that period, I also think that there's a lot of pent-up demand out there. You're reading about it every day, whether it's the conversion of office space to single or to multi-family or just in general, our channel checks are indicating increased remodel activity in office, some of that being driven purely because it hasn't been done in a long time. So I do feel like we'll see some slowdown in commercial, but we're not expecting it to be off 15% or something like that.

[David Manthey, analyst]

Yes. Commercial is about 2/3 remodel, correct?

[John Turner, executive]

Yes. Historically, that's right. It's a little less than that right now because of the softness in office, so it's closer into that 50-50 range. But in a historical market, our remodel would be 2/3. That's right.

[Operator]

Our next question is coming from the line of Matthew Bouley with Barclays.

[Anika Dholakia, analyst]

This is Anika Dholakia on for Matt. So first off, just curious if you could give us a little more detail on the strength in multi-family that you guys are seeing this quarter? And moving forward, I know you guys noted that backlog should carry you through fiscal year and further growth into 2024. So I guess given just starts are so much weaker, when do you see this pressure coming? Is it more of a fiscal '25 story? Or could it potentially be earlier?

[John Turner, executive]

We think it's fiscal '25. I mean, we just did the math on starts and completions, I think it's the same math that you guys have done and everybody does. And we just experienced, of course, the single-family backlog environment and worked ourselves through that. And so between that experience and the math, I think it's fiscal '25 before we start to see a significant slowdown.

[Anika Dholakia, analyst]

Understood. And then for my second question, I know steel deflation was a large headwind this quarter, and you guys are seeing further pressure into the third quarter. Do you have a sense of maybe the magnitude of pressure that you see in 3Q ahead of it flattening in 4Q?

[Scott Deakin, executive]

We talked about sort of the $85 million impact in the third quarter. I'd say based on our projections for Q3, it's probably still meaningful, but less than that, probably in the ballpark of about $50 million. And then you can flow that down through the P&L in a similar fashion to what we saw in Q2. Still impactful, but less than we saw in Q2.

[Operator]

Our next questions are from the line of Mike Dahl with RBC Capital Markets.

[Michael Dahl, analyst]

I want to stick with multi-family. I mean, I think it's helpful the way you articulated the balance between single-family and commercial, and that by the time commercial seasons decline single-family could make up for it. It does seem like multi-family declines could be more meaningful in those cycles, can potentially last a little longer given it is credit and cap rate induced.

So how are you -- I guess if single-family offsets commercial, how are you thinking about the impact from multi-family in '25 and beyond? And just remind us at this point what percentage of your business is multi-family.

[John Turner, executive]

Well, we use Wallboard as a proxy, right? In our Wallboard volume, it's about 17%. It's less than that as a total revenue component, probably down in that 12% to 15% range is multi-family. And so I almost throw multi-family and commercial together. And so you got to put those 2 markets together, and single-family is 50% plus of the overall Wallboard business, and probably, when we get into a more normalized market, 50% plus of our overall revenue.

So if we see single-family come back meaningfully, it's, in my mind, a full offset to whatever we would see in multi-family and commercial. Again, my expectation of commercial is not to be off in the teens, probably I would imagine single digits to -- maybe at the bottom, low double at the best.

And then multi-family can be off, it's 15% or 20%, and you'd still get a full offset of single family. I'm hoping it's not that bad on the multi-family and the commercial side. It just doesn't feel like whatever this next year is coming into that we're going to have that deep of a correction from a commercial perspective. We certainly will bounce, and it would be very volatile in multi-family.

The other offset to multi-family down the road, of course, is you are hearing more and more every day about the conversion from office to multi-family. So that's going to happen. And that's more of a remodel activity. And again, we're very strong in that area. So I would expect that to be a degree of an offset as we get there.

And then, I mean, the reality is further down the road, every day, you can't pick up the paper and not read about -- I'm aging myself there when I pick up the paper by the way. I don't actually do that. I use my phone. But when we read everything from the journal, it really doesn't matter what you read, you see government stimulus is engaged today across all of North America in driving multi-family construction for the long haul because it's the only way to provide affordable housing.

And I feel like we're going to get through whatever this air pocket is going to be in '24 or fiscal '25, and you're really going to have a pretty strong fundamental position for housing, all housing going out into the end of the decade.

[Scott Deakin, executive]

And that last point is particularly notable in Canada, where the relative mix of multi-family is higher versus single-family in that market.

[Michael Dahl, analyst]

Got it. Yes. That's all very helpful. Certainly, the last point, I fully agree with in terms of the importance longer term of multi-family and serving affordability. With these puts and takes, so shifting to the pricing dynamic, if you play that out, you talked about potential for price increases in Wallboard as single-family strengthen, and so you'd have potentially the half-hinge market weakening and then single-family strengthening.

