NCI Building Back to Profit - Analyst Blog

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Reversing the trend of reporting losses over the past few quarters, NCI Building Systems Inc. (NCS) registered adjusted profit of 5 cents in the third quarter of 2012, ending July 29, 2012. Results were a stark improvement from the Zacks Consensus Estimate of a loss of 5 cents as well as the year-ago quarter loss of 38 cents a share.

 

Including the effect of the convertible preferred stock's beneficial conversion feature and other one-time items, the company reported net loss per share of $2.74 in the reported quarter, deteriorating from a loss of 71 cents in the third quarter of fiscal 2011.

 

Operational Update

 

Sales increased 14% year over year to $298.5 million in the quarter, but failed to beat the Zacks Consensus Estimate of $308 million. The year-over-year growth was driven mainly by the Metal Components segment followed by the Engineered Building systems segment.  

 

Cost of sales during the quarter increased 13% to $233 million. Adjusted gross margin expanded 30 basis points to 22% in the quarter.

 

Engineering, selling, general and administrative expenses decreased 9% to $55.6 million. Adjusted operating income of $10.0 million in the reported quarter was the highest in the last 11 quarters and improved 69% from the year-ago quarter's operating income of $5.9 million.

 

Segment Performance

 

Revenue at Engineered Building Systems increased 5.9% year over year to $164.3 million in the quarter. Improvement stemmed from the increase in demand in industrial and retail sectors. The segment reported an operating income of $9.1 million in the quarter, up 24% from the year ago quarter. Operating income benefited from an improved mix of higher and lower complexity projects. 

 

Revenue from the Metal Coil Coating segment decreased 0.2% year over year to $54 million. Operating profit was $5.1 million in the quarter, down 2% from the prior-year quarter. The segment's performance was affected by a less favorable business mix and additional expenses associated with the new Middletown, Ohio coating plant.

 

The Metal Component segment generated revenues of $142 million, up 22.4% year over year. Operating profit for the segment improved 45% to $9.3 million in the quarter. The segment benefited from the contribution from the company's recent Metl-Span acquisition, increase for the group's core products, the effectiveness of new marketing programs designed to capture larger volume business and the low operating cost structure.

 

Financial Update

 

At the quarter end, NCI Building Systems had cash and cash equivalents of $32 million, down from $74 million at the end of the second quarter. Long-term debt increased to $234 million from $128.5 million at the end of the second quarter. Cash flow from operating activities for the first nine months of fiscal 2012 was $20.2 million compared with $5.4 million in the prior-year comparable period.

 

Outlook

 

Management did not provide any specific guidance for the fourth quarter of fiscal 2012 or fiscal 2012. However, fourth quarter results are expected to improve both sequentially and annually on the back of improved performances across the board. More specifically, in the Coatings segment, volumes and revenues are expected to pick up and should benefit from the startup of the Middletown, Ohio plant in December 2012, which will mark the company's entry into a new geographic market.

 

The Components segment's results will benefit from a full quarter's contribution from the Metl-Span acquisition beginning in the fourth quarter as well as a slight improvement in demand for its core products.

 

The Buildings segment will benefit from the highest backlog in 12 quarters, a good shipping schedule and a broad product line of price-competitive, engineered structures that meet the increasingly complex code and environmental requirements of customers across a broad range of industries.

 

 

Our Take

 

NCI Building Systems has acquired Metl-Span LLC for $145 million. Metl-Span is a leader in the advancement of insulated panel technology and serves the architectural, commercial, industrial and cold Storage industries (non-residential building products market) with energy efficient and cost effective insulated metal wall and roof panels. The acquisition will position NCI Building as a leader in the insulated metal panel business by diversifying and expanding its existing product range. In addition, NCI Building will also be benefited by a growing customer base as well as distribution network in North America. The company expects the acquisition to be accretive to its earnings in fiscal 2012. 

 

During the third quarter, bookings increased 7% in dollars and 15% in volume over third quarter 2011. Backlog reached the highest dollar value reported in last 12 quarters at $282 million, up 9% sequentially and 26% year over year. Both indicate toward a better performance in the fourth quarter.  

 

NCI Building Systems has expanded its product portfolio in the Coating segment to industries outside the non-residential construction market and has been providing competent services to a wider customer base. It has plans to increase toll and package sales of the coating segment. This initiative will reduce the dependence of the coating segment on the weaker construction market.

 

The slow recovery in non-residential construction market remains a concern for NCI Building Systems. According to the American Institute of Architects, the architecture billings index, a predictor of construction spending 9 to 12 months in the future, was 45.8 in May, followed by 45.9 in June and 48.7 in July. Any score above 50 indicates an increase in billings. After remaining at a level of over 50 for the five consecutive months till March, the index has slipped into negative territory. The more relevant commercial and industrial component of the Index was at 46.9 in July and 48.4 in July. This is also deterioration from 50.7 in May and 53.8 in April. 

 

For 2012, McGraw Hill predicts that non-residential construction activity will be flat, including commercial and industrial sector growth of 12% compared to 2011. McGraw-Hill estimated calendar year 2012 square footage at 690 million, compared to 691 million in 2011.

 

Currently, the share retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on NCI Building Systems.

 

Based in Texas, NCI Building Systems is one of the largest integrated manufacturers of metal products for the North American non-residential construction industry. It competes with privately held companies like American Buildings Company, Butler Manufacturing Company and Varco Pruden Buildings.

Reversing the trend of reporting losses over the past few quarters, NCI Building Systems Inc. ( NCS ) registered adjusted profit of 5 cents in the third quarter of 2012, ending July 29, 2012. Results were a stark improvement from the Zacks Consensus Estimate of a loss of 5 cents as well as the year-ago quarter loss of 38 cents a share.

 

Including the effect of the convertible preferred stock's beneficial conversion feature and other one-time items, the company reported net loss per share of $2.74 in the reported quarter, deteriorating from a loss of 71 cents in the third quarter of fiscal 2011.

 

Operational Update

 

Sales increased 14% year over year to $298.5 million in the quarter, but failed to beat the Zacks Consensus Estimate of $308 million. The year-over-year growth was driven mainly by the Metal Components segment followed by the Engineered Building systems segment.  

 

Cost of sales during the quarter increased 13% to $233 million. Adjusted gross margin expanded 30 basis points to 22% in the quarter.

 

Engineering, selling, general and administrative expenses decreased 9% to $55.6 million. Adjusted operating income of $10.0 million in the reported quarter was the highest in the last 11 quarters and improved 69% from the year-ago quarter's operating income of $5.9 million.

 

Segment Performance

 

Revenue at Engineered Building Systems increased 5.9% year over year to $164.3 million in the quarter. Improvement stemmed from the increase in demand in industrial and retail sectors. The segment reported an operating income of $9.1 million in the quarter, up 24% from the year ago quarter. Operating income benefited from an improved mix of higher and lower complexity projects. 

 

Revenue from the Metal Coil Coating segment decreased 0.2% year over year to $54 million. Operating profit was $5.1 million in the quarter, down 2% from the prior-year quarter. The segment's performance was affected by a less favorable business mix and additional expenses associated with the new Middletown, Ohio coating plant.

 

The Metal Component segment generated revenues of $142 million, up 22.4% year over year. Operating profit for the segment improved 45% to $9.3 million in the quarter. The segment benefited from the contribution from the company's recent Metl-Span acquisition, increase for the group's core products, the effectiveness of new marketing programs designed to capture larger volume business and the low operating cost structure.

 

Financial Update

 

At the quarter end, NCI Building Systems had cash and cash equivalents of $32 million, down from $74 million at the end of the second quarter. Long-term debt increased to $234 million from $128.5 million at the end of the second quarter. Cash flow from operating activities for the first nine months of fiscal 2012 was $20.2 million compared with $5.4 million in the prior-year comparable period.

 

Outlook

 

Management did not provide any specific guidance for the fourth quarter of fiscal 2012 or fiscal 2012. However, fourth quarter results are expected to improve both sequentially and annually on the back of improved performances across the board. More specifically, in the Coatings segment, volumes and revenues are expected to pick up and should benefit from the startup of the Middletown, Ohio plant in December 2012, which will mark the company's entry into a new geographic market.

 

The Components segment's results will benefit from a full quarter's contribution from the Metl-Span acquisition beginning in the fourth quarter as well as a slight improvement in demand for its core products.

 

The Buildings segment will benefit from the highest backlog in 12 quarters, a good shipping schedule and a broad product line of price-competitive, engineered structures that meet the increasingly complex code and environmental requirements of customers across a broad range of industries.

 

Our Take

 

NCI Building Systems has acquired Metl-Span LLC for $145 million. Metl-Span is a leader in the advancement of insulated panel technology and serves the architectural, commercial, industrial and cold Storage industries (non-residential building products market) with energy efficient and cost effective insulated metal wall and roof panels. The acquisition will position NCI Building as a leader in the insulated metal panel business by diversifying and expanding its existing product range. In addition, NCI Building will also be benefited by a growing customer base as well as distribution network in North America. The company expects the acquisition to be accretive to its earnings in fiscal 2012. 

 

During the third quarter, bookings increased 7% in dollars and 15% in volume over third quarter 2011. Backlog reached the highest dollar value reported in last 12 quarters at $282 million, up 9% sequentially and 26% year over year. Both indicate toward a better performance in the fourth quarter.  

 

NCI Building Systems has expanded its product portfolio in the Coating segment to industries outside the non-residential construction market and has been providing competent services to a wider customer base. It has plans to increase toll and package sales of the coating segment. This initiative will reduce the dependence of the coating segment on the weaker construction market.

 

The slow recovery in non-residential construction market remains a concern for NCI Building Systems. According to the American Institute of Architects, the architecture billings index, a predictor of construction spending 9 to 12 months in the future, was 45.8 in May, followed by 45.9 in June and 48.7 in July. Any score above 50 indicates an increase in billings. After remaining at a level of over 50 for the five consecutive months till March, the index has slipped into negative territory. The more relevant commercial and industrial component of the Index was at 46.9 in July and 48.4 in July. This is also deterioration from 50.7 in May and 53.8 in April. 

 

For 2012, McGraw Hill predicts that non-residential construction activity will be flat, including commercial and industrial sector growth of 12% compared to 2011. McGraw-Hill estimated calendar year 2012 square footage at 690 million, compared to 691 million in 2011.

 

Currently, the share retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on NCI Building Systems.

 

Based in Texas, NCI Building Systems is one of the largest integrated manufacturers of metal products for the North American non-residential construction industry. It competes with privately held companies like American Buildings Company, Butler Manufacturing Company and Varco Pruden Buildings.

 


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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