How does that typically play out in terms of then what happens with pricing? Would you still expect broad increases across Wallboard products? Or would it be a little bit more targeted in terms of maybe not seeing increases on half-hinge, but seeing increases on your single-family business? How are we typically seeing that play out?

[John Turner, executive]

When single-family is strong, it's the capacity situation. It eats up a lot more capacity. It's a much bigger part of the overall market historically. So it's across the board, it's across the board. I mean, really, if you look at the commercial products, they actually run slower. And so generally speaking, if you're capacity-constrained because you're running off a single-family product, there's no reason to consider five-eighths -- a decline in price in five-eighths.

[Operator]

Our next question is from the line of Kurt Yinger with D.A. Davidson.

[Kurt Yinger, analyst]

On the Ceiling side, the last couple of quarters, you've talked about kind of the greenfields and some expanded vendor relationships. Can you maybe talk about how those factors played into the strength you saw this past quarter? And maybe also touch on just competitive dynamics and how you're thinking about any additional kind of share opportunities within that market?

[John Turner, executive]

Sure. I mean our organic efforts are absolutely paying dividends, no question about that. I would probably though point out more to the strength in the remodel sector and our channel checks telling us that the increase in office remodel and tenant improvement work, smaller work, medium-sized work, suburban work, all those things seem to be strengthening a little bit right now. And so that would really be the bigger driver and probably why we're expecting, again, a pretty strong quarter going forward.

[Kurt Yinger, analyst]

Got it. Okay. That makes sense. And then just second, within Complementary Products. Can you talk about any internal initiatives you have to maybe expand the strength in those categories across more of the footprint? And what you're prioritizing to grow the business organically at this stage?

[John Turner, executive]

Yes. It's both product -- it's both vendor relationships in our tools -- in fact, of course, our M&A and Tools & Fasteners, right? We bought Tanner. We've just bought AMW out there in Phoenix. And so we'll continue down that path from an M&A perspective as well. But we -- those acquisitions also provide expertise for us to help grow organically. And we've been growing our sales teams in this area and our leadership teams in this area across all of our divisions and both in Tools & Fasteners, EIFS and Stucco, primarily a Southern United States effort, and then Insulation. So we've been growing.

As we get bigger, we were able to specialize our sales force, and that's fairly meaningful when you're able to do that. When you can take these types of products and not have to have a generalist out there selling them with the key volumes still for most of our generalists obviously, are our core products. So when you get big enough and have scale and you can afford to have the sales forces out there dedicated and expertise dedicated to this Complementary Product mix, we're seeing huge success with that.

[Operator]

Our last question is from the line of Steven Ramsey with Thompson Research Group.

[Brian Biros, analyst]

This is actually Brian Biros on for Steven. First, I guess, it sounds like you're not really seeing any meaningful pauses or cancellations in non-res activity yet, but obviously expecting an air pocket eventually. I guess, outside of office, which sounds like it's actually not doing so bad right now, are there any verticals or geographies that look like they would be the next to see kind of this downward pressure based on what you're seeing today?

[John Turner, executive]

The West Coast has been the softest throughout the entire period. And -- so it's still soft, right, with -- multi-family has been fine out there. But it's been soft across the board. When you ask about a geography, that's really the softest geography, is the West for us. But none of the verticals themselves are indicating any more softness than each other. I mean if you look at the put in place numbers too, it's fairly reflective of that, right, the key construction-related categories are all kind of in that high single to low double-digit range as far as activity goes.

[Brian Biros, analyst]

Okay. And then I guess last follow-up would be just provide more color on the, I guess, kind of just the overall platform expansion strategy here at the end of the year, I guess, more -- kind of more specifically the AMES stores and the acquired tools distributor, you guys mentioned. I think you mentioned earlier some of those acquisitions added some expertise. I guess it would just be interesting to hear how you guys think you can capitalize on that and kind of roll that expertise type stuff out across the platform.

[John Turner, executive]

Yes. It relates back to the -- so organically, it just relates back to the answer to the previous question, and that is primarily using resources that really know and understand that business and understand the supply of those products better and helping our purchasing teams do a better job of nationalizing our approach to the buying of a lot of those products.

I'll give you an example. Our fasteners business was up pretty dramatically in the quarter, as a percentage it's still a small part of the overall business. But a lot of that is just us being smarter and better about how we buy those products, providing a competitive price for all of our teams. So we're doing a lot on the back side, I would say, on purchasing and also some logistics support with our internal company that we call TSW, which is an internal distribution arm, primarily for complementary products.

But then also the focus on sales teams that I just answered, the more and more that we can generate enough volume to afford to have specialization, the better we do. And that's continued to roll out across the business. And then our M&A, we'll continue to do M&A in that channel.

[Operator]

That concludes our question-and-answer session, and this will also conclude our call for today. Thank you for joining us. You may disconnect your lines at this time, and thank you for your participation.